China Beauty is exploring new growth models.

on April 29, huaxi biology (688363.SH) released its 2023 annual report. As of December 31, 2023, Huaxi Bio's annual revenue was 6.076 billion yuan, net profit was 0.593 billion yuan, and net profit after deducting non-recurring gains and losses was 0.49 billion yuan. Among them, the company's raw material business achieved revenue of 1.129 billion billion yuan, an increase of 15.22 percent over the same period last year; the medical terminal business achieved revenue of 1.09 billion billion yuan, a sharp increase of 58.95 percent over the same period last year; and the functional skin care business still contributed the bulk of revenue, achieving revenue of 3.757 billion billion yuan.

after more than 5 years of development in the field of skin care products, functional skin care brands such as runbaiyan under huaxi biology have taken off, running out of two 0.5 billion yuan and two over 1 billion yuan brands. Today, channel dividends decline, beauty consumption sentiment cooling, Huaxi Bio is facing a more complex market context, more accurate, more diverse market demand.

since 2023, Huaxi biology has entered a period of deep adjustment from organizational structure, research and development system to brand management. The company, which used to run on the track, is slowing down and trying to explore a more efficient and more in line with the company's own positioning, and build a new growth model for the company.

Recently, Zhao Yan, chairman of Huaxi Bio, mentioned in an interview: "The background of Huaxi Bio is a biotechnology company that focuses on the entire life sciences. Using past experience to predict where the boundaries are and using corporate genes to understand business conflicts is something left to business school professors to do, the real operation of Chinese companies may not be well explained by the MBA case, and Chinese companies cannot follow the script of Western companies."

From flow to "stay" amount

Functional skin care is a business segment that Huaxi Bio has attracted much attention from the outside world.

in the past few years, several skin care brands owned by huaxi biology have been warmly welcomed by the "efficacy party", which supports the giant company famous for hyaluronic acid raw materials and makes a breakthrough in the consumer circle with the posture of "dark horse.

This business is currently being challenged. Zhao Yan admitted in the interview, "There will be some problems with the original growth model. If we don't take the initiative to adjust and change, the possible income data will move forward along the growth inertia of the industry for a period of time, and the problems will not be so prominent in 2023. But the problem is the problem. If we don't take the initiative to step on the brakes to solve the problem, it will be difficult for the company to develop in the long run. Our change is to shift from high-speed development to high-quality development."

At present, like many peers, Huaxi Bio is facing intensified competition from online platforms. Emerging content e-commerce companies continue to divert from traditional shelf e-commerce platforms. Consumer brand investment costs are gradually rising and the potential energy of super head anchors is weakening.

behind the changes in the channel environment, how skin care brands such as Run Baiyan and BM muscle live independently master the flow into a retention brand, and become an important starting point for the transformation of Huaxi bio-functional skin care business.

Channel reshaping has become an important part of the transformation of Huaxi's bio-functional skin care business. Try to avoid being trapped by external factors such as platforms and anchors, so that external traffic can really flow into its own flow pool, which is an important purpose of its skin care business in channel remodeling.

starting from 2022, the investment in the self-operated channel construction of Huaxi bio-skin care brand will be increased. By 2023, Huaxi Bio will pay more attention to the construction of its own channels. The financial report shows that the proportion of self-management of Run Baiyan under Huaxi Biology has continued to increase, and the proportion of self-management channel sales of BM muscle live and Mibel brand has increased to 50% of the brand's overall sales revenue. From the platform point of view, Huaxi biology in the sound of the platform self-broadcast proportion is still increasing.

With the migration of consumer shopping habits, the importance of the layout of global channels has become increasingly apparent. While further improving the ability to operate its own channels, Run Baiyan is also improving the experience and efficiency of the global shopping link. Quadi will focus on new channel expansion in 2024, while strengthening management and services.

It is worth mentioning that in the proprietary business, the brand is directly involved in the consumer dialogue. On the one hand, this model allows the brand to quickly obtain terminal feedback and shorten the decision-making chain, but at the same time puts forward higher requirements for the brand's own operation and service capabilities. Therefore, the development of proprietary business, often become the beauty industry to measure the brand health of one of the key indicators.

Referring to the experience of today's leading companies in the beauty industry, Perlea's online direct channel sales share also increased from 60.66 percent in 2021 to 75.91 percent in 2023. The year-on-year growth of proprietary channel sales remained at a high level of more than 50% from 2021 to 2023.

Consolidating Brand Infrastructure for Long-term Development

Reform is not just about the channel side of the skincare business.

In Zhao Yan's eyes, the reform of Huaxi's biological consumption business is all-round. "We need to constantly learn how to grasp the customer acquisition mechanism of different times and how to optimize the marketing organization." However, she also mentioned that building an organization based on marketing leadership should not be the basic background of Huaxi Bio. Therefore, when grasping traffic switching and optimizing marketing organization, she hopes Huaxi Biology will not follow the old path of other enterprises.

This is also the inevitable requirement of "strong brand era. When consumers are more rational in their choice of cosmetics, although efficacy skin care is still a trend, the "efficacy-only theory" has gradually become a thing of the past, and the market competition of domestic cosmetics has entered the "strong brand era". Solid brand infrastructure will become an important step for local enterprises to maintain long-term competitiveness.

according to Huaxi biological financial report, the adjustment of the company's skin care business in 2023 also includes: optimizing the category system with large single products as the core, deepening brand value, and collaborating with multi-brand resources to empower the differentiated operation and orderly growth of major brands.

In terms of product strategy, Huaxi Bio has further consolidated the advantages of the original large single product series through innovation and iterative technology. In 2023, the proportion of barrier repair series of Runbaiyan large single product series has exceeded 40% of the brand's overall sales revenue, and new products containing "recombinant collagen" ingredients have also been introduced. Quadi's eye week structural anti-loose big single product-Quadi Jin Yun live light-age eye cream, further focus on the anti-old track core category of differentiation.

In terms of brand building, Huaxi Biology focuses more on two aspects: one is to establish technical barriers, and the other is to strengthen emotional links. Huaxi Bio's brands have explored differentiation in products and unique technologies, which not only enhances the brand's competitiveness in the market, but also avoids internal fights.

For example, Runbaiyan upgraded its brand positioning and proposed "repairing healthy and beautiful muscles with biotechnology", and applied cutting-edge medicine and biotechnology to the field of functional skin care products with "repair" as its core efficacy. BM muscle activity is deep-cultivated oil skin care sub-scene, the "oil control" scene expanded to "skin color improvement, oil pox muscle" and other oil skin care scenes.

In addition to differentiated positioning, whether the brand supply chain has the ability to quickly capture market changes and continue to meet the individual needs of consumers has also become the focus of competition in the "strong brand era.

It is reported that Huaxi Biology has already established an independent and controllable operation capability of the whole industry chain of skin care products, and can concentrate its advantages on the whole chain of raw material innovation, pilot test, industrialization and marketization, so as to provide consumers with scientific skin care solutions, and then deliver the products to consumers. In order to cater to the wave of personalized skin care in consumer terminals, Huaxi Bio has taken the lead in building a customized skin care production line.

Any change in an enterprise is a test of organizational efficiency. The digital capabilities that Huaxi Bio has built for a long time have become an accelerator for achieving business reform goals.

in 2023, huaxi biology realized real-time automatic extraction of business data by integrating the data resources of major brands and fully opening up the data interfaces of online and offline platforms. By building a business data cockpit, real-time attention will be paid to the changes in business strategies reflected by various data. The company also launched the key cost control process, strengthen brand cost control, but also further increase the cost of efficiency.

R & D hard power is still ballast stone

if the brand wants to take a foothold in the changing situation, the core research and development strength is still ballast stone.

This is also the "logic of science" that Zhao Yan insists on ". She pointed out, "It is the logic of science that represents the long-term trend of the industry. Looking at the business form of any market, no hot spot can go on forever, and marketing selling points, publicity hot spots, not equal to the real growth point of the industry, not equal to the starting point and landing point of technology."

Strong R & D capabilities are not only the cornerstone of Huaxi's biological business development, but also an important foundation to support its brand to grow into a national brand.

Huaxi biological internal R & D system is undergoing reform, but the company's overall R & D investment is still growing further. In 2023, Huaxi Bio invested 0.446 billion yuan in research and development, up 14.95 year-on-year, a record high. The proportion of research and development investment in revenue continued to increase. From 2021 to 2023, Huaxi's biological cost rate is 5.75, 6.10 and 7.35, respectively.

by the end of 2023, the number of R & D personnel in Huaxi biological enterprises increased by 99 over the previous year to 926, accounting for 19.89 per cent of the company's total number of R & D personnel. At present, Huaxi Biology has applied for 908 patents (including 716 invention patents), of which 452 have been authorized (including 289 Chinese invention patents and 7 foreign invention patents).

in the domestic beauty enterprises have to research and develop "make up a missed lesson" at the moment, positioning in the biotechnology enterprises Huaxi biological occupies a clear advantage. In 2023, Pereya's R & D investment was 0.174 billion yuan, with a R & D cost rate of 1.95%; Betini's R & D cost was 0.299 billion yuan, with a R & D cost rate of 6.07%; Shanghai Jahwa's R & D investment was 1.4 yuan.0.7 billion yuan, research and development cost rate of 2.22. The research and development costs of Giant Bio and Marumei did not exceed 0.1 billion yuan, with research and development cost rates of 2.10 percent and 2.80 percent, respectively.

Huaxi Biology will have 64 research and development projects for functional skin care products alone in 2023. Innovative breakthroughs have been made in the combination of differentiated ingredients, the control technology of active substances, and the efficacy of eyes. Including the development of CT50pro cell nutrition composition, effectively improve cell proliferation rate, reduce the content of senescent cells, and promote the expression of collagen and elastin; development of supramolecular GABA-LA(GALA) delivery system, and spectral selective sunscreen technology.

It is worth mentioning that the consumer market and capital market are greatly increasing the level and attention to the sustainable development of enterprises. According to the white paper on ESG trends in the beauty and personal care industry released by Ernst & Young, ESG projects have also become one of the important ways for beauty enterprises to achieve differentiated competition.

This year, Huaxi Bio also released its first ESG report to explore sustainable corporate development models. Zhao Yan pointed out in the report that in 2023, Huaxi Biology has set up a new organizational structure to build a large-scale operation management system, a talent running water mechanism, an ESG management system and a compliance and anti-bribery management system to adapt to the new stage of the company's development.

The adjustment still takes time, but the results of the reform of Huaxi Biology are already beginning to show.

In the first quarter of 2024, Huaxi Bio saw a double increase in revenue and profit. During the reporting period, Huaxi Bio's revenue was about 1.361 billion yuan, an increase of 4.24 percent over the same period last year; net profit attributable to shareholders of listed companies was about 0.243 billion yuan, an increase of 21.39 percent over the same period last year; and net profit after deduction increased by 53.3 percent to 0.231 billion yuan.