Source: Shangyin She (ID: shangyinshecj) Today, multiple media outlets reported that the emerging children's snack brand Duomaomao has completed a nearly 100 million yuan A+ round of financing, led by Wens Capital, with existing shareholder SIG (Haina Asia Venture Capital Fund) following up. This is Duomaomao's third financing this year. Last week, another emerging children's snack brand, Shugele, also announced the completion of a tens of millions yuan angel round, led by Yisan Capital. Earlier, more than a dozen children's snack brands, including Manfen Niuniu, Woxiaoya, Yu Ke'ai, and Qiutian Manman, have gained capital favor in the past few months. This shows that capital is continuously increasing its bets on the children's snack track. In the past two years, China's adult leisure snack industry has become settled. The price and marketing wars among the three snack giants, Liangpin Puzi, Baicaowei, and Three Squirrels, were once deadlocked. In the process of seeking differentiated competition, the consumer opportunity in the snack field—children's snacks—finally surfaced in China. Especially after the implementation of the "General Requirements for Children's Snacks" standard last year and the announcement of the "three-child policy," the children's snack market behind China's 150 million children aged 3-12 has continued to heat up, becoming a new growth point in the leisure snack track. According to statistics, in 80% of families, children's expenses account for 30%-50% of household expenditures. Among daily consumption by children, snacks are an indispensable "rigid demand." It is predicted that from 2019 to 2023, the children's snack market will continue to grow at a compound annual growth rate of 10% to 15%, with the market size expected to reach 150 billion yuan by 2023. As a result, capital has flooded in, leisure snack giants have successively increased their participation, and even traditional food giants such as Shuanghui and New Hope have accelerated their layout in this golden track. However, the heat of the track does not mean that domestic children's snack brands can ride the trend to soar. Most children's snack enterprises are still constrained by the supply chain, being good at driving traffic but neglecting innovation. Overall, children's snack consumption is still at a relatively early stage, with a fragmented market pattern and no absolute monopoly, which also creates many opportunities for newcomers. This is the 6th article in Shangyin She's new consumer industry war series. Shangyin She conducted in-depth discussions with founders of five children's snack brands and two senior industry practitioners, and did extensive research. Reading this will give you a comprehensive and thorough understanding of this industry, see the tricks, and observe the business world rationally. ****Children's Snacks and "Junk Food" The development of children's snacks in China contains a history of consumption changes. Back in the 1940s and 1950s, in Shanghai's Aipixi Candy Factory, businessman Feng Boyong, who was fascinated by "British milk candy," excitedly announced that he would develop a milk candy of his own for Chinese people, thus beginning the rise of White Rabbit milk candy. Just a few years after its launch, White Rabbit, with the slogan "Seven White Rabbit candies equal a cup of milk," became popular nationwide. It not only had a unique taste but also had certain nutritional value, and its status at the time was equivalent to nutritional health products. At a time when milk resources were scarce, White Rabbit milk candy was even seen as a substitute for milk, supplementing essential nutrients, and became the earliest "nutritional snack" in the eyes of Chinese people. It can be said that before children's snacks became a segmented industry, some products were recognized by parents under the name of "helping children grow healthily." Even in the 1980s and 1990s, Wahaha's children's nutritional liquid opened the market with the advertising slogan "Drink Wahaha, eat with a good appetite." Not only did children love it, but parents also paid for beverages with nutritional value. Although by today's health standards, these children's nutritional snacks may not be healthy. Because the raw materials for White Rabbit milk candy needed to be imported, the cost was high, and a single candy's status was almost equivalent to meat, making it unaffordable for many ordinary families. Adults only bought a couple of candies during the New Year to please their children. Children from ordinary families could only eat traditional snacks like maltose candy and old-fashioned ice pops a few times a year. At that time, snack vendors mainly made products by hand, with neither food production standards nor awareness of snack packaging and branding. Most well-known domestic snack enterprises were established in the 1990s. As material resources gradually became abundant, snacks became an indispensable "fourth meal" for children. Small shops on streets and alleys were filled with spicy strips, rice crackers, jelly, candy, biscuits, fried puffed foods, etc., and packaged snacks became more common. Parents' concerns also followed. At that time, many children's snacks still relied on relatively crude handmade production, where raw materials and hygiene were prone to problems. Lack of regulation and insufficient supervision easily allowed these issues to go unchecked. Spicy strips and other small shop snacks often appeared in food safety news. The unbridled growth of "three-no products" (no production date, no quality certificate, no manufacturer) led parents to equate snacks with "unsafe." Apart from a few branded children's snacks like Qinqin, Uni-President, Want Want, Dali, Strong, and Wahaha, many unbranded and counterfeit products long circulated in the vast lower-tier markets. Many urban parents trusted products from international giants like Nestlé and Lay's, such as grain puffed foods and chocolate candies. Over time, domestic snacks became taboo in parents' eyes, not only affecting children's regular meals but also making various additives a major enemy of children's health. In terms of ingredients, these children's snacks are often what we call "junk food," high in fat, salt, and sugar, and low in dietary fiber, iron, calcium, vitamins, and other nutrients. Eating such snacks in excess may bring short-term pleasure to the taste buds, but it will inevitably affect children's appetite for regular meals. In the long run, nutritional imbalance can affect children's development, leading to tooth decay, obesity, and other problems, as well as increasing the risk of chronic diseases. Most domestic snacks have been recognized as "junk food" for decades. During this period, the nutritional snack category was blank, and there was no enterprise dedicated to making healthy snacks for children. ****Smoke Everywhere, "Target of Public Criticism" Fast forward to today, the post-80s and post-90s generations have quietly grown up in a battle of wits with their parents. Although this generation has deep feelings for spicy strips and biscuits, after becoming parents, they inevitably "inherit" the anxiety and fear of various snacks. They have also received a higher level of education and pay more attention to the food health of the next generation from a nutritional science perspective. At the same time, behind the huge snack demand, the unregulated barbaric competition has become a major factor restricting industry upgrading. In the early years, various "children's nutritional snacks" gimmicks, such as children's soy sauce, children's milk, and children's food products, were just promotional strategies by some merchants. Products with the same ingredients and production processes, after being "gilded" with the name of children, could easily harvest consumers at double the price. Therefore, for a long time, the new generation of parents' trust in snacks has been declining. It was not until the concept of "healthy snacks" began to emerge in the past two years. What drove this change was not only the change in people's consumption concepts but also the establishment of industrial standards from scratch. On May 15, 2020, the "General Requirements for Children's Snacks" (hereinafter referred to as the "Requirements") was promulgated, stipulating the scope of application, product classification, and technical requirements for children's snacks. This is the first domestic standard for children's snacks. For the entire children's snack industry, this standard is undoubtedly a timely help. From then on, children's snacks also had a clear concept: food suitable for children aged 3-12, consumed outside regular meals, to supplement energy, balance nutrition, or increase water intake, and to relax and enjoy leisure. Data from the National Bureau of Statistics shows that China's population of children aged 0-14 exceeds 230 million, of which more than 150 million are aged 3-12, making children one of the largest consumer groups in the snack market. Data released by the China Children's Industry Center shows that in 80% of families, children's expenses account for 30%-50% of household expenditures. Among daily consumption by children, snacks are an indispensable "rigid demand." With the consumption upgrade in the new era, the new generation of young parents has seen a surge in attention to the health factors of children's snacks. According to predictions, from 2019 to 2023, the children's snack market will continue to grow at a compound annual growth rate of 10% to 15%. Huaying Capital's estimate shows that the market size of children's snacks is expected to reach US$21 billion by 2023, approximately 150 billion yuan. The children's snack industry has become one of the most promising tracks, and children's snacks, which have been labeled "junk food" for many years, are also "changing their appearance." No profit, no early rise. Three days after the release of the "Requirements," Liangpin Puzi revealed its "ambition" and officially launched the first sub-brand focused on children's snacks, "Liangpin Xiaoshixian," thereby gaining brand exposure and market recognition. Many brands followed suit. The other two snack giants, Baicaowei and Three Squirrels, launched their infant and child food sub-brands "Tong'an'an Xiaopengyou" and "Xiaolu Lanlan," respectively. Many traditional maternal and infant brands also launched new products suitable for children aged 3-12, such as Beiyinmei and Yingshi. The so-called standardization is the golden spoon for capital to seek profits. The magic of standards for the industry is not limited to the industry itself, but can also attract the influx of billions of capital. The collapse of online education in 2021, although it hurt capital in the "K12 education" cake, major VCs kept their eyes and ears open and quickly found new comfort in the children's snack track seamlessly. Since the entire industry is in its infancy, although brands like "Liangpin Xiaoshixian" have the backing of traditional snack giants, their market share is not high, and the industry pattern has not yet solidified. Therefore, there is still a lot of living space for new brands and small enterprises. In the past year, children's snack brands have sprung up like mushrooms, with at least 10 related brands receiving financing. Among them, Baobao Chanle and Woxiaoya received 3 and 2 rounds of financing respectively within five months, while new brands like Manfen Niuniu and Shugele won tens of millions of yuan in investment at their inception. The Chinese leisure snack battlefield has suddenly become smoky, and children's snacks have become the "target of public criticism." ****Supply Chain Difficulties But the heat of the track and the influx of capital do not mean that domestic children's snack brands can ride the trend to soar. "Product quality" has always been the key to the survival of children's snack enterprises and brands. Since ancient times, Chinese people have advocated "food is the first necessity of the people." The food economy has always developed rapidly, but it frequently fails on food safety issues. Even though China's supply chain has developed quite maturely, the supply chain in the food industry still needs improvement. Especially for the children's snack segment, which has higher requirements for "safety," the improvement of the supply chain, including raw materials, R&D, and production, is of utmost importance. The "Requirements" clearly stipulate that the food additive indicators of children's snacks should align with infant and toddler supplementary food standards. For example, children's snacks cannot use raw materials treated with irradiation. "Irradiation" is a sterilization process commonly used in most snack products on the market. Its advantage is that it can extend the shelf life of products, but in the process of sterilization, it destroys the nutritional components in food. For children who are in a critical period of physical development but have limited food intake, this is a problem that cannot be ignored. Therefore, any product in children's snacks is by no means a simple addition or subtraction based on adult snacks. Instead, it is necessary to tailor a supply chain system for each category or single product in every link, including raw materials, product R&D, production processes, quality control, logistics and transportation, and sales services. Since the maternal and infant industry has relatively early and comprehensive standards and mature supply chain control capabilities, this should be a good opportunity for traditional maternal and infant brands to expand their brand power. But what is worrying is that there are at least 2,000 domestic infant and toddler nutrition brands, but the raw material procurement, R&D, and production of children's snacks are still "disconnected" from standards. To date, no supply chain that meets children's standards has been formed, and nearly 90% use OEM production models. Especially for leisure snack brands and traditional food brands that have entered the field, they continue to use existing mature factory production lines, and production standards are not compliant. Once an OEM factory has problems, it will inevitably affect food safety. Xiaolu Lanlan is a typical example. Xiaolu Lanlan, the children's snack brand under Three Squirrels, has all its products produced by OEMs. Only raw material procurement, repackaging, and warehousing are controlled by Xiaolu Lanlan itself. Raw material processing and transportation are outsourced to OEM factories. According to media reports, several OEM factories serving Xiaolu Lanlan have been penalized by relevant departments for production problems. It is understood that Three Squirrels pays relatively low fees to these OEM factories, which also leads to less investment in food safety by the OEM factories, resulting in frequent quality problems in Three Squirrels' products. Furthermore, Xiaolu Lanlan's poor control over the OEM process has led to repeated mistakes in food quality and safety, which has laid a deep hidden danger for Xiaolu Lanlan's development. The Black Cat Complaint Platform shows that there have been 13 complaints about Xiaolu Lanlan, 10 of which claim that foreign objects such as hair and plastic appeared in Xiaolu Lanlan's food. How to improve control over the upstream supply chain and how to ensure food safety have become difficult pain points for the entire industry. Many new brands, not constrained by traditional supply models, have provided some new solutions. For example, the children's tuna brand newcomer Yu Ke'ai has an advantage in the supply chain at the source. Its founder, Sun Xiaotong, has been engaged in the distant-water tuna fishing business for nearly 18 years, with industrial chain resources and integration capabilities from the source of tuna fishing to deep processing. By screening and controlling product quality from the source of the tuna industry chain, it has created a differentiated advantage, which is a key point for winning in the industry. To comprehensively solve the phenomenon of OEM processing for children's snacks, building a self-owned supply chain is the core and powerful way. Holding the entire process from raw material source to product delivery in your own hands is bound to be one of the core competitive advantages of this industry. However, since most enterprises have just started and are not sufficiently funded, building a self-owned supply chain is often beyond their capabilities. Even if you choose an OEM enterprise for processing, you must conduct strict screening, select a suitable OEM factory according to the nutritional requirements and safety standards of children's snacks, and strictly require every link such as production and quality inspection to ensure product quality. ****Rise from Traffic, Stuck in Innovation The current children's snack track has just emerged in recent years. Although competition is fierce, it is also new enough that no enterprise has yet occupied an absolute position in any category. Take the snack industry's BAT—Liangpin Puzi, Baicaowei, and Three Squirrels—as an example. Liangpin Puzi's Liangpin Xiaoshixian basically covers the main categories of the current children's snack industry, including biscuits, melt-in-the-mouth beans, jelly, fish sausages, candy, seaweed, etc. Xiaolu Lanlan and Baicaowei are similar. Many other latecomers also derive from this basis. From this, it can be seen that the current product category richness of children's snacks is not high. This leads to children's snack enterprises frantically imitating each other in a limited number of categories, and the problem of homogeneous competition is prominent. Moreover, the snack industry has a low entry barrier, and low-end brands have become the hardest hit area for "copying homework." As long as one brand benefits from a new product, other merchants will swarm in to share the cake. In addition, the current OEM model of children's snacks makes it difficult to deeply engage in product R&D and supply chain innovation. Even multiple brands may use the same OEM factory, making it easy to copy each other. Product "collisions" are common. For example, Liangpin Xiaoshixian took the lead in launching sugar-free hawthorn sticks, and other brands swarmed to launch the same product; Miaokelanduo launched the popular cheese stick, and competitors quickly followed with similar products. Currently, there are more than a dozen brands selling hawthorn stick candy and cheese sticks on Taobao. Most brands have weak R&D capabilities and compete with similar products through marketing and brand wars. Even at the marketing level, major brands are surprisingly consistent. Looking around, "healthy and sugar-free" is a common selling point for almost all products. Trendy labels like "0 sucrose" and "no additives" will inevitably become the industry's minimum requirement in the future. The three snack giants we know all pay great attention to online channel promotion and sales. Three Squirrels continues its e-commerce channel advantage, Baicaowei continues to adhere to a price-oriented strategy on e-commerce channels, and Liangpin Puzi continues to shape the brand image of "high-end snacks." All three have their own IP images, hoping to capture consumers with interesting and exquisite creativity in product appearance design or promotion. As for some mainstream sales channels, most brands adopt cooperation with big V's on Douyin, Xiaohongshu, etc., and live streaming by influencers, using social media to create hit products. In addition, they use large amounts and large coupons on Tmall and JD.com. The "marketing money-burning method" is extremely effective. During this year's Double 11, sales in the baby snack category increased by 5 times year-on-year. Among them, Xiaolu Lanlan, Yingshi, and Heyangyang led both brand sales and growth rankings. In the brand sales ranking, Duomaomao and Qiutian Manman followed closely. Fayoule and Heinz also ranked in the top 5 of the growth list with continuously rising product sales. But if enterprises' R&D capabilities continue to lag, the dividend period for the children's snack industry is only these two years. Brands that enter with a hit product mindset will inevitably see growth weaken later. Most brands will only rise from traffic and be stuck in innovation. Therefore, the real breakthrough in the snack industry lies in long-term deep cultivation of product research and control, continuous iteration and innovation in product formulas, category R&D, and taste, and only then matching product marketing. ****Innovation Entry Points In addition to enriching the categories of healthy children's snacks, enterprises have much to do in innovation. For example, how to iterate product formulas and processing techniques to achieve a balance between "nutrition" and "taste," and how to consolidate the market through the popularization of snack education, are innovation entry points for snack manufacturers. For consumers, how to distinguish traditional snacks from healthy children's snacks lies in the ingredient list. There are currently two main approaches to the formula of domestic children's snacks. The more basic one is to do "subtraction." This approach focuses on "zero" additives, no added pigments, preservatives, and other chemical components, and achieves low sugar, low salt, etc. High-end ingredients often only need simple cooking. Such products are committed to presenting the most original nutrition and taste of food. For example, Liangpin Xiaoshixian pays more attention to the health label of products, including "non-fried" for baked biscuits, "zero white sugar" and "zero flavoring" for candy, etc. Another approach is to innovate in the nutritional and functional aspects of products, which can be simply classified as functional snacks. On the one hand, this can meet children's needs for high protein, high calcium, and other nutrients during growth; on the other hand, adding functional ingredients can specifically improve children's immunity, brain vitality, intestinal function, and other aspects of health. For example, adding iron and zinc is beneficial to children's physical and intellectual development; adding FOS and GOS are prebiotic components widely used in products beneficial to children's growth. In contrast, traditional junk food is very high in calories, fat, sugar, salt, and additives. The stimulating foods and tastes are irresistible, but excessive energy and food additives can lead to obesity and disease. But in public perception, deliciousness and health cannot be achieved simultaneously. How to satisfy parents' health requirements while satisfying children's taste buds? In this regard, Li Xiang, founder of the children's pasta brand Yiya, believes that in recent years, low-salt and low-sugar foods mainly used as meal replacements are certainly not perfect in taste. Cardiovascular disease has become one of the diseases with the highest incidence worldwide, essentially related to excessive salt and oil intake. Adults' taste buds have adapted to heavy flavors, so eating meal replacements again will be hard to swallow. Children's healthy food can, to a certain extent, help children develop healthy eating habits from an early age during the period of low taste sensitivity, allowing them to adapt to a low-sugar and low-salt diet. Japan promulgated the "Nutritionist Law" as early as 1947, establishing nutrition surveys and guidance systems in most schools and kindergartens, equipping nutritionists to manage children's school meals, promoting organic food, and guiding children to develop healthy eating habits. However, the penetration rate of healthy snacks in China is not yet very high, and there is still considerable room for growth. ****Better to Be Different Than to Be More Involved As the market value of children's snacks gradually emerges, this track is becoming increasingly crowded. From the current market pattern, mature imported brands such as Little Freddie, Gerber, and Heinz are developing strongly in China. This is because, on the one hand, foreign brands have occupied consumer minds in the past few years; on the other hand, foreign brands are highly competitive in products and quality. So how can emerging domestic brands differentiate? Li Rui, founder of Manfen Niuniu, believes: "Although foreign brands have occupied consumer minds in the past, and most Chinese brands are also imitating Western brands, there are some differences in dietary structure between China and abroad. The nutritional ratio of regular meals and snacks is different, and the physiques of Chinese and foreign children are also different. Therefore, by continuously improving product quality and gaining consumer trust, domestic brands are very competitive." Old players in the snack industry with brand endorsement have accumulated certain capital and reputation. Emerging brands need to deeply cultivate in segmented fields and build brand characteristics from all aspects such as channels, operations, and products. Take channels as an example. From current observations, many new children's snack brands tend to adopt a hybrid model of mainly online, public domain + private domain when building channels. Among them, the online part covers e-commerce platforms like Taobao and JD.com, as well as social networks like Douyin and Xiaohongshu. Although the new generation of parents are Internet natives and have a special preference for online channels, as e-commerce traffic becomes more expensive and purchase scenarios become more diversified, offline opportunities are also emerging. The layout of offline channels can effectively cover parent groups, extend the user consumption cycle, and may become an effective path for children's snack brands to break through. In short, brands need to plan according to population preferences. Of course, more important is differentiated competition in products. Better to be different than to be more involved. As one of the most watched vertical markets in leisure snacks this year, "additive-free snacks" has already seen many players establish a foothold in subcategories. Facing various strong brands, emerging brands Jianghu Xiaolangzhong and Yu Ke'ai have chosen off-position competition. Founded in 2018, "Jianghu Xiaolangzhong" is currently rooted in the children's "medicinal diet snack" segment, establishing the positioning of "additive-free dietary snacks," committed to redoing existing products with the concept of medicinal diets. It is currently the leader in this segment. Yu Ke'ai, with the endorsement of its parent brand Yutai Ping, does have certain advantages in the source supply chain. From the product layout, its flagship tuna meat sausage has created a certain differentiation among the cookie-cutter cod sausages and pork sausages. However, due to relatively conservative publicity in public domain traffic, more energy is focused on its own operations and maintenance, so the audience is still relatively narrow. From Shangyin She team's observation of the children's snack track, domestic children's snack consumption is at a relatively early stage, the market pattern is relatively fragmented, there is no absolute monopoly, and it belongs to a "land-grab war," which also creates many opportunities for newcomers. Enterprises need to continuously grasp market trends and consumer demands, adjust channel, marketing, and other strategies in a timely manner, but ultimately return to differentiated innovation in products. Are you "watching" me?