"I've been researching for a while and plan to open a snack store myself. Teacher Ren, what do you think?" At an event, a distributor boss said this to me. Wherever snack stores appear, they often cause a 30-40% decline in business. Instead of letting others take it, why not do it ourselves? For low prices, I'm already in the supply chain, so opening a bulk snack store should give me an advantage. The impact of discount snack stores on business indeed makes many anxious. What to do? Some are waiting, some choose to franchise, and others think, why not open a snack store ourselves? It's not impossible for distributors to start from scratch and open stores. But if your understanding is still at the surface level—low prices, product assortment, storefront, interior decoration, and display—you must read this article to the end! Opening a store for a living is another matter. When distributors talk about opening stores, they mean business transformation and future development. Therefore, it's crucial to deeply understand the underlying industry dynamics. Today, I'll use one article to explain three concepts: 1. Hard Discount 2. Chain Franchising 3. Distribution-Retail Integration
Instead of Letting Others Steal 30% of Their Business, Why Don't Distributors Open Their Own Snack Stores? Understanding these three concepts will give you a fresh perspective. Of course, you may never have considered opening a store, but as a distributor, after reading this, you'll gain a deeper understanding of the current industry changes.
Hard Discount
If I ask you why bulk snack stores can take business from other formats, the first thing you think of is low prices. That's correct—snack stores can be 20-30% cheaper than supermarkets and mom-and-pop shops. But the key is: how can they achieve such low prices? Regular readers of New Distribution articles may notice that compared to "bulk snacks," we more often use the term "snack hard discount." Aren't they the same? On the surface, they both refer to the currently popular snack collection store format, but their connotations differ. Bulk is a retail format concept, while hard discount is a business model. Bulk comes from Japanese, emphasizing "relatively low prices," between normal retail and wholesale prices. When we say bulk, we think of a low-price format. What is hard discount? In English, it's "hard discount," where "hard" means strong, resolute, strict, and "discount" originally means "not counting in," pointing to reducing or subtracting something to achieve lower costs or prices. Translated, it's two words: efficiency—using minimal actions and energy to express maximum content. The hard discount model originates from Germany's ALDI, whose name comes from the first two letters of Albrecht (founder's name) and Discount. Hard discount is a business model that achieves cost reduction and serves mass consumers through extreme product selection, compressing supply links, and eliminating unnecessary actions. If you want to experience classic German hard discount, you can visit BIYIDE in Shanghai or Tiaoma in Chongqing—these are supermarkets in China that truly practice the German ALDI hard discount model. Hard discount supermarkets carry food, beverages, condiments, daily chemicals, etc., all daily consumer categories. Snack hard discount applies the hard discount model to the snack category, a Chinese market innovation. Here we see the similarities and differences between snack hard discount and classic hard discount. Many people understand snack stores as low prices; if you only see low prices, you can't understand why snack stores are opening more and more. Low price is the result; its essence is the hard discount business model, with efficiency as the keyword, core being low gross margin and high turnover. How to achieve low gross margin and high turnover? I've explained this before; refer to previous articles. Unlike the explosive opening of snack hard discount stores, Tiaoma and BIYIDE each have around 200 stores, still in a slow climb. This is due to category differences and corporate culture, but a more direct reason is that classic hard discount supermarkets use a strict direct-operated model, while snack hard discount uses a franchise model. Chain franchising is the lever for snack hard discount to pry open the market.
Chain Franchising
Some distributors think: I'll create my own chain brand, let others franchise, collect franchise fees, and make steady profits. Ask a question: What is the product of a snack store chain? Of course, it's the various goods displayed in the store—cookies, nuts, chips, beverages, dairy drinks, etc. In fact, a snack chain system has two products. One is the snacks on the shelves, sold to consumers. The other is the store on the street, sold to franchisees. You open a snack store, find it profitable, continuously optimize and adjust, then open several more, and finally find a replicable single-store model—following this method makes money. Then you open franchising. Why would someone want to franchise? You've productized your store, providing franchisees with a set of processes and standards in brand, product, site selection, operations, and supply chain. The essence of franchising is that franchisees pay to purchase a profitable business model. Their investment, payback period, and profitability are predictable. A chain system has two products, but the ultimate customer is only one: the consumer. You must work with all franchisees to serve consumers and sell more products to them—this is how franchisees make money and the foundation for the chain system's sustainable development. If your focus isn't on selling products to consumers but on collecting franchise fees first, and you don't care about brand development, that's quick money and cutting leeks. Now snack stores are blooming everywhere, all trying to expand rapidly through franchising. Many have opened dozens or even hundreds, but it's extremely difficult to grow further. Currently, in the snack hard discount industry, Snack Busy has over 3,000 stores, Snack Youming, Zhao Yiming, and Wanchen Group each have over 2,000, Love Snacks has over 1,000, and there are many brands with hundreds of stores. To open thousands of stores, you must excel in store model, internal organization, and franchisee ecosystem. This tests the company's systemic capabilities. Recently, I've contacted some super franchisees of leading systems, with stores ranging from a dozen to dozens. With an average single-store investment of 500,000 yuan, plus working capital, total investment is at least several million to over ten million. Why are they willing to invest? Because they can calculate the return on investment; it's a profitable business. This isn't to say that franchising a snack store is a guaranteed profit. Any investment has risks; there are many loss cases, especially with smaller chains, and as industry competition intensifies and store density increases, risks are certainly higher than before. Of course, I'm not making any recommendations; all investments must be decided after your own in-depth research, analysis, and calculation. What I want to say is: don't let a simple "cutting leeks" judgment prevent you from deeply understanding the logic behind something. Why are snack hard discount systems all increasing recruitment efforts and accelerating expansion?
First, snack stores are offline businesses; good locations are scarce, so seizing points is important. Second, the core of hard discount, besides low gross margin and high turnover, is scale. Scale equals efficiency. Why? Let's discuss another concept: distribution-retail integration.
Distribution-Retail Integration
What snack stores take away is actually the business of terminal stores, but because distributors supply these traditional terminals, their business is impacted. Why don't snack stores source from distributors? Snack systems initially sourced from distributors, but that was a phased strategy. Know that direct upstream sourcing is the instinct of the hard discount model. Early on, when volumes were small, brands were unwilling to cooperate. As snack systems grew, upstream brands embraced them. Some say brands shouldn't do this; they should consider their long-term relationships with distributors. But business is rational, not decided by anyone. When analyzing an industry, you must find the core internal contradiction. The core contradiction in the food industry is: The uncertainty of agriculture, which depends on nature, is sold to industry; industry buys that uncertainty, absorbs agricultural fluctuations through large-scale production, dilutes unit manufacturing costs, then matches it through channel systems to sell to all people in all regions. Brands advertise, but hard delivery requires distributors and terminals to complete. Industry's instinct is to produce inventory. It's a cost; only when someone sells it does it become a commodity—so there must be a sufficient number of channel partners to provide that certainty. Thus, in the relationship of "brand—distributor—terminal," snack hard discount actually achieves integration of distribution and terminal by building its own warehousing and delivery systems and laying out terminal points. It can buy brand inventory and provide sufficient certainty. This is why snack hard discount gradually dominates. Of course, it can do this because of a key party—consumers. In this multi-party game, consumers are the true deciders. Speaking of consumers, I want to emphasize: retail must have consumer thinking—select products around consumer needs. But many distributors carry product thinking—selling what they have to consumers—when opening stores, which leads to failure. Low gross margin—high turnover—large scale form the hard discount flywheel; without scale, there's no ultimate efficiency. We can even say: hard discount = scale = efficiency. Distribution-retail integration is not the end; it will continue upstream, evolving toward production-retail integration. This has already happened in other industries, like apparel. Referring to Germany's ALDI, its private label accounts for about 70% of goods. Leading snack store systems are already doing co-branded products, and they will definitely do private labels in the future—this is an inevitable trend from this model, just beginning now. Of course, distribution-retail integration is from the upstream perspective; from the terminal perspective, it's supply chain reform. This reform won't completely replace traditional supply chains, but in its development, it will definitely shatter existing systems. This is why distributors feel pain now. In any case, snack hard discount is not just about selling snacks at low prices. This is an ongoing transformation. Some distributors consider how to survive, some think about quickly joining to grab a wave of dividends, and some can think about how to create a new future in this industrial transformation. Final Thoughts Since 2022, snack hard discount has accelerated rapidly. Some see low-price sales, some see franchise losses, but from an industry perspective, its real impact is on the upstream and downstream of the industry chain—China's modern food processing industry is undergoing supply-side reform.
Why are snack discount stores so crazy? Not embracing them is impossible, but embracing them means facing price system shocks and the difficulty of maintaining traditional distribution networks, leaving brands in a dilemma. How are various brands responding? What impact does it have on the industry chain? Where should distributors go? What are the future challenges and opportunities? On October 9-11, 2023, the "5th China FMCG Conference" will be held in Shenzhen. On the morning of October 10, we will organize a parallel forum themed "Snacks and Discount Stores." At that time, snack/discount store brands, FMCG manufacturer executives, distributor experts, and industry deep observers will gather to deeply exchange and discuss topics related to "hard discount," collide viewpoints, and welcome your participation! At the conference, we will release the "2023 China FMCG Snack Hard Discount Development White Paper." From the perspective of the FMCG industry, New Distribution, through systematic investigation and research, analyzes the cooperation situation between brands and snack hard discount, interprets the impact of snack hard discount on local trade systems, and helps brands and distributors objectively, comprehensively, and deeply grasp industry trends, meet challenges, and discover growth opportunities.