In 2020, China's consumer market is very hot, many sub-categories are growing rapidly, and a lot of money is pouring into this field. Leaving aside the special window period brought about by the epidemic in 2020, including the obvious trend of consumption differentiation, as well as new products on the large-scale offline and online, and so on. So, in the medium to long term, will China's consumer industry be good?
In China, new consumption and new retail are only concepts in recent years, while in the global world, consumption changes are social phenomena that have existed for 50 years. At present, China is experiencing consumption stratification and consumption upgrading, which has already happened in the United States, Japan and other countries.
The United States and Japan are both populous and manufacturing powers, and then become consumers. From a microscopic point of view, there is room for comparison in the economic development, industrial structure and consumption cycle of the United States, Japan and China, which is also the significance of our study of the consumption upgrading process in other countries in this course.
In this course, Li Feng, founding partner of Fengrui Capital, will use a systematic framework to review the changes in the consumer goods industry in Japan and the United States, leading us to re-examine the current Chinese consumer market from a longer perspective and a higher pattern, hoping to enlighten everyone to recognize the current trend of consumption upgrading.
The instructor | Li Feng, founding partner of Fengrui Capital
Edit | Chaos University Business Research Team
support for | Chaos University Frontier Course
This article is the original article of the Business Research Team of Chaos University
Is today's China the best era of consumer entrepreneurship? It's not easy to answer this huge question, and there are many different perspectives in every industry and every field. Next, I will break down this problem into three small questions to discuss with you.
1. What does the change in consumption in Japan and the United States inspire us?
2. What are the particularities of the development of China's consumer goods industry?
3. Why do we think China's consumer goods industry can be expected in the future?
Benchmarking the changes in consumption in the United States and Japan:
Every iteration of consumption upgrades,
This has been accompanied by a large number of local consumer brands
Why benchmark Japan in the first place?
First of all, as an East Asian country, it has a lot in common with our consumption culture and consumption habits.
Second, after Japan's population exceeded 100 million in 1967, it stabilized between 100 million and 120 million for a long time, which meets our definition of a populous country (with a population of more than 100 million) and applies to our examination of the consumption stage experienced by a populous country.
If we divide Japan's consumption changes from the post-war period to the present into three stages, we can get the following chart.
After World War II, Japan entered its first stage of consumption, which we call a period of great development of durable goods and compulsory consumer goods.
In the context of post-war reconstruction and peaceful development, Young Japanese people began to buy their own real estate, and the first to prosper at this stage was the categories closely related to real estate consumption, such as televisions, washing machines, refrigerators and cars. Some of the world's most familiar Japanese home appliance brands, such as Toshiba, Panasonic, etc., entered the earliest fast lane. On the channel side, a variety of department stores and supermarkets have been born in Japan, such as Ito-Yokado, the parent company of 711. On the traffic side, the media traffic at this time is still concentrated on television and print media.
From the 1980s to the early 1990s, When Japanese consumption transitioned from a mandatory consumer to an optional consumer goods, a variety of convenient small goods full of design began to be sought after. At the same time, consumers with certain consumption experience have begun to pay more attention to cost performance, such as The Japanese 100-yuan store Daisuke, as well as the 711, which takes into account multiple categories and convenience at the same time, and UNIQLO, which has both design quality and price advantages, has won the favor of a large number of consumers, and the brand has become the main driving force for consumption upgrading at this stage. On the traffic side, the second and first stages have not changed, or TV and print media.
The third phase, from 2000 to the present. In 2000, Japan's per capita GDP still surpassed that of the United States, but it was also from this year that Japan began to enter the "lost 20 years" - from 2001 to 2019, Japan's per capita GDP increased by only about 5% compared with 2000. In the face of economic downturn, Japan's consumption has also entered an era of low desire.
At this stage, people's consumer demand pays more attention to spiritual experience on the basis of optional consumer goods, such as the use of more environmentally friendly raw materials, a healthier lifestyle, a more unique self-expression, etc., representative brands such as "MUJI". On the channel side, we have seen the boom of drugstores. In Japan, the drugstore is an upgrade of the chain retail format, if we carefully analyze the categories of drugstores - functional foods, cosmetics, skin care products, basically in line with the above "become beautiful, better, healthier" of the underlying logic.
On the traffic side, although the Internet has appeared in Japan at this time, for many reasons, the Japanese Internet has not become the best boost for retail. Therefore, at this time, the main media in the field of japanese consumption was still traditional television, plus a small part of the Internet. On the brand side, in addition to the MUJI products we are familiar with, we also see some "more beautiful and more personalized" brands, such as Some years of designer brands such as Yohji Yamamoto and Rei Kawakubo, which were popular in Japan in the 1990s, but only became popular around the world after 2000.
Looking at Japan alone, the conclusion may not be so clear, in order to help us better grasp the upgrading trend of consumer goods, here we also introduce another superpower - the United States, compared with it.
We also divide the consumption stage in the United States into three stages.
The first stage of consumption in the United States, which began after World War II and lasted until the 60s and 70s in the United States, was also the stage of durable + compulsory consumer goods, and home appliances and automobiles achieved great prosperity during this period. On the channel side, like Japan, there are also a variety of department stores and hypermarkets in the United States at this stage. The traffic side is also dominated by TELEVISION.
Next, the development of consumer goods in the United States entered a very special stage. Although the U.S. economy did not grow rapidly from the 1970s to the 1990s, it concentrated on the birth of a number of world-class consumer brands.
Coca-Cola, Starbucks, McDonald's, Donaz Donuts, Walmart, GAP, Target and a number of well-known consumer goods brands representing the American lifestyle were born at this stage.
During this period, American consumer goods showed the same characteristics as Japan's "popularization of optional consumer goods and the branding of a large number of consumer goods", but unlike Japan, it was also the second stage, and Japanese consumer goods brands were not able to go global like these Brands in the United States.
Looking deeply into the reasons behind this, we believe there are two main ones.
1. Differences in population volume. At this time, the population of the United States had reached more than 200 million, about twice that of Japan at the same time.
2. The impact of the economic cycle. Although the United States did not usher in great economic development at this time, Japan has gradually entered the early stage of the bursting of the bubble economy in the second half of this stage.
In 1990, the United States entered the third stage of consumption. After 1990, benefiting from the vigorous development of American technology giants such as Google, Microsoft, Amazon, and Apple, the US economy ushered in another high growth. The development of the Internet and computers has not only consolidated the economic position of the United States from the economic situation, but also profoundly affected the consumption patterns and methods of the United States.
From the perspective of consumer trends, U.S. consumption also shows a trend of further pursuing "better, healthier, and stronger spiritual experience" on the basis of optional consumption, and the resulting new generation of consumer goods brands, such as designer brand Supreme, eyewear brand Warby Parker and environmental protection sneaker brand Allbirds.
Take the design fashion brand supreme, for example, whose brand originated from a design brand posted on Instagram by a skateboard shop owner. Supreme's fire, in addition to its inextricable relationship with the cool, free young sport of skateboarding, is another reason why it has been heavily blessed by special traffic on the Internet (here Instagram, in addition to social apps like Facebook, video sites like Youtube). On the channel side, the same is true, the e-commerce Amazon, which was born in the 90s, has now become the world's top three giant companies by market capitalization by perfectly integrating technology and retail.
When we compare the changes in consumer goods in Japan and the United States over the past fifty years, we will find that the internal logic of consumption upgrading has become very clear.
For an economy, the start of the consumption cycle begins with buying a house. Why is it so important to buy a house? Because only after buying a house, people will begin to think about how to reverse their lives, first of all, to arrange furniture and buy travel tools. With these, we will think about how to make life more convenient and comfortable on the basis of meeting the needs of daily life, and here we enter the stage of optional consumer goods. When everything is added, we begin to pursue our inner prosperity, focus on society and family, and think about how to make society better, and then transition to the third stage of consumption.
Specific to the different national conditions, Japan and the United States have shown different characteristics. For example, the United States has benefited from the advantages of a huge population and developed technology, and its consumer brands have been pushed to the world at a faster pace, transforming into a group of American consumer brand giants with global influence.
(Please click on the mini program to perform deep learning)
The Complexity of China's Consumer Society:
In urban differentiation and e-commerce penetration
Seek the best balance
Back to China. Although we see that the general direction of China's consumption upgrading is basically the same as that of Japan and the United States, the consumption upgrading of Chinese society shows a stronger complexity.
First, China's real estate cycle started relatively late, and it was also pulled by policy regulation for a long time, so it led to our non-uniformity in the consumption stage.
Unlike the post-war recovery rhythm of Japan and the United States, China's real estate cycle did not begin until the mid-to-late 1990s, which is mainly related to our country's commercial housing policy.
In the process of promoting real estate policies, the real estate cycle of China's first- and second-tier cities and third- and fourth-tier cities has also diverged significantly. The consumption cycle differentiation caused by the real estate cycle differentiation has made China's consumption stratification relatively obvious.
For example, in 2006-08, when the first- and second-tier cities began to transition to the second consumption stage, the third- and fourth-tier cities had just entered the first consumption stage. In 2015-17, when the third and fourth-tier cities began to transition to the second stage, the fifth- and sixth-tier cities began to enter the first stage.
Today, the cities with the most openings of Xicha are still concentrated in first-tier and new first-tier cities, while the most valued consumption channels in third- and fourth-tier cities are still large stores such as RT-Mart. This is probably the "China phenomenon" that we see most different from Japan and the United States.
Such complexity and layering are also the first problems that we entrepreneurs think about when starting a consumer goods business.
Is it necessary to make a breakthrough in the first- and second-tier markets for consumer goods entrepreneurship? If you look at the total number of consumers, there are about 100 million consumers in first-tier cities, and 200 million consumers in second- and third-tier cities. In addition to the 300 million, there are also a large number of consumers in the fourth and fifth-tier cities, just from the stage of mandatory consumer goods, past to optional consumer goods. In other words, in today's Chinese market, there are still a large number of consumers whose just needs are far from being satisfied.
Second, in the second phase, China entered the e-commerce (and currently has the highest penetration rate in the world) model. E-commerce not only provides the opportunity to reach the majority of consumers, but also significantly improves the understanding of consumers and enhances the data capability of product iteration.
Compared with Japan and the United States, the United States is in the third stage, especially in recent years, only began to use the Internet to influence consumption, Japan is lagging behind in this process. China's e-commerce, on the other hand, has greatly penetrated into the retail channel since the second stage, and has rapidly grown into the world's largest Internet consumer economy.
In addition to improving the shopping experience of consumers, the most important thing about e-commerce is that e-commerce is a data-based sales channel.
What do consumers want to buy? What kind of consumers like? How often and how consumers with different attributes buy goods, in the past offline channels, these data that took a lot of effort to collect, almost naturally exist in e-commerce channels.
It is precisely because of such a huge efficiency difference that we can witness a company like Xiaomi grow into a consumer goods giant in a very short period of time, including a company like Three Squirrels, which has become a company of tens of billions in five or six years.
Chinese base is so huge, and the penetration and penetration rate of e-commerce in China's consumer market is so high, therefore, for Chinese entrepreneurs, no matter what kind of population you are targeting, you can be known by the most target customers in the shortest time through the precise positioning of e-commerce data, and on this basis, you can better iterate products according to user preferences.
Third, the most important difference between China and Japan and the United States is that we not only have access to the largest markets, demands, and populations, but also leave us with the largest and most comprehensive supply chain in the world to date.
The scale of production and consumption of consumer goods in China is much larger than that in Japan and the United States at the same stage.
Let's start with the demand side. From the perspective of population, when the United States entered the third stage, the population was more than 200 million. When Japan entered the third stage, its population was 120 million. When China entered the second and third stages, its population was 1.4 billion.
From the perspective of the total amount of social zero (excluding real estate), the total amount of social zero in the United States in 1990 was 1.8 trillion US dollars, and there was no corresponding data in Japan in 2000. The scope of this private consumption, which includes both the retail component and the consumer service part such as tourism and catering, is $2.6 trillion. If we assume that half of it is retail and half of it is services, then the total amount of social zero is about $1.3 trillion. In 2019, the total amount of China's society zero is 5.9 trillion US dollars.
If we single out zero data from the 2019 Sino-US news agency, the results may be more convincing. In 2019, the total amount of China's social zero was about 41.1 trillion yuan, and the United States was 43 trillion yuan, and the difference in the middle was about 1.8 trillion yuan (270 billion US dollars), which was 4%.
What is the concept of 4%? In 2019, China's total social zero growth rate was the slowest in the past 30 years, about 8%, how much is the United States? 3.6% (*In 2020, China's total retail sales of consumer goods 391981 billion yuan, down 3.9% from the previous year, and other economies, including the United States, will be affected by the epidemic. Also in 2020, the renminbi appreciated. ）
That is to say, assuming that there are no special factors in the next few years, China will undoubtedly surpass the United States to become the world's first. And because our compound annual growth rate is much higher than that of the United States, the final result is most likely that once we surpass the United States, we may become the world's largest consumer market for a long time to come.
Look at the supply side. In the United States in 1990, the value added of industry and manufacturing was about $1.8 trillion. Japan in 2000, $1.1 trillion. China in 2019 is close to $4 trillion. In 2019, the world's figure was 13 trillion US dollars, and China's industrial manufacturing industry achieved added value, accounting for about 30% of the world's total. In other words, in this dimension, China has long been the first.
Third, there is another very important thing in this - when it enters the third stage, China still retains the world's largest and most complete supply chain system.
By the time Japan and the United States entered the third phase, many of their manufacturing industries had gradually shifted overseas (some of which are now in China). But a considerable part of China's overall manufacturing industry remains in China. If according to the United Nations classification of global industries, there are a total of 41 categories, 207 medium categories, and more than 666 subcategories, and China is the only country with all industrial categories in the UN statistics, and among them, more than 200 sub-categories are the first in the world's production capacity.
Especially for our entrepreneurs, this matter becomes even more important. The difference in industrial capacity will bring about a very large competitive difference. On the one hand, we have the penetration of the Internet and e-commerce, and our understanding of consumers will be very high. But to feed this understanding back into the supply chain, we need better supply chain efficiency to cooperate. If this efficient supply chain happens to be around us, then we have a faster rate to form a business closed loop.
Finally, we draw three circles of these three things: the largest consumer market, the most complete supply chain, and the most extreme efficiency upgrade, which are placed on this chart and named "three circles that no one in the world has saved, except for China."
In addition to that, we have listed a few things.
Warehousing and logistics in China. Many people say that the warehousing and logistics system in the United States is the most developed logistics system in the world, in fact, people who understand the industry know that China's logistics warehousing efficiency is even worse than that of the United States.
We use an internationally harmonized standard called "ton-kilometer cost" for comparison, which refers to "the cost of transporting a ton of things to a kilometer.".
Of all U.S. logistics systems (including or, cars, planes, and ships), the cost of a ton-kilometer in the United States is 21 cents. China's figure is 9 cents.
Behind the strength of China's logistics is inseparable from China's large-scale infrastructure construction in the past decade or so. At present, China has the largest number of highways in the world, with a high-speed mileage of nearly 150,000 kilometers. The world's largest high-speed rail mileage, 35,000 kilometers. The longest metro mileage in the world, 5,000 kilometers. The world's largest incremental air miles, although the stock is not yet the largest.
So, in terms of logistics efficiency, we have surpassed the United States.
In addition, China has almost the most complete and advanced online payment and wireless payment system in the world. On the traffic side, we have a global social product like TikTok. While TikTok has recently encountered some problems internationally, on the other hand, it is precisely because of its extremely rapid growth in the United States that it has attracted the attention of competitors.
In addition, we have recently seen the government propose a "new infrastructure" policy.
How to understand the "new infrastructure", to make a more vivid analogy, is to set a circle outside these three circles, to achieve the data of everything and realize the overall scheduling of energy. If this circle is added, then our production-consumption efficiency will be further pushed to the limit.
The next 20 years
It is still the best era of Consumer Entrepreneurship in China
After talking about this, I think we can easily answer the question - is today's China the best era of consumer entrepreneurship?
I think the answer has jumped out of the paper.
Of course, some people will question how much space there is in the consumer goods market during the period of China's economic slowdown. For this problem, the experience of the second phase of the United States can give us a certain reference - there is no necessary connection between the slowdown in economic growth and the difficulty of consumer entrepreneurship, but may be the golden age of the rise of a large number of local brands.
Therefore, we believe that in every major category of consumption upgrading, in the next ten years, or even twenty years later, there will be a high probability that there will be an international Chinese company with the world's largest market capitalization.
1. Food and beverage.
The largest company in the food and beverage sector now has a market capitalization of Nestlé, with $420 billion (as of August 7, 2020). Where is China's next Nestlé? At present, we see that the largest company in China's food and beverage industry by market capitalization is Moutai with a market value of 300 billion US dollars. Although it is not as good as Nestlé, it has become the world's unquestionable leader in terms of liquor segmentation track. (*As of January 15, 2021, Moutai has surpassed Nestlé's market capitalization, with the former having a market capitalization of nearly $400 billion and the latter having a market capitalization of about $310 billion.) ）
2. Consumer electronics.
Apple, the largest company in the field of consumer electronics, has a market value of nearly 2 trillion US dollars, and the domestic millet now has a market value of about 400 billion US dollars (the data is also as of August 7, 2020). Another company, Huawei, has not yet been listed, but if we look at A-share listed companies with comparable price-to-earnings ratios, Huawei has a high probability that its market value can reach 1 trillion US dollars. Although there is still a certain gap from Apple, at present, Huawei is already the company closest to Apple in China's consumer electronics field. (*As of January 15, 2021, Apple's market capitalization exceeded $2 trillion, and Xiaomi's market capitalization was close to $100 billion.) ）
3. Fast food chains.
McDonald's $150 billion (as of August 7, 2020). Haidilao, the catering company with the highest market value in China today, plus its unlisted Shuhai and Yihai International, can have almost 40 billion US dollars. Whether there will be a Chinese restaurant chain with a market value of more than 150 billion US dollars in China in the future, I think the answer is yes. (*As of January 15, 2021, McDonald's has a market capitalization of about $150 billion, and Haidilao plus Yihai International has a market capitalization of $56 billion.) ）
4. Cars.
Tesla $270 billion (as of August 7, 2020), whether China will have more than $300 billion in car companies, we wait and see. (*As of January 15, 2021, Tesla's market capitalization is close to $800 billion.) ）