Beauty is a technical activity, and domestic beauty cosmetics accelerate overtaking in corners in the "composition age"

  Everyone has a love of beauty. In the era of Yan value economy, consumers’ pursuit of beauty supports the sustained growth of the beauty industry. However, in a long historical period, foreign brands have always occupied a dominant position in China’s beauty market, and the late-developing domestic brands can only catch up with each other in this marathon.

  However, the competitive landscape is changing. In recent years, the rise of domestic beauty cosmetics has accelerated, and the market penetration rate has steadily increased. Last year’s "double 11", a report card made everyone shine-domestic brands surpassed international brands for the first time and won the beauty category titles on Tmall and Tik Tok platforms. In the context of the general decline of foreign brands, domestic beauty products have achieved contrarian growth. The "proud" performance is not only driven by the new trend in the consumption field, but also depends on the strong investment of domestic brands in ingredient research and development, the continuous pursuit of cost performance and the gradual improvement of brand strength.

  Recently,In the "Times Meeting Room" column, the reporter had an in-depth conversation with Sun Huaiqing, Chairman and CEO of the Board of Directors, and Xu Xiaofang, Chief Analyst of Beauty and Commerce of CITIC Securities Research Department, to analyze the reasons behind the rise of domestic beauty products, discuss how technology can reshape the competitive landscape of China’s beauty industry in the "Composition Age", and look forward to the investment opportunities of beauty track in 2024.

  Leading the "Component Age" with "Chip-level Revolution"

  "2023 is the first year of China cosmetics, and it is also the origin of national brands surpassing multinational brands in an all-round way." Sun Huaiqing said that during several major e-commerce promotion activities last year, there was an obvious "trade-off" in the sales growth rate of national brands and multinational brands. On the one hand, some national brands have gained dozens of points of growth; On the other hand, some international brands have experienced a bleak performance decline.

  According to the data of China Cosmetics Yearbook 2023, the domestic cosmetic market in China in 2023 is larger than that of foreign brands. It is worth noting that this is also the first time that domestic brands have surpassed foreign brands in online and offline channels. In Sun Huaiqing’s view, "this is not the end" and the trend will continue.

  What does domestic beauty accelerate to catch up with? Both Sun Huaiqing and Xu Xiaofang frequently mentioned the progress of raw materials and the rise of local ingredients. "In the past few years, we have paid attention to the rise of a number of local bioactive raw materials suppliers in China, which can provide high-quality and low-cost raw materials for downstream brands to add in sufficient quantities. This laid a solid foundation for the product strength of domestic beauty products. " Xu Xiaofang said.

  In recent years, Chinese consumers’ awareness of ingredients has deepened, and the demand for skin care products has advanced towards more personalized segmentation. Recombinant collagen is the "new top flow" in the current functional skin care track. Especially in recent days, international big names have entered the market one after another, betting on recombinant collagen components. LVMH’s private equity fund led the domestic recombinant collagen enterprises in September last year, and L ‘Oreal also introduced recombinant collagen into new products in December last year. According to the global growth consulting firm Jost Sullivan, in 2025, the market share of recombinant collagen will surpass hyaluronic acid and become the first raw material component of skin care products.

  In the cosmetics industry, raw materials and ingredients have always been regarded as the "soul", which is also the shortcoming and weakness of China cosmetics companies in the past. However, in the component of recombinant collagen, local domestic brands have played the role of "leader". "Marumi announced in 2021 that China is leading the world in the research of recombinant collagen, and we are long-term practitioners, cultivators and leaders of this ingredient." Sun Huaiqing said.

  Anti-aging is the rigid demand of skin care products. The essence of aging is the loss of human collagen. To resist aging, it is necessary to prescribe the right medicine and supplement collagen. At present, animal-derived collagen is widely used in skin care products because of its low cost and simple process. According to Sun Huaiqing, animal-derived collagen has three natural pain points: first, extracted from animal leather, it is inevitable that there is solvent residue, which is not gentle enough; Second, animal products may carry pathogens and are not safe enough; Third, animal collagen and human collagen are not the same species, and the absorption effect is not good enough.

  "In order to solve these problems, there are many skin care products that stimulate the skin to produce collagen by using ingredients such as retinol or peptides. Through more than 10 years of research, we have synthesized humanized collagen similar to collagen in human skin by gene recombination, which can directly supplement the collagen lost by human body. " Sun Huaiqing said.

  Chip is regarded as the key to China’s breakthrough in the field of science and technology, and Sun Huaiqing regards the success of component research and development as a "chip-level revolution". "The change brought by China brand to China cosmetics industry is a’ chip-level revolution’. This is the goal we are striving for and what is happening now. " Sun Huaiqing said.

  "It’s not that foreign goods can’t afford it, but that domestic products are more cost-effective." "You can buy expensive ones, but you can’t buy expensive ones." … Under the background of the rise of generation Z and the change of consumption concept, the global consumer industry has ushered in profound changes, and the behavior pattern of the younger generation of consumers has changed from blindly advocating big brands to rational consumption and pursuing cost-effectiveness.

  This trend in the field of consumption is undoubtedly a great opportunity for domestic beauty.

  "At this stage, China Cosmetics fits consumers’ pursuit of cost performance very well." Xu Xiaofang told reporters that the booming raw material supply in the upstream provided raw materials with reasonable price, high activity and high purity, which enabled the downstream cosmetics brands to make skin care products with the same effect as international brands, and the price was more advantageous, thus better meeting the needs of consumers in China.

  In the past, domestic beauty cosmetics gave people the impression that they were "big brands and cheap bowls". Is the current popular "cost performance" another synonym for low quality and low price? Sun Huaiqing gave a clear negative answer to this question. In his view, consumers have grown more savvy, and savvy consumers always hope that the money they pay is valuable when buying goods. High cost performance does not mean that the absolute price is low, but that the quality of this product brings consumers "sex" far higher than "price".

  Take Marubi’s recombinant collagen mini-golden needle essence product as an example. According to Sun Huaiqing, the current price of this product is between 300 yuan and 400 yuan, but other products with similar efficacy and skin care experience on the market may cost 500 yuan to 600 yuan. Comparing the two, Marumi’s products are more cost-effective. "Cost performance has nothing to do with the absolute value of the price, but with the experience, feeling and change it brings to people. Marumi is a firm follower, practitioner and leader in cost performance. " Sun Huaiqing said.

  Xu Xiaofang also observed that with the all-round progress of domestic beauty cosmetics in raw materials, packaging and marketing, the prices of many local cosmetic brands are gradually increasing. "Five years ago, the unit price of many mainstream local brand goods was around 100 yuan, and now it has gradually expanded to 200 yuan and higher price bands. But the current price is not too high, so it still has a strong cost performance for consumers. " Xu Xiaofang said.

  At the same time, with the generation Z, represented by the post-90s generation, gradually becoming the main consumer in the field of beauty cosmetics, the new generation of consumers are more rational and smart in their consumption behavior, with stronger national self-confidence and higher willingness to try local brands, which provides broad opportunities for the rise of domestic beauty cosmetics.

  Sun Huaiqing told reporters that the average penetration rate of cosmetics among post-90s consumers in China has exceeded that of foreign consumers, which means that their demand for skin care and make-up is stronger. What this generation has seen is a prosperous and prosperous China, which not only has economic self-confidence, but also gains cultural self-confidence in the process of growing up. The founders and operators of China brand know China consumers better and are better at emotional interaction with China consumers than multinational brands, so they have more advantages.

  In recent years, the competition in the booming beauty industry has become increasingly fierce, and a number of cutting-edge brands have risen rapidly, which are favored by young consumers and have a very strong growth momentum. In this regard, as a domestic brand with a history of more than 20 years, Sun Huaiqing believes that Marumi still has strong vitality. "In a forest, vines, vines and ferns often grow fastest, but the trees have the strongest vitality." Sun Huaiqing said that the continuous investment in R&D, perfect supply chain, abundant capital reserves, a team of over 1,000 people with common values, and a basic customer base of over 10 million people are all the advantages and confidence of Marumi. "Only when the roots are deep will the trees grow tall." In Sun Huaiqing’s view, Marumi is the big tree in the forest with its roots deeply rooted in the ground.

  Although in 2023, domestic beauty products achieved many surprising results in terms of increasing domestic market share and "sailing out to sea", in the secondary market, the beauty sector as a whole was in a downward channel in the past year. There is a certain degree of deviation between the industry performance and the valuation trend of the secondary market.

  In this regard, Xu Xiaofang said that the rise and fall of stock prices is not only related to the fundamental situation of the industry and the company, but also the result of the comprehensive effects of valuation, capital movements, policy changes and other factors. In the past few years, the valuation of the entire beauty plate has experienced a period of continuous increase. In 2023, the valuation ushered in adjustment and decline, and the reflection on the stock price was also obvious. "But from a longer time axis, the price of the stock will definitely reflect the real value of the company in the end." Xu Xiaofang said.

  "I boldly predict that in the next 5-7 years, the sales of China brand in China market will completely surpass those of multinational brands." Sun Huaiqing told reporters. At the same time, he predicted that three to five world-class cosmetics groups would be born in China no later than 2049. Based on this judgment, he believes that smart and far-sighted investors will use their own money to cast brands that they think are worth investing in. Therefore, the value of an excellent company will eventually be reflected in the stock price.

  "Looking forward to 2024, we will continue to maintain confidence in the beauty industry, which is expected to continue to grow steadily." Talking about the investment opportunities in 2024, Xu Xiaofang judged this. Specifically, she believes that investors can pay attention to some structural opportunities when laying out the beauty track, and there are three main lines to focus on: first, continue to follow the main line of cost performance, second, make beauty science and technology, and third, pay attention to a group of China local raw material enterprises that are rising in the upstream of the industrial chain.