From the recent financial report of ChaCha Food, once known as a top student in the leisure snack industry, there is some "heat" (concern). Despite double growth in revenue and profit, shareholders and capital were disappointed, and the stock price plummeted 9.7% on the day of the report. Can the original sunflower seed business still drive ChaCha's 10-billion-yuan goal? Against the backdrop of weak growth in single products, should a diversification strategy be adopted?

Introduction

01 Over-reliance on a single category: ChaCha's sunflower seeds are losing their appeal

Although some industry reports suggest that ChaCha's sunflower seed and nut businesses still have significant room for growth in packaging penetration and channel expansion in northern markets, some media have pointed out that ChaCha's sunflower seed business lacks marketing imagination. So what exactly are the problems with ChaCha's operations?

  1. From financial data, from Q2 2021 to Q2 2022, ChaCha Food's operating revenue was 1.002 billion yuan, 1.502 billion yuan, 2.103 billion yuan, 1.432 billion yuan, and 1.246 billion yuan respectively. Since 2022, the quarter-on-quarter changes have consistently shown negative growth.
  2. From online sales, in the first half of the year, operating revenue was 2.678 billion yuan, but e-commerce channels contributed only 285 million yuan, which is rare in today's booming e-commerce environment, reflecting ChaCha's insufficient online sales capability.
  3. From product growth, the sunflower seed business, which accounts for nearly 70% of sales, has seen a significant slowdown in growth from 2018 to 2021, with the year-on-year change rate dropping from 12.22% to 5.86%.
  4. From the leisure food industry, the production and sales of sunflower seeds have remained stable for a long time, with the market size expected to grow at a mid-single-digit rate from 2019 to 2023. According to Frost & Sullivan data, baked pastries account for the highest proportion in leisure food and are growing year by year. Sunflower seeds, due to product aging and slow innovation, are losing consumer favor.
  5. From price increases, the growth of packaged sunflower seeds has peaked. Further price increases would lead more consumers to choose bulk sunflower seeds or other brands, potentially repeating the crisis of Zhou Hei Ya's price increase leading to customer loss.

It is not difficult to see that over-reliance on packaged sunflower seed products has led ChaCha into a crisis of brand aging and growth stagnation. The small-pack mixed nuts, which were launched as a second growth curve, are also mired in homogeneous competition, facing impacts from leisure snack giants like Three Squirrels, Baicaowei, and Bestore. Compared to other snack brands, ChaCha lacks product lines in meat, pastries, and candies, and its overly simple product structure fails to stimulate consumers' desire for one-stop shopping.

02 Diversification vs. Single-product focus: Where should FMCG companies go?

In brand strategy, there have always been two viewpoints. One is the single-product focus represented by positioning theory, which argues that brands should become representatives of a category or characteristic through focus, often citing Wanglaoji, Dong'e Ejiao, and Six Walnuts as examples, while expressing aversion to diversified operations like Moutai Beer, Overlord Herbal Tea, and Evergrande Spring Water. The other is the related diversification viewpoint advocated by strategic experts like David Aaker, which argues that single-category and single-product operations will inevitably limit corporate development and lead to brand aging crises, advocating for related diversification using category relevance, actively building second and third growth curves.

In recent years, with the decline of positioning theory and from a practical development perspective, more companies have succeeded through diversification. After Xiaomi's smartphones became popular, it quickly pursued smart TVs and other home appliances; its smart TV business alone has led national sales for three consecutive years. Three Squirrels, after its nuts became popular, quickly expanded into dried meat, dried fruit, baked goods, and flower tea, becoming an internet snack giant. Junlebao, while succeeding in affordable milk powder, has also been launching new products and expanding channels with products like Zhizhishi Yogurt, Yuexian Fresh Milk, and Baixiaochun Liquid Milk. Jinmailang, after its success in instant noodles with products like Yidaiban and Yitongban, also pursued its beverage business, allowing the group's sales to catch up with Uni-President. Yili Group, a dairy leader, is also actively laying out natural water, cheese snacks, and new ice cream products. Fotile and Robam, after surpassing Siemens in range hoods, are also pursuing foreign brands in dishwashers, stoves, disinfection cabinets, and water purifiers.

A more obvious fact is that FMCG giants like Master Kong, Nongfu Spring, Haitian, Luhua, and Yihai Kerry all follow a related diversification strategy with one dominant product and multiple strong ones. In contrast, brands overly tied to a single product are facing growth crises:

  • Xiangpiaopiao, influenced by positioning theory, has long focused on cup milk tea, but it is obvious that bottled milk tea Assam reached 7 billion yuan years ago, and milk tea shops like Heytea, Naixue, and Mixue Bingcheng are thriving. Xiangpiaopiao, having experienced category shrinkage and product aging, is now less than 4 billion yuan and has seen negative growth for five consecutive quarters.
  • Dong'e Ejiao, after a change in leadership, has begun to thoroughly clean out positioning theory internally. Compared to Yunnan Baiyao's success in multiple fields such as aerosol sprays, toothpaste, and shampoo, Dong'e Ejiao, which has over a hundred product possibilities, is confined to ejiao products.
  • Among the three major home appliance giants, Gree, overly tied to air conditioners, has a market value far behind Midea and Haier. Joyoung and Supor, representing soymilk makers and rice cookers respectively, have sales that are a fraction of Midea's.
  • In e-commerce platforms, Dangdang, which focused on books in its early years, is far behind Alibaba and JD.com, which operate diversified businesses. Mogujie (focused on clothing), Kaola (focused on cross-border shopping), and Lefeng (focused on cosmetics) all failed to escape acquisition by giant platforms.

Why are classic focus cases like Wanglaoji and Six Walnuts becoming fewer? When should a company focus, and when should it diversify? In fact, any brand theory or marketing concept has its applicable scope. Blind focus and blind diversification are both mechanical and dogmatic trial-and-error, not scientific approaches to brand building. Simply put, corporate strategy can be divided into three levels: corporate strategy (group strategy), business-level strategy, and functional-level strategy. For small and medium-sized enterprises, early development necessarily requires investing all resources into one business, using product and geographic focus to compete with diversified large enterprises in niche areas, accumulating professional recognition for a specific product or category. At this stage, since the company has only one core product, the business-level brand strategy is roughly equivalent to the corporate strategy. However, when the core product grows to a certain extent, it will inevitably face the ceiling of category growth, and the company must open a second growth curve. At this point, the business-level brand strategy must be subordinate to the group strategy, and one cannot use single-brand focus thinking to limit overall corporate growth.

It is worth mentioning that related diversification not only helps companies spread operational risks, enhance industry status and control over the supply chain, but also facilitates brand revitalization, maintaining brand heat, and channel expansion. Take Junlebao's launch of Zhizhishi Yogurt as an example. In the words of General Wei Lihua, although the annual advertising expenditure of 300 million yuan for Zhizhishi Yogurt only generated 1 billion yuan in sales, it played a crucial role in revitalizing Junlebao's brand, narrowing the distance with young consumers, and helping new products expand beyond the North China market. If ChaCha had not timely launched the Nut Yellow Bag, perhaps the public's impression of it would have aged like that of Southern Black Sesame or Daoxiangcun. From another perspective, a company's business boundaries are fought for, and consumer perceptions of a brand are not static. When Bull developed decorative switches, its positioning upgraded from safe sockets to safety experts; after ChaCha launched the Yellow Bag nuts, it upgraded from a sunflower seed expert to a roasted nut expert; after Three Squirrels launched dried fruit, meat jerky, and flower tea, it upgraded from an internet nut brand to an internet snack brand.

The transformation from product brand to group brand, and from a small enterprise to a large enterprise with industry discourse power, is also a result of related diversification.

03 Five diversification methods to help ChaCha regain growth confidence

Diversification is an inevitable path for companies to grow from small to large. So why are there cases like Moutai Beer, Overlord Herbal Tea, and Evergrande Spring Water? The core reason is that unrelated diversification makes it difficult for new businesses to create synergies with existing businesses, resources, and cognition, or the extended field already has expert-level giants defending it. From 2008 to 2014, ChaCha Group also engaged in unrelated diversification, launching new products like Kazhicui and Boledong. However, because products like potato chips, jelly, and seasonings were difficult to synergize with sunflower seeds and roasted nuts, and the customer groups and channels were not the company's strengths, these new products were also attacked by expert brands like Lay's and Strong, leading to growth far below expectations and eventual divestiture.

How can companies scientifically pursue related diversification? They need to consider five synergy methods.

1. Leverage trend synergy to create a second curve

New trends create new consumption, and new consumption creates new opportunities. Leveraging the health trends of zero sugar, zero fat, and zero calories, multi-flavor trends, and the rapid development of convenience store channels, Genki Forest launched its sparkling water hit after Ran Tea. Leveraging the trend of smart appliances and affordable positioning, Xiaomi successively developed smart TVs, air conditioners, washing machines, refrigerators, and other home appliances, as well as routers, smart cameras, and smart speakers.

2. Leverage technological commonalities for horizontal expansion

Dyson's superior digital motor technology has made it a high-end brand in both vacuum cleaners and ionic hair dryers. Yunnan Baiyao's hemostatic properties allowed it to expand from aerosol sprays and band-aids to toothpaste, laying the foundation for its development of health products, medical devices, and big health products.

3. Leverage channel synergy for product pursuit

The success of ChaCha's Nut Yellow Bag is fundamentally due to its offline channel advantages. With the support of 500,000 terminals, 117 offices, and thousands of distributors, ChaCha has achieved a "national coverage + county and township breakthrough" channel penetration. Targeting the offline weaknesses of Wolong and Three Squirrels, it directly used the sunflower seed channel to pursue new products and open a second growth curve. Haitian, Luhua, and Yihai Kerry's innovation in the seasoning field also heavily leverages their channel advantages, using old products to lead new ones through channel synergy.

4. Leverage customer commonalities to deeply explore consumer needs

The core reason Fotile and Robam develop new products in the kitchen appliance field is that their consumers are those with kitchen appliance purchase needs, and they have strong trust in leading kitchen appliance brands and a need for one-stop shopping convenience. On the same customer base, selling stoves, dishwashers, steam ovens, and range hoods together as a kitchen set has a natural consumer market. Oppein and Suofeiya extend from cabinets and wardrobes to whole-house customization, Usmile develops from electric toothbrushes to personal care brands, and Wumai Grinding breaks through from healthy meals to grain snacks, all by deeply exploring the consumption needs of the same customer group.

5. Leverage resource advantages for vertical and horizontal expansion

In 2016, Power Dekor launched its "big home" strategy, extending from wood flooring to wooden doors, wardrobes, and whole-house decoration, which is inseparable from its control over high-quality wood resources and technical accumulation. Xu Ji Seafood's launch of the high-end seafood restaurant "Blue Qilin" is also backed by its centralized procurement control over high-quality seafood.

So how can ChaCha effectively use diversification synergies to break through sales?

  1. Continue to leverage channel synergy advantages to pursue new products

In the nut and roasted seed field, there are still many new products to be developed. For example, broad beans and green peas, which belong to the same seed nut category, are product gaps for ChaCha. In this low-attention category, Ganyuan Food has already established a bean expert brand. Although ChaCha launched peanut products in its early years, the milk-flavored peanuts deviate from mainstream tastes. It can also use its channel advantages to pursue the internet-famous brand Qiwang Peanuts, gradually breaking through from a sunflower seed expert to a roasted nut expert.

  1. Leverage customer commonalities to deeply explore consumer needs

Daily nuts, due to a lack of category education, have gradually evolved into price wars under snack demand, and larger application scenarios and consumption needs have not yet been opened. Wumai Grinding this year, through cooperation with the Chinese Academy of Agricultural Sciences, is conducting targeted research on premium black sesame to strengthen the food therapy recognition of its "Heiziyang" sub-brand. ChaCha's daily nuts need to consider, based on the existing customer base, developing calcium-fortified daily nuts for the elderly, vitamin and trace element-rich daily nuts for children, and fish oil and amino acid-supplemented daily nuts for pregnant women, moving daily nuts from snacks to supplementary food. It can also customize energy products for white-collar workers, differentiating the meal replacement market from products like Snickers.

04 Conclusion

In the view of management master Peter Drucker, the essence of marketing is innovation. Only companies that continuously achieve product breakthroughs, scenario breakthroughs, channel breakthroughs, and customer group breakthroughs are more competitive and better able to resolve business risks. Therefore, excessive focus and binding only limit a company's growth space, eroding its edge and plunging it into a brand aging crisis. On the other hand, blind diversification is also detrimental, causing companies to self-destruct like Chunlan Air Conditioner, and premature diversification can erode professional recognition and lose opportunities for further development.

Only by focusing on a specific niche, carefully honing professional recognition, and achieving a leading position in a single product, can companies then use the five synergies of related diversification to continuously win new growth opportunities, discover second and third growth curves, and facilitate the transformation from a single product brand to a group brand.

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