In recent months, as we've been touring the market, the common refrain is: goods aren't selling!
Since the second half of 2023, requests to New Distribution for channel connections have surged. For example, in the snack category, there are well-known brands, regional small brands, and white-label products. They hope to connect with new channels like discount retail and B2b platform-based distributor channels. Synthesizing various information, we see a truth: oversupply and severe product homogenization mean the market is full of snacks, but truly good products are extremely scarce. Why is this? It relates to the current state of the snack industry: low market concentration, with numerous small and medium manufacturers upstream that only have simple processing capabilities and lack R&D and innovation; and a large number of small and white-label brands that outsource production and focus only on distribution and promotion. But there are a few companies that do exceptionally well, such as Yanjin Shop. According to the recently released Q3 financial report, from January to September 2024, Yanjin Shop achieved revenue of 3.861 billion yuan, a year-on-year increase of 28.49%. In the first half of 2024, by category, konjac jelly pudding and leisure konjac products grew by 44.01% and 38.9% year-on-year respectively, while egg-based snacks grew at an astonishing 150.54%! Moreover, the CCTV Super Factory program team went deep into Yanjin Shop's Egg King factory, providing an in-depth analysis of Yanjin Shop's quail egg products from raw materials, testing, production, and R&D. Yanjin Shop is a good growth case, validating New Distribution's industry judgment to some extent: In the future, truly competitive manufacturers must possess two capabilities: strong manufacturing capability on the supply chain side, and channel expansion and brand marketing capability on the market side. This article analyzes and explores Yanjin Shop from an industry observer's perspective, hoping to bring some inspiration and thought to the current FMCG industry.
Channel dividends are superficial
Continuously creating good products that align with consumption trends is the essence
To analyze a case, we must start with changes in market demand. The most attention-grabbing event in the snack industry in the past two years is the rise of snack stores. According to market research data, as of now, the total number of snack discount stores exceeds 30,000, with a total market size exceeding 100 billion yuan, and it continues to grow. Regarding snack stores, some are optimistic, some are not; some resist, some embrace. However, brand owners are gradually reaching a consensus that snack stores have become an important sales channel. But merely treating it as a channel is insufficient; brand owners must deeply understand that it releases or validates a major signal: Consumers are becoming more rational in product purchasing and channel selection! In 2023, NielsenIQ conducted a survey on the consumer market: price-insensitive consumers dropped from 29% to 15%; the proportion of consumers valuing cost-performance remained basically unchanged; the proportion of consumers seeking affordable alternatives and focusing on necessities and low prices rose from 20% to 36%. The channel side also validates this trend. Distributor owners report that consumers seem to have disenchanted with brands; those so-called "high-end" products with inflated prices are almost unsellable, and prices must be realistic to move inventory. The term "quality-price ratio" that has become popular in the past two years is precisely an interpretation of this change: Prices must be low, but quality must not be low; it should even be better. Demand is the gravitational force of the market, and all market links must adjust around it, especially brand owners. In the past two years, companies that have maintained rapid growth have indeed followed or aligned with this trend. For example, Yanjin Shop has maintained high-speed growth in both revenue and profit. When discussing Yanjin Shop, many attribute its performance to the dividends of new channels. But this is superficial, or rather a result, not a cause. You see, impressive performance is supported by good products. In the past two years, Yanjin Shop has been very successful in creating major category products. Following the strategic brand Damowang, its quail egg brand "Egg King" not only topped the creative snack list at Sam's Club but also received certification as the number one in quail egg category sales in the first half of 2024. Yanjin Shop's chairman, Zhang Xuewu, said in an interview: "The future competition in snacks will be like instant noodles and water, so we must build supply chain capability, smart manufacturing capability, and total cost leadership." In the snack industry, Yanjin Shop is characterized by its full industry chain layout, heavy R&D investment, and its corporate mission to "let consumers enjoy safe, delicious, and healthy branded snacks at the lowest possible price." It can be said that Yanjin Shop's business philosophy enables it to continuously create good products that align with consumption trends and are welcomed by consumers, ultimately leading to sustained performance growth. And this result is closely related to Yanjin Shop's long-term adherence to a full industry chain layout.
CCTV visits Egg King factory
Why does Yanjin Shop insist on deepening its own manufacturing capabilities?
In the entire snack industry, there are two types of enterprise groups worth noting: one stands on the market side, skilled in marketing and traffic acquisition, not producing themselves, and obtaining premiums through brands; the other stands on the supply side, focusing on production and processing, earning profits by OEM for other companies. In an era of rapid economic growth, both types can survive well. However, changes in the consumption environment have given rise to a trend: the integration of the functions of these two types of enterprises is necessary for survival and development. The reason is simple: consumers pursue quality-price ratio, which places higher demands on enterprise capabilities: They must control costs while ensuring quality; they must understand how to research consumers and also be able to realize the product. Without full industry chain capabilities and control over the entire chain, it is truly difficult to balance these. This principle can be better understood from the CCTV visit to Yanjin Shop's Egg King factory. Egg King is a quail egg snack brand created by Yanjin Shop, a typical new Chinese-style snack, which transforms ingredients from the Chinese dining table into snacks. While maintaining nutrition, Egg King greatly expands consumption scenarios. Upon launch, it was welcomed by consumers, not only selling well at Sam's Club but also achieving the number one shipment volume in the entire category in the first half of the year across all channels. Creating such a good product is not simple; the main obstacle is first in raw material supply. In the past, quail eggs mainly relied on scattered farming, with each household raising their own, leading to two problems: First, unstable raw material supply and difficult cost control. Second, hormone and antibiotic issues make quality difficult to control. To solve this, Yanjin Shop built its own breeding base, constructing the largest quail farming base in China in Xiushui, Jiangxi, mainly raising yellow-feathered quails, with about 3.5 million birds in the house. Phase II will be operational in October, and Phase III is being planned, which can reach 13-15 million birds. Furthermore, Yanjin Shop has introduced digital systems, such as egg quality traceability systems and egg poultry production IoT systems, to ensure the safety, health, and nutrition of quail eggs. On this basis, Yanjin Shop led the release of the group standard "Edible Raw Quail Eggs - Breeding Standards for Laying Quails," and Egg King is also the first brand in the industry to obtain dual certification for antibiotic-free and edible raw. After ensuring stable and controllable raw material supply, Yanjin Shop also needs to solve the standardization and process flow of manufacturing. Yanjin Shop built a factory 45 minutes' drive from the breeding base to ensure the freshest quail eggs are made into snacks in the first time. From raw materials entering the factory, to boiling, shelling, marinating, baking, and finally bagging and packaging, the entire process undergoes five screenings to ensure every quail egg is nutritious and delicious. Image source: Weibo @蛋皇鹌鹑蛋Of course, this cannot be separated from R&D and innovation capabilities. Yanjin Shop's professional market researchers insist on going to different cities every month to conduct product tests with diverse consumer groups. It is precisely Yanjin Shop's years of adherence to full industry chain layout and independent manufacturing that has given it a rare comprehensive capability in the industry: It can not only insight into consumer needs but also develop and manufacture products; it can not only achieve total cost leadership but also achieve high product quality.
Building brand assets for Chinese snacks
Must integrate supply chain, product, channel, and marketing
At the beginning of this article, we mentioned that in the future, truly competitive manufacturers must possess two capabilities: strong manufacturing capability on the supply chain side, and channel expansion and brand marketing capability on the market side. Why must they possess these two capabilities? Replacing "competitiveness" with another expression makes it easier to understand: "brand assets." Good products bring sales, but only by truly accumulating "brand assets" can long-term market competitiveness be maintained. This year, Yanjin Shop proposed a new concept of "Chinese Snacks · Yanjin Shop." Its manufacturing capability on the supply chain side is unquestionable, but to support this concept, it certainly needs channels and brand marketing coordination. However, accumulating brand assets is never easy, especially in the current Chinese market environment. The formation of brand assets is like an hourglass. The combined effect of supply chain, product, marketing, and channel, after a certain period and space of gradual accumulation, can finally form a brand. A relatively stable supply chain and channel market environment is very important. But in China, the supply chain is extremely competitive, leaving little room for premium products; on the other hand, channels change rapidly and are too strong. Yanjin Shop's long-term adherence to full industry chain layout has given it strong control over the supply chain, which is why it can calmly face new channels. In the past two years, Yanjin Shop embraced omni-channel and achieved high-speed growth. When it went public in 2017, direct-operated KA supermarket channels accounted for as much as 54% of Yanjin Shop's revenue, but by 2023, that number had dropped to 8%. New retail and distributor channels accounted for over 70% of revenue. Yanjin Shop's chairman, Zhang Xuewu, believes that in the future, Chinese consumers' leisure snack needs will become more diversified, and future Chinese snack brands will not just be kings of a single category, but likely a matrix of multi-category, multi-brand major products. Therefore, in 2023, on the basis of deepening the supply chain, Yanjin Shop further proposed a "1+7 multi-category, multi-brand" strategy, prioritizing the creation of hit products, using products to drive brands, and deepening Yanjin Shop's mindshare in sub-categories. The 2023 annual report shows that Yanjin Shop's snack products include seven major categories: spicy braised snacks, potato snacks, deep-sea snacks, leisure baking, egg snacks, konjac jelly pudding, and dried fruit and nuts. Damowang, Egg King, etc. are category brands successfully created by Yanjin Shop. Image source: Yanjin Shop official WeiboIn 2024, Yanjin Shop is also increasing investment in brand marketing, such as sponsoring marathon events, including the CCTV factory visit activity, as part of its brand actions. In the past two years, we have observed that many brands that started with traffic and marketing have had to increase investment in supply chain and industry, a necessary transformation in the face of China's extremely competitive market environment. But investment in the industry side is more uncertain and has a longer cycle than marketing. Yanjin Shop is different; it has chosen a path of deeply cultivating the industry and supply chain, making good products, building channels well, and then gradually strengthening the brand. This is precisely Yanjin Shop's advantage. This advantage also gives us a positive expectation for Yanjin Shop to accumulate "Chinese Snacks" brand assets and continue to lead industry development. Final Thoughts Zhang Xuewu once said in an interview: "Slow is fast; we place more emphasis on the rhythm of comprehensive capability development." After interpreting Yanjin Shop's case, perhaps we can have a deeper understanding of this statement. In the past two years, Yanjin Shop's performance has been soaring, relying on good products. Behind good products is the strong R&D and production capability and organizational capability honed through long-term full industry chain layout. During a period of industry transformation, in China's exceptionally complex and extremely competitive market, we hope Yanjin Shop's case can inspire the industry: calm down, strengthen supply chain capabilities, provide truly good products to the market, and truly accumulate brand assets, becoming a company that can lead industry growth in the long term.