The small home appliance track is hot: how many IPOs can air fryers and electric toothbrushes support?

A number of domestic small household appliance enterprises are growing rapidly.

In 2022, a group of small home appliance companies focusing on electric toothbrushes and air fryers will launch an impact on the capital market. They still have a huge gap with home appliance giants such as Midea and Gree, but they have the opportunity to become another Cobos (603486.SH) and Stone Technology (688169.SH) on the new subdivision track.

On February 18, Biyi shares (603215.SH) was listed on the Shanghai Stock Exchange, becoming the first share of air fryer. If there is no accident, Sushi Technology, which makes electric toothbrushes, will also be listed on the GEM of the Shenzhen Stock Exchange in the future, becoming the first stock of electric toothbrushes. In addition, Liren Technology, Boling Electric, Jiale Smart, and the parent company of the electric toothbrush brand usmile are also seeking listing.

At the end of 2021, at the shareholders' meeting of a home appliance giant, an investor took a new brand of electric toothbrush and seriously asked the Times Weekly reporter, "I take it with me when I stay in hotels, and it looks very good. Do you think this brand has a chance? "

Interestingly, the home appliance giant, which is holding a general meeting of shareholders, is also vigorously expanding its categories of small home appliances such as electric toothbrushes. But in the investor's view, in the small home appliance market, the brand power of traditional giants is not enough to crush emerging brands. "You can pay attention." At the conference site, the investor kept recommending to the participants.

"The large-scale home appliance track has a large scale, high product quality requirements, and a long replacement cycle, which is suitable for forming a pattern of giants entrenched and high concentration. In contrast, it is difficult to form a giant in a single category of small home appliances. The consumption logic of small home appliances changes rapidly and is innovative. Enterprises also have the opportunity to catch up with new consumption trends." On February 16, Li Ning (pseudonym), a researcher at the home appliance market research institute, explained the logic of "the rise of heroes" in small home appliances to a reporter from Times Weekly.

Although there are opportunities in the segmented market, many cutting-edge small household appliance companies are unable to open up the upstream and downstream industry chains and have weak voice. For example, Biyi's main business is foundry, making wedding dresses for others for many years, and it is difficult to build its own brand. The main products of Liren Technology rely on foundry, and its own production capacity is weak, which makes the company's research and development strength questionable. In the first half of last year, Liren Technology’s R&D investment only accounted for 1.24% of its revenue. Yamamoto, an air fryer internet celebrity brand that was questioned as relying on OEMs, also encountered quality problems last year.

On February 17, a reporter from Times Weekly sent an interview outline to Biyi Co., Ltd., Liren Technology, and Boling Electric on issues such as OEM and self-built brands, but no reply was received as of press time.

The industry is quite concerned about this wave of small home appliance companies listing, can new Ecovacs and Stone Technology really appear on the air fryer and electric toothbrush tracks?

Air fryers and electric toothbrushes are hot

In this wave of small home appliance companies getting listed, electric toothbrush and air fryer companies are particularly prominent.

In 2015 and 2018, Biyi shares successively developed air fryers and air ovens. In the first half of 2021, these two types of products accounted for 76.42% of the main business revenue; the largest contribution to Liren Technology's revenue growth also came from new types of air Fryers, in the first half of 2021, its electric cake stalls and air fryers accounted for 69.67% of its main business revenue.

Yan Leyu, research manager of Aowei Cloud's Small Electric Appliances Division, told the Times Weekly reporter that the epidemic in 2020 has spawned the housing economy, and a variety of small kitchen appliances are popular. Among them, juicers and cooking machines have been used due to their low frequency of use, brand and market education. Insufficient, "turned off" later, air fryers have become one of the few categories that continue to maintain high heat. This is not only because the air fryer fits the concept of light oil health, but also because of its special functions and convenient operation.

"The popularity of air fryer sales is also directly related to grass growing on platforms such as Xiaohongshu and Douyin. The use of air fryers is frequently shared on the platform, driving retail sales growth." Yan Leyu said.

According to the prospectus of Liren Technology, in the first half of 2021, its online sales accounted for 71.94%, and the Liren brand air fryer ranked in the top 10 of Tmall’s monthly “transaction index” four times.

On February 17th, the top-selling Tmall air fryer was the internet celebrity brand Yamamoto, and its products were ranked by Chaomei, Oaks, Changhong, and Joyoung.

"The proportion of online and offline channels for traditional large household appliances is roughly the same, while the main channel for small household appliances is online. Even new companies can easily deploy quickly." Li Ning said.

Seizing the opportunity of the channel, small household appliance companies quickly expanded the air fryer market, and some companies have gained a lot in this market segment, laying a solid foundation for listing.

In 2020, Boling Electric's revenue was 1.696 billion yuan, a year-on-year increase of 94.8%. The revenue in the first three quarters of 2021 increased by 70.5% over the whole year of 2019; Biyi's revenue in 2020 was 1.163 billion yuan, a year-on-year increase of 57.2%. The revenue in the first half of the year exceeded that of the whole year of 2019; Liren Technology's revenue in 2020 was 722 million yuan, a year-on-year increase of 37.8%, and the net profit in the first half of 2021 was close to the full year of 2019.

The same is happening in the electric toothbrush market. According to Euromonitor data, the compound annual growth rate of the domestic electric toothbrush market scale from 2015 to 2020 reached 40.1%.

"The dividend of electric toothbrushes lies in consumers' pursuit of quality of life and tooth protection, and the market prospect is good. Companies such as usmile and Soushi are vying for the market of giants." Li Ning said.

The OEM OEM mode is flawed

The success in the segmented market has allowed some small home appliance companies to rise rapidly, and even have the ability to impact the capital market. However, these companies face similar problems due to their limited scale and inability to connect the upstream and downstream of the industrial chain: it is difficult for manufacturing companies to build their own brands, and brand owners need to improve their R&D capabilities.

According to data from Aowei Cloud.com, from January to November 2021, the top three domestic electric toothbrush market share brands are Philips, usmile and Oral B. Among the top ten brands, only the next two are produced by generation Manufacturers hatch.

According to the prospectus data, the sales revenue of BIYI's own brand "BIYI" accounts for less than 3% of the total revenue. In the first three quarters of 2021, the sales revenue of its own brands will only account for 0.7% of its main business revenue.

In the first half of 2021, the gross profit margin of Biyi's ODM and OEM (commonly known as foundry and OEM) was 17.23% and 9.97%, which was far lower than the 28.09% gross profit margin of OBM (production of its own brand). In the first three quarters of 2021, Boling Electric's OEM and ODM gross profit margins were 16.13% and 14.89%, far lower than the 43.71% of its own brands.

OEMs of electric toothbrushes and air fryers are very clear that self-built brands can obtain brand premiums and increase gross profit margins, but there are many challenges in the self-built process. Some electric toothbrush foundries have publicly pointed out that the risk of building their own brands is to form a competitive relationship with brand customers, and brand customers can freely choose other foundries.

Biyi shares also pointed out that if customers ask the company not to develop brands in order to avoid competition, its own brand development plan will be affected. At the same time, there are also contradictions in the allocation of resources between the foundry business and its own brands. In the first half of 2021, due to the business focus on orders from major customers such as Philips, Biyi's own brand promotion investment decreased, and related income declined.

In addition to the contradiction with the foundry business, there is also a large threshold for operating its own brand. In order to expand its own brand, Boling Electric spent 609,400 yuan in promotion service fees in 2019. In 2020, this cost has soared to 9,011,700 yuan. In the first three quarters of 2021, the cost is close to the whole year of 2020. Even so, the revenue of Boling Electric's own brand in the first three quarters of 2021 will only increase by 1.83%.

Li Fei (pseudonym) is one of the heads of a small home appliance foundry, and the company is currently expanding its own brand. In his view, manufacturing and brand building are two completely different things. If a foundry is immersed in manufacturing for a long time, it is necessary to explore market channels and marketing from scratch.

On February 18, Shi Weimin, the person in charge of Shenzhen Weijie Intelligent Technology Co., Ltd., told the Times Weekly reporter that many electric toothbrush foundries will try to make their own brands. The investment in making a brand is the same as building a factory, but the investment direction is different. One is invested in marketing, the other is invested in fixed assets and R&D. The fact that a factory can manufacture does not mean that it has an advantage in being a brand.

It is not easy for OEM companies to build their own brands, and small household appliance companies that have their own brands but lack production capacity are also facing the problem of improving their R&D and product quality control capabilities.

In the first half of 2021, the R&D investment of air fryer brand Liren Technology accounted for only 1.24% of the current revenue, which was lower than that of mainstream home appliance companies such as Xiaoxiong Electric, Beiding and Midea Group in the same period. Up to now, more than 60 patents obtained by Liren Technology and its subsidiaries have become appearance patents.

In 2021, the Yamamoto air fryer sold in Li Jiaqi’s live broadcast room had exposed quality problems, and some media questioned the OEM production of brand products and the lack of quality control capabilities.

"Most players in the electric toothbrush industry are comparing appearances, but electric toothbrushes are functional products, but there is not much innovation in function. At present, the functional selling points such as battery life and gear positions promoted by players do not make much sense for electric toothbrushes. The electric toothbrush market is getting bigger and bigger, but it still can't solve the pain point of core technology breakthrough." Shi Weimin told the Times Weekly reporter.

Rebuild Cobos?

In the clean small household appliance market, Ecovacs and Stone Technology are well-developed companies, taking into account multiple links such as brand, technology, and production, and are favored by the capital market. Now that the air fryer and electric toothbrush track companies are listed together, can another Ecovacs or Stone Technology run out of this market segment?

Li Ning told the Times Weekly reporter that in the domestic small household appliance market, the market size of clean electrical appliances is about 30 billion yuan, and the market size of most other categories is less than 10 billion yuan. From the perspective of market prospects, driven by demand, the track for personal care and small home appliances represented by electric toothbrushes has a better future. But just talking about the air fryer category, it remains to be seen whether a rigid demand market can be formed in the future.

At the technical level, the technical threshold and room for technological progress of air fryers may also be relatively limited.

The Times Weekly reporter saw from the sellers of multi-brand air fryers on the e-commerce platform that the product promotion points basically focus on visual frying baskets, screen touch, and large capacity.

"At present, the selling point of the air fryer, whether it is visualization or large volume, does not have a high threshold." Yan Leyu concluded.

In Li Ning's view, in contrast, electric toothbrushes have a certain technical content, and there is still room for improvement in intelligence and battery motors, but it does not mean that there are obvious barriers to certain technologies. The competitive advantage of electric toothbrush companies relies more on core innovation capabilities. and operational capabilities.

Shi Weimin told the Times Weekly reporter that electric toothbrushes have a broad market in the future, but the dilemma that needs to be faced is that it has been 10 years since electric toothbrushes have gradually emerged, but there are few breakthroughs in core technology. There are many entrants in the industry, but few have made good products. Even companies that meet the listing requirements have the risk of insufficient innovation capability.

In Shi Weimin's view, electric toothbrush sterilization and automatic toothbrushes are the direction of the company's efforts. In the future, the more core breakthrough may be automatic toothbrushes. There is still a lot of room for improvement in the electric toothbrush track in the future.