Introduction: Who Will Lead the Way? Author | Ren Xiaodong Reviewer | Gou Gou Layout | He Wen

The Evolution of Snack Chains When we discuss business analysis, we need to look at the past, present, and future. Analyzing the snack track also requires understanding its historical process. First, we all know that in traditional sales channels for snack chains, KA hypermarkets dominate, and competition in the bulk food section takes several forms. The first is the jar/basket type, which achieves functional zoning well but has the disadvantage of limited space. The second is the counter display method, suitable for unpackaged, individually packaged, and branded snacks. The third, which is done well, is the island display method, adopted by brands like Hsu Fu Chi, Want Want, and Yanjin Shop. In hypermarkets, island displays have achieved good sales results and laid a brand foundation. Later, due to limitations such as limited space, high fees, and restrictions on SKUs from only a few brands, hypermarkets could not accommodate the development of all Chinese leisure snack brands. Thus, pioneers represented by snack collection store chains developed rapidly from 2004 to 2009. Brands like Lai Yifen, Bestore, and Zuoshangke opened new paths, and suddenly thousands of leisure snack specialty stores and chains appeared nationwide, with supply chains primarily in OEM and ODM forms. However, their ability to develop new products was not strong. In addition, brands like Three Squirrels, Beicaowei, and Yanjin Shop focused on B2C e-commerce, upgrading bulk packaging to unified brand quantitative packaging, and upgrading bulk sales through branding strategies. This led the entire Chinese snack brand industry into a period of rapid development.

Next came snack store models based on female selection perspectives, represented by brands like Laoban Daren, Xiaozui Snacks, and Dai Yonghong. It is worth noting that each region had its own regional king, and few brands expanded across regions. Until now, Snack Busy has pioneered the hard discount snack chain track. Compared with the previous three models, this form has higher retail efficiency and better operating results. The four stages mentioned above are a continuous iterative evolution process, starting from hypermarkets, gradually progressing to differentiation and high-end, and then, due to the macro environment and the pandemic, giving rise to the Snack Busy model, which entered a window of opportunity.

Overseas Benchmarks for Snack Chains Currently, the overseas benchmark business models for snack chains include the following:

First, Japan's Don Quijote, a soft discount model with about 700 stores globally and nearly 100 billion RMB in GMV, demonstrating the strong vitality of this business model.

Second, the US Dollar Tree, with 2023 revenue of 192.4 billion RMB, listed in March 1995, with a market cap of 230.5 billion RMB, and a stock price increase of 168 times over 26 years.

Third, the US Costco, with around 3,700 SKUs, and all products sold in large packages, which significantly reduces employee management costs and shortens onboarding time for new employees. From 2005 to 2015, Costco's stock price rose 322%, compared to Walmart's 47%. Berkshire Hathaway, led by Warren Buffett, has continuously bought Costco stock and currently holds 0.99% of its issued shares.

Fourth, the US Dollar General, with fiscal 2023 revenue of 256.3 billion RMB. Listed in November 2009, with a market cap of 329.9 billion RMB, and a stock price increase of up to 25 times over 12 years.

Finally, Germany's ALDI, with stores of several thousand square meters, has fewer than 2,000 SKUs, and typically only 1-2 SKUs per category.

From a global perspective, discount collection stores are mainly divided into three types: Selective discount stores represented by ALDI and Don Quijote, which focus on private labels and incorporate fresh produce; Soft discount stores that mainly sell brand surplus goods, represented by Hi-Tech Go and HotMaxx; and Hard discount stores that focus on brand discounts and private labels, supplemented by a small amount of surplus goods, represented by Aotle, which, unlike ALDI, does not do fresh produce or community stores.

Market Space Imagination for Snack Chains First: The market has 10x growth potential. We have calculated some industry data: with a 5% renovation rate for 6 million small stores, the renovation rate for 90-200 square meter stores can reach 35% under this model. Then, based on Hunan's market saturation of 5,000 stores, across 34 provinces nationwide, the total market could reach 200,000 stores. Currently, snack chain stores like Snack Youming and Zhao Yiming total 10,000 nationwide, leaving significant room for growth.

Second: This year, many KA hypermarkets have closed, merged, or died, providing an excellent growth space for snack chains. I have an immature view that China's fourth consumption era has arrived early. The pandemic has affected both national and household finances, leading to low disposable income. Snacks, being affordable, can bring emotional uplift (dopamine) and make people happy, which is also a significant space.

Third: As mentioned earlier, in the global retail top 50 rankings, 70% are discount business models. The success of discount models reflects the hard discount model in snack chains. I have summarized its five lifelines: The first lifeline is the counterattack against the traditional KA markup model, which had a reverse markup rate of about 46%-60% in the early days, while snack chains now have a markup rate of only 18%-22%. The second is the counterattack against the exorbitant fees of the KA hypermarket business system, which had 24 types of fees in the early days, while hard discount snack chains have no fees. The third is the counterattack against the marketing gimmicks (promotions) represented by hypermarkets, which also captures consumer mindshare. The fourth is the counterattack against payment terms; snack stores now typically pay on delivery and in cash. The fifth is the counterattack against corruption; new snack chain brands have zero tolerance for corruption, making a significant contribution to the industry. These five lifelines give snack chains enormous imagination space: it is a total cost leadership model, from upstream manufacturers bypassing distributors to consumers, with a clean and efficient process.

Another space is the rise of white-label brands. In the leisure snack market, there are few billion-level or hundred-billion-level major brands. Therefore, brand control in this field is not strong, leading to the rise of many white-label brands. Compared with traditional brands, white-label brands have stable quality, higher gross margins, and support from wholesale markets. Coupled with consumers' information parity (no longer looking up to brands), some white-label brands have become affordable alternatives to major brands.

In summary, the rapid development of hard discount snack chain stores is due to: Scenario-driven demand: 1) Hard discount snacks are not a random innovation but a real application of retail science; 2) Consumers benefit greatly. For example, the author used to spend about 300 RMB on meat snacks from a high-end snack chain, but at Snack Busy, it might only cost 120-150 RMB, with similar quality and taste. Total cost leadership: Hard discount snacks are not about low-quality goods and low prices, but about improving circulation efficiency through the model, returning the money that retail enterprises should not have earned to consumers. Development speed: The hard discount snack format started with grassroots players rising across the country, and within a few years, with the help of capital, has formed a clear leading tier. In the coming years, it will be more about leading players expanding their territory. Market capacity: If measured by the number of stores, hard discount snack stores will likely reach the threshold of 200,000 stores, becoming an infrastructure that consumers cannot bypass when buying snacks.

Brand Landscape of Snack Chains Currently, the snack industry has a pattern of "two superpowers and three strong players." The two superpowers are Wanchen and Snack Busy, and the three strong players are Zhao Yiming, Snack Youming, and Tangchao. Snack Busy represents one of the industry's leading enterprises, reaching 3,000+ stores this year (latest official announcement is 3,000 stores), and achieving 12 billion RMB in sales is no problem. Snack Busy received 240 million RMB in financing the year before last and is currently in a period of rapid and healthy development. Wanchen Bio, under its umbrella, has five brands: Haoxianglai, Laiyoupin, Snack Workshop, Luxiaocan, and Yadiyadi, totaling over 5,000 stores.

Next are regional leading enterprises: Zhao Yiming, Snack Youming, and Tangchao. Zhao Yiming currently has 1,500+ stores, and with a pace of over 100 new stores per month, it will exceed 2,500 stores this year without issue. The second-store rate is 65%, with layouts in Jiangxi, Guangxi, Guangdong, Hubei, Fujian, Hebei, and Guangxi, targeting revenue of 6-7 billion RMB. Chengdu's Snack Youming is also opening 100 new stores per month, already exceeding 1,000 stores, with investment from New Hope and Yunyue Capital, and is expected to reach 3,000 stores and 7 billion+ RMB in revenue. Laiyoupin, Tangchao, Snack Youxuan, and Jiangsu Haoxianglai all have store scales of 1,000+; Jiangxi Yadiyadi, Nanjing Luxiaocan, and Qiahuo Puzi are all around 500 stores.

Among the "dark horse enterprises" in various regions, Hunan Li Chao's "Snack Youxuan" and Hunan Tang Guangliang's "Ai Snacks" have adopted an ecological niche competitive strategy, benchmarking against industry leaders, and have grown rapidly in recent years. Among them, Snack Youxuan shipped over 2 billion RMB in 2022, and Ai Snacks had a GMV close to 2 billion RMB, with store scales around 1,000+. As a seasoned entrepreneur, Tang Guangliang is known in the industry for his sharp tactics, forward-looking layout, jumping thinking, and a fierce reputation for challenging leaders. His previous entrepreneurial projects have gone through multiple rounds of financing, and he has a clear judgment on the essence of the industry. Li Chao of Snack Youxuan, who comes from a manufacturer agency background, has many internal skills in promoting the efficient distribution and turnover of white-label products in snack chain systems, and his profitability exceeds some peers.

Of course, Hunan's Qiahuo Puzi, Kunming's Snack Heneng Hai, Shandong's Xueji Roasted Goods, Guangxi's Snack Warehouse, Sichuan-Chongqing's Aotle, Tianjin's Ai Discount, Shanghai's HotMaxx, Changsha's Treasure Discount Warehouse, and Tiaoma and other snack chain stores show that every city has its own snack chain brand. These brands have the potential to become "city regional kings." For example, He Xiangxi's Qiahuo Puzi in Guangxi, Deng Qiquan's Snack Heneng Hai in Yunnan, Xueji in Shandong, and Aotle in Sichuan-Chongqing have all performed well.

Currently, the national layout of leading enterprises is basically complete, and competition has entered the mid-game. Waist-level enterprises are entering the stage of density competition, unit model competition, and core resource competition. At the same time, competitive methods are advancing: from price wars to brand wars to PR wars, step by step. In addition, there are external franchise agent systems invented by snack XX, similar to Xing Sheng Youxuan's Shoude system, where franchisees open small chains under the brand ecosystem through channels like Douyin and fellow townsmen. Fujian's Tangchao is attacking fiercely in Jiangxi, putting local pressure on Zhao Yiming. Wanchen Bio's Haoxianglai and Laiyoupin are undertaking the main tasks of attacking and expanding territory. Laiyoupin's attack on the Zhengzhou market reflects this, engaging in a frontal battle with Zhao Yiming for store locations.

Laoban Daren has 700 stores in Jiangsu and Zhejiang. The author observes that there may be cracks in its operations this year, with shareholder relationships not well managed, and many stores unable to use membership cards, giving foreign brands an opportunity to compete for Zhejiang. The author observes that the national layout of retail brands is basically complete, and leaders are beginning to pursue penetration rates, unit model store efficiency, and point quantity. Measured by 5,000 stores per province, there is still room for natural growth. Whether the overall increment or decentralized decline after the game depends on the big store or small store model. Currently, it should be an overall increment, with positive game competition. Whether to play open cards or hidden cards depends on the needs of each brand. Of course, when many companies grow large, factionalism and corruption naturally arise, which mainly depends on what the boss wants. The superiority of business models is not important; what ultimately determines the market landscape is the founders' cognition, pattern, and organizational capabilities. After interviewing the main founders in this track, I have a feeling: whether the founders' entrepreneurial practice preferences are scientific or passionate will have different impacts on the market rhythm, layout, growth space, and team cohesion. It can be said that the leadership ability, values, strategic direction, and organizational capabilities of enterprise founders are key to the success of all snack discount enterprises.

Single-Store Models of Snack Chains The first model is the Busy model, which opens bulk stores in high-traffic corner locations, with an area of about 120-150 square meters, daily sales of about 13,000-15,000 RMB, and about 1,300 SKUs. The second is the Zhao Yiming model, an ultra-large store model with an area of 150-180 square meters, daily sales of 16,000 RMB, and about 1,600 SKUs. According to the official announcement on June 1 of a 150 million RMB Series A financing, the current valuation is 1.5 billion RMB (Black Ant Capital holds 5.8%, Bestore holds 3%, and BAHN holds 1.2%). The third is the community store model represented by Snack Youxuan and Ai Snacks. This model is actually a convenience store version of a snack store, with an area of 100-120 square meters, revenue of about 8,000 RMB per day, and 1,100 SKUs. In the single-store model, the overall warehouse and distribution efficiency is relatively high, at 2%-4%, with front-end gross margins of 18%-23% and back-end gross margins of 8%-12%. The highest single-point valuation is Snack Busy, reaching 5 million RMB per store, while others are around 2-3 million RMB per store. Compared with group stores, the single-store model of snack chains is still at the level of a primary convenience store. Compared with convenience stores, it has higher growth. In summary, all single-store models implement the idea of achieving total cost leadership to the extreme.

Competitive Landscape of Snack Chains Regarding the competitive landscape of snack chains, first, we know that the head is "two superpowers and three strong players." In the trillion-yuan track, the total is currently less than 200 billion, and the head of the hundred-billion club is aiming for 20 billion this year. So Snack Busy is fighting a brand war, signing spokespersons, and doing PR across the internet; fighting a price war to attack target markets; fighting a unit model war to increase valuation; fighting a quantity war to increase GMV and valuation; fighting an IT war to replace systems and improve collaboration efficiency; fighting a traffic war by selling on Douyin and building a franchise IP matrix; fighting a national market offensive and defensive war; and fighting a financing war. For the waist, the positioning is to be the king of one province, covering 600-800 stores, achieving revenue of 3-5 billion, with a core focus on regional density. The third is flanking warfare, where enterprises with 100-300 stores aim for 300 million to 1 billion in scale, showing their prowess in blank and marginal areas. The fourth is called gap-filling, with two forms: one is IP collection stores, and the other is snack+, such as snack+fruits, snack+general merchandise. Overall, the track is benign, orderly, and controllable competition, without malicious competition like community group buying. As the industry leader, Yan Zhou of Snack Busy has made significant contributions, not engaging in zero-sum game competition. All snack chain enterprises are spontaneously maintaining the order of the industry and jointly safeguarding the prosperity of the track, which is a good thing. If the snack track falls into the same zero-sum game strategic dilemma as community group buying, that is, "four people playing mahjong, three cheating," then all participants in the track will lose. Community group buying proved this by burning over 100 billion RMB, which is a point I have repeatedly emphasized in exchanges with industry entrepreneurs. Differentiating brand value, occupying different ecological niches, forming a "co-opetition" situation in different regional markets, and honing internal skills and organizational capabilities are what snack chains should focus on strengthening.

Key Thresholds for Snack Chains So what are the key thresholds for snack chains? I have some insights. First is the dividend of new technology. Now, cloud store inspection technology, WMS, TMS, OMS, etc., are becoming increasingly mature, and costs are low compared to before 2016. Second is the dividend of store opening technology. Employee training, decoration, VI, shelving, site selection, BD, and other technologies are also becoming mature, making modular entrepreneurship more convenient for entrepreneurs. Third is the supply chain dividend. Many white-label brands have achieved rapid development through wholesale markets and have entered various snack chain systems. What are the difficulties? First is user-oriented retail thinking. Many distributors and brand owners who open stores do not lack technology or funds, but lack user-oriented retail thinking. Second is a deep understanding of circulation and wholesale markets. Third is organizational management capability. The founder's cognition of the industry directly affects the development of the enterprise. Fourth is the operation of media recruitment tools. Currently, many people have not learned to recruit through Douyin or through the large franchise system, and this method is worth learning from. The last difficulty is the founder's cognition. Whether it is passionate entrepreneurship or scientific entrepreneurship will determine external support and subsequent endurance. In the process of climbing the track and gaining the right time, place, and people, the founder's pattern and cognition are core competitive capabilities.

Impact on Brand Owners and Countermeasures The snack track is a rapidly developing track worth studying. What impact does it have on leisure brand owners? To maintain the core competitiveness of low prices, hard discount snack chains have changed the traditional distribution flow of goods in the snack industry by building terminal stores, controlling their own channels, cooperating directly with brand manufacturers, and delivering point-to-point, greatly improving circulation efficiency and reducing circulation costs. For brand owners, first, attitude: embrace or resist? I think brand owners should lower their posture and study it, rather than block it as soon as they see price chaos. At least let the bullet fly for a while. Second, in terms of methods, distributors can use digital marketing tools, do B2B, improve shipping efficiency, and do well in non-franchise direct supply stores. Third, cash is king, and quick shipping. Fourth, they can choose some leading snack chains for mergers, acquisitions, or equity participation. Fifth, individual enterprises can open their own snack chains. Currently, hard discount snack chains have accounted for 15-30% or more of many brands' shipments, and some have reached 40%, a data point worth noting. In summary, the maturity of the hard discount snack chain new business category has generally entered a period of rapid development from the golden period. The head players are in a period of intense competition, and later mergers, rankings, and alignment will further intensify. This is the only track in the Chinese market with a scale of 10,000 stores besides tea/coffee. Leading enterprises have the potential to challenge 100 billion RMB in revenue in the future, and it is also a huge iteration of China's circulation infrastructure. This is a different jianghu, and there will be new legends. Who will lead the way?

Ren Xiaodong, founder of Changsha Mofang Yunxiao New Commercial Channel Strategic Consulting and Shanghai Yunqu Yunxiao Network, behind-the-scenes thinker for 20 new commercial brands, advocate of the Five New Omni-channel Marketing, mainly researching new e-commerce, new store commerce, and new marketing as new commercial topics.

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