---
title: "After the Consumer Bubble Bursts, Discount Food Shows Its Resilience"
description: "Product strength can at best make a snack brand a passable student; to become an excellent one, it still relies on channels and marketing. This is precisely the hardest part. The domestic snack food track has considerable development space, and even with numerous snack brands and products, it can maintain steady growth. However, the snack food sub-categories, such as bread, nuts, biscuits, and preserved fruits, show distinct development states due to different product attributes and industry cycles. This turns our attention to sales channels. New Distribution read a research report from Kaiyuan Securities—'Channel Transformation Leads Enterprise Growth, Chain Discount Store Format Has Broad Prospects'—through which we attempt to analyze which channel best suits the snack food category and what impact chain discount stores have on domestic snack food."
author: "怜舟"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2023-03-25"
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# After the Consumer Bubble Bursts, Discount Food Shows Its Resilience

> Product strength can at best make a snack brand a passable student; to become an excellent one, it still relies on channels and marketing. This is precisely the hardest part. The domestic snack food track has considerable development space, and even with numerous snack brands and products, it can maintain steady growth. However, the snack food sub-categories, such as bread, nuts, biscuits, and preserved fruits, show distinct development states due to different product attributes and industry cycles. This turns our attention to sales channels. New Distribution read a research report from Kaiyuan Securities—'Channel Transformation Leads Enterprise Growth, Chain Discount Store Format Has Broad Prospects'—through which we attempt to analyze which channel best suits the snack food category and what impact chain discount stores have on domestic snack food.

Product strength can at best guarantee a snack brand becomes a passable student; to grow into an excellent one, it still relies on channels and marketing.
This is precisely the hardest part.
The domestic snack food track has considerable development space, and even with numerous snack brands and products, it can maintain steady growth.
However, snack food sub-categories are numerous, such as bread, nuts, biscuits, and preserved fruits, and due to differences in product attributes and industry development cycles, they all present vastly different development states.
This turns our attention to sales channels. New Distribution read a research report from Kaiyuan Securities—**Channel Transformation Leads Enterprise Growth, Chain Discount Store Format Has Broad Prospects**—through which we attempt to analyze which channel is more suitable for the snack food category, and what impact chain discount stores have on domestic snack food.

**Snack Food Is Highly Fragmented**
Snack food is food consumed during leisure time. As people's living standards improve, consumers increasingly value the quality and pleasure that snack food brings to life.
According to Euromonitor, excluding baked goods and braised products, the snack food industry scale in 2021 had already reached 478.4 billion yuan. The categories within snack food are relatively fragmented, with different growth rates and industry cycles. For example, sweet biscuits hold a 6.85% market share, chocolate 4.66%, chewing gum 2.86%, and snack bars 0.23%.

**The different product cycles of each sub-industry have created huge differences in growth rates.** For instance, the compound annual growth rates of seed nuts, meat and aquatic products, seasoned flour products, and leisure vegetable products are all above 7.5%.
This proves that these four categories are relatively popular.

**The attributes of each snack food sub-category determine the product development cycle.**
For example, chewing gum and chocolate have social attributes, with stable consumer demand, making it easier to enhance brand identity and develop into big single products.
Wrigley entered the domestic market early, making it easier to form market concentration.
Ice cream has barriers such as raw materials and cold chain configuration, with high entry thresholds. This determines that leading enterprises have stronger advantages.
In this case, brands like Yili and Walls adopt multi-brand strategies to cater to consumers' varied taste preferences and capture a larger market.
Some sub-categories show good compound annual growth rates, but brands remain relatively fragmented.
In 2021, PepsiCo held a 3% share in the domestic market, Want Want 2.7%, Three Squirrels 2%, Mondelez International 1.9%, and Mars 1.9%.
Domestic snack food brands are divided into two forces: overseas brands and domestic brands. Overseas brands entered the Chinese market earlier, so their layout is broader; domestic brands started later, but they better understand domestic consumers, and their product thinking is more aligned with consumer needs. After years of development, they have gradually caught up. Compared to overseas markets, the domestic snack consumption market is close to saturation. According to data, in 2021, per capita snack consumption in mainland China was $52.5, which is more than twice the gap compared to East Asian countries with similar dietary cultures, such as Taiwan, Singapore, South Korea, and Japan.
Overseas markets have higher concentration. For example, the top four snack food companies in the U.S. hold a combined market share of 38%, and in Japan, 23.8%. Overseas snack food industries have developed for many years, and after mergers and joint ventures, they have expanded horizontally across brands. On the other hand, the U.S. and Japan have smaller populations, more unified tastes, and fewer sub-categories, which increases market concentration.

**Various Channels Are Rising**
Snack food has a strong dependence on channels.
**Especially under the stimulus of consumption upgrading, consumers' consumption habits and shopping channels are undergoing qualitative changes.**
Since China's accession to the WTO, the emergence of hypermarkets like Carrefour and Walmart brought new retail formats. At the same time, domestic regional supermarkets seized the cyclical opportunities of new retail industry development and quickly emerged.
After the entire retail market stabilized and people formed stable consumption habits, retail channels and brands segmented based on consumer profiles, spending power, and target customers, leading to the emergence of new forces such as convenience stores and membership stores.
These channels sell branded products of relatively high quality.

**The new convenience store format first appeared in Japan and Taiwan.**
In 2010, convenience store formats introduced from Japan and Taiwan were first tested in first-tier cities, and later transitioned to second- and third-tier cities.
Convenience stores rely on the layout of consumer life points, operating 24 hours, serving surrounding business district populations and modern community residents.
These consumers are not highly price-sensitive but have higher requirements for product quality and shopping convenience.
Therefore, convenience store brands represented by Bianlifeng typically have small store areas and relatively few product categories, but they mostly feature leading brands in each category, such as Dove and Ferrero in chocolate, Chacha and Wolong in nuts and seeds, and Weilong and Jinzai in spicy snacks. They mainly offer medium-sized bags, without family-sized packages, catering to individual temporary consumption needs. There are also companies like Sinopec that leverage their essential product demand and network advantages to establish convenience store brands on a large scale. Looking at Easy Joy and Kunlun Good, convenience store brands grow proportionally with the number of network stores.
By the end of 2021, the number of convenience stores in mainland China exceeded 250,000, with sales above $54 billion.
Convenience store formats tend to have higher prices.
Another brand-oriented channel is the high-end membership store.
In 1996, Sam's Club entered China as Walmart's high-end line.

**What Do Discount Stores Carry?**
The rise of snack discount stores is, to some extent, the result of sedimentation on both the brand side and the consumption side.
Why say this?
**Because consumers' purpose in shopping at chain discount stores is relatively pure; they do not need the intangible value of brand power and shopping experience brought by new convenience stores and high-end channels, nor do they need to buy other products besides snacks as in traditional supermarkets.**
People have no other purpose when shopping at chain discount stores; they simply want to buy cost-effective products.
The snack discount store format first appeared overseas.
**This format is essentially driven by operating scale and turnover efficiency, achieving small profits and quick turnover to sustain continuous store expansion.**
Representative chain discount store projects in the U.S. include Dollar General, and in Japan, the 100-yen store brands and the soft discount brand Don Quijote.
Dollar General focuses on daily necessities, i.e., consumables in daily life, such as various daily chemical cleaning products, packaged food, health products, pet supplies, and tobacco. Basically, they are from major suppliers like Coca-Cola, Pepsi, Mars, Nestlé, P&G, and Unilever, **accounting for over 70%, and they often have $1 products to attract customers.**
**Products, site selection, and supply chain form a combination punch.**
The backend of products requires supply chain support.
According to data, Dollar General has 28 logistics centers near its 18,000 stores to ensure efficient operations, including 16 general logistics, 10 cold chain logistics, and 2 comprehensive logistics centers. Each non-refrigerated warehouse covers 17.5 million square feet, and refrigerated warehouse space is 2.6 million square feet, with an average of 650 stores covered per logistics center.
**Community site selection enhances consumption opportunities.**
Dollar General mainly opens stores near communities, generally 3-4 miles from residential areas, so a 10-minute drive is enough for shopping.
The cost-performance advantage ensures Dollar General has strong resilience against risks; the more force majeure impacts, the higher their store sales can reach new highs.
During economic depression, the subprime crisis, and the COVID-19 pandemic, Dollar General's revenue actually showed positive growth.
In contrast, domestic offline chain retail collection stores come in two types. **One is snack discount chain collection stores**, such as Snack Busy, mainly in Central China; Snack Youming, mainly in Southwest China; and Zhao Yiming, born in Jiangxi, mainly in East China. **The other is near-expiry food supermarkets, mainly HotMaxx and HiBuy**, which mainly sell near-expiry food, but not exclusively; they also have products imitating big brands, sold at low prices as substitutes. After the pandemic, the entire industry experienced consumption downgrading, and snack chain discount stores catered to the cost-performance nature of snacks, quickly becoming a trend in the past two years, with GSR Ventures, Sequoia, Jinshajiang Venture Capital, and 5Y Capital rushing to invest.
Although they look similar to offline stores of brands like Liangpin Shop and Lai Yifen, **snack discount stores have adjusted weights in brand momentum, product strategy, pricing strategy, store location, and direct operation vs. franchising, focusing on compressing costs, boosting sales with low prices, and winning by volume.**
Another advantage of chain discount stores is their high flexibility in surviving in the market.
For a format to penetrate lower-tier markets, the biggest challenge is balancing brand, price, cost, and customer base, and how to cover costs with revenue.
**Chain snack discount stores are themselves branded stores, providing consumers with a standardized shopping experience. Coupled with extreme cost-performance advantages, they directly hit the pain points of low-tier market consumption.**
How to prevent the store from appearing too cheap?
Take Snack Busy's product strategy as an example.
They adopt a category strategy around water + snacks. Water is a necessity product, and consumers have high requirements for water brands and are price-sensitive. Stores can use water for price reduction strategies to attract customers, conveying the store's value-for-money message to consumers.
At this time, when selecting products, they choose mid-to-top manufacturers, conduct multiple trial sales in stores, eliminate unpopular products, and for high-quality products, they can negotiate prices with channels based on sales volume to obtain low-cost products.
**Here it should be mentioned that water and beverage products play the brand role, while low-cost white-label snacks can drive sales volume and selling price, highlighting the store's low-price advantage.** The single-store model can control input-output ratio, and the overall management level determines the project's lifespan and future. Then, through scoring and reward/punishment measures, the store's operational quality is improved. After online monitoring and offline store inspections, each store is scored, and the standardized scoring results directly affect rewards, punishments, and improvement outcomes. These results are publicized on the official account for public supervision. This stimulates everyone's enthusiasm and enhances store efficiency and quality. **If stores are the skeleton of the chain discount store model, and reward/punishment measures ensure project quality and act as the blood of the business model, then the supply chain is the heart of the project.** The number of SKUs in snack chain discount stores exceeds 1,500, and the rich SKUs require backup supply chain support. Compared to overseas chain discount store projects, which mostly focus on daily necessities and have very rich product offerings, proving strong consumer penetration and having become a lifestyle, domestic ones still focus on snacks and are in the early stage of industry development. Domestic food manufacturing is very advanced, with a wide variety of products. Consumers always have demand for snacks. When production capacity is excessive, chain discount stores perfect the overall snack food ecosystem, making channels richer and enhancing channel functionality. Beyond commercial value extraction, chain discount stores composed of near-expiry food and white-label food have the opportunity to become capital favorites, reflecting that after consumption downgrading due to the pandemic, consumers have more rational thinking about food.

**Conclusion**
Recalling the gutter oil incident exposed over a decade ago, as well as major food safety incidents such as clenbuterol, yogurt gelatin, dyed steamed buns, and beef extract, consumers were once constantly vigilant about dining out and food safety.
Nowadays, people actively buy near-expiry food and white-label food outside, **which on one hand indicates that manufacturing is progressing enough to support diversified formats, and consumers have confidence in food safety.**
**On the other hand, the emergence of chain discount store formats is a product of consumption downgrading.**
There was a trending topic on Weibo: **#Why is near-expiry food starting to attract young people?**
One netizen posted, "Because we're poor."
Other netizens commented from the same starting point, "Isn't it because we're poor?"
Another netizen shared their experience of buying yogurt at a supermarket.
"Before a large supermarket near my home closed, I would go there every few days to scavenge near-expiry discounted yogurt and fresh milk. It was a great deal..."
**The reason near-expiry food and white-label food have become a trend is essentially a change in consumers' shopping mentality.**
This situation is very similar to the current state of Chinese consumer society.
**After consumption downgrading, consumers no longer have the strong desire to shop as before. Young people today have fewer desires in consumption, only hoping to buy essential products at low prices.**
Retail formats are also becoming more diversified.
From personalization to cost-performance, consumers' mentality is becoming more mature. **When the impulsive shoppers of the past start consuming rationally, it means business is moving toward a different future.**
Having lost its original form, perhaps that is the price of growth.


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