"Downgrading" and "Upgrading" Coexist? Behind Some New Consumption Phenomena

In the past year or two, we have noticed some seemingly abnormal and completely contradictory consumption phenomena. Some viewpoints attribute these appearances to economic reasons, while others believe it is due to the disappearance of dividends. Both arguments make sense in their own right, but they do not provide a logically coherent judgment on consumption trends.

The changes occurring in the large consumption industry include, but are not limited to:

During Christmas 2024, cinema chains saw a significant decline, with directors calling on audiences to return to theaters: we must respect the audiovisual feast of films. Meanwhile, the Spring Festival film "Nezha 2" surged ahead, becoming a blockbuster, once again proving that high-quality content can still ignite audience enthusiasm.

On one hand, leading marinated food companies experienced a sharp decline in net profits, with many products being referred to as "duck product assassins." On the other hand, HEYTEA, which started with its first store in 2000, now has over 45,000 stores in 11 countries worldwide, becoming the largest fresh beverage company in China and globally.

On one side, the collectibles market is languishing; previously, a master’s work could fetch a luxury car, but now even at a steep discount, no one is interested. On the other side, the famous Dafen Oil Painting Village in Shenzhen remains bustling with people and has even become a well-known "global oil painting processing hub."

Various supermarkets continue to open and close as usual, with different business formats taking turns, like a gust of wind, while only Pang Donglai stands firm, even recently becoming a phenomenon known as the "Pang Donglai phenomenon."

These are all changes we can perceive in our daily lives.

As stated in "Zhuangzi," a gentleman should dwell among the wooden geese, where there will be changes like dragons and snakes. To clarify the essence behind the phenomena mentioned above, we need to answer two questions: why are these changes occurring, and why now?

01 Why are these changes occurring?

These changes are essentially the result of the entire society transitioning from a TO B culture to a TO C culture.

The so-called TO B culture refers to the culture of the second party. "The second party needs to prove itself, while the first party only needs to reveal its identity," which captures the essence of the second party culture. The consumption of the second party is about acquiring production materials, equivalent to capital expenditure; it is about pleasing others and proving to them that one is successful and living well.

TO C culture does not mean that it is the opposite of the first party culture, which waits for others to kneel. TO C culture means that consumption itself is for one's own life, for daily necessities, for self-pleasure, and does not require proving to others that one is doing well; in fact, being too ostentatious can have the opposite effect.

There is no right or wrong between TO B and TO C cultures; they may coexist for a long time, differing only in mainstream and branch distinctions.

TO B culture can explain many phenomena in daily life.

Why do salespeople usually dress quite elegantly? Because they need a sense of fashion filled with brand names to prove that they are successful salespeople.

Where have high-end liquors gone? They are used to demonstrate sincerity to the first party during business banquets. Similarly, the decline of red wine is because it is not easy to make the first party understand how much this bottle of wine is worth.

Why do many people buy luxury or even ultra-luxury cars? Because these individuals at least want others to know that they are doing well, and some bosses own luxury cars to make clients believe they are capable and successful In cinemas, for couples, it is also a TO B culture; what to watch is not important, but the atmosphere is.

For a production material, the key is not the cost-performance ratio, but how much additional value it can generate for oneself.

TO C culture is easy to explain; it is the civic culture we usually understand, with the core being the cost-performance ratio. It is not that one cannot make oneself happy, but one must consider the thickness of their wallet.

With duck goods assassins, some people buy duck goods raw materials to marinate themselves; high-end down jackets are too expensive, so there are videos teaching everyone how to fill down themselves and make their own down jackets; when movie tickets rise in price, consumers watch short dramas at home, and without blockbusters, they do not go to the cinema.

My wallet is my own decision; no merchant should think of PUAing me.

02 Why Now?

The shift from TO B culture to TO C culture corresponds to the change in the driving forces of economic growth.

The speed of economic growth is indeed slowing down. From 1980 to 2010, these thirty years were the fastest growing thirty years, with GDP growth rates in most years above 8%. Since 2010, economic growth has stepped down a level, but it is still above 6%. By 2019, the median GDP growth rate had basically fallen to around 5%.

From the perspective of the three driving forces of economic growth, since 1978, the sources of China's GDP growth have been both consumption and investment, with investment becoming the core of macroeconomic regulation. The driving effect of consumption on GDP is relatively stable, while the elasticity of investment is relatively large. After the world financial crisis in 2009 and during the pandemic in 2020, investment contributed most of the GDP increment.

Since 1978, the median contribution of consumption and investment to GDP growth has been 56.9% and 41.1%, respectively. From an international comparison perspective, China's investment's role in driving GDP is relatively high. In developed countries in Europe and America, the contribution of consumption to GDP growth is generally around 80%.

This means that when GDP enters a high-quality development stage, the impact of investment will gradually decline, and investment is the foundation of TO B culture Why is it said that investment is the foundation of TO B culture?

Material conditions determine consciousness, and the economic base determines the superstructure. The structure of productive forces will also determine the consumption concepts. With a monthly salary of 30,000, and take-home pay of 20,000, the consumption concepts of engineers, real estate salespeople, and financial practitioners are certainly worlds apart.

03‍ Culture has no high or low, what matters is whether it fits

Culture and concepts have no high or low; what matters is whether they are suitable for oneself.

There is a story about Fan Li in the "Records of the Grand Historian." After fleeing from the State of Yue, Fan Li settled in the State of Qi and became immensely wealthy, calling himself "Tao Zhu Gong."

Tao Zhu Gong had three sons. His second son was arrested in the State of Chu for murder and was to be executed. Being his son, he wanted to save him. Tao Zhu Gong sent his youngest son with a large cart of gifts to visit his good friend Zhuang Sheng in Chu. As a result, the eldest son was unwilling, believing that such a significant matter involving a large fortune should involve him as the eldest son, and felt it was a sign of distrust. Thus, the eldest son protested and even threatened to commit suicide, forcing Tao Zhu Gong to let him go.

As expected, the eldest son messed things up. Unable to part with the large fortune, he angered Zhuang Sheng, who, in a fit of rage, had the Chu king behead the second son.

Tao Zhu Gong explained that the eldest son had started a business with him, enduring hardships and knowing how difficult it is to make money, so it was natural for him to be reluctant to part with wealth. By the time the youngest son was born, the family was already wealthy, living lavishly and spending money freely. Therefore, it was appropriate for the youngest son to handle the matter of saving the second son; the eldest son going would inevitably lead to failure.

This is a wonderful story that vividly illustrates the formation and actual differences of two different consumption concepts.

Every enterprise hopes that its products can achieve upward breakthroughs, becoming TO B consumption objects, enjoying high gross margins and high profits. However, in reality, they often face three awkward situations.

The first is the negative impression that products leave on consumers.

In 2024, there is a very obvious change: the sales of traditional luxury fuel vehicles in China have dropped by 30% or even nearly halved.

The luxury car consumer group is not just driven by cost-performance ratio. This group at least wants 90% of the people around them to feel that they are successful or living well. However, the rapid rise of new energy vehicles, which outperform traditional fuel vehicles in terms of performance and intelligence, will at least make some of these luxury car owners, even if only 10%, feel that these car owners are not so sharp. Clearly, the story of luxury cars cannot be told convincingly.

In fact, many of these former luxury car owners have turned to Aito M9. They are not so sensitive to price; they believe this car matches their high-end needs.

Another dynamic situation is that some products, which originally became popular due to good TO C performance, then the company wants to upscale, telling a TO B story, but the price rises while the quality diminishes. As a result, when the trend passes, the TO B story fails to be told, and they lose their TO C customers Such cases are everywhere, with small food, catering, and clothing being heavily affected. This is because these industries have no real technological barriers.

There is a saying, "Having a bit of charm and a bit of talent can be quite awkward. At countless moments, you stand on the first step, thinking you have glimpsed the light of heaven."

The last and most important question is that the truly high-end, the real B2B market, is not large.

04 Future Consumption Trends

We acknowledge that the future is unpredictable, but the act of predicting itself represents a kind of aspiration.

1. Embrace the arrival of B2C culture and firmly pursue a high cost-performance route

Kweichow Moutai is just an example. Looking at the world, leading companies by market value are basically following the mass consumption route.

It is difficult to list global leading publicly traded companies that are positioned as high-end luxury brands.

The core of a brand ultimately lies in high cost-performance. What you think of as luxury goods is essentially still about cost-performance. Aito M9 has already captured half of the market share in the Chinese automotive market above 500,000, not just relying on the foundation of Eastern Xiaokang, but at this price point, its product strength is unbeatable.

Products ultimately face the experience of individual consumers.

If the experience of consumers going to the cinema is no different from watching a short drama at home, then why would they go to the cinema?

If consumers can make a big meal by buying a cooking kit, why would they go to a restaurant?

A business model should first consider how to help consumers understand the cost-performance involved, whether it is a product or a service. Most low-cost, high cost-performance products or services cannot last long.

2. Invest in things that young people like

Post-2000s wonder why a bottle of liquor costs 3,000 yuan and is still in short supply, while post-75s cannot understand why someone would spend so much on blind boxes.

Each generation has its own preferences, and every generation has its own version of Moutai; existence is reasonable.

If the previous generation's favorite things do not interest the next generation, and no one takes over, the market can easily collapse. Prices are determined by transactions. The older generation will eventually pass away, and with new people replacing the old, if there are no young people to take over, it will only lead to a situation where there is a price but no market, ultimately gathering dust.

Because now no one writes letters by hand; everyone sends emails, and the stamp collecting market has disappeared. Fewer people write with brush pens, and the calligraphy and painting market is gradually fading from public view. In addition, jewelry, jade, and cultural collectibles are industries that young people do not understand and have a high entry barrier, facing the same consumer education challenges.

If you tell young people, "People nurture jade for three years, and jade nurtures people for a lifetime," they will ask you how the mineral sodium aluminum silicate (the chemical composition of jade) is related to people. At that point, the conversation cannot continue.

Young people now like blind boxes and trendy toys. This has led to the emergence of Pop Mart and Blokus, a phenomenon known as the "millet economy."

I sincerely suggest that those still invested in liquor take a look at Pop Mart stores; even if you do not agree, it does not hurt to change the atmosphere.

3. The Pang Donglai phenomenon The popularity of Pang Donglai has become an annual phenomenon. However, this matter is actually not much related to morality or character, and does not require excessive spiritual interpretation.

This is a core contradiction that has not been resolved since the advent of commodity economy, which is, who should dominate the profits in the circulation link, the manufacturers or the channels.

In short, in the process that influences consumers' final choices, who plays a bigger role, the manufacturers or the channels.

It's either the east wind suppressing the west wind or the west wind suppressing the east wind. Whoever has a greater influence can take a larger share of the cake.

In industries where manufacturers are destined to be strong, no matter how capable the channels are, they cannot rise. There are many trade enterprises that treat employees well and provide good services, not just Pang Donglai. The former Jinan Sanlian Home Appliances was also a presence with both excellent performance and reputation. The problem lies in the home appliance sector, where consumers still perceive product brands and manufacturers as more important, making it difficult for channels to thrive. We can also see that former giants in the home appliance market, such as Gome and Suning, have ultimately disappeared from the public's view.

Similar to home appliances, there are also electronic consumer products like automobiles and mobile phones. The more standardized industrial finished products and electronic products that rely on a certain level of technology, the less significant the role of channels. However, for non-standard industrial products and agricultural products, channels can easily play a dominant role.

What truly attracts consumers to Pang Donglai are two major categories: tea and jewelry. The market for tea is generally perceived as a non-standard product, "the water is deep," and not everyone has the time and mood to learn about tea knowledge. When comparing prices, I just want to buy some tea without being overly cheated. As for jewelry, the situation is similar to tea, with significant product differences and high identification thresholds, and the quality in general supermarkets can also be quite variable. Given this, excellent channels can earn their due profits.

A counterexample is the automobile industry. Even national super dealers remain weak in front of complete vehicle manufacturers.

4. Baijiu

Many investors have faith in baijiu, after all, they have made money from it.

The logic that young people do not drink baijiu and that there is no successor for baijiu has been the main bearish argument in the past. However, this is worth discussing because as people age, their taste and smell gradually decline, so many people only discover their increasing acceptance of baijiu after reaching middle age.

Baijiu appears as a kind of quasi-cash equivalent in interpersonal communication. It has a long shelf life, clear and transparent pricing, and offers a range of high, medium, and low prices, allowing for personal choice. Therefore, for a long time, baijiu has represented TO B culture, used not only for business receptions but also as a lubricant for personal relationships, with a vast market.

These two uses will continue to exist in the long term, which is not in question. The excellent financial indicators of baijiu stocks are also unlikely to change significantly in the future.

However, the shift from TO B culture to TO C culture means that consumer demand is increasingly focused on cost-effectiveness, and the demand for ostentation is declining.

5. Silver Economy

In recent years, there has always been talk about the changes in consumption behavior brought about by aging, with a specific term called "silver economy."

Logically, there is nothing wrong with this; the concept and story are also good, but the fact proves that the silver economy has been overestimated Normally, a person's consumption over their entire life cycle is as follows: when young, income is less than expenditure, so borrowing is necessary to complete education or purchase the first home; in middle age, wealth gradually accumulates; and in old age, after retirement, expenditure exceeds income, leading to the depletion of wealth, such as selling a house to maintain living expenses. This is a model commonly used by economists.

However, research on the baby boomer generation in the United States from 1946 to 1964 shows that this model is incorrect. Older adults do not allow themselves to be in a situation where expenditure exceeds income; they either continue to work with gray hair or tighten their belts to ensure a balanced budget each year. In economic terms, this means a decline in marginal propensity to consume, while the savings rate rises.

Moreover, even in industries directly related to older adults, such as medications for age-related diseases and anti-aging cosmetics, the overall performance, according to indices constructed by MSCI, has not outperformed the industry average.

If we do not consider outlier cases, such as selling health products, the biggest increment brought by the silver economy is the demand for wealth management.

During the 20 years from 1980 to 2000, U.S. mutual funds experienced rapid growth in industry scale and revenue, as the baby boomer generation began to enter middle age and invested in their retirement lives, driving the long-term sustainable development of the mutual fund market. Among them, equity funds saw an annualized growth rate of 24% over these 20 years.

In 1974, the United States enacted the Employee Retirement Income Security Act, which spurred the rise of corporate pensions and individual retirement accounts. The main investment target for corporate pensions and individual retirement accounts is the stock market.

Therefore, we can have long-term confidence in the stock market.

Author of this article: Yu Laotou, Source: Gao Yi Asset Management, Original title: "Coexistence of 'Downgrading' and 'Upgrading'? Behind Some New Consumption Phenomena | Observing the Times"

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