2023

Policy benefits continue to be released, and consumption is still the ballast stone to support the economy.

The basic role of consumption in economic development is self-evident, and the recovery and development of the domestic consumer industry is imperative. Since the beginning of this year, a series of policies to promote consumption have been continuously introduced, and the effects have accelerated. In 2024, the State Council’s "Government Work Report" proposed that "the implementation of the strategy of expanding domestic demand should be organically combined with the deepening of supply-side structural reform, so as to better coordinate consumption and investment and enhance the pulling effect on economic growth".

In August, 2024, the State Council issued "Opinions on Promoting the High-quality Development of Service Consumption", which is the first policy document specially designed for the development of service consumption in China and an important guiding and programmatic document for the high-quality development of service consumption in China in the coming period. The Opinions put forward 20 key tasks around six aspects: tapping the potential of basic consumption, stimulating the vitality of improved consumption, cultivating and expanding new consumption, enhancing the kinetic energy of service consumption, optimizing the service consumption environment, and strengthening policy guarantee, and released a clear signal that service consumption will add momentum to expanding domestic demand.

According to the data of the National Bureau of Statistics, the total retail sales of social consumer goods in China reached 47 trillion yuan in 2023, with an average annual growth rate of 11% from 1953 to 2023. The final consumption rate remained above 50% in 2013-2023, and the proportion of household consumption expenditure to final consumption expenditure remained stable at around 70%. The annual average contribution rate of final consumption expenditure to economic growth was 53.9%, which was the first driving force of economic growth.

Compared with the final consumption rate of over 70% in developed countries in Europe and America, the current final consumption rate in China is less than 60%. In the future, the dependence of China’s economic development on consumption will continue to increase, and there is still a broad space to expand domestic demand and tap the potential of the domestic consumer market. At the same time, with the influence of macroeconomic regulation and control, especially the policy of expanding consumption will continue to be introduced, the consumer industry is facing a new era of new demand, new opportunities and new models, which tests the cognition and sensitivity of enterprises and capital to market changes.

The era of traffic has gradually ended, and investors are more concerned about whether consumer companies can make blood.

The Internet wave has promoted the channel transformation of China’s consumer market. From offline to online, from shelf-type e-commerce to short video e-commerce, from social media marketing to live broadcast, various new channels emerge one after another.

In the past few years, many investment institutions have treated consumer enterprises with the development logic of Internet companies, and invested in a large number of popular consumer brands according to PS valuation. However, the competitive barriers of online channels are not strong, and it is not sustainable to bring traffic simply by spending money. Now many of them have been falsified.

The consumer service market is in the process of changing from incremental market to stock market, and consumer investment has changed from the high premium logic of pursuing consumption upgrading to the industrialization logic of high efficiency and low cost. Paying attention to the cash flow and hematopoietic capacity of the project itself has become the unanimous choice of active investment institutions at present.

Weng Yinuo, the founding partner of Hongzhang Investment, said: "In the past few years, there has been a phenomenon in the consumer industry. The revenue of a brand has grown rapidly, but the net profit has always been negative. It is often difficult to settle down by putting in a quick start, and it can only be supported by external financing. Now everyone has returned to the cash flow logic. Even operating e-commerce will pay attention to the safety of cash flow and the effect of ROI, and will no longer blindly launch. " It can be seen that many brands have begun to choose the breakthrough of offline traditional dealer channels, and now the consumer market has returned to the long-term logic of deep-rooted channels.

In the era when traffic is king and capital is crazy, consumer companies rush into the market and think they have mastered the secret of growth and the password of traffic, and investors also flock in. After the tide recedes, these enterprises that violate the nature of business and investors who violate the law of investment are bound to be eliminated. Zhang Ye, the founder of Cyanhill Capital, predicted, "This year and next, consumer enterprises with traces in the capital market will experience a great wave of bankruptcy. Those companies that use consumer goods as software will attempt to make money first and then make money later. 90% will go bankrupt this year and next year."

Consumer investment transforms from finance to industry.

In the era of flood irrigation of consumer investment, various brands of restaurants, coffee shops and tea shops have mushroomed. Whether entrepreneurs or investors, everyone is a consumer and can participate in consumption. But when the tide recedes, only a handful of people can really stay on the court and make money. Many well-known investment institutions have either transformed their consumer investment teams into science and technology and new energy, or directly abolished their consumer investment teams. In the current market environment, there are not many institutions that can stick to consumer investment, and investment institutions have begun to pay more attention to the in-depth cooperation with the invested enterprises, providing them with more comprehensive empowerment than "money".

There is a particularly high technical threshold in the consumer industry, but there is also no such thing as "eating all over the world with one move". The real barrier lies in the "nano-level innovation" of the Japanese arch, which gradually accumulates and precipitates through time, and there is no shortcut. Zhou Hua, managing partner and &CEO of Challenger Venture Capital, also stressed that "this industry is also cruel, and any mistake in decision-making may face elimination." At this time, the importance of a consumer investment institution that goes deep into the market and takes root in the industry is highlighted.

"There are many giants in the consumer industry, and consumer goods entrepreneurs may have to face giants from birth. If you haven’t met a giant, it can only show that the enterprise is not big enough to attract the attention of the giant. It’s like a newborn competing with adults, and it’s easy to be crushed under this strength gap. But if the newborn is led by a big brother and PK with an adult, at least the survival rate will be improved. "Zhou Hua compared the relationship between consumer investment institutions and enterprises. As an investment institution with dual identities of entrepreneur and investor, Challenger Venture Capital can discuss with the founders of invested enterprises at some key nodes in combination with its accumulated experience in consumer entrepreneurship, so that entrepreneurs can make better decisions.

Song Xiangqian, the founding partner and chairman of Jiahua Capital, said: "What is most lacking in the market now is money, what is most lacking is thought and ability, and it is the’ altruistic heart’ that really helps enterprises and perfects them." It is understood that Jiahua Capital has always regarded post-investment service as the most important work, occupying nearly 80% of the investment team’s energy. Each invested project is equipped with a special team to carry out structural post-investment work around ROE, brand building, channels, markets and digitalization.

In addition, Chen Feng, the founding and managing partner of Nikko Capital, also announced this year that he would transform from traditional VC to industrial VC, focusing on the early investment and incubation of the industry. He believes that the core competitiveness of future consumer investment is research-driven, strategic planning ability, organizational building ability and industrial resource coordination ability.

The trend of merger and acquisition integration in consumer industry appears

The A-share listing of consumer companies is facing difficulties, and the IPO of Hong Kong stocks has become the norm. Even many high-quality consumer leading listed companies have a price-earnings ratio of only 10 times, and their market value is less than the peak period. The downturn in the secondary market has brought unprecedented challenges to the withdrawal of consumer investment institutions, and mergers and acquisitions have begun to become the key exit path outside IPO.

Since last year, M&A funds have come to an end one after another. The privatization progress of Vida International and the privatization rumors of brands such as Samsonite and Li Ning have attracted the attention of the market. For example, in 2023, Qicheng Capital strengthened the M&A team and sought the integration opportunities of consumer M&A. Partner Chang Bin said: "Our invested enterprises have been scaled up, and they seek the extension growth, while we help them find the M&A opportunities."

In the past ten years, a large number of domestic consumer brands have risen, and after years of development, a considerable proportion of brands have begun to have the value of mergers and acquisitions. Mergers and acquisitions of them can accelerate the links between upstream and downstream industries and produce synergistic effects. Many investors in consumer investment institutions have said that many of them have strong M&A demand in communication with some leading consumer enterprises, and have developed the second growth curve of enterprises. In October 2023, Anta acquired MAIA ACTIVE, an emerging female sports brand. The industry integration trend of strong alliance with track players is gradually obvious. In November, 2023, two snack brands "Snacks Busy" and "Zhao Yiming Snacks" officially announced a strategic merger, forming a "Ming Ming Busy Group" with a revenue of over 20 billion yuan. At present, there are more than 10,000 stores nationwide.

However, it is worth noting that the difficulty of promoting mergers and acquisitions is no less than the direct IPO of enterprises. Generally speaking, the buyer of M&A has clear requirements for the target business, category, scale and other aspects, and it is not easy to find a suitable target. Even if a suitable target is found, a series of operations, such as the valuation of the target, the design of the merger and acquisition scheme, and the integration of business, all need to consume huge manpower and resources. The cycle of completing a merger is as short as one year and as long as several years. Song Xiangqian pointed out that the success rate of M&A funds will even be lower than that of IPO. M&A has always been an exit path, but it has not become the main exit path. Improving market liquidity and keeping all exit channels unobstructed are the positive thinking to solve the exit difficulties.

Technology and consumption promote each other and form a virtuous circle.

At present, scientific and technological progress is further affecting the consumer industry. Investment institutions in the field of consumption and investors concerned about consumption pay more attention to "technology+consumption" in order to find more innovative brands and products. The concept of technology empowerment and innovative development is to help enterprises reach the final core competitiveness. And new technologies and materials are being widely used in the field of consumption, bringing new vitality to the consumer industry.

With the gradual maturity of digital technology, it is deeply applied in production, procurement, trading, payment, risk control, settlement, logistics, warehousing, marketing and other links. With the help of big data, sellers can mine multi-category data such as sales products and user behaviors, effectively form a "data pool", provide data support for operation management, and improve the effectiveness and scientificity of decision-making; Cloud computing helps cross-border sellers to realize the digital operation of the whole chain such as production, procurement, logistics, warehousing, payment and marketing, and improve the efficiency of supply chain operation; Artificial intelligence can effectively identify goods information, and it can be applied to intelligent warehousing, intelligent sorting, intelligent allocation and other logistics links. By analyzing user and product information, people and goods can be matched and the marketing conversion rate can be improved. Blockchain benefits from its decentralization, traceability and non-tampering, and is used in cross-border logistics detection, cross-border e-commerce product traceability and other scenarios to speed up cross-border payment settlement transactions and reduce transaction costs.

Especially in the past two years, with the explosive development of AI technology, the efficiency of the consumer service industry has been significantly improved. For example, jingdong cloud’s digital human platform with words and rhinoceroses combines JD.COM’s big model of words and rhinoceroses with multi-modal human-computer interaction technology, providing personalized, stylized and hourly customized digital human solutions for enterprises and individual users, and helping scene applications such as e-commerce live broadcast, cultural travel service and financial customer service. The consumer electronics industry is also changing from a single functional device to a general-purpose device, from a single scene to a complex scene, and from a simple behavior to a complex behavior. The medium and long-term AI is expected to empower consumer electronics and bring a new wave of growth.

The purpose of developing science and technology is to empower consumption, and technology will eventually be used in consumption scenarios. At the same time, consumption provides data for technology companies and revenue further promotes the development of science and technology. Only when technology and consumption develop together and promote each other can we continuously promote social progress. Wei Zhe, chairman and founding partner of Jiayu Capital, pointed out that "Magnificent Seven in the US stock market is essentially the technology consumed by To C. Even Invista, which is in full swing, is a company that supports consumer-grade game graphics cards, so it is not that consumption cannot be invested, but that consumption with technological content should be invested."