Introduction: Competition among peers is inevitable, and industry consolidation cannot be avoided.

Author 丨Ren Wenqing Andy Review 丨Wang Qiang Layout 丨He Wen

"This afternoon, I'm taking the manufacturer's leaders to the snack store headquarters to see if we can discuss a solution." During a market visit last week, a distributor boss said this to me when talking about the currently booming bulk snack stores. She was referring to the price issue. Bulk snack stores focus on low prices, which impacts the pricing structure of some brands, making conflict unavoidable. This distributor told me: Bulk snack stores have good payment terms, and compared to other channels, they don't require display or floor stacking maintenance, nor do they have various entry fees or barcode fees, making operations simpler. But now the volume is increasing, impacting brand pricing, and as an intermediary, she has no choice but to connect both parties and see if there's a compromise.

Since last year, bulk snack stores have suddenly become a focus of industry attention. Capital has accelerated entry, media coverage has been intensive, and various snack store brands have been opening stores frantically; upstream brand owners are either actively embracing or waiting and watching; distributors are either dismissive or worried. People seeking franchise information have worn out the doorstep, with some seeing it as a rare entrepreneurial opportunity, while others remain "calm," questioning who the ultimate beneficiary will be in a "prophet" tone. Regardless of the attitudes of various parties, it is an indisputable fact that bulk snack stores have become one of the few rapidly growing areas in the consumer industry in recent years!

Why do bulk snack stores appear? What is the market competition landscape, and how will it evolve? What opportunities and challenges does it mean for various participants?

Opportunities from Channel Transformation

It is very normal for a new track to suddenly receive capital enthusiasm and cause multi-party commotion. But the track is the language of capital; returning to the industry itself, the emergence of this business format of bulk snack collection stores has its own logic. Tang Guangliang is a veteran entrepreneur in the retail industry. In November 2020, he established the bulk snack store brand "Ai Snacks," and in less than 3 years, he opened more than 1,000 stores, expanding from Hunan to Hubei and Sichuan provinces.

Why enter the bulk snack industry? In the past two years, supermarket customer traffic has declined, and closures have increased. In Tang Guangliang's view, the decline of supermarkets was doomed long ago. After 2000, hypermarkets and supermarkets became mainstream consumer channels, but after the rise of the internet, first high-priced, high-margin categories like shoes, hats, clothing, and home appliances were cut away, then various standard products, and then community stores took away fresh produce... Now people enter hypermarkets mainly to "browse" nearby and buy something "to eat." Bulk snacks are a high-sales, high-margin category in large supermarkets. The current bulk snack collection stores are highly vertical in this category and deeply embedded in communities. They simultaneously meet consumers' needs for "browsing" and "eating." Bulk snack stores are both a product of adapting to changes in the consumption environment and an opportunity brought by channel transformation. Tang Guangliang's view is very representative. Channels have always been a bottom-up perspective for us to observe industry changes. In recent years, every new model that has caused multi-party commotion, from early traditional e-commerce, to later community group buying, private domains, O2O, and up to the current short video live e-commerce, has been, without exception, essentially a change in channels. The snack industry is no exception. According to the industry report of China Securities Construction Investment, the snack industry has undergone several rounds of transformation up to the current bulk snack collection stores.

Evolution of the Snack Industry

Before the 1990s, snacks were mainly sold through wholesale markets and roadside stalls, with relatively monotonous products, mainly melon seeds, pastries, etc. From 1990 to 2000, foreign snack brands entered China one after another, forming many big single products, such as "Dove Chocolate," "Lay's Potato Chips," "Orion Choco Pie," etc. At the same time, with the channel dividend brought by the rise of foreign supermarkets, domestic snack companies such as Daliyuan and Xizhifu emerged. From 2000 to 2010, supermarkets further became advantageous channels, and food companies like Qiaqia and Youyou developed rapidly with their help. At the same time, snack specialty stores represented by Laiyifen and Bestore opened near supermarkets, achieving precise customer diversion and completing consumer education through traffic aggregation. From 2010 to 2018, e-commerce flourished, and the traffic dividend of online channels drove the rapid development of online brands such as Three Squirrels and Baicaowei. From 2018 to the present, on the one hand, the traffic dividend of traditional e-commerce disappeared, and Three Squirrels and others have laid out offline. The rise of interest e-commerce like Douyin and Kuaishou, and brands like Yanjin Shop, Jinzai, and Ganyuan seized the opportunity to achieve rapid growth through interest e-commerce and private domain traffic layout. On the other hand, marked by the establishment of Snacks Busy in 2017, a new business format of bulk snack collection stores appeared. It focuses on bulk snacks, bypasses distributors to directly purchase from manufacturers, attracts consumers with modern interior decoration, vivid displays, and sufficiently low prices, and rapidly expands in communities through standardized store output. From last year to this year, bulk snack stores have received great industry attention. The names of companies such as Snacks Busy, Snacks Youming, Ai Snacks, Zhao Yiming, and Mrs. Laopo frequently appear in media reports, with information on financing amounts, store numbers, capital track analysis, retail industry model evaluations, and food distributor doubts... These reports are mostly from an outsider's perspective. How do the entrepreneurs in the bulk snack store industry think?

800 Stores is a Threshold

"It's the land-grabbing period now. In August 2024, C-end price wars and acquisition wars will begin. The big fish will eat the small fish, and the bulk snack stores will basically see the outcome." Tang Guangliang, founder of Ai Snacks, said this to New Distribution. As a frontline participant, he has his own thoughts and judgments about the industry: Around 2020, it was the stage of natural growth for local brands; from the end of 2022, several major head brands began to develop across provinces. After about a year and a half of land-grabbing, C-end price wars are inevitable; from August 2024 to the end of the year, the market pattern will be initially set. "If you haven't reached 800 stores by the end of 2023, you basically have no future," Tang Guangliang said.

Why is that? Behind the market competition of bulk snack stores, there are two unavoidable basic principles: First, chains have a commonality: distance protection. Second, subject to logistics and management radius, brand expansion takes time. From the perspective of store layout: Bulk snack stores are mainly opened in communities and commercial streets. When one brand appears, a second brand will definitely enter later, but if two brands exist, a third brand cannot avoid entering. Three brands can survive on one street, but a fourth brand cannot survive because traffic is insufficient to support it. From the perspective of market expansion: Now head brands are expanding to other provinces, grabbing territory, and considering the local market competition pattern. You go to Jiangxi, I go to Hubei, you go to Guangdong, I go to Anhui, you go to Anhui, I go to Sichuan. At present, in the provincial market, a pattern of three strong players is emerging. Hunan has Snacks Busy, Ai Snacks, and Dai Yonghong; Jiangxi has Zhao Yiming, Snacks Busy, and Ya Di Ya Di; Hubei has Snacks Busy, Ai Snacks, and Snacks Player; Sichuan now has Snacks Youming and Ai Snacks, and Snacks Busy will soon enter... A province will end the battle with a pattern of the top three strong players. With cross-market intersections, eventually there will be a top 10 nationwide. Why is there no chance if you haven't exceeded 800 stores by 2023? The channel transformation brought by bulk snack stores is essentially a victory of scale and efficiency. Head brands expand, and some small brands and local brands find it hard to resist because they lack self-sustaining capabilities. The head sells 10 million a day and can use one month's profit to fight; small brands simply cannot withstand it. Without scale effects, investors, suppliers, and franchisees will not support you, and you will definitely be eliminated.

Regarding the industry competition pattern, an industry analyst expressed a similar view: The current market still has many blank areas and is in the stage of cross-industry substitution. As head expansion accelerates, the incremental market compresses, market friction intensifies, and the industry will definitely enter a stage of same-industry competition. C-end price wars are inevitable, and store net profit margins will decline. At that time, the real competition will be in backend scale and efficiency. The head brands of bulk snack stores, still in a rational competition stage, are all stepping up their expansion preparations. Tang Guangliang joked on his social media that in the future, bulk snack stores will be the world of the two "fus" (referring to Hunan and Fujian, as Hunan people cannot distinguish between "Hu" and "Fu"). Hunan, as the birthplace of bulk snack stores, has Snacks Busy, Ai Snacks, and Dai Yonghong. The founder of Snacks Youming in Sichuan is from Hunan. Fujian's listed company Wanchen Biology has been continuously increasing its investment in the bulk snack track in recent years, and Haoxianglai and Mrs. Laopo are likely to become Wanchen-system brands in the future.

A Veteran Entrepreneur in the Retail Industry

Among the many bulk snack store entrepreneurs, Tang Guangliang is somewhat special.

He worked in traditional supermarkets for 9 years in his early years, then left to start a convenience store business called Kuailehui, which at its peak had 8,000 stores. Later, he founded the FMCG B2B platform Xingaoqiao and the community group buying platform Kaola Select. When giants swarmed in, Tang Guangliang decisively withdrew from the community group buying industry and entered the bulk snack store field. Investors are willing to invest directly in him because: He doesn't lose shareholders' money; he has methods for managing the company; he has a good grasp of the timing of major decisions; and he knows how to manage cash flow. Some friends say that Tang Guangliang's entrepreneurial fields have been changing, but Tang Guangliang says: "How would they know? From my initial entrepreneurship in convenience store franchising, to Xingaoqiao B2B supply chain, to Kaola Select, and up to the current bulk snack stores, I have always been centered on one thing, never changed: community small stores, community retail, ABC achieving D." Bulk snack stores are the once-in-a-lifetime opportunity that Tang Guangliang has identified. First, the market is large enough, with a scale of 1.5 trillion, and after these years of development, Ai Snacks has already sat at the table. Second, at this age, his experience, connections, resources, and thinking are all at their best. Friends' evaluation of Tang Guangliang is: He has taken capital money, has rich operational experience, has both the height of strategic thinking after insight into the industry's essence, and the tactical feel from long-term proximity to the market frontline. In Changsha, a place surrounded by competitors, to break out, Ai Snacks must have its own rhythm and tactics.

Rooting in Hunan and Hubei, Entering Sichuan

When it started in 2020, Tang Guangliang adopted a strategy of staying close to competitors. The thinking behind this is that according to Hotelling's law, competitors with similar products can gain the largest market share by being close to each other, just like McDonald's and KFC stores are always adjacent. But there are two differentiation strategies: One is to adopt a "direct operation + franchise" model, maintaining a ratio of 1:9 between direct-operated and franchise stores. In terms of store area, it should be larger than competitors, so that consumers' first impression can form a high-low comparison and strengthen brand impression; then give as much profit as possible to customers, increase sales, attack competitors' flagship stores, and directly lower competitors' profits. The other is free franchising, while subsidizing franchisees who continuously reach a certain sales amount with 80,000 to 150,000 yuan in fees. Why do this? Tang Guangliang said that Ai Snacks actually returns the profits of the next three to five months to franchisees in advance because competitors already have hundreds of stores, and Ai Snacks must catch up on time. This strategy is very effective. Ai Snacks quickly started in Hunan, the base camp where various brands gather, then entered the Hubei market. Currently, the number of stores has reached 1,000. After gaining a foothold in the Hunan and Hubei markets, Tang Guangliang decided to enter Sichuan. For Ai Snacks, Hunan and Hubei are the base, and Yunnan, Guizhou, and Sichuan are the rear. According to Tang Guangliang's judgment of the market pattern, a province will have three strong players. Sichuan currently has Snacks Youming at the table, but the Sichuan market is sufficient to accommodate three brands, each with a scale of 1,000 stores. Therefore, Sichuan is a must-fight place for Ai Snacks, and 1,000 stores is its goal.

Quality "Good Students" Are Key

Currently, Ai Snacks has just entered Sichuan and opened fewer than 100 stores. It has adopted the same strategy as in Hunan and Hubei: no franchise fee, and an early return of 80,000 to 150,000 yuan. Most people would think that a late start is a disadvantage, but Tang Guangliang believes that being a latecomer is precisely an advantage. For example, Ai Snacks differs from competitors in that, in addition to snacks, it also includes cigarettes in its categories. Why add this category? Tang Guangliang has been deeply involved in the retail industry for too long and knows consumers very well. He believes that with more than 1,000 SKUs, doing only three or four daily necessities does not affect professionalism, but also increases store profitability and makes it easier for operators of tobacco and liquor stores and mom-and-pop stores to transition. Believing that bulk snack stores can only do snacks is both a first-mover disadvantage and a cognitive issue of the founding team. Tang Guangliang has never left the supply chain and retail industry. In his own words, his entrepreneurship has always revolved around "community small stores." The essence of bulk snack stores is "convenience + snacks," and "convenience" is the basis for thinking about the evolution of this business format. According to existing data, a large proportion of Ai Snacks' current franchisees are those who have transitioned from clothing, home furnishing, and mother-and-baby store franchising, as well as practitioners of small physical stores and distributors in the food and beverage industry. Tang Guangliang knows well that quality franchisees are the key to Ai Snacks' development. "Professors at Peking University and Tsinghua are not the best; who is the best? Students. The top students in the country are all selected by you, so you are much more relaxed than other professors!" Ai Snacks is very strict in selecting franchisees, requiring interviews, written tests, training, strict site selection, etc. Tang Guangliang particularly emphasizes that Ai Snacks does not "nurture stores," meaning it opens stores in relatively mature communities and business districts to ensure profitability as soon as possible. In terms of standards, county town stores must have an indoor area of no less than 80 square meters; stores on inner streets are not accepted; basements and second floors and above are not accepted; and business districts (communities) with weak investment attraction are not considered. From the color and material of the storefront signboard to the temperature, music, lighting, and product display inside the store, all details are strictly controlled to maximize the time users stay. Ai Snacks has formed a series of standards, with professional teams helping franchisees to check them.

Regarding the current view that bulk snack stores are just "cutting leeks," Tang Guangliang said that if operations are not good, saying it's "cutting leeks" is normal. There are problems with the brand side; some brands lack strength and end up as "franchise fee collectors cutting leeks." There are also problems with the franchisees themselves. First, it lies in choosing the franchise brand. Why not choose a brand with advantages in supply chain, operations, brand, and capital strength? Second, are you diligent in store operations? If others operate well and you go play mahjong when you have nothing to do, how can you do well! Third, do you have enough funds? If others have 100,000 yuan in surplus funds and you rely on borrowing to make ends meet, the operational risk is high! The market selects the fittest, which is a natural law. What Ai Snacks can do is help franchisees become profitable as soon as possible and continue long-term by optimizing supply chain efficiency, strengthening product selection capabilities, brand effects, and store operation guidance. Product selection is also key here. Tang Guangliang revealed that because their customers are concentrated between 18 and 36 years old, he strictly requires that the product selection person in charge be no older than 30, to ensure a grasp of young people's consumption preferences and trends. After these years of development, the proportion of direct supply from brand owners to bulk snack stores has continued to expand. Ai Snacks currently has nearly 80% of its products directly supplied by brands, with the rest still through distributors, which is also the general level of head snack stores. Some institutions predict that the market capacity of bulk snack stores can reach 50,000 stores. Although competition among peers is inevitable and industry consolidation is unavoidable, head chain brands are likely to win, and the bulk snack store format will exist, evolve, and develop further. As procurement volume further increases, head first- and second-tier brands will basically cooperate directly with bulk snack stores. Distributors representing some small and medium brands still have room to exist. Tang Guangliang said: County and district snack distributors can choose to join forces with head snack brands to open stores locally, and Ai Snacks can provide sufficient support. After all, it is undeniable that new business formats will squeeze traditional food distributors to a certain extent. But it is certain that distributors will not disappear; this refers to the group as a whole, but whether a specific distributor in a city or county representing a certain brand or brands will disappear is not certain. Distributors in prefecture-level cities and county towns have teams, networks, and warehouses, and franchise cooperation may be a way out.

Ren Wenqing, Dean of the New Distribution Digital Research Institute, FMCG industry analyst, and columnist for the bC Integration column, with research fields including channel digitalization, distributor business growth, and new retail in FMCG.

If you are interested in participating in industry development or have thoughts and insights on snack topics, feel free to add the author's QR code. We can help with supply-demand matching or in-depth discussion.

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