2024 was a year of land grabbing for snack chains. Driven by capital, everyone worked hard to grab territory and expand stores. That year, many snack chains achieved good results. However, from the fourth quarter, the pressure of store operations began to make everyone breathless. Although the decline in store performance was expected, the magnitude was somewhat surprising. What exactly are the reasons for the decline in store performance? The underlying reasons for the decline in average output per snack chain store The performance decline here refers to the decline in average output per store, which can be summarized into five major factors: First, the consumption capacity of residents in third-, fourth-, and fifth-tier cities and townships, where snack chains are mainly distributed, has declined. Many people in these cities and towns work in provincial capitals or first- and second-tier cities. In the past two years, the downturn in the real estate industry has negatively impacted many industries. Additionally, in 2024, many companies' operating profits declined, and the service industry, which provides the most employment, was also sluggish. These factors occurred simultaneously, leading to declining incomes or unemployment. With less income, consumption naturally decreases. Moreover, consumers' expectations of future income have also lowered, and they need to increase savings for future uncertainties. Second, high store density and high product homogenization lead to consumer diversion. Opening one store in an area may bring good business, but opening two might result in one loss and one marginal profit, and opening three might lead to all three losing money. At this point, it's a test of strength to see who can hold out. Those who can't will close first, and then a relatively benign operating environment can emerge. This is the norm for offline stores in China, not just for snack chains. It applies to tea drinks, clothing, fruit, restaurants, etc. Everyone who opens a store thinks they can make money, but in reality, most current store owners are not profitable. Third, consumers' interest in snack chains is decreasing, and the frequency of store visits is declining. Snack chains satisfy consumers' impulse needs, requiring more novel and unique products to attract customers and stimulate purchase impulses. However, these products may not generate high sales; their mission is to drive traffic. In snack stores, products from first-tier brands actually bring in the most sales. To differentiate, many first-tier brands adjust product names and specifications to meet snack stores' price needs, and packaging designs are also similar. As a result, snack store products are increasingly converging with supermarket products, and the distinctiveness of snack stores is gradually weakening. Fourth, with the emergence of supermarket direct sourcing and discount supermarkets, snack stores' price advantages are diminishing. Nationally, there are very few snack stores in Henan because supermarket prices there are generally lower than in other regions, and snack stores have no price advantage over local supermarkets. Fifth, the snack chain industry is developing too fast, and talent reserves and capability improvements cannot keep up with the pace of development. The core of supermarkets is products and pricing, but for this format, future category planning and evaluation, product strategy, shelf management, and pricing strategy all require professional talent. Currently, there are too few suitable talents in the market, so they basically need to be self-cultivated, continuously learning, summarizing, and optimizing in practice. This is also the talent development path for excellent local supermarket chains. Moving Toward Discount Supermarkets Is a Difficult but Correct Thing Recently, many videos on Video Account and Douyin are discussing the upgrade of snack chain supermarkets, with strategies basically revolving around expanding categories and moving toward discount supermarkets. They talk about introducing new categories through distributors or brand owners and adjusting shelf displays. From these influencers' videos, it seems this is the direction for snack chains, but in reality, everyone is testing the waters, and a successful model for the future has not yet emerged. Expanding categories is actually a very difficult thing, not as easy as it appears. Before expanding categories, a comprehensive review and optimization of existing categories must be conducted. Today's snack chains, after years of rapid development, have accumulated sufficient data. Some of them have begun to adjust and optimize existing categories based on sales, profit share, and development trends of each category: Which categories are for traffic and which for profit? How should gross margins be set for the same category or brand? Under existing categories, how many brands are needed, and how many SKUs per brand? How much display space does each SKU need, and how should store placement be arranged? Combining each SKU's sales and profit contribution, product quality, product fulfillment rate, product development capability, whether it's self-produced or OEM, etc., low-efficiency or ineffective products are optimized out, and core suppliers are cultivated. Through the above work, while improving the sales per square meter of existing products, shelf space is freed up to introduce new categories. Expanding categories is essentially robbing business from supermarkets, small shops, OTO, delis, bakeries, community group buying, and other channels around snack stores. To grab business from other channels, first consider your own advantages: should you start with one or two categories or all at once? Do your procurement and operations teams have the capability to handle it? Do franchise store managers have the management capability for these products? You cannot blindly start because everyone's financial strength and management capabilities are far behind those of multinational retail giants, and you cannot afford to make mistakes. Expanding categories requires thorough market research and data analysis. If not done well, it may not only fail to increase store sales and profits but may also lead to losses. Before expanding categories, analyze the sales share and gross margins of each category in supermarkets, community group buying, O2O, e-commerce, and other channels, and make choices. Currently, many snack chains have added grain, oil, condiments, frozen and refrigerated products, daily chemicals, and general merchandise, and some have added fresh baking and fresh food. Adding is easy, but subtracting is hard. These categories are easy to introduce, but as SKUs increase, the difficulty of procurement, logistics, warehousing, and store management will increase, and operating costs will rise. Which products are truly suitable for today's snack chains? In fact, everyone is exploring. From current supermarket data, for daily chemicals and general merchandise, e-commerce is the main purchasing channel, and offline supermarkets are declining year by year, with slow movement and low gross margins. Should these categories be introduced? If so, how many brands per category? How many SKUs per brand? Grain, oil, and frozen products are core categories for community group buying. Compared with Meituan and Duoduo, do you have a price advantage? If not, it may have a negative impact, making consumers feel that snack chain supermarkets are expensive. Today's snack chains definitely need to expand categories, which helps increase store sales and customer traffic, but this move cannot solve the market problems facing snack chains today, nor can it form a barrier for snack chains. Everyone is willing to do simple things and quick, effective things, but haste makes waste, and this cannot bring competitive advantage. When discussing China's offline retail today, one cannot avoid Sam's Club, Costco, Pangdonglai, Hema, and Aldi. They are all long-termists in product planning, operational efficiency, supply chain construction, and brand promotion, and have established their own barriers. But they are basically positioned for white-collar workers and the middle class, and are not very suitable for the lower-tier market. In contrast, today's snack chains are the opposite, focusing on the lower-tier market with different target audiences. In third-, fourth-, and fifth-tier cities and townships, wealth disparity still exists. The needs of the wealthy in these areas are not met; they need not just cheap products but products with quality-price ratio. Such products require snack chain procurement, product operations departments, supplier marketing departments, and product R&D personnel to jointly develop and promote. Today's snack chains need to quickly launch new products, attract consumers with distinctive and quality-price-ratio products, and also monitor new product performance. If sales data do not meet set standards, they should be delisted promptly. Find hit products through product innovation and enhance competitiveness by creating hits. Today, this product planning and marketing capability is what snack chain operations teams lack. Products with characteristics and quality-price ratio help enhance consumer goodwill and stickiness, leading from quantitative to qualitative change. If you have this capability and persist for several years, you will definitely form your own core competitiveness and become a retail brand. Like Sam's Club and Aldi today, your private-label products will then have value. Consumers will trust your brand products because of their trust in you, thus establishing an operational barrier. Today, among all snack chains, the one that establishes this barrier first will definitely become the true leader of the industry. 2025: Improve Franchise Store Profitability The path toward discount supermarkets may be correct, but if it's just a simple expansion of categories, many problems will arise, and it may not solve the decline in store sales and profits in 2025. In the short term, the following strategies can be considered:
First, co-create products with core suppliers, jointly promote, and utilize brand owners' marketing and product R&D resources; Today's snack chains have store count advantages, and brand owners are willing to push new products through snack chains. Since they are pushing new products, there must be marketing budgets. If both sides can integrate resources for product promotion, it will not only help stores attract new customers but also ensure profits. Second, expand business radius by cooperating with platforms like Meituan and Ele.me; Third, have bulk suppliers provide barcodes for bulk products and introduce self-checkout systems to reduce labor costs; Fourth, enhance private domain product promotion functions through membership and franchise store training, focusing on promoting new products. While empowering brand owners' new product promotions, increase member stickiness because brand owners allocate marketing resources for new product promotions. Sam's Club and Costco treat new product promotion as a very important task, using in-store tastings and other methods. Snack stores can use new product member trial prices, members posting on Douyin or Xiaohongshu for free trials, etc., to drive store traffic and complete new product promotions, with costs borne by suppliers. Products Are the Core Competitiveness of Snack Chains The core of retail is four words: product and pricing. The hardest part is product. What can create differentiation is products, and what attracts consumers is also products. Sam's Club, Aldi, Pangdonglai, and Hema are all making their own products, creating unique products. Last year, when I discussed snack chain product planning with Hou Yi, former CEO of Hema, and a founder of a snack chain: Hou Yi asked: "You're already this big, do you have a product planning department?" Today, many snack chains only have procurement departments. Hou Yi said, "You can only sell what suppliers provide you. You sell whatever they have, which leads to product homogenization and price competition, and your company's profits cannot be guaranteed." "I heard you attach great importance to product purchase prices: you get what you pay for. If you squeeze the purchase price, suppliers will definitely cut corners on costs. How can quality be guaranteed? You need to optimize suppliers, focus on their product R&D capabilities, production management capabilities, and product fulfillment capabilities. You need core suppliers and control the number of suppliers. This way, you can jointly develop new products and improve your operational management capabilities." "From the founding of Hema until I left, I have always been the company's product manager. Everyone must focus on products. Products are your core competitiveness." Hou Yi's words were summarized from hundreds of millions of yuan in tuition fees. I hope they can influence all founders of snack chains today. Low prices will never become competitiveness! 2024 was a year of land grabbing for snack chains, with huge impact and shock on the entire industry. In 2025, what changes will occur in the snack chain landscape? What impact will it have on FMCG manufacturers? How should they respond under these changes? From March 17 to 19, the 10th China FMCG Innovation Conference will be held in Chengdu, and the 4th China FMCG Hard Discount Conference will be held concurrently. Snack chain systems, brand executives, and distributor benchmarks will be invited to have in-depth dialogues on the future changes and opportunities of hard discount represented by snack chains. 【New Order · Symbiosis】 The 10th China FMCG Innovation Conference Time: March 17-19, 2025 Location: Chengdu, China