can domestic products remain “top-tier”?

author | wu lijuan

editor丨gao yuanshan

source | yema finance

the drama of "marriage between wealthy families", the return of a top student and a beautiful woman to inherit a trillion-dollar fortune... "shuangwen" is becoming a reality!

as the pioneering generation of private entrepreneurs retreats behind the scenes, wahaha’s zong fuli, jie liya’s shi zhancheng,qumei home furnishingyoung entrepreneurs such as zhao zelong are taking over one after another, and the second generation of enterprises is coming to the forefront step by step. they are the epitome of the wave of second-generation succession of enterprises, and they are also a model of inheritance in the challenges and changes of chinese private enterprises.

recently, another second-generation wenzhou enterprise took center stage. domestic beauty faucetproyain a coaching change, former ceo and co-founder fang yuyou resigned and no longer served as director and general manager of the company. hou yameng, son of deputy general manager and actual controller hou juncheng, took over.

as one of the representatives of domestic cosmetics companies, proya started from a small county in the past 20 years, used differentiated competition to find a place in the cracks, and grew into the industry leader it is today. proya is currently at a high point of development, ranking first among domestic beauty companies in revenue in 2023 and the first half of 2024. however, behind the double growth in revenue and net profit, proya has also been criticized for "emphasizing marketing and neglecting r&d". for a long time, proya has attached great importance to heavy investment and celebrity effect. popular celebrities such as song joong-ki, li yifeng, cai xukun, and big s have all been historical spokespersons.

proya's performance in the secondary market is no less impressive. its stock price has risen from the issue price of 15.34 yuan/share to 110.09 yuan/share today, with a market value of 43.7 billion yuan.

at present, the market competition in the beauty industry is becoming increasingly fierce. after the new generation takes up the banner of their parents,whether proya's high growth can be sustained and whether it can firmly remain in the top 100 domestic cosmetics brands will all be challenges it faces.。

"post-85s" take over

some senior executives resigned

in mid-september, proya held its first extraordinary shareholders' meeting in 2024 to elect members of the new board of directors and supervisory board, and held a new board meeting to appoint the company's new senior managers. co-founder fang yuyou is not among them. he has been a director of proya for nearly 10 years.

proya stated that fang yuyou will no longer serve as the company's director and general manager, and proya's deputy general manager hou yameng was appointed as the company's general manager. hou yameng is the son of the controlling shareholder and actual controller hou juncheng and fang aiqin. he was born in december 1988.

at present,hou yameng does not hold proya shares. hou juncheng directly holds about 137 million shares of the company, with a shareholding ratio of 34.46%, and is the largest shareholder of proya.fang yuyou is also the third largest shareholder, holding 15.03% of proya’s shares., second only to hou juncheng and hong kong securities clearing company limited.

as for the reason for fang yuyou's resignation, proya said: "mr. fang yuyou will no longer serve as the company's director and general manager due to personal reasons. he will continue to be the company's co-founder and board advisor, assisting the company's strategic planning and operational management support."

according to "china business news" citing industry insiders, proya's development in the past 20 years is different from the "general direction" controlled by hou juncheng.fang yuyouhe is the “chief trader” in the entire process.he is the "first person responsible" for the operation and management of the enterprise, brand, channel and team.。

in recent years, fang yuyou has frequently reduced his stake in proya and accelerated his business layout in rural cultural tourism, plant beverages, commercial complexes and other fields.

in november 2020, as soon as the restricted shares of l'oreal held by fang yuyou were lifted, he launched a reduction plan. in the end, he actually reduced his holdings by 6.6463 million shares and cashed out 1.118 billion yuan. from august 30, 2021 to february 13, 2022, it actually reduced its holdings by 5.8638 million shares, cashing out 1.117 billion yuan. between september 19, 2022 and march 17, 2023, 8.2975 million shares were actually reduced and 1.338 billion yuan was cashed out. in april 2023, fang yuyou disclosed the fourth shareholding reduction plan, which was ultimately not implemented.since 2020, fang yuyou has reduced his holdings of proya shares by a total of 22.206 million shares, cashing out a total of approximately 3.573 billion yuan.。

from starting offline to transitioning to online, from low-end products to large single product lines, fang yuyou has been involved in proya's development experience in important stages in the past.

proya also said that during fang yuyou's tenure, he achieved outstanding achievements. he not only led the company to achieve breakthrough results in performance, build a multi-brand matrix, but also actively promoted the implementation of the "forward-looking 6*n strategy". this strategy plays a key role in multi-dimensional construction such as r&d, products, brands, and organizations, and promotes the company to establish multiple systems that are systematic, standardized, and standardized.

source: can gallery

hou yamengyuworked in proya’s e-commerce department since 2014, has been serving as the company's director and deputy general manager since september 2021. he has gone deep into the company's front lines and accumulated rich practical experience in brand, product, marketing and other aspects. in the same year, hou yameng also served as the legal person, executive director and general manager of hangzhou caitang cosmetics co., ltd., a subsidiary of proya holdings.

zhang yi, ceo and chief analyst of iimedia consulting, believes that judging from the current development status of proya, its reputation, actual sales, and performance are still good. the background and experience of the successor are also very important. hou yameng mainly worked in the e-commerce department in the past, and proya’s main product sales channel is e-commerce trade. therefore, he will still have a relatively solid foundation in terms of some practical experience in brand product marketing, product channels and product positioning, and consumer awareness.

in addition to the replacement of the general manager position, proya's executives have changed frequently in recent years, and some core personnel have even been lost.

in 2022, those who have served for more than 10 years willchief r&d officer jiang ligang resigned, he has launched the "bubble mask" and "morning c and night a" series of popular products. on july 18 this year, jiang ligangjoin pechoin. andsuccessor, former vice president of research and development, asia pacific, coty groupwei xiaolanthe period of employment is from 2022 to 2024, also this yearresigned in july, the research and development work was taken over by co-founder cao liangguo.

also,former cmo ye wei will leave in january 2024, his tenure is from 2018 to 2024. this period is the stage of rapid development of proya's online transformation. ye wei once led proya's revenue to grow from 2.361 billion yuan in 2018 to 8.905 billion yuan in 2023. nowtransferred to shanghai jahwa, serves as brand marketing consultant.

marketing exceeded 2.3 billion yuan in half a year

rely on online channels

women make money easily, and this is clearly reflected in the beauty industry.

2023 is the year when domestic beauty and skin care brands will rise in an all-round way.domestic products surpassed foreign brands for the first time with a market share of 50.4%, consumers’ sense of identification with domestic products continues to increase.

in 2023, proya won the championship with revenue of 8.905 billion, becoming the domestic beauty leader that has topped the list for many years.shanghai jahwa, ranked second with 6.595 billion, and revenue decreased by 7.16% year-on-year.

in the first half of 2024, proya achieved operating income of 5.001 billion yuan, a year-on-year increase of 37.9%; net profit attributable to shareholders of listed companies was 702 million yuan, a year-on-year increase of 40.48%, continuing to maintain its first position. in the first half of 2024, the proya brand ranked first in the essence and cream categories on the tmall platform, maintaining its leading position.

however, although proya has successfully become the leader in domestic beauty products, while its performance continues to grow, hidden worries are also emerging.

the beauty industry has long been criticized for "emphasis on marketing and neglect of r&d", and proya is no exception. from 2020 to 2022, its research and development expense rates are 1.92%, 1.65%, and 2% respectively. in 2023, r&d expenses will be 174 million yuan, a year-on-year increase of 35.59%.still far lower than other brands in the same industry.

source: can gallery

in comparison,bethanyr&d expenses are 299 million yuan, and the r&d expense rate is 6.07%; shanghai jahwa’s r&d investment is 147 million yuan, and the r&d expense rate is 2.22%;giant creature、marumi co., ltd.none of the r&d expenses exceeded 100 million yuan, and the r&d expense rates were 2.1% and 2.8% respectively. the 2023 financial report shows,bloomage biotechnologythere are 926 r&d personnel, bethany has over 400, while proya has only 322. financial report data for the first half of 2024 shows that proya’s r&d expenses accounted for 1.89% of revenue, which is far lower than huaxi biotech’s 7.31% and bettany’s 4.64%, and slightly lower than shanghai jahwa’s 2.07% and juzi biotech’s 1.9%. and shangmei group’s 2.24%.

however, although proya does not invest much in research and development, it is most willing to spend money on marketing. especially after the launch of the large single product strategy in 2020, sales expenses have reached new highs.since 2020, its sales expense ratio has continued to increase, from 39.9% in 2020 to 44.61% in 2023。

from 2020 to 2023, proya's sales expenses were 1.497 billion yuan, 1.992 billion yuan, 2.786 billion yuan, and 3.972 billion yuan respectively, and the sales expense rates reached 39.9%, 42.98%, 43.63%, and 44.61% respectively. mainly include new brand incubation, offline channel and overseas channel exploration.

with the development of live streaming e-commerce in full swing and the explosion of online channels, domestic beauty and cosmetics companies are paying more and more attention to marketing.

source: pexels

in 2023, beauty companies will regard e-commerce as an opportunity to accelerate development, but chasing traffic is also expensive. it can be seen from proya's annual report that heavy marketing has become one of the engines that drives revenue. among them, proya's sales expenses are mainly used for image promotion. in 2023, the company's image publicity and promotion expenses will reach 3.534 billion yuan, a year-on-year increase of 46.04%.

that is to say,in 2023, proya invested 174 million yuan in r&d expenses, but used 4 billion for operating expenses.pin. it is worth noting that as of the end of 2023, proya’s cash on hand was 4.053 billion yuan.in 2023, sales expenses will be basically equal to the monetary funds on the account.。

from january to june 2024, proya's sales expenses were 2.34 billion yuan, accounting for 46.78% of operating income, a year-on-year increase of 760 million yuan, an increase of 48.08%, mainly due to a year-on-year increase of 688 million yuan in image publicity and promotion expenses, a year-on-year increase of 50.03%.

2020-2024,in the past four and a half years, proya’s sales expenses have totaled approximately 12.6 billion yuan.. the sales expenses are mainly used for image promotion. in 2023, the image promotion fee will reach 3.534 billion yuan, a year-on-year increase of 46.04%.from 2020 to 2023, proya’s total investment in image publicity and promotion exceeded 8.8 billion yuan。

proyathe net cash flow generated from operating activities in the first half of the year was 662 million yuan, a year-on-year decrease of 43.95%.. regarding the reasons for the change, proya explained in the announcement that it was mainly affected by three factors: first, the operating income increased year-on-year, and the cash received from selling goods increased; second, the payment for goods increased; third,increase in image promotion fees paid。

proya has a sales model that focuses on online channels and parallel offline channels. in fact, proya has seized the business opportunities in online channels very early. it started live e-commerce in 2016 and entered short videos such as douyin and kuaishou in 2018. in 2019, proya still adopted a sales model that combined offline and online channels. online revenue accounted for 53.09% and offline accounted for 46.91%.by 2023, the ratio of online and offline operating income has become 9:1, the growth of operating income is mainly due to online channels, andthe proportion of online direct channel sales will increase from 60.66% in 2021 to 75.91% in 2023。

feigua data shows that at the beginning of 2023, proya had 1,943 douyin anchors, among whom the number of anchors with the "beauty" label was the largest, reaching 115; there were 9 anchors with the "star" label, including jia nailiang, cao ying, and zhu zixiao wait.

it is true that sales growth and brand exposure can be achieved through large-scale marketing. however, it is more important for beauty companies to make breakthroughs in the technical field. zhang yi believes that the first isbiotechnology and gene editing technologyaspect. these technologies can be used to develop new skin care products with specific functions, such as freckle removal, moisturizing, whitening, etc., to meet consumers' needs for personalized and high-end skin care products. secondly,bio-extraction technology and pure natural extraction of essence herbs, there is still broad room for application and development. especially in china, traditional chinese medicine has a deep-rooted influence on the consumption habits of chinese people and can give full play to chinese cultural medicine. in addition,strengthen digital marketing and intelligent manufacturingin other aspects, it can improve the efficiency of the enterprise, reduce the cost of the enterprise, optimize the production process, explore and gain insight into the consumer experience, and improve the efficiency of marketing.

second generation ascends to power

can proya maintain its “top status”?

on xiaohongshu, many consumers praise domestic beauty brands. from the original goose egg powder and fragrance powder to shanghai cream and dabao sod honey, to today's proya (603605.sh), hanshu, and huaxi biotechnology (688363.sh). the rise of domestic beauty products is nothing new.

hou juncheng, the founder of proya, is a typical wenzhou businessman. in the 1990s, he already represented various cosmetics, such as the well-known pond's,shiseidoand kose and so on. in 1999, hou juncheng moved from yiwu to hangzhou. after accumulating certain resources and strength, he founded proya in 2003. after proya was founded, it was once ridiculed as a copycat domestic cosmetics that took advantage of the popularity of "foreign brands".

source: oriental fortune stock bar

to this day, there are still investors discussing proya’s name.

unexpectedly, the imitator, which was once regarded as a "l'oréal copycat" by the outside world, quickly established a foothold in a few years and was successfully listed in 2017.

in 2020, proya carried out a strategic transformation, which included two key changes:the first is to establish a product-driven strategy and create large single products; the second is to rapidly increase the proportion of online sales. in the 2020 annual report, proya proposed for the first time the implementation of a large-scale single product strategy, launching "bubble mask" and "glow bottle" respectively. the “luminous bottle” is launched for competitionestee lauder"little brown bottle", sk ii fairy water. we also create large items such as ruby ​​essence and double anti-aging essence.

caitang is a brand founded by makeup artist tang yi in 2014. it was acquired by proya in 2019. in 2023, caitang's revenue will exceed 1 billion yuan, becoming another performance growth point in addition to proya's main brand "proya". however, caitang's revenue growth slowed down. from 2021 to 2023, they are 103.48%, 132.04%, and 75.06% respectively.

on double eleven in 2023, proya overtook l'oréal for the first time and became the top 1 skin care brand on tmall., becoming a highlight node in the history of domestic beauty products. in 618 this year, proya once again defeated l'oreal on tmall and defended its title.

hou juncheng once said that we want to be china's proya, and even the world's proya, and strive to become an excellent century-old enterprise.

although proya takes the top spot in domestic beauty products, it still lags far behind international giants such as l'oréal and estee lauder.in the first quarter of 2024, l'oreal's sales were 11.24 billion euros (approximately rmb 87.3 billion), which is equivalent to nearly 10 times proya's annual revenue (8.905 billion yuan).

from the perspective of product development history, proya’s earliest dual-antibody and ruby ​​products are only 5 years old, and estee lauder’s small brown bottle is 42 years old.

source: pexels

iimedia consulting research data shows that the market size of china's cosmetics industry will be approximately 516.9 billion yuan in 2023, a year-on-year increase of 6.4%, and is expected to increase to 579.1 billion yuan in 2025.

especially now, the consumer demand for beauty products is strong, but the market competition has become fierce. zhang yi believes that although domestic brands have developed strongly in recent years,at present, it is only in the domestic market, mainly relying on cost-effectiveness.starting from the fourth quarter of last year, the prices of leading domestic beauty brands increased. but generally speaking, in terms of brand influence and international recognition, as well as r&d investment and innovation capabilities, domestic brands are still far behind mature international brands on a global scale.in terms of segmentation of the high-end market, it is still concentrated in the mid-range or mid-low-end market. domestic products need to further enhance their brand image., attracting the recognition of more high-end consumers.

in the future, the domestic beauty industry will move from china to the world and seize more market share, but the road to scientific research will still be long and arduous.

at present, proya’s second growth curve has begun to take shape. in the first half of 2024, the revenue of sub-brands caitang and off&relax increased by more than 40% year-on-year. among them, the revenue of caitang and off&relax were 582 million yuan and 138 million yuan respectively; yuefuti's revenue increased by more than 20% to 161 million yuan.

many securities firms have also expressed their optimism about proya. minsheng securities research believes that in the short term, it is optimistic about the promotion effect of the "double 11" promotion on the company's sales growth; in the medium and long term, under the guidance of the "6*n strategy" and the development strategy of large single product brands next, the company is expected to maintain the steady growth of proya's main brand. butwe must still pay attention to risks such as intensified industry competition, new product r&d progress that is slower than expected, and changes in consumer demand.。

in addition, the key to second-generation succession is the continuation of corporate culture and innovation capabilities.

according to the "2020 chinese family business white paper" released by deloitte, the "second generation" is commonly used in the succession process.faced with many challenges, such as insufficient network resources, balancing relationships within the family, and lack of business management experiencewait.

zhang yi believes that in the face of fierce competition in the market, consumer demand will change very quickly, and it is important to maintain competitiveness in terms of products and market demand. in addition,hou yameng is indeed relatively young. it really needs to be observed whether he can have better management and integration capabilities in promoting company strategy, category matrix, channel research and development, etc.the industry has formed very fierce competition, commonly known as "involution", as well as an externally changing and complex business environment. for young people, they may face huge unknowns. overall, his taking over is a good time. it is a period of growth, but there are also concerns.

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