How did some of China's best consumer brands come into being?

In the just - concluded quarter, the total number of Luckin's stores reached 29,214, which is six times the number when it delisted in 2020. Over the past five years, it has transformed from losing 5.6 yuan per cup sold to stably making a profit of 1.2 yuan per cup today[1]. On the pink sheet market, its stock price has rebounded from a low of less than 1 US dollar and is constantly approaching the peak total market value of 12.9 billion US dollars before delisting.

These iconic figures form the narrative of Luckin's rebirth.

This is the most representative "reversal in adversity" case in China's business history in the past decade. It has corrected the capital market's stereotype that "Chinese concept stocks will surely die after delisting", and presented a heart - warming story of investment institutions supporting the enterprise against the odds. More importantly, it has told people through a comeback:

The Chinese consumer market is a huge entity. As long as a company continuously improves its products, it can be more resilient than everyone thinks.

If we can understand Luckin's dramatic ups and downs and detect the changes in China's consumer ecosystem and the paradigm shift in consumer investment behind it, we can more or less solve a problem that puzzles many people:

How are the best consumer brands in China today actually born?

Reclaiming the Crown

Delisting is a fatal blow to any company. However, the market has shown extreme calmness and objectivity towards Luckin. Even after being relegated to the pink sheet market, Luckin has not left the center of the institutions' field of vision.

First, Snow Lake Capital significantly raised its target price for Luckin, with the valuation approaching that of Starbucks. Its founder, Ma Ziming, publicly announced that he bought some Luckin shares on the pink sheet market to show his support[2]. Later, Centurium Capital, together with IDG Capital and Ares SSG, spent over 400 million US dollars to acquire most of the equity of Luckin Coffee, thus saving the Luckin brand.

Those who understand the business model are very clear that what has been disproven is the original management team and the approach of "burning money for scale and market share", not the business of "selling coffee to the Chinese people".

However, Luckin's rebirth is not just a re - verification of the business model, nor is it accidental luck.

At the darkest moment after delisting, professional investment institutions such as Centurium Capital and IDG Capital entered the scene. As new shareholders, they brought new funds to Luckin and carried out drastic business model reforms. After the reshuffle, the new Luckin team focused on product innovation and data - driven explosive product development, and reshaped a 2.0 version of Luckin with continuous super - popular products.

In 2021, the launch of the coconut latte announced Luckin's "return" - the monthly sales volume exceeded 20 million cups, equivalent to selling 7 cups per second. It could still make a profit with a post - coupon price of 9.9 yuan all year round. Luckin has returned to the most basic business common sense: A good product is the 1 in front, and other capabilities are the 0s behind. Scale is just the result of the product, and market share is just the manifestation of the brand.

In fact, IDG Capital has been very optimistic about Luckin from the beginning, but has never found a suitable opportunity to enter. The company's investment team judged that Luckin's brand, store network, and digital system were all in good health. It was just using a large amount of subsidies in the early stage to rapidly cultivate consumer habits in the short term, a money - burning model. The management team's eager - to - win business thinking had a huge impact on the Luckin brand.

However, the market space for the ready - to - drink beverage track where Luckin is located is still huge. IDG Capital, which invested in Heytea in the early stage, undoubtedly has more say in this regard. Back then, Heytea emerged with its innovative cheese milk cap tea, reshaped the consumption habits of Chinese tea beverages by itself, and drove and formed the current pattern of a hundred schools of thought contending in the tea beverage market.

Therefore, even after Luckin's delisting, the IDG team continued to closely track it. They spent several months conducting on - the - spot investigations at dozens of stores, collecting receipts from the moment the stores opened, and statistically analyzing data such as the number of cups. They also jointly conducted multi - dimensional data verification with third - party institutions to verify their assumptions.

They finally concluded that the delisting storm did not cause a fatal blow to sales, and the market's demand for Luckin's products was real. Products still reign supreme.

To eliminate concerns about the coconut supply chain, Luckin has simply leased the "Banggai Islands in Indonesia" in Southeast Asia this year.

To a large extent, Luckin is not an isolated case. In the five years since its rebirth, an industry - wide transformation has quietly taken place. The era of capital burning money is over. Endogenous growth characterized by "good products, high repurchase rates, and stable profits" is the real "new" aspect of new consumption.

Under such market changes, clear - headed investment institutions need to do two things well: First, sense the changes in the market environment and the turning points of the era, and resist the inertia of the old model; second, identify companies with real product power and brand power among all kinds of dazzling stories.

The era of product - driven consumer entrepreneurship has just begun, and Luckin is just one of the most well - known names among them.

The Great Era of Product - Centricity

Taking Luckin's rebirth as an observation window, in the past five years, the Chinese consumer industry has broken the superstition of the formula "Extreme price war + Massive advertising + Burning money through financing = GMV growth = Listing", bid farewell to the era of traffic supremacy, and fully entered the hardcore entrepreneurship era of "product - centricity".

This paradigm shift has not only reshaped popular consumer fields such as coffee, tea, and supermarket retail. In more vertical and segmented consumer scenarios, a group of hidden champions that define global standards have emerged, which can better penetrate the essence of this transformation.

In the past, such success stories often happened to overseas brands. For example, Lululemon started with yoga clothing and achieved an annual operating income of 1 billion US dollars. Patagonia initially served climbers and led the development of the global "eco - friendly outdoor brand" with its extreme pursuit of eco - friendly fabrics and durability.

Today, more and more Chinese consumer entrepreneurs are telling such stories.

There are two most typical cases: Insta360 and Pop Mart.

When Insta360 started its business in 2015, it targeted the pain point of consumers by creating a consumer - grade product that could "take and transmit photos immediately after being plugged into a mobile phone". Different from the global giant GoPro at that time, Insta360 focused not only on hardware parameters but also on solving software problems. Due to its highly segmented nature, there was almost no foundation in the industry and technology. Niu Kuiguang, a partner at IDG Capital, once euphemistically called it "marginal innovation"[3].

Until 2016, Insta360 launched its epoch - making product, the 360 Nano panoramic camera, and redefined the category of intelligent imaging.

Ten years later, Insta360 was listed on the Science and Technology Innovation Board. At this time, it had a market share of over 80% in the global panoramic camera market and ranked second in the action camera field, surpassing GoPro. The fact that American consumers queued up at New York's Grand Central Terminal in the early morning to buy Insta360's new products proves the influence of a Chinese consumer electronics brand among global technology enthusiasts.

New Yorkers queued up for two blocks at 5 a.m. to snap up Insta360 products. The picture above shows a user who got the product spreading the news online.

Similarly, Pop Mart initially targeted a very niche market: trendy toys. Due to its niche nature, early - stage investors were once very pessimistic about Pop Mart. The problem that the life cycle of a single IP might be short - lived has always been a concern that the market cannot avoid.

However, after Pop Mart signed a group of the best designers in China and accumulated scarce product design capabilities, it has produced a series of popular products, with a repurchase rate approaching 60% all year round. Eventually, it became one of the most popular trendy toy companies in the world.

Although they were once not favored, the success of Insta360 and Pop Mart ultimately depends on their products. Their globalization also outlines a new path for the rise of niche businesses in China: Most of the new - generation consumer entrepreneurs are themselves technology enthusiasts or product fanatics, with real and keen insights into common needs. The starting point of innovation does not necessarily point to a huge market scale but to a good product that truly solves pain points and provides an excellent experience. This pursuit of "product - centricity" can often leverage global influence in vertical fields without being restricted by regions.

As Niu Kuiguang once said, "Young people and extreme product insights are the keywords of this new era. Patience and long - term operation are qualities that investment institutions must possess."

Therefore, identifying an excellent product manager and verifying real product innovation are the greatest levers for consumer investment in this era, which can surely leverage a global consumer market.

However, there are thorns on the road behind niche tracks. Many young people and entrepreneurs have good ideas but fail to get firm support from a "mentor".

Wang Ning of Pop Mart and Liu Jingkang of Insta360 have also trudged through the fog. The support from capital has become a sharp weapon for them to cross the thorny path.

Tu Zheng of Fengqiao Capital has been investing in Pop Mart since 2011 and participated in almost every round of financing before Pop Mart's Pre - IPO, including five rounds of capital increases, four of which were direct investments, and in three rounds, he introduced co - investors at critical moments.

When Liu Jingkang of Insta360 was still a senior undergraduate student, IDG Capital allocated 600,000 US dollars to support his entrepreneurship. Over the past ten years, it has accompanied Insta360 through the process of transforming from software to hardware and from a small team to a global enterprise.

For investment institutions accustomed to the "fast - in, fast - out" approach in the traffic era, they have now entered an era truly belonging to long - termists.

Only investment institutions that dare to face the uncertainty of technology R & D, the long - term commercialization exploration cycle of new product supply, and can provide timely assistance, inject resources, or open up strategies when enterprises reach a bottleneck or encounter a crisis can find their own positions in the era of transformation in the consumer industry and gain unprecedented influence.

For example, the floor - cleaning robot brand, Ecovacs, which was accompanied by IDG Capital in the early stage, has been one of the top two best - selling brands in the United States all year round. Anker Innovations, which focuses on charging products, is among the top three in Amazon's US electronics accessories market. SHEIN, a clothing brand, has swept the global fast - fashion industry with its "small - order, quick - response" model. Yuanqi Forest has entered more than 40 countries and regions. Topwise Technology has redefined the consumer - grade 3D printer globally. The domestic fragrance brand, Obvious, has brought the narrative of Eastern aesthetics to the world. Three Squirrels, a "nut - selling" brand, has become a national snack brand... All of them have gone through a long - term commercialization exploration cycle and finally achieved fame with their "good products" with the support of the investment institutions behind them.

This is an era for Chinese consumer entrepreneurs and also an era for Chinese equity investment institutions.

During a live - stream interaction with Elon Musk, sharp - eyed netizens noticed that Donald Trump was using Anker Innovations' power bank.

The Big Ship Sails Further

Today's Chinese consumer market is an increasingly important global innovation source.

As the world's second - largest consumer market, in the second half of 2015, China's consumption growth rate began to approach its investment growth rate. Over the past decade and in the foreseeable future, consumption has been and will continue to be an increasingly important part of China's economic growth.

There are two special features of this consumer market:

First, the market is large enough. In the tea and coffee tracks alone, China has produced two companies with over ten thousand stores, Mixue Bingcheng and Luckin Coffee. At the same time, even the most niche needs can be fully verified, feedbacked, and iterated based on China's population of 1.4 billion, and then turned into a big business.

Second, it is almost the most competitive market in the world. From formulas to packaging to cold chains, China has the world's lowest - cost, most complete, and fastest - responding supply chain. New stories happen every day, and old players leave the stage every day.

The extremely attractive but extremely cruel market environment determines that local enterprises face both high elimination rates and high ceilings. Whether it was competing on price in the past or competing on products now, it's a battle in the business world, and the co - existing investment institutions behind them must also be battle - hardened.

At the current turning point, the value scale for measuring investment institutions has also undergone a structural change:

(1) The degree of trust and recognition an investment institution can get from entrepreneurs depends not only on how much money it invests but also on how many resources it can inject. It should be not only an investor but also a cultivator.

(2) Sensitivity to technology and products is the most effective "lever" for both entrepreneurs and investors. Extreme supply can still leverage the needs of global consumers.

Ultimately, consumer entrepreneurship returns to the essence of business, focusing on long - term and sustainable operations. Investment institutions also need to have the confidence and ability of long - termism, using their money, experience, and vision to jointly build a broad future for a group of good products and share their growth.

In the context of globalization, it can either be expanding the global market for Chinese brands or cultivating the Chinese market for overseas companies.

In the past few years, a notable trend is that some equity investment institutions with a foundation in the Chinese domestic market are releasing increasingly strong influence in the global consumer brand value chain.

Among them, a