The rise of bulk snack stores is creating a massive opportunity for entrepreneurs. This article provides an in-depth analysis. This year, the TV drama "The Knockout" became a hit. But in reality, the industry that is "knocking out" is the bulk snack store sector. These stores, which primarily sell weighed, unpackaged snacks, are rapidly expanding in third-tier and lower-tier cities. According to media reports, on a commercial pedestrian street in a county in Jiangxi, five bulk snack stores opened this year alone. Let's look at some data:

  • "Snacks Busy" (Lingshi Henmang), founded in Hunan, has over 2,200 stores in five years, with national retail turnover of 6.445 billion yuan in 2022.
  • "Snacks Youming" (Lingshi Youming), founded in Sichuan, opened its first store in 2021 and expanded by over 100 stores per month in 2022, with a total of over 1,100 stores. It plans to open 16,000 stores nationwide by 2026.
  • "Zhao Yiming Snacks" (Zhao Yiming Lingshi), founded in Jiangxi, opened franchising in 2019 and has over 800 stores.
  • "Love Snacks" (Ai Lingshi), founded in Hunan, opened its first directly-operated store in 2020 and now has nearly 1,000 stores.
  • "Old Lady" (Laopo Daren), founded in Zhejiang, has over 1,200 stores. ... Walking into these brand stores, apart from slight differences in decoration, the types and quantities of snacks sold are basically the same: stores typically carry over 1,000 SKUs, including both well-known snack brands and a large number of small or white-label brands. In terms of price, the same product is 20-30% cheaper than in supermarkets or convenience stores. If you become a member, there are additional discounts such as member prices or spend-based reductions. Most customers spend around 50 yuan, but they can buy several types of snacks, such as small breads, sachima, sandwich cookies, and spicy dried tofu—an expense similar to buying two cups of milk tea or coffee in a big city. In the minds of many consumers, bulk snack stores seem to have suddenly appeared in recent years, as this retail format was previously unseen. In the past, buying large quantities of snacks meant going to the supermarket, while buying ready-to-eat small packs was often done at small shops or convenience stores. This wholesale-like retail format indeed captures consumers' demand for "more, faster, better, and cheaper." (The concept of "bulk" comes from Japanese, referring to the model of selling in large volumes to achieve low prices. Industry insiders believe the concept of bulk snacks originated with Yuan Zhenqin, founder of "Old Lady") Why have bulk snack stores risen in the past few years, and what changes in the retail industry and social needs do these opportunities reflect? Research shows that bulk snack stores represent both a restructuring of supply and demand under the changing economic environment and an efficiency revolution in distribution channels.

Behind the "Knockout": The Cycle Has Arrived Before discussing the boom of bulk snack stores, let's look at data from other industries.

  • Mixue Ice Cream & Tea had 7,171 stores in 2019, surging to 21,582 by the first quarter of 2022.
  • Miniso's domestic store count was 2,543 in 2019, reaching 3,325 in 2022.
  • Pinduoduo's GMV was 1,006.6 billion yuan in 2019, expected to exceed 3 trillion yuan in 2022. Whether it's Mixue, Miniso, or Pinduoduo, their main selling point is cost-effectiveness. Their rise over the past three years is largely due to the fact that under the macro environment of the past three years, people's incomes have been significantly affected, making them more price-sensitive and thus more careful with spending, which accelerated the development of high-cost-performance brands in the large retail track. The rapid growth of bulk snack stores in the past three years is based on the same demand logic. That is, the core reason bulk snack stores can attract consumers and expand is price. At the same time, Chinese consumers, after two decades of rapid economic growth, are no longer a generation of material scarcity; they don't just want cheap, they want cheap and good—this demand translates to high cost-performance. Image source: Miniso official website Therefore, in the future as China's economic growth levels off, consumers in lower-tier markets will prefer high-cost-performance consumption scenarios. It is important to understand consumer needs from a new perspective and in a new era. Second, the rise of bulk snack stores is a manifestation of retail channel transformation in the snack sector. In the 1990s, supermarkets entered big cities. At the beginning of this century, supermarkets expanded to county towns. Supermarkets gradually became the mainstream retail channel. After 2010, with advances in payment methods and logistics, e-commerce significantly impacted supermarkets' channel position with its price advantages, vast product selection, and high convenience. After 2016, retail channels like hypermarkets declined further, and retail entered an era of decentralization: warehouse membership stores, community convenience stores, discount stores... The most notable change is that the "knockout" of real estate drove community commerce to mature. According to analysis by the consumer industry research institution "Zhaibo," "China's high residential density has formed a community commerce format centered around ground-floor shops," which "is more suitable for the national conditions than convenience stores." Its biggest feature is that "it is accustomed to splitting residents' daily consumption needs, with each company specializing in one or several vertical basic categories of the supermarket, doing them deeply and thoroughly." For example, Guoduomei specializes in fruits, Qiansima in meat, Guoquan Huishi in hotpot ingredients, and stores like Snacks Busy and Love Snacks specialize in snacks. Image source: Cinda Securities In other words, bulk snack stores are based in communities, catering to consumers' snack needs, and taking away snack market share that originally belonged to supermarkets, convenience stores, small shops, and e-commerce. The essence of a bulk snack store is a collection of multiple snack brands and categories. The snacks sold there can also be bought in supermarkets, convenience stores, small shops, and e-commerce, but it becomes the consumer's choice because it has several advantages simultaneously. Compared to supermarkets, bulk snack stores are cheaper and located in the community, saving complex shopping procedures; compared to convenience stores and small shops, they are not only cheaper but also have a far greater variety; compared to food wholesale markets, the shopping environment is much better and more convenient; compared to e-commerce, prices are similar, but they are physically closer to consumers, with no waiting cost, satisfying impulse snack purchases. This is also a retail format suitable for county towns. According to Frost & Sullivan forecasts, the overall retail scale of China's leisure snack industry in 2022 is about 1.56 trillion yuan, and it is highly dependent on scenario consumption, so offline retail reaches 1.3 trillion yuan, accounting for 83%. Specifically for bulk snack stores, according to Hua'an Securities estimates, the market size is nearly 100 billion yuan, and the number of stores nationwide will exceed 30,000. A more aggressive view is that the national market can support 150,000 stores. It is particularly noteworthy that the low prices of bulk snack stores are not the result of burning money to subsidize users like in internet business models, where prices return to normal after acquiring users. Bulk snack stores typically cooperate directly with manufacturers or the largest distributors, purchasing in large quantities to lower procurement costs; bypassing the profits taken by distributors at various levels, and without listing fees or barcode fees, they pass savings to consumers; through fast-paced, high-turnover product selection, they improve channel efficiency, making low prices still profitable. Bulk snack stores sourcing directly from manufacturers is also a win-win relationship. For snack manufacturers, on one hand, it accelerates inventory turnover and reduces stock; on the other hand, bulk snack stores are effectively expanding new lower-tier channels, with huge channel dividends, allowing manufacturers' products to further penetrate lower-tier markets. For example, Ganyuan Foods previously had reservations about fully embracing the bulk snack channel due to price control considerations. As the bulk snack model continued to develop, the company fully recognized the channel's development opportunities and adjusted its channel focus in the third quarter of 2022, adjusting its supply chain to fully embrace the bulk snack channel. The above is the macro soil for the "knockout" of bulk snack stores. Next, we delve into the track from a micro perspective to explore which companies with what qualities will go further and claim more territory in this fiercely competitive market.

In the Midst of the Knockout: Competing on Operational Capability No matter how exciting the channel revolution seems to outsiders, a bulk snack store is essentially a sales channel. Although it has over a thousand SKUs, different stores sell similar categories and products, use similar sales methods, and target similar consumers. Consumer brand awareness is weak. Whoever has stronger operational capability, enabling franchisees to make money and providing a good consumer experience, will survive and thrive. Therefore, at present, running fast and standing firm is the primary goal for every leading bulk snack company. "The blank market is large enough; (bulk snack stores) are now in the stage of grabbing territory, far from the time to talk about differentiation," said a senior practitioner in the snack industry. "It's still the time for bulk snack stores to carve up other retail formats." Note: In 2023, Love Snacks has entered the Sichuan market. Image source: Huachuang Securities Nevertheless, to stand out in the bulk snack field and become the Mixue, Miniso, or Huazhi Liquor of this field, some "childhood skills" must be practiced from the start. This "childhood skill" is operations. In the retail industry, the direct goal of operations is efficiency, and the ultimate goal is commercial returns. High efficiency is manifested in asset-light, high-expansion models, with focus on store location, supply chain, and franchisees. Behind the competition for ultimate efficiency, companies need to build infrastructure in front, middle, and back office operations and fully improve efficiency. An industry insider pointed out that supply chain integration capability is the core of a company's product strength, along with technology iteration capability, digital construction capability, training capability, and warehousing and distribution capability. These back-end capabilities determine how big a company can become. First, all bulk snack stores on the market use high cost-performance as their selling point, with prices 20-30% lower than supermarkets and convenience stores. Low prices also reduce store gross margins, so they must pursue higher turnover rates and larger sales volumes on the basis of lower product prices. According to industry media such as Xin Wan'er and 36Kr, Snacks Busy's gross margin is only 18%, but the store's sales per square meter and operational efficiency are higher than those of listed company Bestore's stores, while its expense ratio is less than half of Bestore's. In addition, the high-turnover model requires the headquarters of bulk snack brands to fully perceive the operating conditions of end stores, continuously eliminate slow-moving products, adjust and introduce new products in a timely manner, and leave shelf space for products more favored by consumers, so that consumers always feel freshness when entering the store. Supporting this seemingly simple behavior is the use and mining of information systems and data, as well as abundant upstream supplier resources. That is to say, horizontally, there is little differentiation among bulk snack brands. However, vertically, over time, the same bulk snack store can make consumers feel the difference in products on multiple visits, thus maintaining their willingness to return. A research report from Cinda Securities points out that to attract consumers and make them feel changes, the categories in bulk snack stores are also iterating from sub-high-frequency to high-frequency, gradually extending from fixed-quantity packs and bulk snacks to convenience foods, beverages, milk, dairy products, etc. The proportion of essential high-frequency products is increasing. This brings an extension of shopping coverage time periods, and stores gradually meet more diverse consumer needs. An article by Xin Wan'er also points out that the logic of this change is to use "essential beverages and big-brand snacks at low prices in snack discount stores" as store traffic drivers, with the essential profit point in the big-brand snack category. This ensures both store profitability and customer acquisition capability. In addition to working on product operations, various bulk snack brands are also honing their franchise store efficiency systems to achieve higher sales per square foot after regional competition intensifies. For example, Snacks Busy assesses product display, script guidance, business hours, music playback, etc., and publishes assessment results monthly. Stores with scores above 95 for three consecutive months can open more stores, while excellent stores can have freight reduced, and unqualified stores have freight doubled and must rectify and learn. Another example: Love Snacks has made great efforts to build a membership system. It launches member days, issues consumption coupons, and offers recharge benefits, making most products in Love Snacks stores more price-competitive than convenience stores or supermarkets in the same area. Through the sweetness of prices and benefits, it further enhances user stickiness in lower-tier markets. Running a single-store model is just the beginning for bulk snacks. Whether it can expand within the province or even to other provinces is a benchmark for verifying the success of the business model. Under the bulk snack store format, multiple SKUs and regional tastes increase the management difficulty of cross-regional expansion, facing higher supply chain costs. However, some areas such as Changsha have already seen stock competition and survival of the fittest. In this context, whoever first successfully runs a province-wide or even out-of-province store expansion model is more likely to accelerate.

After the Knockout: Genes and Team Capital and industry have also seen the opportunities hidden in the "knockout" of bulk snack stores and are placing bets. In February this year, Zhao Yiming Snacks completed a 150 million yuan Series A financing round led by Black Ant Capital with Bestore following; in 2021, Snacks Busy completed a total of 240 million yuan in Series A financing led by Sequoia China and Gaorong Capital, with Qicheng Capital and Mingyue Capital following; Love Snacks completed an investment from Galaxy Creation Ventures in 2021; Snacks Youming also completed tens of millions of yuan in financing between 2021 and 2022; Snacks Mofa completed an angel round of about 10 million yuan in 2022. With ample "ammunition," the major players will inevitably tell more stories in the bulk snack store sector in 2023. A research report from Huachuang Securities predicts that in 2023, competition in the bulk snack industry will intensify, and in 24-25 years, there may be a round of adjustments in each company's core regions. After that, a stable regional oligopoly model with a thousand stores will form, and the final outcome will likely be regional coexistence, with 1-2 national brands. The industry generally believes that starting in 2023, there will be a round of reshuffling. An investor told industry media "Investment Circle," "Looking three years from now, among the dozens or hundreds of brands on the market now, only five or six may survive." In this rapidly developing war, whether one can survive to the end depends on the soldiers' hard training and sufficient ammunition, as well as the commander's battlefield experience. An industry insider believes: "No matter how things change, the commonality between the snack bulk format and other industries is that the founding team's genes (senior commanders) and offline execution (junior officers and non-commissioned officers) jointly determine the final result. The founding team's genes are the 'one,' and execution is the 'zeros' behind it." Objectively speaking, among the founders of bulk snack brands, almost all are retail veterans with considerable industry experience. Yan Zhou, founder of Snacks Busy, worked in real estate for 7 years and was a franchisee of Leerle chain discount wholesale supermarket; Li Shuyu, founder of Snacks Youming, ran offline chain brand stores for over a decade; Zhao Ding, founder of Zhao Yiming Snacks, started by selling fried goods and began opening snack stores in 2015; Dai Yonghong, founder of Dai Yonghong, also started by selling fried goods, and his stores initially sold fried goods, now transitioning to bulk snack stores; Feng Hui, founder of Linshi Mofa, has an IT background and later was responsible for informatization at Yonghui Superstores, possessing retail and digital middle-platform construction capabilities. It can be seen that except for Feng Hui's technical background, the other founders generally come from "store-opening" backgrounds. In reviewing the resumes of bulk snack founders, one person with a unique experience stands out: Tang Guangliang of Love Snacks. He is not simply from a "store-opening" background; he has done almost every job in the retail industry. In other words, on the retail battlefield, he is a founder who grew from platoon leader to general. Tang Guangliang, born in the 1980s, first worked as a manager at Bubugao Supermarket, responsible for operations and procurement. In this position, he "understood the logic of manufacturers' various needs." In his 20s, he started his own supermarket but failed. In 2008, he founded the convenience store brand "Kuailehui," charging only 5,000 yuan in franchise fees, transforming mom-and-pop stores into chain convenience stores. He pioneered a bold model: without his own warehousing or logistics, he collected orders from franchise stores daily, went to Changsha Gaoqiao (a comprehensive wholesale market in Hunan) to buy goods for store owners, and had them delivered. He also used his experience in hypermarkets to provide guidance on product categories and shelf display. Later, "Kuailehui" convenience stores sprang up like mushrooms in Changsha, and he introduced his own logistics and warehousing, distributing goods to franchise stores under the name "Kuailehui Headquarters," embarking on the path of supply chain management. During that period, when convenience store chains were grabbing territory, Tang Guangliang made a bold move: he found all suitable locations for convenience stores in Changsha, signed agreements with landlords in advance with deposits, and left Kuailehui's and his own contact information on rental listings. Anyone wanting to rent a store to open a convenience store would directly contact Kuailehui, suddenly adding over 100 franchise stores. By 2014, Kuailehui achieved annual profits of over 10 million yuan, mainly from franchise fees and cash flow from logistics. By 2018, it had 15,000 stores. In 2014, Tang Guangliang also founded the FMCG B2B platform "Xingaoqiao," offering free franchising, with profits coming from extreme supply chain operations. For example, building regional forward warehouses and using self-owned vehicles for rapid response delivery. In procurement, it focused on high-frequency categories with large centralized purchasing, obtaining low prices and supplying franchisees at low prices, creating franchisee stickiness. Xingaoqiao expanded at a rate of 2,000 stores per year. Later, Tang Guangliang also founded the community group buying platform Kaola Select, testing the combination of online and offline. In 2020, Tang Guangliang founded Love Snacks. Tang Guangliang's experience can be summarized as: he has succeeded and also stepped on pitfalls; he has fought battles of all sizes, seen bullets and the power of shells; he knows how to take positions when charging and how to save ammunition in the trenches when defending; he knows how to grab territory in good times and how to avoid mistakes and wait for opponents' errors in bad times. For Love Snacks, although it started late, Tang Guangliang has launched many moves that make the industry's eyes light up: for example, opening directly-operated stores next to competitors' franchise stores, and offering free franchising. In the future, he also plans to use Love Snacks stores to launch high-end fruit group buying. Image source: Wikipedia Writing this reminds me of several big names in the retail industry. Ye Guofu, founder of Miniso, had opened the cheap accessory store "Aiyaya" for many years before founding Miniso, which was already a well-known brand in South China and received 100 million yuan in investment in 2012; Wu Xiangdong, founder of A-share listed liquor chain Huazhi Liquor, was an agent for Wuliangye brands in the 1990s and founded Jinliufu liquor in 1999; Meituan entered the food delivery industry later than Ele.me, but Meituan experienced the "thousand-group war" and had an "iron army" with strong store expansion capabilities, and founder Wang Xing accumulated harsh "failure lessons" from his startups Xiaonei and Fanfou; Wang Ning of Pop Mart opened a stall selling trendy goods right after college; Costco founder Brotman saw the prospects of the "discount store + department store" model as early as the 1960s, and the other founder, Senegal, was an executive at Sol Price, the first warehouse supermarket in the United States... Therefore, in this retail transformation of the third decade of the 21st century in bulk snacks, many opportunities will emerge. As one investor said, "Uniqlo and Don Quijote both grew during Japan's 'lost 30 years,' and China will also grow a batch of excellent companies in these years." The companies that ultimately emerge will be a comprehensive reflection of the founding team's genes, supply chain management capability, and store franchise operation capability.

References:

  • Cinda Securities (Ma Zheng team) "The Rise of Bulk Snack Stores: New Snack Freedom"
  • Hua'an Securities (Liu Luetian team) "Bulk Snacks Highlight 'More, Faster, Better, Cheaper' Features, Retail Format Strengthens Low Gross Margin and High Turnover"
  • Huachuang Securities (Ouyang Yu team) "More, Faster, Better, Cheaper: The Rise and Breakthrough of Bulk Snack Stores"
  • Xin Wan'er (Lian Zhou) "Stores: Another Logic of Domestic Snack Business"
  • Investment Circle (Chen Xiao, Yang Wenjing) "10,000 Snack Stores Sweep County Towns"
  • 36Kr - Future Consumption (Zhao Xiaomi) "2021: Is Opening Offline Snack Stores Still Profitable?"
  • Guanchao New Consumption (Qing Ling) "Bulk Snack Stores: Squeezing Distributors?"
  • Zhaibo (Xiao Chao) "Behind the Decline of Supermarkets: The Decentralization of Retail"
  • Xiaofanzhuo (Yue Shan) "10 Years Ago He Lost Everything in Entrepreneurship, Now He Has Made a Comeback with 10,000 Convenience Stores and Annual Transactions Exceeding 300 Million"
  • 36Kr (Li Xiaoxia) "The 'Mixue' of the Snack World: Over 2,000 Stores, Selling 6.4 Billion a Year" This article does not constitute investment advice.