A scan down the US rich list reveals a gaggle of technocrats from Seattle and the Silicon Valley. Warren Buffet at number 4, is the only name in the top-9 who doesn’t fit that description (although seventh-placed Elon Musk left the Silicon Valley late last year).
The richest in China, whilst still tech-heavy, are a little more diverse. Just five of the top-10 are technocrats and more than half have built their businesses outside of the tier-1 cities. The richest man, Zhong Shanshan, made his billions selling bottled water, and number-8, Qin Yinglin, breeds pigs for a living.
If becoming super-rich is your bag – which it is for many Chinese – the likelihood of making your fortune through a tech company is less likely than it was before. Many of the young and ambitious are no longer aspiring to be the next Jack Ma, rather the next Zhong Shanshan – making their fortune from consumer goods.
Beijing once held tech firms on a pedestal – they could do no wrong. The gregarious ex-teacher Jack Ma was the pin-up kid for what hard work and a little nous could do for you in the new China. Leadership in the tech space would enable China to become a high-income economy.
The new China has moved on and is now more multi-dimensional. Beijing is more confident than ever, not feeling like it needs to prove to the world by showcasing successful entrepreneurs as it once did. In fact, there is barely a tech firm who hasn’t been impacted by government crackdowns in the way Alibaba and its Ant Financial has been since last November. The most recent was Didi, China’s Uber, which was blasted by Beijing just after its IPO in the US, wiping $2 trillion of the value of Chinese stocks in the US. China’s tech entrepreneurs, once talismans, are now acting sheepish. Investors are spooked, and with less cash sloshing around, the allure to join the tech brigade is fading for many of the best and brightest.
But investors are still as enthused as ever about investing in China. The market has again shown its resilience, this time in the face of the global pandemic. But with tech and education companies now out of favour with investors, there is a new show in town supported by Beijing that is capturing the hearts of venture capitalists and PE firms: consumer brands. These brands cover everything from beauty to fashion to leisure, but the grocery/food & beverage category is particularly hot right now.
During this year’s 618 ecommerce festival, 459 brands that were the top-sellers in their sub-categories were less than 3-years old. This included Make Essence which was the best selling men’s hairstyle brand, Rocking Zoo the top body scrub, the best selling lipstick, COLORKEY, liquid coffee: Yongpu, pasta: AIRMETER, and the top-selling soda wine, TenFifteen, which only launched this year.
The success of emerging brands in the consumer category has been followed by investors. The tea category is just one example, with tea drink makers receiving ¥5.3 billion ($820 million) investment in the first 6-months of this year alone, all hoping to be the next Heytea, the teahouse chain now worth almost $10 billion.
With more and more brands cashed up in each category, brands are investing greater sums in marketing to stand out. In fact, many of these businesses are operating like start-ups from the Silicon Valley, more focused on growing revenue and customer acquisition than profit. Whereas most foreign brands in China spend between 15-25% of their revenue on marketing in China, many of these cash-rich emerging brands are spending north of 65% of revenue on marketing.
Five-year-old healthy beverage maker, Genki Forest, aiming to be the next Coca Cola, hammers China’s social media platforms with a third more posts than Coke each month and a whole lot of KOL and livestreaming action. Its latest fundraising round earlier this year, valued it at $6 billion, providing plenty more cash for building its brand. Similarly Perfect Diary has become a darling of the beauty industry, spending mouthwatering wads of cash on KOLs and KOCs, supported by clever strategies to convert customers into loyal followers online.
In short, much of the rush of cash into China’s consumer categories is being directed at marketing, meaning brands have to work harder and smarter than ever to stand out. There’s never been a better time to contact China Skinny to help refine your strategy to do just that.
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