618, how are the new consumer brands doing?

At the beginning of 2023, all topics surrounding consumption are changing. Tourism is changing, from global travel to rural day trips; catering is changing, from light meals to pre-prepared dishes; consumers are changing, the middle class has tightened their wallets, but the "new poor economy" is rising; live e-commerce is also changing, and the anchors have experienced several rounds of major reshuffles. Only a few of the once glorious ones are left, and now the unknown ones are making money. Such turbulence broke out around 618. As for the big promotion itself, 618 in 2015 has also reached a critical node. Whether it is the changes in the external macro-consumption environment or the development cycle of the industry itself, in 2023, the world is no longer the same, and the big promotion is no longer the big promotion of the year.

“5,000 Xiaohongshu posts, 2,000 Zhihu posts + a livestreamer’s broadcast room + a big promotion list = the birth of a new consumer brand”

KOCs use Xiaohongshu to build brand awareness, big anchors’ live broadcasts achieve small-scale conversions, and big promotion lists quickly break through the circle. In 2019, more than 100 new brands emerged within a year with this "universal formula", and Internet celebrity brands are produced like an "assembly line", and the number is as large as the dust of the times.

As the last stop to fame, the top of the Double Eleven and 618 promotion lists are almost the "holy land" for the rise of new consumer brands. Every "successful" brand introduction will include the Top No. 1 of xx brand on the xxx list to show its status, so much so that there is a joke circulating among the people: "As long as enough adjectives are added, Top No. 1 is everywhere", "You are No. 1 on the snacks list, I am No. 1 on the sugar-free beverage list, and we all have a bright future."

Wang Baobao, which only started operations in 2018, became the best-selling cereal on Tmall on Singles' Day in 2019; Yuanqi Forest, founded in 2016, once topped the list of snacks and beverages on Tmall, and its valuation soared to 14 billion with the title of "the light of domestic beverages"; the emergence of Wang Xiaolu even opened up a new track for braised snacks, and it has always been ranked first in such a niche category as "chicken snacks".

For a moment, it is difficult for us to judge whether the brand rushed to the top of the list or "created" the list to match the first place.

But this year on 618, the new consumer brands that were once so "keen on the charts" disappeared.

The overall trend of new consumer brands during the 618 promotion in 2023 can be seen in the first round of pre-sale data of 618. Taking celebrity new consumer category cosmetics as an example, according to 36Kr citing third-party data, during this year's 618, the pre-sales of leading domestic cosmetics brands such as Huaxizi, Perfect Diary, and Kelaqi did not exceed 100 million yuan on Tmall, Douyin or Kuaishou, and this phenomenon has continued for two years.

As one of the representatives of domestic cosmetics, Huaxizi, which used to dominate the top ten in Double Eleven and 618 in previous years, not only did its pre-sale fail to exceed 100 million yuan, but also fell out of the top ten during the 618 pre-sale period this year. The last time Huaxizi's pre-sale exceeded 100 million yuan was during 618 in 2021, when its overall sales reached 263 million yuan.

▲Image source: 36Kr

Whether it is the official Tmall list, the GMV list of Li Jiaqi’s live broadcast room or the list compiled by the data platform, even in the long month of 618, new consumer brands have collectively "fallen silent", and they are rarely seen in the top ten of each category. The former "kings" have retired or returned to the mountains.

Behind the "disappearance" lies the end of this wave of new consumer brands.

From now on, there is no distinction between new and old brands, and the competitive code in the consumer market is changing.

1. Behind the Scenes

"After the founder presents for an hour, the investor has to make a decision of 'invest or not invest'. After a half-hour discussion among several partners, an investment decision is made. It is best to complete a project within 1-2 weeks."

"In the past 20 years, almost all offline roadshows were for consumer product BPs. A lady from Northeast China, who made a canned yellow peach brand called "Huang Xiaoxian", was extremely excited at the scene and declared that she would raise 10 billion yuan in three years and go public in five years. When we were leaving after the roadshow, a large number of investors surrounded her. "

"New consumer investment in 2021 was too hot. Some cases completely deviated from common sense and the essence of the industry. Looking back now, they were so popular that it seems like someone has bewitched them. In order to grab a share as early as possible, investors are shortening their decision-making time. In order to secure a position in advance, many investment institutions have to push up brand valuations."

Capital is hot, and entrepreneurs are irrational. They received five rounds of financing in one year, and their valuations increased by hundreds of times, which enabled the brand to develop at a three-fold speed and created countless "myths".

In 2020, all the absurdity and drama were pushed to the peak.

Hefu Lamian raised 800 million yuan in a single round of financing, setting a new record for the highest financing for a noodle chain; October Rice Field, a Northeast rice and grain brand, raised 1.45 billion yuan in a single round of financing; Manner, a Shanghai-based coffee brand, raised three rounds of financing in five months; the financing of the Chinese dim sum brand Momo Dim Sum Bureau remains a mystery, and it is rumored to be valued at 5 billion yuan; a fried skewers project raised two rounds of financing in three months, securing nearly 100 million yuan in financing.

Dozens or even hundreds of brands have been born in each sub-segment, and they have quickly turned from red oceans into blue oceans, which is in line with the saying that "all consumer products are worth doing over again."

According to incomplete statistics, there were 286 investment and financing events for new consumer brands in 2020, with an investment and financing amount of US$45 billion. In 2021, there were 826 financing transactions in the domestic new consumer industry, with a financing amount of 83.1 billion yuan.

It was as if what had not been done in the past 20 years had suddenly become a reality for Chinese brands. Perfect Diary opened one brand store after another offline, Huaxizi's "love locks" were sold abroad, and there were tens of thousands of tables lined up at the queue machine at Wenheyou. Even after waiting in line for three hours, they still couldn't buy a cup of Heytea's berry milk.

On December 11, 2020, when Wang Ning, the founder of Pop Mart, rang the bell, his wife was not standing beside him. Instead, he rang the door of the Hong Kong Stock Exchange with his three sons, Molly, Demo, and Labubu. The unicorn with the highest market value that year pushed the listing of new consumer brands to the top of the trend in this way.

▲Photo source: Douyin blogger

These vivid names together constitute the most glorious era of China's new consumer industry. At the same time, it is also an era full of controversy and confusion.

The "behind-the-scenes driving force" behind this "chaotic" situation is not just capital.

Douyin, Kuaishou, Xiaohongshu, WeChat, Bilibili, Zhihu, the rise of new media has directly led to a wave of new consumption. This may be the one that is closest to the truth among all the discussions about what is "new".

In an era where everyone is promoting products, new consumption has firmly grasped the code of traffic.

Taobao has always been an important ally of new consumer brands. "Taobao brands" that started out in Taobao once became an important label for a number of brands such as Three Squirrels, Perfect Diary, and Huaxizi. They were all once fans of the platform's rankings.

Perfect Diary, the "first domestic beauty stock" that has added a strong stroke to China's Internet "wealth creation myth", was once a frequent visitor to the Double Eleven and 618 lists.

During Double Eleven in 2019, Perfect Diary became the first domestic brand to top the Tmall Double Eleven makeup list with sales exceeding 100 million in one hour; during Double Eleven in 2020, Perfect Diary's cumulative sales exceeded 600 million, winning the crown of makeup sales for the second consecutive year; during the 618 period in 2021, Perfect Diary once won the TOP1 on JD.com's self-operated domestic cosmetics, TOP1 on Vipshop's cosmetics, and TOP2 on Tmall's domestic cosmetics.

"On the platform, all rankings are paid items. Although the platform's rules place more emphasis on self-operation, 7-day sales, praise rate, number of repurchasers, etc. can actually be solved with 'cash ability', and can even be purchased in one stop from service providers. It is not difficult to get on the list, but it is very expensive." A senior e-commerce operator shared.

▲Image source: Tmall official list

The rules of the game on the platform have not changed, but the new consumer products that were not short of money in the past two years have also started to run short of money.

While the Taobao system was in full swing, Xiaohongshu began to shift from a communication platform for overseas buyers and international students to large-scale support for top bloggers, opening external e-commerce links, and striding towards the grass-roots economy. The platform standing at the forefront of the times has changed. Looking back, the rise of Xiaohongshu and the development trajectory of new consumption have perfectly overlapped.

Feng Qiyao, president of Perfect Diary's new retail business unit, described the marketing strategy based on Xiaohongshu as a sign of "getting the hang of it."

The trend of seeding products has also spread from Xiaohongshu to WeChat Moments and official accounts. Since 2019, Tencent Smart Retail has focused on content closed loops with mini programs as the main conversion platform.

Bohe Health has established 120 groups on WeChat. The average purchase amount of WeChat users has reached 700 yuan. With 80 million users and 10 million GMV, Ma Haihua, the founder of Bohe Health, said in an internal interview: "Why can there only be Taobao brands? We should create micro brands."

Lin Sheng, the founder of Zhong Xue Gao, also saw new opportunities. In 2020, Zhong Xue Gao used more than 5,200 sunflowers to build its first pop-up store in Shanghai Xintiandi K11, one of the most fashionable locations in the country. While attracting attention, the "free tasting circle of friends" posted by users who visited the store, whether inside or outside the K11 mall, will be seen throughout the Shanghai area.

Since then, Zhong Xuegao, once known as the "Hermes of the ice cream world", has begun to prosper. A sign of success is topping the Double Eleven and 618 lists. In the "Double Eleven" of 2020, Zhong Xuegao defeated Haagen-Dazs in one fell swoop and became the number one in sales of ice cream products in Tmall at that time; in the "Double Eleven" of 2021, Zhong Xuegao won the championship again. According to the battle report released by Zhong Xuegao, 3 hours before the opening of 618 in 2021, the sales of Zhong Xuegao's Tmall flagship store exceeded 10 million, winning the first place in Tmall's fresh food category and ice cream category. At the end of the "618" promotion in 2022, Zhong Xuegao won the first place in sales of Tmall's ice cream category in "618" for three consecutive years.

From 2019 to 2021, new consumer products have been booming for three years. "Zi Quadrant" has had in-depth communication with the founders of nearly 30 new consumer brands. Before each communication, whether it is Wang Xiaolu, Daily Black Chocolate or Mint Health, they will hand over their new products for tasting. When new consumer brands are at their most glorious, they launch new products to the market every three months to demonstrate their vigorous vitality.

The founders are smiling but exhausted, always on the road of launching new products and researching and developing to stimulate the market. New consumer brands cannot stop launching new products, otherwise where will the investors' money go? No explanation.

When shared bikes were at their most popular, Dai Wei said that the first thing he did when he arrived at the company every day was to think about how to spend 100 million yuan.

Capital, platform and brand form three undercurrents, rolling this era forward without looking back.

2. The Great Retreat

At the beginning of 2022, the rising new consumer brands pressed the pause button.

The two figures of "number of financings" and "financing amount", which symbolize the prosperity of new consumption, have taken a sharp turn for the worse. In the first half of the year, there were 241 financings in the new consumption track, and the financing scale was just over 10 billion yuan, which was only 15% of that in 2021.

"Last year, before our product was even launched on the market, we were besieged by more than a dozen investment institutions. Now, I have sent BPs to hundreds of investment institutions, and almost no one pays attention to me." The founder of a catering consumption brand is also helpless about the progress of the new round of financing.

With the end of the mobile Internet cycle, the recurrence of the epidemic, the changing international situation, the plummeting of Chinese stocks, the changes in industry policies... many black swans are queuing up to arrive, and some tracks that originally had no resistance have been brought back to their original form.

In 2022, the wind direction has changed. Zhong Xue Gao, which has been ranked first in sales of ice cream products on Tmall for three consecutive years, is now labeled as the "ice cream assassin". It is only ranked tenth, which is well deserved, and almost fell off the list. Since last year's 618, Perfect Diary's halo has begun to lose its shine. Not only has it fallen off various beauty lists, but its backer Yatsen E-commerce is on the verge of delisting after a net loss of 800 million last year. Perfect Diary is still not on this year's 618 list.

Nayuki Tea suffered huge losses after its listing; Heytea and Chayan Yuese began to cut prices, close stores and open up franchises; at the end of the year, the Hutou Bureau was involved in scandals of unpaid wages and overdue project payments... A large number of new consumer brands were blocked from listing, the primary financing market was frozen, the food and beverage, beauty, catering and trendy toy tracks were overcrowded, and the new consumption that has been popular for many years seems to have fallen into an ice cave.

If you fall into an ice cellar, you can’t blame others, you should blame yourself first. No matter which track you are in or when you were born, new consumer brands always seem to be unable to escape the deadlock of focusing on marketing and neglecting research and development, and product quality cannot keep up with the popularity of Internet celebrity marketing.

Consumers were the first to react. Perfect Diary, which once focused on "cost-effectiveness", was revealed to have a single price comparable to Chanel. Huaxizi invested a lot of money in packaging design but ignored product innovation. Needless to say, Zhong Xuegao's ice cream that wouldn't melt became a laughing stock on the Internet.

The live broadcast rooms of big anchors are no longer the weather vane. The skin care brand HBN opened up the market with the gimmick of the ingredient "retinol", playing the old tricks and becoming the only domestic brand to simultaneously rank No. 1 on Tmall's hot-selling, well-received, and repurchase lists. This year's 618 also logged into Li Jiaqi's Taobao live broadcast room "Ready-to-stock Beauty Festival".

However, on the Black Cat complaint platform, there are 121 complaints containing "HBN", "allergic acne", "skin darkening despite adequate sun protection", "backlight rash" and other issues. An investigation of its ingredients found that the main ingredients have low concentrations and no penetration-enhancing system, and their effectiveness is questionable. In addition to ingredient issues, some HBN products also have problems such as insufficient gram weight and high prices.

What's even more ridiculous is that the imported brand that once claimed to be "Japanese Retinol" and whose entire packaging was in Japanese, has turned itself into a genuine domestic brand as the domestic trend has become popular in the past two years. It used its "foreign background" and "foreign ingredients" to get attention, but ended up shooting itself in the foot.

HBN is not an isolated case; the "product power" of new consumer brands is constantly being challenged.

On the other hand, major international brands seemed to have reacted in an instant. Estee Lauder, Lancôme and L'Oréal Group all launched buy-one-get-one-free promotions with free samples. They can use the same "tricks" that new consumers can use, and even do it better.

International big brands have returned, and the list has once again become a barometer. In this year's 618 Tmall beauty category pre-sale list, L'Oréal Paris, Lancôme, and Estee Lauder dominated the top three, and the once popular "Internet celebrity" new consumer brand Three Squirrels was no longer seen in the food industry brand sales list.

▲Photo source: Tianxia.com

Faced with this situation, Zhang Liaoyuan, the founder of Three Squirrels, once said helplessly, "We found a problem, but we don't know where it is."

Zhang Liaoyuan is not the only one who feels helpless.

The era of marketing being king and taking advantage of the internet celebrity economy to reap IQ tax is over. New consumer brands can use traffic as a tool, but they should not treat traffic as faith.

Channels and traffic are unpredictable. Brands that explode due to traffic may also die because of traffic.

Xiaohongshu, the base camp of new consumer brands, has begun to annoy users due to its over-commercialization. At the same time, since it cannot form a closed loop after promoting products, Xiaohongshu feeds others but its own commercialization is very confused.

Starting from January this year, Xiaohongshu began to focus on adjusting the platform content strategy, increasing short video content, weakening the correlation between brand and notes, supporting Xiaohongshu stores and Xiaohongshu live broadcasts, and Xiaohongshu put its attention back on itself.

As the market changes, capital will always look for the next stop faster. Just like the saying: No one is forever young, but there are always young people. No outlet will always be popular, but there will always be an outlet.

After 2023, many investors have made it clear that they will no longer look at consumer projects, but will increase their investment in hard technology. Metaverse, Web3, big models, whether they are real or fake, the dream must continue.

After hard technology became an investment hotspot, some US dollar funds that originally invested in TMT and consumption began to flock to hard technology. However, the high barriers to hard technology investment can no longer bring the "fast pace" of consumer investment.

Investors are chasing new trends, making new consumer financing even more depressed in the second half of 2022 than in the first half. In December, the worst month, only 39 investment and financing events were completed in the new consumer sector, far lower than the 50 in November, and even more than halved compared to the 89 in the same period of 2021. The cumulative investment and financing amount in December was only 1.4 billion yuan, a sharp drop of 48.15% and 79.23% month-on-month and year-on-year respectively.

The three major driving forces that once supported the rise of new consumer brands: capital, platforms, and consumers have now withdrawn one after another.

The hustle and bustle of the world is all about profit.

3. Breakthrough

In 2023, the disappearance of new consumer brands during the 618 shopping festival is a sign of the times, but it will definitely not be the end.

The marketing era is coming to an end, and new consumer brands are "saving" themselves.

The beauty channel brand "Hua Mei" has invested in and acquired 9 consumer brands, covering the categories of aromatherapy, cosmetics, and skin care. PMPM, Bishengzhiyan, Meiyugao, and overseas brands Kevyn Aucoin and Graine de Pastel have all entered the "Hua Mei" channel. Three Squirrels and Wang Xiaolu entered high-end channels such as Hema and achieved the second curve of growth.

Moving from online to offline is the first step for new consumer brands.

In 2021, Yuanqi Forest locked in production capacity by investing in the sugar substitute supplier Ruifen Biotechnology, and continued to deepen its supply chain. Public information shows that Yuanqi Forest currently has five forest factories in Chuzhou, Anhui, Zhaoqing, Guangdong, Xiqing, Tianjin, Xianning, Hubei, and Dujiangyan, Sichuan, which meet the production needs of East China, South China, North China, and Southwest China respectively.

The large-scale factory construction plan is implemented at an average rate of one factory every six months. Tang Binsen, the founder of Yuanqi Forest, said frankly that factory construction is the most important step in Yuanqi Forest's long-term development plan.

According to the "Self-Quadrant" observation, at present, Pop Mart, Three Squirrels, Yuanqi Forest, Heytea, etc. have begun to expand to the source factories and production links, controlling costs and increasing profits by building a stable and efficient production chain.

From another perspective, new consumer products are no longer dependent on "618". It is also a good signal that they are rooted in offline and supply chains, making products down to earth, and giving up blindly rushing to the charts to create public opinion topics. Consumer brands must stop creating "consumer carnival movements" one after another in order to create a more benign environment and wait for the emergence of a truly phenomenal "explosive product".

Author: Cheng Xin, Editor: Loli Xiaodou

Source public account: Zixiangxian (ID: zixiangxian), between the squares, there is a quadrant. Care about science and technology, economy, humanities, and life.