---
title: "Bestore's Revenue Growth Without Profit Growth: Can It Find a New Track Faster Than Three Squirrels?"
description: "Bestore, which went public during the pandemic, has surpassed Three Squirrels in market value, but both face the challenge of increasing revenue without increasing profit. Bestore is entering new segments like children's snacks and meal replacements, but faces intense competition and high marketing costs."
author: "财经新媒体"
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published: "2020-11-20"
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# Bestore's Revenue Growth Without Profit Growth: Can It Find a New Track Faster Than Three Squirrels?

> Bestore, which went public during the pandemic, has surpassed Three Squirrels in market value, but both face the challenge of increasing revenue without increasing profit. Bestore is entering new segments like children's snacks and meal replacements, but faces intense competition and high marketing costs.

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When it comes to internet snacks, Three Squirrels was the first to gain popularity, and many consumers consider it the industry leader. However, in terms of market value, Three Squirrels is no longer the "first snack stock"; it has been quietly surpassed by Bestore.
Bestore went public "against the market" during the pandemic earlier this year. Although it listed a year later than Three Squirrels, in terms of founding time, Bestore, established in 2006, focused on snacks earlier than Three Squirrels.
At that time, Bestore started as an offline enterprise, unlike Three Squirrels, which had "internet genes." At best, it was half an "internet company." However, with the rapid development of the internet in recent years, Bestore has shifted much of its focus online, and online revenue now accounts for more than half of total revenue.
However, in terms of online operations, the differences between the two are not significant, whether in model or product. Therefore, rather than discussing their competition, it is better to discuss the common difficulties they face.
**-01- Are nuts no longer tasty? Why are snack stocks collectively declining?**
This year, the snack industry has indeed been sluggish. **Bestore released its Q3 report in October, showing that revenue for the first three quarters was 5.53 billion yuan, a year-on-year increase of 1.29%, while net profit attributable to shareholders was 264 million yuan, a year-on-year decrease of 16.15%.**
Similarly, Three Squirrels and Lai Yifen also saw revenue growth without profit growth. Three Squirrels' revenue for the first three quarters was 7.231 billion yuan, up 7.7% year-on-year, with net profit attributable to shareholders of 264 million yuan, down 10.62% year-on-year.
**The second-tier brand Lai Yifen had an even worse performance this year. Although revenue maintained single-digit growth, as of Q3, net loss exceeded 30 million yuan, a year-on-year drop of -777.66%.**
Of course, the industry's downturn does not mean investors will be lenient. Investors were clearly dissatisfied with Bestore's Q3 results; the day after the report was released, the market expressed its sentiment with a gap-down opening.
(Bestore stock trend chart)
The primary reason for the disappointing revenue data from several snack brands is, of course, the pandemic. Snacks are non-essential consumer goods, and their consumption requires scenarios such as work or gatherings. In the first half of the year, there was almost no atmosphere for gathering, which dealt a significant blow to the snack industry.
But why did this concern about performance collectively erupt in Q3? One reason is that during the pandemic, investors were somewhat more tolerant of performance, but they had higher expectations for Q3 after the pandemic eased.
"Mantis Finance" believes another reason is that **the snack industry is seasonal. Even if the pandemic occurred in Q1 and Q2, its impact on revenue would not show immediately because many distributors stock up before the Spring Festival. So Q1 results may reflect sales from January and February in advance.**
Breaking down Bestore's quarterly revenue and profit this year makes it very clear. For example, compared to Q1 revenue, even though the pandemic has eased, Q3 revenue did not increase much, and net profit also declined, though the decline is gradually narrowing.
(Bestore 2020 operating data)
However, compared to Lai Yifen's "turning profit into loss" in Q3 net profit attributable to shareholders, Bestore's net profit situation at least shows that it has gradually recovered from the pandemic.
(Lai Yifen 2020 operating data)
Data shows that Bestore's offline revenue has mostly returned to normal, achieving positive growth, except in the Central China region, but online revenue still declined slightly year-on-year.
(Bestore 2020 operating data)
Logically, under the pandemic, offline business recovery should be harder than online. Online at least allows consumers to order 24/7, 365 days a year. But Bestore's online business is clearly weaker. Why?
The answer may lie in Bestore's income statement.
**-02- Revenue growth without profit growth: online marketing is struggling**
When measuring a company's operations, revenue certainly shows its scale, but whether it can profit is equally important. Only sufficient profit can pave the way for the company's future; otherwise, working hard all year without results won't please shareholders.
Looking back at Bestore's Q3 non-GAAP net profit this year, it was 0.8 billion yuan, not much different from Q1 and Q2, but compared to 1.12 billion yuan in Q3 last year, a decrease of 28.62%.
We can review Bestore's gross margin this year, which has been stable at around 30%. But this is strange: the company's Q3 net profit increased by about 30 million yuan, but non-GAAP net profit only increased by over 10 million yuan. So where did the money go?
(Bestore 2020 operating data)
It's not hard to guess: with gross margin unchanged but profit declining, it's mostly related to excessive marketing expenses. As of Q3 this year, Bestore's sales expenses have increased by over 100 million yuan compared to last year. Q3 sales expenses were 422 million yuan this year, compared to 374 million yuan last year. Comparing with net profit, profit is decreasing while expenses are increasing.
(Bestore 2020 operating data)
Compared to sales expenses, Bestore's R&D expenses are negligible. In fact, not only Bestore, but also Three Squirrels, Lai Yifen, and other snack brands that rely on OEM and use Taobao as their main sales channel have always had to keep sales expenses "not low."
(Bestore 2020 operating data)
Three Squirrels' sales expenses for the first three quarters were 1.448 billion yuan, a year-on-year decrease of 29.19%, but the sales expense ratio was still 22.64%, similar to Bestore's 21.99%, and higher than the industry average of about 18%.
The sales expense ratio is a common topic in business operations, but for "Taobao-based" snack brands like Bestore and Three Squirrels, it has always been a pain point.
What is a "Taobao-based" snack? **First, the company's main business is online; second, the number of SKUs sold online is certainly large, with many categories, making full self-development unlikely, so these brands mainly rely on OEM.**
Bestore, Three Squirrels, and Be & Cheery all belong to the "Taobao system." They use online platforms as their main battlefield, and the online channel is highly monopolized with only a few competitors. To expand revenue, they have to continuously add new products.
Self-development cannot keep up with the pace of new product additions, which means OEM is the only way out. As a result, production costs cannot be reduced, and sales expenses keep increasing. This is the long-standing problem for "Taobao-based" snacks.
In contrast, brands like Chacha Foods, which focuses on melon seeds, and Zhou Hei Ya, which focuses on duck necks, also have online businesses, but they account for a small proportion of total revenue.
These brands focus on a single product category and can achieve growth by expanding sales terminals. From a cost perspective, product costs will remain unchanged or decrease.
Therefore, "Mantis Finance" believes that **Bestore has always been called a "snack porter." Without core signature products and relying on OEM, it inevitably faces product homogenization. When several brands compete, the taste is similar. How long can they last relying solely on traffic?**
Moreover, the performance data shows that long-term high marketing expenses have not brought performance improvements. Three Squirrels faces difficulties in transitioning offline, Bestore sees revenue growth without profit growth, and Lai Yifen suffered losses in Q3... None of them have benefited much from advertising investment.
**-03- Innovation and revenue generation: Will children's and healthy snacks be the future?**
Bestore is clearly aware that relying solely on adding homogenized categories will eventually hit the sales ceiling, so it has chosen to enter other segmented snack areas.
In mid-year, Bestore announced its entry into three segmented markets: children's snacks, corporate group purchases, and fitness meal replacements, launching three sub-brands: "Bestore Kids," "Bestore Group," and "Bestore Fit."
Taking the fitness meal replacement field as an example, China's weight loss market is indeed huge. Data from Euromonitor International predicts that China's meal replacement market will reach 120 billion yuan by 2022. Tmall surveys show that the vast majority of consumers are willing to spend over 1,000 yuan annually on weight loss meal replacements, with an average investment of 3,000 yuan.
To catch this trend, many meal replacement brands have rushed in, such as Wonderlab, which frequently appears in social media feeds, as well as a series of domestic and foreign internet-famous brands like Wang Baobao, ffit8, and Smeal.
Many brands have already received investments from well-known institutions like IDG and Panda Capital, and their sales data is impressive. For example, WonderLab, established about a year and a half ago, achieved 60 million yuan in sales in its first year, and currently maintains monthly sales of around 30 million yuan on Taobao.
From the public statements of Bestore CEO Yang Yinfen, it is clear that Bestore has high hopes for this segment, with a short-to-medium-term goal of 1 billion yuan in sales.
However, whether the meal replacement market truly has enough capacity to accommodate so many excellent companies is questionable. The 120 billion yuan market size data is indeed doubtful.
Looking back at meal replacement products, although "internet-famous" meal replacements are a new category that has emerged in the past year or two, meal replacements themselves are not new. Over a decade ago, there were domestic brands like Herbalife and Nutrilite.
At that time, investment institutions' assessments of the entire meal replacement market were far from the trillion-yuan scale. Euromonitor International's past data shows that in 2015, global retail sales of weight-loss meal replacement products were about $7 billion, expected to reach $9 billion (about 60 billion yuan) by 2020.
Although meal replacement products have been given a "internet-famous packaging," consumer demand has doubled in just a few years due to the "packaging." Honestly, this assessment is a bit too "casual."
Another concern is whether the market's buzz truly equals consumer demand. I don't doubt that domestic consumers have high demand for "weight loss" and "slimming," but how much of this demand translates into the meal replacement market is worth investigating.
It's important to note that in the meal replacement market, besides well-known brands like Bestore, WonderLab, and Wang Baobao, there are also many brands in WeChat business and direct sales channels. These brands may have short life cycles, but within their channels, they can still sell.
This is the distribution price system for a certain WeChat business meal replacement product. To become a first-level agent, one must first consume 7,650 yuan. It's hard to say how much of the demand in the entire meal replacement market exists in these agents' inventory.
Therefore, for Bestore to make a push into the fitness meal replacement market, it must not only compete with "internet-famous brands" with strong "internet genes" like WonderLab, but also win users from "WeChat business brands" that just want to harvest. It's not easy.
**In this light, "children's snacks," another segment Bestore is about to enter, seems more promising.**
First, there is a gap in this market. According to Tmall data, the current domestic children's snack market is over 600 billion yuan, larger than meal replacements. Most importantly, foreign brands account for about 70% of the entire children's snack market, while domestic brands are almost absent.
Although the numbers may be inflated, judging from the social trends of consumption upgrade and the rise of the middle class, post-80s and post-90s parents are indeed more willing to spend on their children.
It's hard to imagine that "sophisticated mothers" spend up to 800 yuan per month on snacks for their children. So, as long as it's related to children, the consumer market has the least concern.
Second, Bestore has a first-mover advantage. In the children's snack track, Bestore was the earliest entrant and took the lead in jointly issuing the "General Requirements for Children's Snacks" with the China National Food Industry Association.
Bestore's ability to enter first and become one of the standard setters means it can gain "impression points" in this market. Bestore's Q3 report shows that after the launch of children's snacks, revenue in the first half increased by 34% year-on-year, making it the fastest-growing product category.
It seems the market has voted with its actions. In the future, other brands will enter this track, but Bestore clearly has more say in setting industry safety standards.
Next, Bestore should leverage its "first-mover advantage" to further consider product uniqueness and healthiness, and not let the existence of OEM factories constrain product development.
At the same time, with the advantage of its offline stores, products will be less constrained by channel distributors, allowing closer contact with child consumers and higher interactivity. In this regard, Bestore can outperform other snack brands.
Source: Mantis Finance (ID: TanglangFin), Author: Kinki


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