When it comes to snack discount stores, you can name a string of brands: Snacks Busy, Haoxianglai, Snacks Youming, Zhao Yiming, Love Snacks... There is a brand that has opened 2000+ stores in 3 years, ranking among the top by store count. But its name may be unfamiliar to you, as the media rarely mentions it and the founding team is very low-key. This brand is Happy Squirrel. Of its current 2000+ stores, over 1000 were added in the past year. Unlike other well-known snack stores, 70% of its stores are in townships. Recently, I had an in-depth exchange with Sun E, CEO of Happy Squirrel. She told me that they focus on the township market, which has huge space, and achieving 10,000 stores in the future is just the beginning. Although snack discount stores target the downgraded market, except for a few mature regions that have expanded to townships, most brands mainly expand to prefecture-level cities and counties. Why did Happy Squirrel take a different route? What is the thinking behind it? How has it achieved such rapid expansion? In nearly three hours of exchange, Ms. Sun gave me a detailed explanation of her thoughts on the industry and this market, as well as their future plans. Full of insights! Next, I will share with you the core content we discussed.
70% of Stores in Townships
Compared to the hustle and bustle of the industry, Happy Squirrel is really low-key and quiet. Ms. Sun, can you tell me how Happy Squirrel operates and where the 2000+ stores are distributed? Geographically, we are mainly in Hunan, Hubei, Yunnan, Guizhou, Sichuan, and Anhui. Next, we will expand to Shandong and Henan. Compared to other brands, we are indeed less mentioned. This may be related to our market: we operate in townships and villages, which is even more downgraded than many people think. Why focus on the township market? Let me start from the beginning. Before doing snack discount stores, we spent 2 years experimenting with direct-operated hard discount warehouses and community supermarkets. After snack stores emerged, we decided to start with single-category snacks, and when we reached a certain scale in stores and warehouses, we would move to full-category hard discount supermarkets. But after thinking, we decided to take a different route. What do you mean? At that time, I was convinced that snack stores are a transitional format. As they develop, with operations, marketing, online-offline integration, more and more things will pile up, your gross margin requirements will increase, and management challenges will grow. In this regard, compared to other snack store brands, I don't think we have any advantage. Participants in this industry basically follow the Snacks Busy model, talking about downgrading from first- and second-tier markets, meaning third- and fourth-tier cities and the vast counties. But if you compare the Chinese market to a pyramid, its base is townships, where the mom-and-pop stores are the true downgraded market. The snack store model that everyone is doing is still difficult to penetrate this market. Because the investment threshold is high, its cost structure determines that investment cannot be less than 600,000 yuan, but in townships, 300,000 yuan is already high. Moreover, it is difficult to achieve fine management granularity for township stores. Facing this market, you must set a new standard, a cooperation model that fits the township market, targeting mom-and-pop stores, from decoration, investment, to operations. From expansion, operations, to supply chain, we have found an effective path, and achieving 10,000 stores in the downgraded market is foreseeable. Going down to townships, expanding rapidly, and reaching 10,000 stores—it sounds like you are the "Mixue Ice Cream & Tea" of snack stores, I said. Wanchen Haoxianglai said they are the "Mixue Ice Cream & Tea" of snack stores, so we are not too comfortable mentioning it, but you are right. This market is huge; it is the soil for nurturing 10,000-store chains. But the core is that from products, operations, to supply chain, you must design a system specifically for this market from the start, and it must meet the needs of this market. Now some snack store brands are moving from communities to shopping malls, opening larger store formats. Their direction is indeed different from Happy Squirrel. Ms. Sun, I am curious: how do you expand and operate in the vast township market, and how does your supply chain support it?
The Core is Product Operations
As I said, you cannot use the same things to go down; you must set a standard for the lower market. Let me explain in detail. First, when expanding in townships, who are your partners? You must consider their financial strength. With an investment of 600,000 yuan, you can hardly find customers, and you cannot compete with the head players in subsidies. With 300,000 yuan, it is relatively easier. Our approach is: with an investment of 100,000 yuan, I will get the store ready for you, including materials, decoration, equipment, etc. On this basis, we expand with thin margins to increase scale. We have no franchise fee; once the store is open, you can directly purchase goods and sell. The store area is 60-80 square meters, covering a three-kilometer radius. A town can have up to a dozen stores. We prefer small-town youth, as they are easier in terms of concepts, cognition, and communication. Of course, there are also upgrades of old stores. Ms. Sun, I understand what you say, but I am most curious about operations. How do you achieve operational standardization in township stores? When it comes to operational standards, we always think about assessing others, which is wrong. Actually, it is they who assess me, Ms. Sun said. In the township market, the core is product operations, and product operations represent store operations. What does that mean? You cannot manage whether the table is wiped clean or the standards for coming and going. You must solve the most important problem: goods! What goods are sold? Are they high quality and low price? Can they be delivered in place so that they can sell cheaply to consumers? If you give the store high-quality and low-priced goods, and they can make money, that is the most important thing. Of course, this does not mean we have no operations, but the core of operations is not assessment standards, but helping stores sell goods. In selling goods, stores have practical experience. We extract good experiences and methods and give them to other stores. For example, a store made a gift box by themselves, putting our products in it as wedding favors. He told us that this alone can earn an extra 20,000 yuan a year. We thought it was good and promoted it to other stores. From another perspective, what we do is actually upgrading mom-and-pop stores, which is the consumption upgrade of the township market. The key behind this is that I must continuously optimize products and supply chain. We now have 4 warehouses, basically one warehouse for two to three provinces, allowing 30% product differentiation in each warehouse to meet the personalized characteristics of the regional downgraded market. Delivery time was 3-5 days in the early stage, now we can achieve 72-hour delivery. In the next six months, we will strive for 48 hours, and then 24 hours. In this regard, I think it is difficult to achieve with the strength of one company. For the vast downgraded market, simple de-intermediation is not feasible. We will cooperate with local distributors, including purchasing goods, co-building warehouses, and jointly expanding the local snack store market. What we need to do is standardize the chain so that everyone gets reasonable profits. Expansion, operations, and supply chain are the three pillars for Happy Squirrel to move towards a 10,000-store chain in the downgraded township market. Many people enter the snack discount industry just because it is hot. Ms. Sun, you have achieved 2000+ stores so quickly. Your actions, results, and future plans are all logical. Can you tell me about your experience and the underlying thinking?
Systematic Lean Management
Let me talk about my background and entrepreneurial experience. I previously worked in clothing and catering. In 2018, I started doing e-commerce agency operations for the food category. The comparison between industries gave me deeper thinking about the food industry. You know the efficiency of clothing supply chain integration is very high. From new product design to delivery to consumers, it takes only 15 days. But I found that food is hard to achieve this. Homogenization is very serious, with few original products and most imitations. In fact, we have many good factories and many demand scenarios. Can we build an effective system that defines the rules for products, packaging, pricing, and channels, so that supply and consumption match? This is what I have always wanted to do. So after e-commerce agency operations, our team tried hard discount supermarkets, with sizes of 100, 200, 400, and 1500 square meters. We tried for two years to find a discount retail model suitable for the Chinese market, until we joined the snack discount store track. Snacks are a good category entry point, but as I said, it is a transitional format. We will eventually move to community hard discount supermarkets. My understanding of hard discount is extremely high efficiency, extremely low cost, and restraint. It is a system, an effective model for efficient matching of supply and demand, which the existing distribution system cannot solve. Why do I say that? Take traditional supermarkets. They are in a difficult position now because they use a consignment model, where purchasing and selling do not require thinking, and there is no store's own analysis and understanding of products. Our logic behind this is changing from consignment to buyout and buyer model. Buyout puts pressure on ourselves; we must always think about consumer needs. Of course, it is not only the retail side, but also the supply side. For example. When we make a product upstream, how the box is made and how the label is made should have standards. But now, overall, domestic products are diverse and dazzling. I often walk through warehouses, including some factory warehouses. Many products, when warehouse workers are moving them, use checkmarks on boxes as labels, but after checking, others do not know what is inside. But you will find that some big brands are different. For example, Lay's potato chips use different colors for different flavors. It is not just marketing; it improves the overall circulation efficiency of products. Improving circulation efficiency is not only about logistics, but also about the brand side. The products and stores we see are the tip of the iceberg above the water, the visible part. The real core competitiveness comes from the invisible part below the water, which is the system behind it. Ms. Sun, what you said can be called systematic lean management. Exactly. Snack discount stores and hard discount supermarkets are a thread. Building an efficient supply-demand matching system is the underlying topic that supports us. So many people ask me about the current industry competition. I would say our target markets are different, and our resource structures, starting points, and what we want to do are different, so it is not really competition. Of course, what we want to do is a slow thing. We are not in a hurry; first, we create value. Final Thoughts In the past year, snack discount stores have attracted the attention of the entire industry. Compared to visible things like mergers, integrations, and price wars, we have always paid more attention to the underlying logic and long-term impact. Snack discount stores, as a vertical category hard discount model, have taken the lead. But hard discount is a business model. Discount retail in different categories and forms is just beginning in China. Behind this, there are practitioners from different backgrounds exploring different directions in different markets. What is the impact of hard discount on upstream manufacturers? Are distributors necessarily the group to be de-intermediated? There are no simple answers to these questions. The Chinese market has great depth and complexity. The practices and thoughts of different hard discount explorers will definitely give you different inspirations. Due to space limitations, the practical experience and wonderful thoughts of Ms. Sun of Happy Squirrel cannot be detailed one by one. On December 6-7, 2023, New Distribution will hold the "2023 China FMCG Hard Discount Conference" in Zhengzhou. This conference, with a 2-day agenda, is the first industry conference focusing on the hard discount theme.