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Blue Shark Guide: Consumption is not as good as everyone thinks
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Dictation | Feng Li, founding partner of Fengrui Capital
Organize | and Jing Fei
On October 17, 2021, the 2021 New Consumer Brand Unicorn Summit, hosted by Blue Shark Consumption, a leading consumer new media in China, and co-organized by Sina Finance, New Wave Media, Pencil Road and Qichacha, was successfully held.
A strong lineup of guests, the content of dry goods, the conference site attracted a total of more than 1,000 people from large consumer industry practitioners, consumer brand empowerment service providers, new consumer brand investment institutions, investors, new consumer brand unicorns/future unicorn founders, and middle executives. In addition, Blue Shark Consumption also cooperated with Sina Finance to broadcast the whole conference live, attracting a total of 670,000 views throughout the day.
Consumption is one of the hottest entrepreneurship and investment tracks in recent years, and star consumer brands such as Santo and a Half, Yuanqi Forest, and Xicha have emerged. At the 2021 New Consumer Brand Unicorn Summit, Li Feng, founding partner of Fengrui Capital, made a dry goods sharing with the theme of "Changes in Consumption and the Meaning of the Second Round". He believes that the consumer industry looks lively in the short term but the overall situation may not be as good as imagined, but it will be beautiful in the long run. In the next 10 years, Chinese per capita disposable income will double, and the new income (most) will not be placed on buying and renting, which means that there will be far more new industry additions than imagined, which will allow different categories and brands to usher in more than expected growth.
The following is the full text of the speech: Congratulations to Blue Shark Consumer for successfully holding the (New Consumer Brand) Unicorn Summit. My (sharing) theme is "Changes in Consumption and the Meaning of the Second Round."
Consumption upgrading starts with buying a house
This chart (above) has been used many times to talk about the common law of change in the consumption upgrading of all countries in the world. Developed countries have gone through this stage. Where did the consumption upgrade in all countries of the world begin? Increase in the rate of home ownership. In the United States, the earliest (home ownership rate) reached more than 40% in the 1940s before World War II. In the past few decades, developed countries around the world have experienced three typical stages of consumer goods development: the premise of consumption upgrading is to buy a house, which is the first stage; after having a house (home), it is followed by cars, televisions and consumer goods needed by the family, (consumption) gradually realize the transformation from home to family, which is the second stage; after becoming a family, the elderly and children in the family need a more comfortable living environment (consumption), which is the third stage. From the recent hustle and bustle of real estate news, we can see the direction of real estate (market changes). China has passed the first stage. So, is there enough housing in China? Chinese average residential 30 square meters. How did this data come from? China has a population of 1.4 billion and has nearly 30 billion square meters of commercial housing for sale or accumulation. If the population of 1.4 billion people does not decrease, and the urbanization rate reaches 65% (63.89% in 2020), there will be 910 million urban people. At the current growth rate of the real estate industry, the per capita area will reach 30 square meters. With so many houses, China has passed the first stage, and the first, second, and third-tier cities may have reached the third stage.
Why is consumer investment hot in 2020?
Why is consumer investment hot in 2020? The exemplary effect of wealth. Investors have found that when investing in consumer goods in the first half of 2020, some consumer brands have risen from $100 million (valuation) to $10 billion in three or four years (Perfect Diary, Yueke, etc.). Fengrui invested in a large number of consumer brands, most of which are the first in their respective industries. Last year we invested less in consumer goods, in part because of the high valuation. Too many entrepreneurial and angel projects, after coming up, are financing at valuations that far exceed the previous round. Last year we only cast a good brocade made of luxury bags. It sells for 65% of LV and is the only Chinese brand in the world to be opened on the ground floor of Plaza 66 (Shanghai). The reason behind the consumer investment boom is first related to video. During the pandemic in March 2020, when we studied traffic, we found that in the fourth quarter of 2019, the total time spent by Chinese video users (in use) exceeded that of instant messaging for the first time. To put it simply, love (Qiyi) You (cool) Teng (news) long video plus short video, users watch for the first time every day longer than the use of DingTalk and WeChat time. According to the report released by the 8th China Online Audiovisual Conference in October 2020, as of June 2020, short videos have surpassed instant messaging with an average of 110 minutes per day, which means that the use of Douyin and Kuaishou has exceeded the time spent using WeChat and DingTalk. This also indicates that selling things on the Internet has entered the third wave. When the first wave of the Internet sold things, the transaction was led to the offline. At that time, the Internet was mainly text, and there were very few pictures, so it was called the text Internet. What is described in words? Computer. Because the computer is the same, it is all the chassis plus a screen, so everyone explains the performance, configuration, and graphics card clearly, and leads to the line to deal. At that time, websites like Zhongguancun Online mainly sold computers and 3C. In 2003, Taobao was launched, and from 2008 to 2009, e-commerce began to grow rapidly and came to the era of graphics. Taobao's first category (clothing) mainly relies on pictures. It can be understood from the change of media form that the first five years of selling computers, the next seven or eight years of clothing growth is very fast. Because photos are obviously suitable for selling clothes, text is suitable for selling computers. Since the previous year (2019), the media form of the Internet has changed from being mainly pictures to being mainly videos. When the media form is transformed, what categories and products are more suitable? Just like 20 years ago, when the Internet first became popular, it only relied on words to sell computers; 12 years ago, with the help of the Picture Internet, clothing became the largest category of e-commerce. The second has to do with traffic. In 2019, Taobao ushered in a major revision, and the traffic platform and trading platform became a big data recommendation. Tmall and Taobao's main traffic distribution changed from more than 50% of searches to 70% of the traffic distribution in "guess what users like" and recommendations. Douyin Kuaishou is also a big data recommendation, the result of joint recommendation between the front desk and the background, which has become "the more subdivided the product, the easier it is to buy traffic". When it was not recommended before, the more subdivided the product, the more difficult it was to buy traffic. Because after buying traffic, the efficiency is too low, buy 100 traffic, there may be only 1 person to buy the product. Now, there is no need to buy 100 traffic, you can buy labels in front of and behind the background, the positioning is more and more accurate, and one person in 3 people may buy it. And the more specific and numerous the labels, the lower the cost. This has led to the rise of a lot of subdivisions in 2019-2020, which we will call brand for the time being. Of course, there are also some troubles, the more accurate the traffic, the better to buy. When you become a brand, you need more and more users to know you, and when you want to expand the circle, you will find that it is very expensive to buy pan-users, and it is almost (all) loss-making. As a result, search traffic has limited monetization rates because users know what they're looking for. The biggest benefit of referral traffic is that the monetization ratio is significantly increased, which is very good for the platform. The downside to brands, in turn, is that most of the traffic needs to be purchased. Previously, by (advertising) users were reminded that user searches could be purchased. In the past month, things have changed again, whether it is the mobile phone or the Internet side, because of the adjustment of IOS rules, the adjustment of Facebook, and the redefinition of the recommendation engine by domestic platforms, so you can't buy so much user accurate information for delivery or lock users. Maybe this path will be different next year. The third is the lack of new products in offline retail. Affected by the epidemic, 2020 is the year when all retail (consumer) companies launch the fewest offline new products. Because when consumer goods innovate offline, they need to have a preparation period of one to one and a half years, prepare the supply chain one year in advance, and prepare advertising two quarters in advance. Before the Spring Festival in 2020, the epidemic situation occurred, because of the control of the epidemic, everyone stayed at home, which caught large companies off guard and affected the plan to allocate new resources to promote new products. Therefore, last year, offline consumer goods, whether it is shelves, beverage shelves, freezers, lack of new product innovation from big names. As a result, whoever goes offline gets the benefit, because no one grabs the shelves, grabs the drink racks, grabs the freezer. 2021 is the fiercest shelf competition. Last year's beverage shelves, taking our downstairs 7-11 as an example, 2, 3, 4 rows have a row and a half of Yuanqi Forest. On April 26 this year, I went to take another photo, 2, 3, 4 a whole row is Coke, 2 rows of two SKUs are Pepsi, the remaining 2 and 3 rows are zero sugar sparkling water: Coca-Cola has two SKUs, Pepsi has a SKU, a SKU in the Arctic Ocean, and two brands that I don't know, Yuanqi Forest is placed on the far left of the fifth row. This shows how brutal the competition on the shelves has been this year. Why cruelty? Because large companies (2020) are dragged down and affected by the epidemic, innovation has done less. This year, it was done as if it were two years, and it also learned some new tricks. It can be accurately guessed that throughout 2022, the competition for offline shelves, beverage racks and freezers of goods is as fierce and cruel as in 2021. Because it takes a year or two for everyone to survive the fittest. [So] this year and next year, offline will be very fierce.
What do you look for in the future of consumer investment?
What do you look at in the future of (consumption) investment? Long-term and short-term. Over the past two years, we've seen a boom in (consumer) investment, the rise of new brands, a lot of innovation in subdivided categories and products, and it looks like offline retail has the potential to be refurbished and disrupted. These are mostly short-term phenomena. The reason is simple, China's 2020 (social) consumption (goods) retail (total) data is lower than in 2019, of course, it can be said that it has been affected by the epidemic. China's total retail sales of consumer goods in the first nine months of 2021 increased by 8% compared with the first nine months of 2019, which looks exciting, but this is two years.
On an annualized basis, it equates to an average annual increase of 3.9% in 2020 to 2019 and 2021 to 2020. What is the level of 3.9% annual growth in the broad market? Sorry, there hasn't been such a low amount of data in the past 20 years. Over the past 10 years, the year with the lowest market growth was 2019 vs. 2018, an increase of 8.1%. Therefore, China's consumption has not fully recovered. Although There are so many innovations in China, consumption is not as good as everyone thinks. Can China recover? Can be recovered. Because there's a magic data. In the first quarter of 2021, China's resident deposits exceeded 100 trillion yuan for the first time, unprecedented in history. When these two sentences are combined, everyone will understand. Is the concept of residents' deposits (multi)that the common people have money? Maybe (yes) because I don't buy a house and have money. Residents' deposits hit a new high and they did not spend them, which is a short-term phenomenon. What to look at in the long run? There is a basis for Chinese investment or entrepreneurship, looking at the macro. China's most certain long-term macro is the following: First, some institutions predict that China's urban per capita disposable income will double by 2030. China's current per capita disposable income, the average urban and rural areas will be 30,000 yuan; if only urban and rural, less than 40,000 yuan. Doubling 1 is 60,000 yuan. What is the level of 60,000 yuan? Today, the per capita disposable income of first-tier cities in Beijing, Shanghai, Guangzhou, and Shenzhen is about 40,000 to 50,000 yuan. Assuming an urbanization rate of more than 70% in 2030, it means that 1 billion people consume the same way as the north, Shanghai, Guangzhou, and Shenzhen, which is what China will look like nine years later. How big is this number? China's (total retail sales of consumer goods) is 40 trillion yuan, temporarily ranking second in the world. Doubling the per capita disposable income is 60,000 yuan, and the large market of more than 40 trillion yuan does not know what it will grow into within nine years, which is the second macro. Third, the (new total retail sales of consumer goods) does not include data related to renting and buying a house. In the past three years of real estate (industry), called housing not speculation. I believe that for the excellent entrepreneurs here, almost everyone does not think that buying a house is a good means of investment. If the proportion of disposable income occupied by everyone buying and renting a house no longer rises significantly, the per capita disposable income will double, and the whole Chinese will be consumed like today's north, Shanghai, Guangzhou, and Shenzhen (residents), even exceeding today's level of north, Shanghai, Guangzhou, and Shenzhen (residents' consumption). Based on these three things, what will the (Chinese) consumer market look like in nine years or nine years from now? This is also the basis for our investment (consumption) and everyone's (consumption) entrepreneurship. Of course, the differences between the various categories in it will be very large. In 9 years, the market, I guess, can rise by 60%, that is, from 40 trillion yuan to 70 trillion yuan. Although this sounds bizarre. Of course, you can also think that we can't achieve it, which is a pessimistic view. Optimistically, an average annual increase of 5% (for nine consecutive years) can reach a level of 1-folding. The conclusion is that 2019, 2020, 2021 (the consumer sector) looks very prosperous, entrepreneurship and investment are very enthusiastic, and sales (of consumer goods) are not as good as you think. Looking at last year and this year, looking at the next 9 years, the growth of the industry scale brought about by the growth of China's disposable income is far more than we imagine today, and far exceeds the total amount of our expectations for various categories and needs today. If you believe that the macro goals [of Chinese consumption] can be achieved, it is unimaginably beautiful.