The following article is from TMT Times, written by Mao Mingjiang and Tian Xiao.

Reported by Cailianshe "TMT Times" in Shanghai, the shadow of the epidemic continues to loom over China, the world's second-largest consumer market. Numerous consumer service enterprises have been struggling for two to three years in the industry's prolonged winter. Despite the widely felt contraction in consumer spending, many enterprises have emerged in the capital market, such as Dongpeng Special Drink, which went public in 2021 and saw its market value briefly surpass one trillion yuan. Similarly, Babifood, a small business with 2 yuan buns, went public and hit eight consecutive daily limit up trades. Laoxiangji, striving to become the "first stock of Chinese fast food," is expected to secure an IPO on the Shanghai Stock Exchange. Behind these enterprises, there is the presence of Harvest Capital.

Founded by Song Xiangqian in 2007, Harvest Capital has been focusing on China's large consumption and modern service industries for 15 years. Adhering to the principle of "supporting the private economy and boosting Chinese consumption," the firm has not only invested in star consumer enterprises such as Junlebao, Wenheyou, Qiaqia Food, Laiyifen, and Aimer Group but also participated in the financing of Meituan Dianping and Didi Chuxing.

Song Xiangqian emphasizes the importance of the consumer industry, stating to "Science and Technology Board Daily" that the consumer service industry has become the stabilizer and ballast stone of the Chinese economy. After the epidemic stabilizes, if the economy is to recover its previous rapid growth, it is necessary to support and stabilize the consumer service industry, manage expectations, and take multiple measures to restore consumer confidence.

Boosting Consumption to Stabilize the Economy

Regarding the impact of the current epidemic on the consumption industry, Song Xiangqian stated, "The epidemic prevention and control measures have affected offline contact-based business and consumer services: the flow of people is blocked, logistics is hindered, and there is a certain impact on consumers. Overall, the degree of impact varies among different enterprises."

Song Xiangqian explained that currently, essential and high-frequency basic livelihood enterprises, such as those invested by Harvest Capital, like Jiamailang, which provides drinking water and instant noodles, and Babifood, which offers breakfast items like buns and steamed buns, have maintained a stable operating status and made significant contributions to ensuring the supply in Shanghai. However, for businesses relying on normal human activities to generate revenue through offline contact-based commerce, there have indeed been some difficulties.

He particularly emphasized that for larger enterprises, the impact of the epidemic may only be a matter of profit and loss. However, for the vast number of small and medium-sized enterprises, the challenges brought about by the epidemic are more concrete and substantial. He earnestly stated, "We must prevent the epidemic and stabilize the economy. Under the requirements of dynamic epidemic prevention, we need to quickly and effectively promote the resumption of work and production, restore the normal flow of people and logistics, and get the production and operation of enterprises back on track."

Analyzing from the fiscal and taxation system, Song Xiangqian pointed out that China's main tax sources come from value-added tax, income tax, and other taxes, with the economic contribution value of social consumption being very high. Consumption contributes to around 60% of GDP growth. Consumption has become the stabilizing cornerstone of the Chinese economy. To rapidly recover from the impact of the epidemic on the economy, it is necessary to support and stabilize the consumer service industry. Therefore, he suggested two measures: firstly, steadily accelerate the implementation of resumption of work and production, facilitate the circulation of logistics and funds, and promote normal business operations for enterprises; secondly, stimulate the supply and demand sides through measures such as issuing consumer vouchers to enhance consumers' purchasing power and increase expectations for per capita income.

"Boosting consumers' purchasing power through concrete measures can have a multiplier effect on the rapid recovery of the economy," Song Xiangqian said.

Investment Essence: Two Things

In recent years, news of layoffs, declining sales, store closures, and financing difficulties in the new consumer market has been constant. Does this mean that the enthusiasm of VC and PE for the new consumer market is waning?

In response, Song Xiangqian believes that objectively speaking, the new consumer market has been overheated in the past two years, resulting in a massive bubble. Recently, the market performance, profit performance, and growth performance of many new consumer enterprises have not met expectations. Coupled with the rapid rise in supply-side costs and weakened demand under the epidemic, expectations for income level improvement have weakened, leading to a "rapid downturn in the entire market."

"So, valuation adjustments are necessary; the valuation of the new consumer market is indeed decreasing. But valuation is not equal to market value, and market value is not equal to value. We still need to establish the long-term value of the enterprise," Song Xiangqian believes that the essence of investment is twofold: first, buying liquidity, which must be good enough; even if the enterprise develops well, without liquidity, once entered, it cannot be exited. Second, investing in growth is essentially long-termism; whether you like it or not, once entered, you cannot exit in the short term. Therefore, you can only grow and build together with the enterprise and achieve mutual growth and mutual success.

In the trend of the new consumer market cooling down, how should enterprises respond? Song Xiangqian believes that, by now, companies in the new consumer market must understand a truth: purely relying on traffic is just an online channel, not a complete company in the true sense. Only by competing comprehensively across online and offline, covering all scenarios and traffic, supplementing the lessons of the supply chain, product research and development, and on-site lean management, and showing genuine respect and recognition for the market and consumers, can they possibly hedge risks during a market downturn and be the first to run out during the subsequent recovery.

Fearless of Mistakes, Finding the Right Direction

Song Xiangqian, who emphasizes confidence, also values the industry "newcomers" who may be stagnating due to market sentiment. For entrepreneurs who are confused and bewildered by the impact of the epidemic, Song Xiangqian provides clear advice.

First, if you make a mistake, now is a good opportunity to correct it. Many entrepreneurs in the past relied on small traffic, small functions, small emotions, small values, or seized human weaknesses. The current errors are signs of market correction.

Second, choice is more important than effort. It's okay to make mistakes; companies can upgrade, iterate, and find the right path. Love consumers, respect consumption, honestly create value for society, the people, and the market. Business competition in China in the future is an era of doing good business, an era of earning hard-earned money. Yangming's heart learning is excellent, grinding the heart with things, small things grind through, and big things naturally become smooth. For entrepreneurs looking for opportunities in the consumer service industry, he recommends choosing high-frequency essential livelihood enterprises, especially focusing on daily active products that meet consumer needs, as the saying goes, "The human touch is most soothing to the heart."

Third, understand the relationship between technology and consumption correctly. China's technological progress requires a large amount of tax revenue, and where does tax revenue come from? Mainly from the contributions of the consumer service industry, all of which are earned by ordinary people through individual orders. China is a country that requires a massive amount of employment support, and only the development of the consumer service industry can create enough jobs