Beauty cosmetics go to sea： the two-way trip of brands and foundries

Wen | Guanchao New Consumption Zhang Jing

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The North Exchange ushered in the first share of beauty cosmetics.

On March 29, 2024, Bawei shares landed on the North Stock Exchange, and the intraday increase was once expanded to 246%. At the close, Bawei’s share price closed at 16.19 yuan/share, up 180.59% on that day. The turnover was 184 million yuan, and the turnover rate reached 43.87%.

Founded in 2006, Bawei is a cosmetics brand customer service provider integrating product planning, formula research and development, manufacturing and efficacy testing. In the first half of 2023, it achieved revenue of 213 million yuan and net profit of 21 million yuan.

As a foundry company that has been deeply involved in the industry for many years, Bawei has helped Unilever, Marumi, Renhe Ingenuity, HBN and others to create a number of star products. According to the prospectus, from January to June 2023, its top five customers contributed a total of 145 million yuan in revenue, of which the number one beauty accounted for nearly 30%, about 54.89 million yuan.

Feimei is relatively unfamiliar to domestic consumers, but in fact its skin care brand "Skintific" has become popular in Southeast Asia. In 2022, Skintific won the global sales champion of TikTok Shop, and GMV exceeded 50 million US dollars (about 350 million yuan); Its account Skintific_id has more than 2.7 million fans, ranking first in the world.

This is a story of a brand going out to sea and flying with the supply chain.

01 industry changes, OEM industry reshuffle.

In 1995, Leng Qunying, a female teacher from Hunan Province, went south to Guangzhou, where she began her exploration. After working in Guangzhou Yixiang Chemical Research Institute, Guangzhou Yagaoli, Guangzhou Baoshengtang and other enterprises, in 2006, Leng Qunying established Bawei Cosmetics Co., Ltd. in Baiyun District, Guangzhou.

The company’s main business is OEM cosmetics (ODM mode). In 2015, Bawei was officially changed into a joint stock company, and the next year, it was listed on the New Third Board, which was the only representative of nearly 1,000 cosmetics foundries in Guangzhou Baiyun who successfully listed the New Third Board.

Nowadays, Bawei has made multi-dimensional innovation on the traditional ODM model, and has grown into a one-stop service provider that can monopolize brand product planning, formula research and development, large-scale production and efficacy testing.

Bawei’s growth history is the epitome of the growth of the entire cosmetics OEM industry. With the change of channels and the rise of e-commerce, the development of beauty cosmetics not only drives the growth of brands, but also the growth of OEM industry.

Looking back at the beginning when foreign brands entered the China market, KA (General Store) and CS (Daily Chemical Store) were the main sales channels, and beauty chain stores began to slowly penetrate into the beauty retail market in China. At the beginning of this century, Hong Kong Wanning, French Sephora and other chain retailers entered the mainland of China and expanded rapidly. At the same time, the e-commerce platform gradually rose, and the combination of e-commerce and entities urged the transformation of traditional brands. Today, various e-commerce platforms have accelerated the online development of the beauty industry, forming various channels such as C2C, B2C, and self-operated online shopping malls.

According to Euromonitor data, online sales of cosmetics and skin care products have reached 54.3% and 41% respectively. Especially when the epidemic situation leads to poor offline channels, the contribution of online channels increases more obviously. Online has gradually become dominant, and it has also spawned more cutting-edge brands on the main line, and traditional brands are gradually transforming to online.

In the 2010 s, the online and offline parallel channel model promoted the rapid development of the foundry industry. From the offline perspective, the brand of CS channel has expanded in magnitude, and the demand for OEM has surged; From the online point of view, asset-light strategy, an emerging brand promoted by e-commerce, has also become the first choice. After online e-commerce has become the mainstream channel, the emerging new brands have pushed the demand for cosmetics OEM to the peak. After more than ten years of development, China’s cosmetics OEM industry tends to be mature, and the number of licensed cosmetics manufacturers has increased from 4,542 in 2015 to 5,512 in 2022.

On the whole, the cosmetics OEM industry has maintained a relatively scattered competitive situation for many years. Although several large-scale leading enterprises have been born, their market share is small, and most of the market share is still in the hands of small and medium-sized factories.

There are many OEM enterprises, but the pattern is quietly changing.

On July 1, 2022, the "Quality Management Standards for Cosmetic Production" and the "Inspection Points and Judgment Principles for Quality Management Standards for Cosmetic Production" were officially implemented; On October 1st, the Measures for the Monitoring and Management of Adverse Cosmetic Reactions was formally implemented.

The new regulations not only make specific provisions on hardware such as production equipment, production workshops and water standards of cosmetics production enterprises, but also require enterprises to keep samples of key raw materials and products, so as to achieve "traceability of all activities".

According to the incomplete statistics of Cosmetics Watch, in 2022, a total of over 420,000 cosmetics in China were cancelled for not meeting the requirements of the new regulations.

Hundreds of billions of industries are mixed, which not only shows that the threshold of cosmetics production is relatively low, but also indicates that the beauty OEM has reached a critical moment when it has to be transformed.

Due to the stricter regulations, the entry threshold of the cosmetics industry is constantly improving, and the responsibility for production lies with people, which makes many small brands in the initial stage choose more large-scale OEM enterprises. However, in fact, the survival rate of new brands is low, which reduces the customer stability of OEM enterprises. OEM enterprises need to constantly develop new customers to keep their performance growing.

Changes in the market have also made "big customers and small orders" the norm. Brands that have developed to a certain level will form their own supply chain system, and large enterprises that have not built their own supply chain will not put their eggs in the same basket, but hand over their products to different foundries for production, reducing risks.

Cosmeesh, the super leader, is the first Korean cosmetic ODM company to enter the China market. Ten years ago, TOP 20 among thousands of customers of Smears could contribute 80% of the performance, but now 40% of customers can contribute 80% of the performance. In the past, the order size of the largest customer could exceed 1 billion yuan, but now, the order size of the largest customer has dropped below 500 million yuan.

As far as the consumer market is concerned, consumers’ knowledge of science and technology is by going up one flight of stairs, and their knowledge of beauty cosmetics has changed from "looking for big names" to the emphasis on efficacy and raw materials. This also forces excellent brand customers to move closer to OEM with brand effect, quick response, excellent quality and outstanding product differentiation.

In the face of stricter regulatory situation and further upgrading of consumers’ cognition, the beauty factory has accelerated the reshuffle, and the Matthew effect has become more and more prominent. At the same time of brand involution, OEM enterprises are also reconstructing scientific research system, service system and product development logic, and changing from "serving brand" to "serving consumers with brand".

02 cooperation to the sea, the upstream factory is strong.

At the beginning of the rise of e-commerce, ultra-short new cycle, ultra-low product prices, coupled with overwhelming online marketing, a cutting-edge brand with small volume and light assets can quickly gain a foothold in the market.

Nowadays, the competition of domestic beauty cosmetics is fierce, the product homogeneity is serious, the low-price competition and the marketing cost are pushing up, and all kinds of problems have become obstacles to the long-term development of the brand. This is a headache for both brands and foundries. Under this development trend, a number of beauty brands have turned their attention to overseas and looked for increments in overseas markets.

Among the overseas brands, some brands choose to be deeply tied with OEM companies, and go to the world together to find the increment, such as Bawei and Skintific, Meishang Manufacturing and FOCALLURE, Sanhao Technology and Y.O.U

Southeast Asia is the preferred destination for these beauty brands. Both friendly trade policies and booming e-commerce have paved the way for domestic products to go to sea in Southeast Asia. In addition, the low market cost in Southeast Asia makes it relatively easy to copy experience and expand business, which is also a major reason for Nanyang’s entrepreneurship under brand selection.

From "OEM" to "brand quality", the cosmetics foundry that has grown into a one-stop solution provider has laid a solid foundation for new brands to go to sea.

FOCALLURE is a domestic beauty brand that went to Southeast Asia earlier. It mainly promotes lip gloss, eye shadow and beauty tools, and is very popular among urban women aged 25-36. For cutting-edge brands such as FOCALLURE, which have some experience in e-commerce operation in China, just copying their own homework can achieve good results in the Southeast Asian market. Its success has inspired many latecomers to March into Southeast Asia, such as Skintific and SACE LADY.

FOCALLURE worked as a foreign trade factory for overseas cosmetics in 2013-2016. In the process, she was exposed to a lot of flexible supply chains of beauty products and a large amount of overseas beauty data. Its own strong supply chain advantages and strong cooperation with Meishang Manufacturing make FOCALLURE form a mature flexible supply chain system.

It is reported that the total SKU of FOCALLURE is as high as 6,000. At present, there are more than 400 products on sale in its Shopee store, including more than 50 lip makeup products, each with more than 10 color numbers, and some hot-selling products have as many as 30 color numbers.

The advantage of the supply chain is not only to help the rapid iteration of products, but also to reduce costs to the extreme and provide cost-effective products. Compared with the price of L ‘Oré al cosmetics of 7-15 dollars, the price of the best-selling items in Southeast Asia is no more than 3 dollars, and the high cost performance is an important factor for the brand to rapidly produce fission effect in some countries with low per capita GDP in Southeast Asia.

In addition, the updated and iterated OEM enterprises also have certain technical ability advantages, which can provide the brand with one-stop service from research and development to product testing to product listing.

Take Bawei shares as an example. In the first half of 2023, the company invested 89.1578 million yuan in R&D, accounting for 6.36% of its operating income. By the end of June 2023, the company and its subsidiaries had 129 patented technologies, including 112 invention patents. The company independently developed more than 6,000 cosmetic formulas. In addition, Bawei has the qualification of human efficacy testing, and can continuously test the quality and efficacy of products from the research and development of product formulas. After the formulation of new products is completed, efficacy evaluation and testing can be carried out simultaneously without external inspection.

With the all-round help of foundry enterprises, the new brand can deliver the most cost-effective products that best match the needs of local users to all parts of the world, and then quickly cut into the market through localized play, layout multiple channels and occupy market share.

03 conclusion

After iteration, the cosmetics foundries upgraded by "Zhizao" have occupied a very important position in all aspects of brand building, and the mode of brand+foundry cooperation in the sea is no longer strange.

In 2022, HEBE BEAUTY and the foundry company Sanhao Technology announced a joint venture in Indonesia. Among them, HEBE BEAUTY is a domestic beauty product in Southeast Asia, with sub-brands such as Y.O.U and Glamfix. This new combination has also upgraded the mode of brand and foundry going out to sea hand in hand.

In fact, in the upsurge of going to sea, the foundry has always been the first batch.

As early as 2017, Guangdong Sanhao Technology Co., Ltd. officially put into production in the garden-style factory in Indonesia, providing OEM production of cosmetics for the Southeast Asian market; In June 2019, Sanhao Technology established a factory in Australia to develop a series of natural ingredients products.

In addition, Bei Hao Group also established a company in France in 2017. The whole workshop was built according to the standards of pharmaceutical companies, with an independent technology research and development team, focusing on mask production.

A similar example is Northbell, which established the Northbell Korea Research Institute in 2016, and also established long-term strategic cooperation with world-renowned raw material suppliers. It is reported that the daily production capacity of Northbell mask has reached 6.5 million pieces, and its products are exported to more than 40 countries and regions around the world.

Under the background of the factory’s "intellectual creation" upgrade, the active attempt and layout of the cosmetics foundry will inevitably inject new energy into the internationalization of China’s cosmetics industry.

In the future, the binding of brands and foundries will be deeper, and this cooperation mode will be further upgraded.