2021 will be the year when the shift from uncertainty to certainty begins.

Because some of the biggest systemic uncertainties that have kept us on edge all year: the pandemic, U.S.-China relations, and the international situation, have begun to become certain in recent months. 2021 will be the year when the blades come out of their sheaths after the storms of 2020.

Next, we will use a series of articles to review the VC hotspots in 2020 (covering the direction of large consumption, macroeconomics, biomedicine, hard technology, etc.), sorting out the directions and tracks that we are optimistic about, as well as the future trends that we can see from them. The significance of outlook is not to determine the end game, but to keep thinking and moving forward.

In 2021, it will be no harder than in 2020. Together, let's hold the ticket to China's era of opportunity, discover value, promote innovation, and move steadily into the future.

Author: Yang Snapdragon, Partner, Fengrui Capital

There is never a shortage of new stories in the consumer sector, especially in 2020.

In the past 2020, even though the consumer market has entered the stock game, we still witnessed the "new species explosion" of consumer brands. 2020 is also the inflection point of the onlineization of the service industry, and the tendency of the service industry to migrate to the online market has become more and more obvious. Compared with the hot consumer and service industries, the investment in the entertainment industry has dropped to the freezing point in 2020. However, we see that the user's spiritual consumption needs are entering an explosive period, and new technological means, but also make the entertainment way more and more diversified.

Overall, behind the changes in the 2020 landscape of the consumer sector, the two core variables of technology and traffic are inseparable. They are also the key factors affecting the development of the market in 2021 and the next few years.

In this article, we focus on dismantling the opportunity points in the three major directions of consumer goods, entertainment and services, and the following are the preliminary conclusions:

/ 01 /

Four Opportunities to Reshape the Consumer Goods Category

Throughout 2020, the consumer sector are very hot. A lot of people are saying that every industry has an opportunity to do it all over again. So where are the opportunities to reinvent the consumer goods category in 2021? I think it's mainly in four areas: supply chain and technological innovation, new traffic, offline brand refurbishment and branding opportunities brought by new consumer scenarios.

First, seize the new supply chain technology to generate new opportunities for national brands.

The supply chain capability of Chinese manufacturing has been recognized by a new generation of consumers in terms of quality, and this generation of consumers born online is very much identified with national products, which is an unprecedented cultural confidence. Together, these two points address the two most important factors for a brand to get off the ground: quality confidence and cultural confidence.

With quality confidence and cultural confidence as the foundation, where do we find new national brands? It still depends on the popularity of new technologies in the supply chain, and their linkage with the industrial chain to optimize.

Three and a half and Xinliangji are examples we have mentioned many times. Whether it is the freeze-drying technology of SanDongHalf or the liquid nitrogen cryogenic freezing technology of XinliangJi, they are both technologies originally applied in other industries, which have been popularized to new industries and fields, and optimized in the process of popularization, which has brought about the upgrading of the products and experience in these new industries, such as better taste reproduction and more convenient use.

The technology has been refined, adapted, upgraded, and applied to new products and categories, and industrialized, which is a bigger opportunity for consumer goods reinvention.

Next, I'll take the 3 industries of cosmetics, healthcare, and small appliances as examples of how supply chain upgrading opportunities can happen.

The technology used in the cosmetics industry has completed its progression from simple extraction to chemical synthesis to natural extracts in the early years, and the technology upgrade underway today is a shift to biotechnology applications. This upgrading of the technology itself could give birth to new brands.

This type of bio+consumer cross-disciplinary project is what we at Phonak hope to focus on in the future. Because, in our view, innovation is now almost exclusively cross-border, and breakthrough innovation mostly occurs at the intersection of disciplines.

The logic of health care and small appliances is somewhat similar.

Many healthcare products now have better efficacy or use new ingredients, and in the process of technological upgrades, they also meet the emotional needs of consumers.

If the supply chain upgrades in cosmetics are natural, the upgrades in healthcare and small appliances are more like downgrades - technologies that were strictly limited in their use have been brought down to more everyday places. For example, ingredients that were originally for pharmaceutical use are being applied to healthcare products, and instruments that were originally used in beauty salons are beginning to be householdized. This allows more people to have access to these previously "higher" technologies for longer periods of time at a lower price, leading to new brand opportunities.

For example, contact lenses, as a Class III medical device with a higher risk category, are trending from medical supplies to consumer products, and from consumer products to FMCG, on the demand side, supply side, and channel side. In this track, Phonak invested in contact lens company Hitomiology, which owns several brands such as kilala and mitata. Since May 2020, Pupilology has surpassed Haichang and Dr. Len to become the No. 1 in the online contacts category, and at the same time, it is currently the No. 1 in the online long-cycle and short-cycle categories. (Click on the link "The Milky Way in Your Eyes: A Chart to Read About the Popularity of "Pupils" | Fengrui Research Institute" to see our thoughts on the pupil market.)

To summarize, there are three main types of new branding opportunities brought about by supply chain upgrades: new opportunities arising from the cross-industry popularization of existing technologies; upgrades to the industry's own supply chain; and downsizing applications of technologies.

Second, to seize the changes in traffic and establish new brands.

In the last wave of mobile Internet outbreak era, the traffic is concentrated in the hands of a few Internet giants. The rise of short video platforms, life sharing platforms, and live streaming platforms has led to a redistribution of traffic from large oligopolies to multiple small oligopolies. We call this trend "decentralization and concentration of traffic". (Click the link "Is the Internet destined to have the next new platform? | (Click on the link "Is the Internet destined for the next new platform?" to see our thoughts on traffic shifts and the birth of new platforms.)

If the traffic is too decentralized, the brand is not doing well; if the traffic is all centralized, the brand is not doing well. The current situation is that different traffic platforms are competing with each other, and the competition has to be open, and in an open environment, brands have a better chance.

The distribution logic of the traffic platform gives brands the opportunity to start accurately. Today's artificial intelligence + big data recommendation algorithm reduces the cost of customer acquisition when brands are looking for target customers at the very beginning. Whether using new media, or using private domain traffic, brands are easier than ever to approach its target users, which is undoubtedly good for the brand "from 0 to 1", you can find your users at a lower cost and complete the rapid iteration of the product.

In addition, the rise of content platforms has given consumer brands new opportunities for growth. Even if you don't have a lot of budget, there's a chance that you'll catch fire because of one piece of explosive content, which is a very important change in the entire ecosystem.

This is the platform dividend. Any platform that is content-based will start out with content that is basically on the entertainment side, and then slowly transition to intellectual content, which is very conducive to branding. In other words, explanatory content is suitable for branding. First, it can tell the brand story, and second, it can explain those relatively complex things in the product that need to be understood. For example, why is a health product good? What's the trick to picking a red wine?

Phonak's 2020 investment, Paperclip, is very good at telling complex principles through video expression. For example, how the new coronavirus occurs and spreads, what is the freeze-drying technology used in coffee for three and a half meals, and what is the underlying logic of artificial intelligence.

If consumer brands can output their own content, like paperclips, they can use the right display and explanation to make clear those products that are hard to describe, or hard for consumers to distinguish between strengths and weaknesses. For example, why is it good? Where is good? How to distinguish it from other similar products? This is a great opportunity.

In addition to using video to 360-degree display products, some categories can also introduce some interactive sales play, such as live. Now almost every brand is open live, both with goods and customer service. Play is a very suitable for live to show the category, it is a non-standard product, the anchor can show play, while explaining, while answering consumer questions, this kind of goods more than other categories need to live.

To summarize, thanks to the rise and development of short video platforms, life-sharing platforms, and live broadcast platforms, the efficiency of communication, decision-making, and shopping guides has been dramatically improved. In this wave of efficiency upgrades, there is a window of time for new brands to grow, especially in certain vertical categories.

Third, offline brand renovation.

From the online growth of the brand radiation to the offline, has become the inevitable choice of the new brand online. From the consumer's point of view, the new brand store offline can bring consumers "instant gratification", especially the drink, instant food category. Soda, ice cream, etc. belong to this category.

Take Zhong Xuegao's ice cream as an example, of course you can order online and stock up, but now you can also buy it at the nearby convenience store and supermarket, the consumer decision-making process will be shorter, and it will be easier to convert to purchase. This also gives rise to some other opportunities, such as brand front warehousing.

"Online see, offline can instantly buy" this thing, the value of the new brand needless to say, for the offline business is also very attractive.

On the one hand, online online red products to bring up the price of the whole category, can enhance the gross profit of the offline channel business. Also cited the example of ice cream, the original offline channel sells the most expensive may be the Dream Dragon, a only a few dollars, now Zhong Xuegao all of a sudden to pull the unit price to 15 or so, for the offline merchants, accompanied by the price of the belt rise, gross profit is higher.

On the other hand, fresh brands can bring shelf dividends. Bringing in user-favorite online brands can act as a traffic magnet for merchants. Such offline refurbishment opportunities are also new growth engines for new brands that already have some visibility online.

Fourth, the new consumer scene.

The new consumption scene mentioned here refers not to goods, but to new consumption patterns. Now, we have seen the trend is that many experience show-type products in the development of new consumer scenarios like a fish out of water.

For example, Fengrui invested in the jewelry brand ACC Super Jewelry, the layout of the offline store is very sophisticated. The combination of mirrors and lights, the magic of color and light, so that consumers choose jewelry in the store, there is a kind of overall blingbling feeling, it is easy to head. So, jewelry is sold better in offline stores, and we call this the new consumer scene.

Customers selecting jewelry at ACC Super Jewelry's Wuhan and Guangzhou stores.

The categories are different, and so are the new consumption scenarios. For example, the "three pits" (Hanfu, JK, Lolita) experience hall is a new business, you can try on, you can take pictures. Another example is low alcohol, online is just selling goods, offline is different. Some time ago, we went to see a tavern, the whole scene is very suitable for the consumption of low tea and wine. In addition, VR experience halls, secret rooms and so on, are also new consumption scenes.

We think there are some opportunities in these new consumer scenarios, but the prerequisite is to deal with the logic of online and offline linkage, and to deal with the standardization of opening a chain of stores.

/ 02 /

Three Opportunities in the Entertainment Industry

After any dominant social and communication tool reaches its upper limit, there will be a new challenger. Instagram and Snapchat to Facebook, and WeChat to QQ.

One of the reasons for the rise of new social platforms is the existence of generational differences. Each generation has different preferences and choices in different social and communication tools. The different lifestyles of each generation also lead to different brands they may prefer.

At the heart of the new social platforms lies the difference in how content is produced. As an example, Weibo spells out the ability to write paragraphs, Jittery spells out the ability to make videos, and Zhihu spells out the ability to answer questions....... Different platforms inspire different ways of creating content.

From paragraphs to videos, from pop-ups to conversational novels, these completely different ways of content creation and content platforms are what we want to focus on. As the current generation of platforms approaches the upper limit of traffic, new forms are bound to emerge to serve the new generation of consumers. What kind of new forms? What kind of new forms can get up? We do not have the exact answer, but this is the direction we can go to focus on.

This is the type of opportunity we see: the change in traffic and the opportunity of the new crowd.

Next, we look at, what are the forces driving it?

I think it's primarily new technologies driving upgrades in computing platforms, which will lead to new ways of entertaining people. That's the second type of opportunity.

One example is the virtual image represented by virtual anchors and virtual idols. 2020, the various real-life celebrities overturned and collapsed, giving the virtual image an excellent window of opportunity. The two most core technologies behind the virtual image are motion capture and modeling, and right now, we are at the inflection point of the change in motion capture technology - the cell phone of motion capture.

Previously, optical motion capture and inertial motion capture, are very expensive, may be a set down is hundreds of thousands to millions, but also need to have a very large venue space to support optical motion capture shooting, these costs for most startups are extremely high, or even difficult to bear.

However, with the entry of big companies like Apple, and the iteration of AI algorithms, it is possible to realize motion capture through an ordinary cell phone camera. Therefore, we judge that for the future there will be a corresponding reasonable cost of technical solutions to reduce the cost and threshold of motion capture, to promote the increase in the supply of virtual idol content.

Fengrui has invested in the enterprise virtual movie is exploring this direction. The company produces new forms of content by using traditional 3D CG technology and motion capture technology, and by utilizing new media where new people gather, such as Jitterbug and B Station.

To take another example, new sensors, which bring new dimensions of data, give rise to new entertainment experiences. Looking back at the development of mobile gaming makes it easier to understand this logic.

In the era of push-button cell phones, the gaming experience was relatively rudimentary, and when the iPhone generation came out, it gave birth to such a hit as Angry Birds. Because of the touchscreen, the gaming experience was greatly enhanced. All we had to do was swipe our fingers and we could play games on our phones. Since then, we suddenly realized that in addition to being a communication tool, cell phones can also be used for entertainment.

The characteristic of this entertainment tool is that it is portable, you and I carry it with us at all times, and we need to use it at all times, so the time we spend on it can be fragmented. With the popularity of smartphones, the mobile gaming industry has grown rapidly, and today the market size is over $100 billion.

Now that Apple is adding a new sensor to its phones - the Tof camera - will it generate new entertainment or other opportunities?

Another example of new technology leading to new forms of entertainment is the popularity of wireless Bluetooth headsets and other wearable devices.

Our third observation is that, in retrospect, many of these interactions started as entertainment, applied to people's most basic needs, and then slowly spread to mass commerce.

For example, live broadcasting in China started from the PC era of live interactive video chat rooms, and later developed to Yingke, YY show live, and then in the last two years the fire up of the e-commerce live broadcasting, live broadcasting more than a decade, from an entertainment tool into a way of doing business.

Following this logic, we can also think about what kind of entertainment has not been applied to business, and perhaps find new entrepreneurial opportunities.

/ 03 /

Why is there an opportunity to upgrade the services sector?

At the beginning, it was mentioned that 2020 could be the new beginning of the onlineization of the service industry.

In our opinion, the prerequisite for the upgrade of the service industry is the upgrade of the quality of the practitioners. Now, the main force in the offline service industry is the post-70s, who are able to use smartphones and the Internet more skillfully than previous practitioners, and they also have better reading and communication skills. This allows them to be a key part of the onlineization of the service industry.

Second, the developed and abundant digital tools available today can help raise the bar for the service industry. These tools allow workers who already have a certain digital foundation to complete data collection on the front end, and then do standardization in the middle and back office, so that the SOP of the whole service process can be better done.

In addition, whether it is a small program, public number, the online entrance to these services, can help brands and consumers build a more long-term connection. Originally, you want consumers to use your services, either posting small ads, is to send business cards, consumers are likely to be business cards tucked in the writing desk under the glass plate, or glued to the refrigerator, the need to use the time to see can find you, can not remember even if. Later, many service brands made their own independent apps, however, the cost of getting people to download an app for a service is also high. Providing services through light apps such as small programs and public numbers is better for emerging brands to stick with users at an early stage and get off to a smooth start.

When we look at the market now, service-oriented brands are still scarce, and there are more channel-oriented brands, such as 58 Tongcheng. We believe that one of the key reasons why service-based brands have a great opportunity despite their heavy weight is that the traffic giants don't have a direct monopoly.

For example, a great competitiveness of the takeaway platform is the management of offline riders; a great skill of the taxi platform is the management of offline drivers; similarly, the courier platform has to do a good job in the management of offline couriers.

Whether it's taxi, takeout, express, almost all "online matchmaking, offline closing" business model, because of its service delivery link offline, are not purely online closed-loop traffic giants can be easily copied directly.

We are optimistic about the opportunity to upgrade the service industry. In the home improvement service sector, Phonak invested in Yibiao Technology in 2020. The company specializes in the home improvement aftermarket, providing users with services such as wall renovation, waterproofing, leakage plugging and local remodeling. The workers of Yibiao Technology are highly youthful, with the oldest workers being post-70s. Bird Technologies has also established a standardized system and talent export system to provide users with stable and standardized services.

We tend to think that entrepreneurs in the service industry have a chance if they can do two things well at the same time: manage people well and provide good service. Upgrading in the service industry is really hard work, but like other service industries such as education, finance, and healthcare, it can be very powerful when it's done well, and the better it gets, the bigger it gets.

Summary

1. New opportunities for consumer goods reinvention:

2. New opportunities for the entertainment industry:

3. Service industry upgrading has ushered in an inflection point:

3.

Interaction

What forms of entertainment have not yet been commercialized and have the opportunity to bring new consumer opportunities?

Feel free to share your insights in the comments section.