Caixin Weekly | The Path to Upgrading Domestic Perfumes (AI Translation)
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文｜财新周刊 冯奕铭
By Caixin Weekly‘s Feng Yiming
文｜财新周刊 冯奕铭
By Feng Yiming, Caixin Weekly
观夏和野兽派是近年国产香氛崛起的代表，它们正用国际品牌一些惯用的营销方式入场竞争。香氛主要包括香水、香薰等产品，属于典型的情绪价值高于物用价值的精神属性品类，虽是小众赛道，却是上一轮消费升级浪潮中的弄潮儿。而在近年消费升级转降级的周期趋势中，这一赛道相对坚挺，在疫中替代“口红经济”、疫后则成“悦己经济”的代表，被冠以“香水效应”。
Guoxixiang and Beast are representative brands in the rise of domestic fragrances in recent years. They are competing using marketing tactics typically employed by international brands. Fragrance products primarily include perfumes and aromatherapy items, falling into the category of goods with emotional value surpassing practical utility. Although niche, this market was at the forefront of the last wave of consumer upgrades. In the recent cycle trend of consumer downgrading following an upgrade phase, this sector has remained relatively resilient. During the pandemic, it replaced the "lipstick economy," and in the post-pandemic period, it has become emblematic of the "self-indulgence economy," a phenomenon referred to as the "perfume effect."
香氛投资一度爆火，“中式美学”“国潮”等概念迭出，大量国产品牌借助互联网内容平台流量而鹊起。“2021年参加国际香精公司举办的活动，一屋子好多人，觉得这么小的行业竞争如此激烈。”国产香水品牌馥生六记创始人赵圆圆对财新回忆称，但市场在两年内快速退潮：“2023年再去时人少了一大半，资本不再关注这个赛道，很多现金流没有回正的品牌就放弃了，留下的要么拿到了钱，要么有自我造血能力。”
Fragrance investments once surged in popularity with concepts like "Chinese aesthetics" and "national trends" emerging constantly. Numerous domestic brands leveraged internet content platforms to rise to prominence. "In 2021, I attended an event hosted by an international fragrance company. The room was packed; I thought such a small industry had fierce competition," Zhao Yuanyuan, founder of Chinese perfume brand Fushengliuji, recalled to Caixin. However, the market quickly receded within two years. "When I went back in 2023, more than half the people were gone. Capital no longer focused on this sector, and many brands without a positive cash flow abandoned the market. Those who stayed either secured funding or possessed self-sustaining capabilities," Zhao commented.
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- Domestic fragrance brands like Guoxixiang and Beast are emerging, leveraging marketing tactics similar to international brands, with the sector having shown resilience through consumer upgrading and COVID-19 trends.
- The Chinese fragrance market saw sales revenue of RMB 15.25 billion in 2023, with a projection to reach RMB 26 billion by 2028; the market penetration rate is around 5%, compared to 42% in Europe and 50% in the US.
- Major global names like L'Oréal and Estée Lauder are investing in local brands to complement their portfolios and localization strategies, reflecting increased interest from industrial capital despite the sector's challenges in rapid scaling and profit-making.
The article by Feng Yiming from Caixin Weekly explores the recent rise of domestic fragrance brands in China, with a focus on their strategies, market trends, and competitive landscape. Brands like Guoxixiang and Beast have used marketing tactics similar to international brands to compete in a market characterized by high emotional value and low practical utility[para. 1].
Despite economic fluctuations, the fragrance sector has proven resilient, replacing the "lipstick economy" during the pandemic and leading the "self-indulgence economy" in the post-pandemic period, a phenomenon dubbed the "perfume effect"[para. 2]. Zhao Yuanyuan, founder of Fushengliuji, noted that although the market shrank rapidly after a period of investment frenzy, those brands that survived either secured funding or became self-sustaining[para. 4][para. 5].
Even after the withdrawal of venture capital, industrial capital has shown interest, with global giants like L'Oréal and Estée Lauder investing in domestic brands such as Wenxian, To Summer, and Melt Season[para. 6]. As of 2023, China had over 3,100 fragrance-related companies registered, with market revenues reaching RMB 15.25 billion and expected to grow to RMB 26 billion by 2028. However, the penetration rate of perfumes in China remains significantly lower than in Europe or the U.S. at around 5%[para. 9].
The pandemic led to a shift in consumer preferences, increasing demand for lifestyle and experiential brands, including fragrance shops, which are now given prime retail locations for their ability to attract high foot traffic[para. 10]. Many domestic perfume brands have aligned with FMCG giants or luxury conglomerates to overcome challenges related to growth and profitability[para. 11][para. 12].
During the "consumer upgrade" phase, numerous new fragrance brands emerged, inspired by "Chinese-style nostalgia" and leveraging well-developed online platforms to lower trial-and-error costs[para. 20][para. 21]. These brands often have backgrounds in supply chains or media and excel in marketing[para. 22][para. 23]. They have utilized various online platforms such as WeChat, Tmall, and Douyin to establish their presence and market their products[para. 30][para. 31][para. 32].
The "stay-at-home economy" during the pandemic catalyzed further growth in the fragrance market, and new categories such as incense ornaments saw substantial increases in sales[para. 36][para. 38]. However, distinguishing themselves from international brands has required domestic brands to innovate creatively in their storytelling and marketing approaches[para. 44][para. 45][para. 47].
Domestic fragrance brands face challenges in sourcing distinctive raw materials and creating unique scents that reflect Chinese cultural elements. Fragrance companies like Givaudan and Robertet have lowered minimum order quantities to support emerging brands, but innovation largely depends on their willingness to collaborate[para. 54][para. 55][para. 61]. Intellectual property and control over raw materials remain significant hurdles[para. 67][para. 69].
Despite some early enthusiasm from venture capital, many brands recognize that the fragrance business requires a long-term view and sustained capital investment[para. 78][para. 80]. The market has seen a cooling of investment as growth has slowed, and consumer habits are still developing[para. 92][para. 93]. Both industrial and luxury capital are increasingly investing in fragrance, anticipating high long-term gains despite current market challenges[para. 97][para. 100][para. 106].
Ultimately, while there is potential for domestic brands to grow and perhaps even be acquired by major international firms, the general consensus is that the fragrance business is a slow and steady venture needing continued nurturing[para. 108][para. 115][para. 118].
- Guansha
- Guansha is a Chinese fragrance brand that originated from a WeChat public account. It uses WeChat to share long articles, brand stories, and user experiences. Founded by Liu Huipu and Shen Li, it launched its first offline store in Sanlitun Taikoo Li North in 2020 and joined Tmall in 2022. In February 2024, L'Oréal invested in Guansha, acquiring about 10% of its shares.
- Beast Faction
- Beast Faction, a rising domestic fragrance brand in China, initially focused on custom floral arrangements and celebrity wedding setups. They later expanded into the fragrance market, excelling on platforms like Weibo and becoming a top seller on Taobao Tmall with a 3.7% market share. The brand emphasizes scent products such as perfumes and aromatic stones and has a significant presence in both online and offline channels.
- Fusheng Liuji
- Fusheng Liuji is a Chinese perfume brand mentioned in the article. Its founder, Zhao Yuanyuan, recalled intense competition in the market around 2021. By 2023, many brands exited due to financial pressures and decreased capital attention, but those remaining had either secured funding or developed self-sustaining capabilities. Fusheng Liuji, unlike other brands, has not sought financing from the private equity market.
- DOCUMENTS
- DOCUMENTS is a high-end Chinese fragrance brand that secured new investments since 2022. L'Oréal's subsidiary, Shanghai Meicifang, invested 8.33% in DOCUMENTS, and later, USHOPAL GROUP also invested. DOCUMENTS' design aesthetic blends Chinese culture with Western styles, and it adopts a "high-end" strategy with stores located in premium shopping areas like Shanghai's Huaihai Middle Road and Beijing's SKP-S.
- BLACK PAW
- BLACK PAW (黑爪) is a Chinese perfume brand founded by Huang Jing, who previously worked in perfume foreign trade. Initially, the brand sold large quantity of imitation designer perfumes online, which were quickly sold out. Later, the brand shifted focus to original products, facing challenges in profitability. BLACK PAW has not sought venture capital funding, preferring to grow independently to achieve sustainability.
- Scent Library
- Scent Library, a trendy brand store, opened in 2009 in Sanlitun, initially acting as an overseas perfume agent. It then established its own brand in 2014 and secured significant investments from Qiming Venture Partners and Tiantu Capital. In 2017, it achieved great success with its "Cool Boiled Water" perfume, selling 1 million bottles in a year and setting sales records on Tmall.
- OARTO
- OARTO, founded in early 2021, initially focused on three categories: bedding, home wear, and aromatherapy. By 2022, aromatherapy products became its sales mainstay, leading the brand to concentrate marketing efforts in this area. Founder Chris highlighted a shift in product focus due to significant sales growth in aromatherapy.
- UTTORI
- UTTORI, a domestic fragrance brand, was founded by Li Le. Initially constrained by high order requirements from fragrance companies, it benefited from lowered minimum order quantities in recent years. This easing allowed for the acquisition of necessary fragrance materials, facilitating the brand's development and entry into the competitive market.
- melt season
- Melt season is a Chinese fragrance brand founded in recent years. It received investment from ERA Capital in 2021 and from Estée Lauder's New Incubation Ventures (NIV) towards the end of 2023. The brand is recognized for its deep understanding of Chinese culture, aiding Estée Lauder in building deeper connections with consumers and exploring Chinese cultural elements.
- In 2009：
- A trendy store named 'Scent Library' opened in the southern district of Sanlitun, acting as an agent for overseas perfume brands.
- In 2013：
- The Beast Shop established its first physical store.
- In 2014：
- Scent Library transitioned to create its own brand and subsequently received investments in the tens of millions of yuan from Qingke Venture Capital and Tiantu Capital.
- In 2015：
- The Beast Shop joined Tmall.
- In 2017：
- Scent Library's perfume called 'Liang Bai Kai' became its first blockbuster product, making it the top seller in its category on Tmall that year.
- In 2018：
- The Beast Shop made its debut on Douyin, launching a fragrance product line.
- In 2018：
- Huang Jing began selling factory-made imitations of major brands on Tmall.
- Following 2018：
- Several domestic fragrance brands emerged, including Guanxia, Beast Space, and BLACK PAW.
- By 2019：
- The Beast Shop started operating on Xiaohongshu.
- In 2019：
- Guanxia's earliest batch of product delivery addresses were predominantly in Beijing's CBD.
- In 2019：
- The Library of Fragrance collaborated with 'White Rabbit Creamy Candy' to launch a fragrance product featuring the scent of the nostalgic candy.
- In 2020：
- Guanxia opened its first offline store in the northern district of Taikoo Li Sanlitun.
- From the latter half of 2020：
- The Beast Shop shifted its marketing focus from floral arrangements to fragrance products.
- Early 2021：
- Home brand OARTO was founded, initially focusing on three categories: bedding, loungewear, and fragrances.
- In 2021：
- Zhao Yuanyuan attended an event hosted by an international fragrance company, indicating fierce competition in the small industry.
- In 2021：
- Tmall upgraded perfume, along with men's products, pet items, and trendy toys, to 'primary categories.'
- Immediately after the outbreak：
- Wearing masks became a mandatory social requirement, making perfumes an important category for boosting people's sense of well-being.
- In 2022：
- Guanxia launched a presence on Tmall.
- Since 2022：
- Three domestic high-end fragrance brands — Wenxian (DOCUMENTS), To Summer, and melt season — received new investments.
- 2022：
- Fragrance products became the sales powerhouse for OARTO.
- 2022：
- The global market share of the four major fragrance companies — Givaudan, Firmenich, Symrise, and IFF — totaled 63%.
- By 2023：
- More than half the people in the fragrance market had gone, with capital no longer focused on the sector.
- By 2023：
- The number of fragrance-related companies registered in China surpassed 3,100.
- By 2023：
- The Beast Shop became the leading fragrance brand on Taobao and Tmall platforms, commanding a market share of 3.7%.
- In October 2023：
- Creed, once the world's largest independent high-end perfume brand, was acquired by luxury giant Kering Group for €3.8 billion.
- By the end of 2023：
- Miniso had 3,926 stores in China and over 6,400 stores globally, with cumulative sales of Miniso's fragrance products surpassing 70 million bottles.
- February 2024：
- L'Oréal acquired approximately a 10% stake in To Summer.
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