Is this the end for consumer startups?

e next location in Shenzhen was underwhelming, and the Nanjing project was delayed repeatedly due to disagreement on how to adapt the Wenheyou concept to local tastes. The first rundown-apartment-building-turned food court might be exciting. The fourth one is simply a bore.

A more fundamental problem is that consumer startups, who once were able to attract throngs of customers simply by blasting ads online, are yet to figure out how to keep growing when ads become expensive and people get tired of sponsored social media posts. Companies are quick to blame tech companies, increasing competition, or the economy. Admittedly, costs are higher (Blame the pandemic!) and spending power hasn’t gone up as much. But even when market conditions were more favorable, many squandered the opportunity to build resilience and just spent more money opening more stores, acquiring more brands, and enriching more celebrities.

The more successful ones are catching up on less glamorous, but no less essential, tasks such as RCoD, supply chain, and distribution. Genki Forest, which introduced flavored sparkling water to millions of Chinese consumers, realized that to reach the volume promised to its investors, it has no choice but to go brick-and-mortar. This means negotiating refrigeration space one bodega at a time.

What goes up…

In this way, consumer startups that got their start on social media will eventually follow the paths of traditional corporations such as Nestle, Coca-Cola, and Procter Co Gamble, which, despite decades of operation in China, also need to keep reinventing themselves. Facing slowing growth in 2016, Nestle had to recalibrate product lines and consolidate distribution to reinvigorate sales.

Even in a fast-changing market such as China's, nothing can be rushed when it comes to building a consumer brand. It took the dairy giant Yili thirty years to grow to today’s 240-billion-yuan market capitalization. Other household names took even longer. Despite the current setbacks, internet-famous consumer brands may not necessarily fall as quickly as they shot to fame, as doomsayers love to predict. For startups that aspire to become the next Nestle or Yili, and the investors that cheered them on, a reckoning might be near.

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