New consumption changes, but suppliers remain unchanged

The rise of new consumer brands is inseparable from strong suppliers. Often, we only know about new consumer brands, but rarely about suppliers. However, new consumer brands and suppliers rise and fall together. This article will talk to you about the suppliers behind new consumer brands. Let's take a look.

I wonder if you have such friends around you, who like to recommend things to others, and especially like to recommend some products with extremely high cost performance. They can always find the suppliers behind those branded goods through various channels and help you save a lot of money.

If not, it is recommended that you make one as soon as possible.
In fact, if you look closely at the new consumer brands that have become popular in recent years, whether they are new tea drinks, cosmetics, Chinese-style baking, or various Internet-famous small appliances, you would think that everyone is using all their skills to fight each other in this arena, but if you look deeper, you will find that many of them come from the same manufacturer.

This is in line with what Luo Yonghao said about his mobile phone industry: they are all supplied by suppliers, so why are you pretending to be a grandson? We are all solution integrators.

In this issue, I would like to talk to you about the suppliers behind new consumer brands.

01

As usual, let me first state my opinion. In my opinion, it is the suppliers who support today's new consumption.

I mentioned in the previous issue of "New Consumer Brands Die from Hot Selling" that so-called new consumption often enters a mature industry to grab a piece of the pie. One of the signs of a mature industry is that the market size is huge and there is no need to cultivate and educate consumers.

Behind this is a production combination capability that has been accumulated after decades or even hundreds of years of development in an industry.

Suppliers are the most critical link in the product production process.

The rise of new consumer brands is based on this.

Think about it, how do new consumer brands get started? They rely on marketing at all costs, rely on various social media + live streaming to create popular products, and rely on those seemingly beautiful sales to get financing. Repeat the above steps to form a relatively self-consistent closed loop.

Obviously, new consumption is about brand building on the front end, but it still needs to solve the problems of the back-end supply chain, and this is where the role of suppliers comes in.

For example, one day I slapped my thigh and decided to enter the new tea beverage market and give it a brand name, let’s call it "Director’s Tea"!

But I want to make tea. How do I get the fruit juice which is extremely important as the raw material of new tea drinks?

Don't worry, I can go to Tianye Shares.

This is a company founded in 2007 and is currently the leading company in the production of new tea beverage raw materials. Its main products include raw fruit juice, quick-frozen fruits and vegetables, fresh fruits, etc.

Before becoming famous as a supplier of new tea beverage brands, its main customers were old beverage companies such as Nongfu Spring, Coca-Cola, and Wahaha, as well as fresh fruit companies such as Guangzhou Yuekai Trading Co., Ltd. and Guangdong Nanfengxing Agricultural Investment Co., Ltd.

Everything has changed since the new consumption trend hit the tea beverage market in 2019. Now, the largest customer of Tianye is Nayuki, followed by Chabaidao, Yidiandian, Nongfu Spring and Shanghai Auntie.

Among the top five customers, four are new tea brands. As of the first half of 2022, the proportion of new tea revenue in Tianye Co., Ltd. has increased from 4.2% in 2019 to 75.51%.

Let's work hard and strive to make Guanzhanghecha take over Nongfu Spring by 2023, so that its top five customers are all new tea drinks. If for nothing else, it's for obsessive-compulsive disorder.

02

Now that the problem of raw fruit juice has been solved, what should we do with the ingredients in the new tea drinks?

Still, there is no need to worry, because Dexin Food, another indispensable supplier for new tea brands, mainly produces beverage concentrates, flavored syrups and beverage condiments.

Its customers have also changed significantly since 2019. In 2019, IKEA ranked third among the top five customers of Dexin Food, but after 2020, IKEA has withdrawn from the top five.

Now Dexin Food’s top five customers are all concentrated in the beverage market, among which Luckin Coffee has surpassed Starbucks, which has been the top brand for many years, to become its largest customer. In addition, 7fentian, Mixue Bingcheng, Shuyi Shaoxiancao, Nayuki, etc. are all important customers of Dexin Food.

In addition to these raw materials, even cups for tea were prepared for me. Hengxin Life specializes in this. According to its prospectus, Hengxin Life sold 2.1 billion paper cups and plastic cups in 2021.

Among them, Luckin Coffee is Hengxin Life’s largest customer.

In addition to Luckin Coffee, Heytea, Manner Coffee, Starbucks, Coco, Guming, Mixue Ice City, etc. are also clients of Hengxin Life.

You see, I have the name, the raw materials, and the ingredients. I just need to redesign the cup and print the logo of the women's clothing curator on it. By the end of this year, I will kick Nayuki Heytea and punch Luckin Coffee and Starbucks. All I need to achieve this goal is Wang Duoyu.

Even if the sales of Curator's Tea are not good, it doesn't matter. As long as there is traffic, it doesn't matter what you sell. What is popular now is cross-border. Tea is not selling well, so I will sell spicy food on live broadcast and name it Curator's Spicy.

Just like the curator is very tea-loving, the lack of products is not a problem at all.

If I want hot and sour rice noodles or Chongqing noodles, I can go to Baijia Akuan. The recently popular Ma Liuji uses his products.

Their customers include Li Ziqi, Be & Cheery, and Three Squirrels. Whether it is common food such as beef chili sauce or hot pot base, you can also find suppliers such as Sichuan Fan Sao Guang and Sichuan Tianchu Food.

When the time comes, I will find a female celebrity to marry first, and then divorce. Will B station arrange a hot search for me? How can the curator be hot and lack traffic?

So in a sense, many new consumer brands are a collection of products from various cooperating suppliers.

03

When discussing the relationship between new consumer brands and suppliers, some believe that suppliers are the real winners behind the scenes, or that all the money from new consumption is earned by suppliers.

The reason for this conclusion is that most new consumer brands have been making losses in recent years. On the contrary, suppliers have very stable profits and have chosen to go public one after another, which gives people the feeling that new consumer brands are being taken advantage of and suppliers are losing money.

But I personally don’t really agree with this view.

A simple logic is that even listed suppliers are desperately trying to build their own brands, or rely on live streaming to reach consumers more closely. It is rare to hear that new consumer brands are turning to manufacturing, and instead they are more likely to choose to acquire suppliers.

In fact, this is not difficult to understand. This is a toc and tob, or a business of digging for gold or selling shovels. It seems that selling shovels is more stable and full of wisdom, but the income and market of digging for gold cannot be compared with selling shovels.

If we think from this premise, we will find that it is not the suppliers who eat up the profits of new consumer brands, but the high marketing expenses, store opening costs and labor costs that eat up their profits.

When a new consumer brand becomes a supplier's main customer or even its main source of income, the bargaining power is in the hands of the new consumer brand. Suppliers earn their money through hard work, and their profits are stable because their gross profit ceiling is low. Faced with the demands of new consumer brands to lower prices, suppliers usually find it difficult to resist.

What needs to be made clear is that the reason why new consumption exists today is that the underlying environment is that supply exceeds demand. The threshold for producing products is low, but the difficulty lies in how to sell them. There are quite a few suppliers on the market, and new consumer brands that have enough consumers have the confidence to change suppliers.

New consumer brands and suppliers prosper together and suffer together. If the market is not good and new consumer brands cannot be sold, suppliers will naturally be affected.

This is why even if the profit of OEM is stable and the suppliers are big, they still hope to bypass new consumer brands and support their own brands. Because no one wants their fate to be in the hands of others.

However, this is easier said than done.

The first reason is that manufacturers generally do not have the genes to build brands. In today's world where new consumer brands are so inward-looking, it is very expensive to build your own brand. Moreover, even if you have established a brand, you still have to build your own channels.

Second, although after the new consumption became popular, many people dug up the suppliers behind it, making these suppliers appear in everyone's field of vision. However, this exposure is still too small compared to the new consumption brands standing in the front. Zhang Lan's live broadcast alone made Ma Liu Ji well-known, but how many people know A Kuan who makes hot and sour noodles?

Third, when suppliers create their own brands, they actually compete with their own customers for the same market, and the two sides become competitors. As a result, their own OEM business and brand business have, to a certain extent, created conflicts.

But as I said before, this is a market where supply exceeds demand, and the difficulty lies in how to sell the products.

These suppliers did not just come into being today, but have been doing OEM for many years. If they could make their own brands bigger, they would have done it long ago, and there would be no need to wait for new consumer brands to flourish everywhere.

On the contrary, the strong emergence of new consumer brands has stimulated market demand, which has led to a surge in the prices of many suppliers.

So even if the person selling the shovel wants to dig a few shovels himself, he is more happy to see a steady stream of people coming to pan for gold.

04

Nowadays, love-hate relationship is the norm between suppliers and new consumer brands. There is even another interesting phenomenon: when a new consumer brand is overly dependent on a OEM company, the two parties will become constraints on each other.

The most typical example is Yuanqi Forest, which single-handedly popularized the concept of "erythritol".

Its original supplier was mainly "Bowloon", and the two parties reached a cooperation agreement in 2015. This cooperation also led to a surge in the production capacity of erythritol of Bowloon, from less than 6,000 tons to nearly 20,000 tons in four years.

However, Yuanqi Forest was so popular that only one company, Baolingbao, could not meet its production needs. Therefore, after Baolingbao, Yuanqi Forest cooperated with another company that has been deeply involved in the sugar substitute industry for many years, "Sanyuan Biotechnology".

It is no exaggeration to say that it was the entry of Yuanqi Forest that made this sugar substitute company, which originally relied on exports as its main source of income, become the largest erythritol producer in China.

In the first two years of fierce competition in the beverage industry, in order to curb the new rival Yuanqi Forest, the old beverage companies also had competition events such as Coca-Cola holding Sanyuan Bio to suppress Yuanqi Forest. To some extent, this is also one of the main reasons why Yuanqi Forest accelerated the pace of building its own factory.

On the other hand, with the falsification of the "0 sugar" concept, Sanyuan Bio, which relies on erythritol as its main source of income, is gradually falling from the altar and encountering the dilemma of being at the peak of its popularity as soon as it goes public.

05

In "The Grandmaster", Ding Lianshan said to Ip Man: In a sect, if someone takes care of the face, someone else has to take care of the inside. The face cannot be stained with dust, and if blood is shed, the inside must be kept.

The same is true for new consumption. Brand is the face, and supplier is the substance. Without the support of substance, the face will not work. But if the face is gone one day, the substance will have no business to do.

It's just difficult to maintain a balance between appearance and substance.

Few people are willing to be the insider, especially when they see the face, don’t the insider think that he can replace him? That’s why suppliers create their own brands or sell goods through live streaming, seizing every opportunity to bypass new consumer brands and hope to come to the forefront.

The face will also worry about how to ensure that it does not get stained with dust, how to not be dragged down by the inside, and how to survive after changing the inside. Therefore, when new consumer brands become bigger, they will continue to try to acquire suppliers and build their own supply chain.

In the final analysis, no one wants to wear pants that are the size of their buttocks, and everyone wants to wear bigger pants. In the business world, gentleness, courtesy, frugality and modesty are the last thing that is needed, and that is the word "yield".

References:

• "Are the profits of new consumer brands eaten up by suppliers?" Read Finance
• "Is new consumption failing? The supply chain behind it is paralyzed" View the new consumption trend
• "Where does the hot and sour rice noodles that Zhang Lan is selling so hard come from?"
• "100 million people are waiting for Li Ziqi, but the suppliers behind her can't wait" E-commerce Online
• "Coca-Cola uses Sanyuan Biotechnology to take over Yuanqi Forest? "BT Finance
• "A couple sells cups to Heytea and Luckin Coffee, and now they are going to IPO" Investment World
• "Tianye shares IPO successfully passed the review: the raw juice supplier behind new tea drinks such as Nayuki" Tencent News
• "Has the supplier's brand dream been realized through live streaming e-commerce?" 36Kr

Author: IC Lab; Official Account: IC Lab (ID: InsightPlusClub), looking at business from the perspective of brand.