Big consumption in 2022: cost reduction and efficiency improvement, industry winter, and group warming up

What will be the consumption trend in 2022? The author gives the answers: cost reduction and efficiency improvement, industry winter, and group warming up. The author of this article uses three keywords as clues to deeply analyze the characteristics of the consumption era in 2022, and interprets the reasons for the growth and continued expansion of brands. Recommended for those who are interested in brand operation and market consumption.

2022 is an extremely special year for the entire consumer industry. This year, the protracted epidemic has made consumers' income extremely unstable, which has not only made the consumer market more rational, but also affected consumers' future expectations, and the face of the entire consumer market has been rewritten.

A set of data worth noting is that according to the data from the National Bureau of Statistics, from January to November last year, except for the consumption of residents' daily life and epidemic prevention needs, which maintained a high growth rate, the growth of other non-essential consumption almost all stagnated. The growth rates of grain, oil and food, Chinese and Western medicine, clothing, and furniture in units above the quota were 6.4%, 7.1%, -5.8%, and -7.7%, respectively.

Source: National Bureau of Statistics

For companies related to consumption, in addition to facing weak downstream demand, they are also facing challenges in the middle and back-end, supply chain disruptions, irregular store opening hours due to epidemic control, and rising raw material costs, which have put the entire consumption-related industry under continuous pressure. Based on this, weak revenue, plummeting profits, and declining sales have become the keywords in the financial reports of many consumer companies in 2022.

Image source: Lianshang.com

For consumer companies that cannot generate revenue on their own, they can only cut salaries, lay off employees, or even declare bankruptcy due to cash flow shortages. Take MissFresh, the first company to pioneer the forward warehouse model, for example. The company once had a market value of more than 200 billion yuan and nearly 10,000 employees, but has now become a junk stock, and the company only has 55 employees still struggling to support it.

So, under various internal and external pressures, what changes will consumer companies usher in in 2022? Which brands and categories are still growing against the trend? And for the downturn of some consumer brands, is it really simply related to the epidemic?

01 Reducing costs and increasing efficiency is the key to survival

If we use one keyword to describe consumer companies in 2022, it must be "reducing costs and increasing efficiency."

In terms of "cost reduction", taking fresh food e-commerce as an example, 2022 can be said to be a year in which consumers are extremely dependent on fresh food e-commerce. However, it should be pointed out that compared with the fresh food e-commerce in the previous two years, 2022 is a year with extremely high costs.

Li Weiming, a supplier who has previously supplied to many fresh food e-commerce platforms, told us that the main reason why the cost of fresh food e-commerce was very high last year was that losses were difficult to control, and these losses came from two aspects.

One is the loss caused by the circulation link. For some fresh products, the time from the place of production to the warehouse of the fresh food e-commerce platform should be shortened as much as possible to reduce the loss.

But the problem is that due to the different epidemic prevention and control policies introduced in many places across the country last year, the time it takes for drivers to get on and off the highway has been extended, and the loss of vegetables has naturally increased. Last year, Beijing had many restrictions on vehicles entering Beijing, which led to the loss of vegetables, which could have been controlled at 20%, being directly increased to 40%.

On the other hand, there are losses in the warehousing link. Due to the temporary lockdown of the epidemic in many cities in China last year, it is very sudden. Once the area where the fresh food e-commerce warehouse is located is blocked, it also means that the platform must bear a lot of cargo losses. Take a fresh food e-commerce platform in Chengdu where I served last year as an example. Due to the temporary control of the local area and the long lockdown. This resulted in many fresh products being completely rotten even after the local lockdown, and they had to be thrown away.

For this reason, many fresh food e-commerce platforms carried out strategic contraction last year to reduce operating costs. For example, Dingdong Maicai withdrew from Xuancheng, Chuzhou, Tangshan, Zhongshan, Zhuhai, Tianjin, and Xiamen. Hema has successively withdrawn from Beijing, Xi'an, Chengdu, Wuhan, Nanjing, Hangzhou and other markets. Xingsheng Youxuan has successively closed its sites in North China and Southeast China, and withdrawn from four provinces and cities including Henan, Shandong, Sichuan, and Chongqing.

In fact, it is not just the fresh food e-commerce industry that is shrinking. The catering industry, one of the hardest-hit areas by the epidemic, is also shrinking. According to statistics from the retail center of Lianshang.com, in the first half of last year, Yum China, Haidilao, and Helens closed 386, 26, and 69 stores respectively. Closing stores for the winter became a consistent choice for many catering brands last year.

In terms of "efficiency improvement", many consumer brands are looking for new business growth points in the vast market based on their own businesses.

First, in terms of sales channels, many consumer brands are either going overseas or sinking. The number of stores of the grilled fish brand Bantian Yao increased from 200+ in 2019 to 1200+ in 2022. During the same period, the number of stores of Lucky Coffee, a coffee brand under Mixue Ice City, expanded from 20+ to 1400+; and the Chinese local hamburger brand Tustin expanded from 100+ to 2500+.

It is worth noting that these three brands account for 60%-70% of the stores in second-, third- and fourth-tier cities, among which Lucky Coffee accounts for more than 50% of the stores in third- and fourth-tier cities.

Image source: TikTok

As of the end of September last year, MINISO had nearly 5,300 stores in 105 countries and regions around the world. Among them, the number of overseas stores was 2,027, accounting for 40% of the total number of MINISO stores, with a net increase of 191 stores in the quarter, a month-on-month increase of 10.4%. The new stores in Canada mainly adopt the low-price strategy of "dollar stores" and promote the "$2 Plus" concept. The prices of all products in the store are between US$2 and US$10.

However, it should be pointed out that no matter going overseas or sinking, each region has its own business ecology, which requires consumer companies to not simply copy their business models in high-tier cities, but to achieve true "localization".

For many counties in the central and western regions of China, due to the relatively average economic development and lack of obvious industrial support, the outflow of local young people is relatively serious, which has led to these areas actually being a consumer market composed of middle-aged and elderly people. In high-tier cities, economic forms such as camping economy, instant retail, and loneliness economy that have emerged around young people are difficult to develop in these areas.

Second, based on current and future market conditions, many consumer companies are either adding categories related to their own businesses or completely crossing over to other markets. The pre-prepared meals that were popularized by the epidemic last year were involved in fresh food e-commerce platforms such as Dingdong Maicai and Hema Fresh.

Faced with the year-on-year plunge in profits, Southern Black Sesame Paste has turned its attention to energy storage, which was relatively hot in the primary market last year. As early as October last year, Southern Black Sesame Paste announced an additional investment of 500 million yuan in Tianchen New Energy Co., Ltd., with a shareholding ratio of up to 59.09%, making it the actual controller.

Image source: Eastmoney.com

It is reported that Tianchen New Energy is a power battery system integration solution provider, focusing on the fields of new energy vehicles and clean energy storage, providing production, research and development, and sales of vehicle-mounted power and energy storage battery PACK and BMS power systems.

Third, peers are moving from internal friction to banding together for warmth. For example, last year Nayuki's Tea completed the acquisition of Lelecha for 525 million yuan. From this year's perspective, acquisitions between peers in consumer companies may become a trend.

On the one hand, in the past three years, many small and medium-sized players have been cleared out one after another. The consumer companies that have survived have unique business models and hold a large amount of cash flow. In order to make up for their own shortcomings and grab more "cakes", they will inevitably acquire other companies in the same industry.

On the other hand, it will take time for the domestic consumer market to fully recover, and the "cold winter" has not yet passed. For many new consumer brands, they generally face the problem of insufficient cash flow. Under the pressure of performance, everyone can only "marry" to truly survive the "cold winter".

02 Why are these brands and categories able to grow?

In the "unsatisfactory" consumer market in 2022, not all consumer brands and categories are declining, some are still growing against the trend. It is worth mentioning here that Zheng Yuanyuan Professional Pedicure Room, a leisure and entertainment store, had a net increase of 497 stores in the first 11 months of last year, a growth rate of 2.7 times.

Image source: Jiuqian Middle Office

Not only that, a set of data that is particularly worth noting is: As of the end of 2021, Pop Mart has 295 stores and 1,611 robot stores in China, which are basically concentrated in first- and second-tier cities. Zheng Yuanyuan has 6,520 pedicure shops, covering all provinces in the mainland. In terms of revenue, the Yuanyuan Group behind Pop Mart and Zheng Yuanyuan's pedicure shops is 4.491 billion yuan and 9.06 billion yuan respectively.

An inconspicuous roadside pedicure shop, without any capital assistance, has burned through nearly RMB 1 billion of Pop Mart before its IPO, both its number of stores and revenue data exceeding those of the IPO. In fact, the root cause of this situation is that Zheng Yuanyuan's pedicure shop is a rigid demand industry and has the power to resist economic cycles.

Compared with roadside nail and beauty salons, pedicure shops have a wider customer base and more rigid demand. Zheng Yuanyuan's pedicure shops are mostly located near residential communities or in large supermarkets, which can directly increase the store's return visit rate. In addition, foot problems are more common among middle-aged and elderly people, so some elderly people with inconvenient legs and feet can go directly to the doctor by just walking a short distance.

In fact, it is not just Zheng Yuanyuan's pedicure shop. The same is true behind the growth of domestic pet categories. In the pet market last year, taking the 2022 Double Eleven as an example, A Fei and Ba Di's performance increased by 100% against the trend, and Chengshi Yikou's total network sales increased by 232% year-on-year. The pet sales on JD.com and Tmall platforms also showed a significant increase.

Image source: Jiuqian Middle Office

In fact, the prosperity of the domestic pet industry is essentially the product of "cat economics". The so-called cat economics means that no matter how difficult the economy is, the public's enthusiasm for cats and related products will always be high. As long as businesses use cats correctly, they can attract attention and benefit from it.

Cat economics actually reflects the emotional needs of young people today. The fast-paced life makes more and more young people anxious about the future and confused about their identity. If there is a cat around, it can effectively eliminate the loneliness of being alone in the city. People hope to reshape the current lifestyle by living with cats and have a free, individual and happy life like cats.

Therefore, the epidemic has tested what consumers really need and what kind of products have the properties to survive the bull and bear cycles. In addition to just-needed products, last year's popularity of everything from camping to Frisbees has driven the growth of outdoor equipment sales on e-commerce platforms.

Image source: Jiuqian Middle Office

However, it should be noted that the booming outdoor economy is actually the product of demand shift under the epidemic prevention and control.

For those who need to travel regularly, they can only choose to travel around the province because they cannot travel across provinces due to epidemic prevention and control. Now, with the resumption of other forms of travel around the province and long-distance travel, will these products still be popular among young people this year?

03 The decline of some brands is inevitable

In addition, the performance pressure of some consumer brands last year was not entirely related to the epidemic. Take Suning and Gome, which adopt the hypermarket model, for example. The epidemic did cause a sharp drop in offline customer traffic and a sharp drop in store profits. However, the root cause of the high debt and huge losses faced by the two companies is that the circulation model of domestic home appliance business has been completely changed.

Source: Gome Financial Report

Let’s go back to the 1990s. The reason why Gome was able to emerge as a dark horse was that it cut out the layers of distributors in the home appliance circulation process and implemented a direct supply model in which upstream manufacturers directly faced consumers.

It can be said that this was the shortest path in the home appliance circulation link at that time, which naturally made home appliance brands highly dependent on Gome. And this dependence is also the key to supporting Gome's core profits.

However, in the past decade, the rise of various e-commerce models such as JD.com, Tmall, live streaming, and private domain traffic, as well as the fact that many home appliance brands have already completed the layout of offline channels, have also enabled them to gradually achieve "de-Gome" and "de-Suning". Obviously, Gome and Suning, which have lost their upstream supplier advantages, are destined to be unable to restore their previous high growth.

The same is true for Gome and Suning, as well as Miss Fresh, which adopts the forward warehouse model. As my country's agricultural products are highly dispersed and regional, the difficulty of integrating its supply chain is far greater than the outside world imagines.

More importantly, as the number of SKUs operated by Daily Fresh increases, the cold storage area of ​​its forward warehouses, the number of purchasing and sorting personnel, and the cash flow it needs to prepare will all increase. Simply put, it is difficult for Daily Fresh's forward warehouse model to reduce marginal costs through economies of scale. The larger the scale, the greater the loss.

Perhaps these consumer brands have been abandoned by the market due to their business models, but some brands have become increasingly distant from consumers due to their own "arrogance". Take Starbucks as an example. From driving away police officers who were eating boxed lunches at the beginning of last year to continuously raising prices later, the former big brother of the coffee industry has gone from "whatever it does is cool" to "whatever it does is wrong", and has been pushed to the forefront of public opinion time and time again.

But in the past year, Starbucks was not the only brand that was "delayed" by arrogance. There were also Li Ning and Zhong Xuegao. These brands that were "ridiculed" by consumers actually did not truly understand and embrace consumers. Therefore, in 2023, many consumer brands need to really settle down and have a "soul-deep" communication with their consumers.

04 Conclusion

The difficult year of 2022 is finally over. In this war without the smoke of gunpowder, some people made rapid progress while others fell down.

But for many consumer brands, 2022 is also a year worth remembering, because it truly tested their business models and how to find certainty in uncertainty. And for 2023, returning to the essence of consumption is still the key to the survival of consumer brands.

Author: Cao Shuangtao; Editor: Yang Bocheng

WeChat official account: DoNews (id: ilovedonews) is not limited to tracking and exploring the Internet industry, but also moves towards the future and the unknown.