The smoke has not yet cleared, and the battle in the internet snack industry is a true reflection of consumption changes and technological transformation. "Everything is ready, waiting for battle!" On November 8, 2019, the eve of Singles' Day, Zhang Liaoyuan, founder of Three Squirrels, sounded the clarion call on his social media. "This may be the most anxious Singles' Day, the busiest in preheating, and the most cognitively profound." Corresponding to Zhang's call, the headquarters of Three Squirrels in Wuhu, Anhui, was adorned with red flags and banners, full of passion and enthusiasm. But unlike the uniform passion of previous years, this year, internet snack brands like Three Squirrels seem to have a hint of helplessness and rationality. After Singles' Day 2017, Zhang Liaoyuan realized that Three Squirrels had entered a bottleneck. Another internet snack brand, Bestore, also felt the chill. Tired of years of mutually destructive low-price competition, this year's Singles' Day it shouted "abandon price wars" and promoted premium snacks. The Singles' Day competition is a microcosm of the internet snack brand wars of the past few years. The participants are "internet + snack" enterprises represented by Three Squirrels, Bestore, and Be & Cheery. It brewed in the trend of younger Chinese snack consumers, fermented rapidly under the penetration of internet information technology, and expanded quickly with the rise of several major e-commerce platforms. This year's Singles' Day battle is a turning signal. Although the smoke has not yet cleared, the competitive landscape is already clear. As the internet demographic dividend fades and the magical and brutal growth comes to an abrupt halt, participants are moving to a new battlefield and have to think about their next moves at halftime. -01- Fierce Battle on Singles' Day On the evening of November 10, the Bestore Building, where Bestore's Wuhan headquarters is located, was brightly lit. Founder Yang Hongchun and all employees in e-commerce, technology, brand, and other departments waited quietly in front of screens for the final battle to begin. "70 minutes, online sales exceeded 100 million!" At 2:24 AM on November 11, Yang Hongchun posted the good news on his social media. At this point, the sales of the three major internet snack brands all exceeded the 100 million mark. Among the other two companies, Be & Cheery announced "breaking 100 million" at 1:00 AM, while Three Squirrels was even more exaggerated, taking only 19 minutes and 23 seconds. For many, this night was destined to be a sleepless one where every second counted. But for the support teams behind these companies, the battle was not just this one night; it had started much earlier. An insider at Three Squirrels told the reporter of Caijing National Weekly that in September this year, Three Squirrels hosted a visit from the Tmall Big Food team at its headquarters in Wuhu, Anhui, to study this year's marketing strategy and set the theme "Squirrel, Beyond Imagination" early. In October, Three Squirrels held its fourth thousand-person conference of the year—the 2019 Singles' Day Kickoff Conference and Grand Alliance Launch, proposing the "Grand Alliance" concept, hoping to participate in the battle as a "group army" integrating the supply chain. Be & Cheery, which had been keeping a low profile, also made significant moves. On November 1, Be & Cheery held a "Chinese Flavor Snack Show," the only preheating event of a press conference nature among snack companies this Singles' Day. Unlike previous years, live streaming became a major battleground for companies this year. At the end of October, famous internet celebrity Li Jiaqi set a record by selling out 30,000 boxes of Three Squirrels' paper-shell walnuts in 4 minutes. This made internet snack brands realize the value of the new frontier. Bestore won the only "Brand Live Day" resource on Taobao for the snack category through competition, becoming a big winner in this marketing channel. After that, Bestore made the live room its main marketing battlefield, with 30 days of uninterrupted live streaming during Singles' Day, averaging nearly 18 hours of live streaming per day. On November 8, it invited celebrity Dilraba to host a live sales session lasting over an hour, with more than 1.3 million viewers. The marketing department led the charge, while the logistics and customer service teams held the rear. A source close to Bestore revealed that facing enormous logistics and after-sales pressure, Bestore temporarily added two warehouses in Hebei and Guangzhou, building a total of 15 warehousing systems nationwide, capable of "completing all shipments within seven days when sales surge." -02- "Internet-born" Snacks Without an impulsive decision seven years ago, the Singles' Day battles and the passionate competition among internet snack brands over the past few years might have been completely different. "I am very sorry that I cannot continue to fight with you all." On January 11, 2012, Zhang Liaoyuan published a blog post titled "A Resignation Letter to Zhan's Colleagues and Keckgu Students." At the age of 36, he resigned from his decade-long professional manager job and, with a few like-minded individuals, formed a startup team, establishing Three Squirrels in Wuhu, Anhui. Twenty-one days later, Zhang Liaoyuan posted his first Weibo call for talent to recruit for Three Squirrels. Zhang, who came from a humble background, said, "This is the last chance to create an e-commerce brand and a marketing revolution based on the internet era." Also in 2012, Yang Hongchun, who already had over 700 offline stores and had boldly claimed to open 5,000 stores nationwide, also took his Bestore "online," landing on dozens of online e-commerce channels such as Tmall, JD.com, and Yihaodian. To this day, Yang Hongchun has not realized his wish to open 5,000 offline stores, but the booming online business brings Bestore billions of yuan in revenue each year. Compared with Zhang Liaoyuan and Yang Hongchun, Cai Hongliang, founder of Be & Cheery, was much luckier. As a Hangzhou company like e-commerce giant Alibaba, Be & Cheery had unique advantages in going online. At the end of 2010, at the strong invitation of Alibaba, Be & Cheery began to venture online. Later, Cai Hongliang completely abandoned offline layout and focused solely on online. In 2012, when Three Squirrels and Bestore were just starting online, Be & Cheery's online sales had already reached 140 million yuan. If compared horizontally, apart from slight differences in time and product categories, an important common trait of these three companies is that they are "internet-born"—born or rising on the internet, especially e-commerce, and growing with it. The social trend behind this is that the post-80s and post-90s generations have come to the center of the stage, becoming the main snack consumer group in China. The "internet-born" demographic dividend gave rise to a batch of industry enterprises relying on the internet. The inherent connection between the snack industry and the "internet-born" group also made the boom of snack industry enterprises in the internet field inevitable. The long-standing overcapacity problem in the leisure snack industry became dry firewood under the internet flame. Cao Longwei, COO of Be & Cheery, told the reporter of Caijing National Weekly, "Many snack industry suppliers cannot digest their production capacity. The emergence of internet snack brands actually helps the industry digest surplus capacity." -03- Tripartite and Numerous Almost like other traditional industries penetrated by the internet, barbaric growth has been the true portrayal of the internet snack industry in the past few years. A competitive landscape mainly composed of Three Squirrels, Bestore, and Be & Cheery has initially formed, which the outside world describes as the "BAT" of the online snack world. In terms of scale, in 2018, the revenues of Three Squirrels and Be & Cheery (Haoxiangni) were 7 billion yuan and 4.949 billion yuan, respectively. Bestore's prospectus announced 2017 revenue of 5.3 billion yuan. Market share is even more telling. Based on public data, in 2018, Three Squirrels' market share increased from 10.9% in 2017 to 11.2%. Be & Cheery increased from 6.1% to 6.2%. Bestore, although down 0.1 percentage point to 5.0%, still far exceeded the fourth-ranked Laiyifen's 0.8%. Relying on the internet dividend, the development speed of the "three giants of online snacks" also exceeded imagination. In 2012, Three Squirrels, participating in Singles' Day for the first time, achieved single-day sales of over 7.66 million yuan, which Zhang Liaoyuan and other team members considered a miracle. But unexpectedly, in the following years, Three Squirrels' Singles' Day performance continued to grow. By 2019, its Singles' Day omni-channel sales had reached 1.049 billion yuan. However, although the pattern of the three giants is vaguely formed, the overall penetration rate of internet snacks is not high, and there is still broad space. Yang Hongchun told the reporter of Caijing National Weekly that the snack industry has a large market size, low brand concentration, and low market share for large enterprises. Zhang Liaoyuan told reporters that at present, no enterprise in the entire snack industry has been able to master absolute dominance, and several major internet snack enterprises are tending toward healthy competition. Small achievements rely on effort, great achievements rely on opponents. It is precisely because of mutual chasing that enterprises are forced to progress and even promote industry development. In fact, although all parties are fighting fiercely in some local battlefields like Singles' Day, a closer look shows that the competition among snack enterprises still presents some different characteristics and paths. For example, in terms of channels, the layout of different brands is clearly differentiated. Bestore uses online, franchise, and direct-operated stores; Laiyifen mainly uses franchise stores for offline sales; Be & Cheery's parent company Haoxiangni uses online, specialty stores, and supermarkets; Yanjin Shop focuses on offline direct-operated supermarkets, supplemented by franchise models; Qiaqia Food mainly uses offline channels such as distribution and key retail outlets. "Tripartite confrontation, with numerous independent forces." Cao Longwei believes that apart from the competitive landscape of the three leading companies, if subdivided into secondary categories, each category has its own leader. For example, in the red date category, Haoxiangni holds absolute dominance, while Weilong is the undisputed number one in the spicy strip category. -04- Open and Covert Struggles When the flames of war spread from the numerous small and medium brands to the tripartite giants, the smell of gunpowder grew stronger. The mutual competition at the marketing level best reveals the undercurrents. Three Squirrels acted first. In the second half of 2017, Three Squirrels, which had always adhered to the squirrel as its brand spokesperson, finally compromised with "traffic" and announced cooperation with the idol group TFboys, launching entertainment-oriented marketing. Although Three Squirrels did not call this cooperation an endorsement, in fact, the cooperation was all-encompassing. The three handsome young men filmed advertisements and micro-movies for Three Squirrels, while Three Squirrels sponsored TFboys' fourth-anniversary concert. Bestore, which has always put effort into hiring spokespersons, naturally did not want to be outdone. On January 7, 2019, Bestore held a grand press conference and announced the signing of traffic star Kris Wu as its new brand spokesperson. This news worried Be & Cheery. Starting January 9, Be & Cheery's official Weibo began frequent interactions with Yi Yangqianxi, hinting that cooperation with Yi was imminent. Ten days later, Be & Cheery officially announced the news. Interestingly, during the "flirting" between Be & Cheery and Yi Yangqianxi, on January 14, Bestore added more by announcing the signing of Dilraba as one of its brand spokespersons. This Singles' Day, apart from the absence of Three Squirrels' spokesperson, the battle between Bestore and Be & Cheery was also extremely fierce. In multiple preheating events, both sides brought in their spokespersons to boost performance. Leaving aside the marketing battle, the strategy of choosing celebrity spokespersons by the three internet snack brands did indeed stimulate the purchasing power of some fans. For example, 24 hours after Be & Cheery officially announced Yi Yangqianxi as its spokesperson, omni-channel data showed that Be & Cheery's single-day sales exceeded 100 million yuan, selling 340,000 gift boxes. Fans' favorite products such as pastries, mochi, and dried fruit saw a 200% month-on-month increase in single-day sales. -05- Capital Duel In addition to the marketing level, the flames of war in the internet snack industry also spread to the capital circle. He Jihong, president of the China National Association of Food & Grocery Industry, believes, "The booming development of the snack industry has brought prosperity to the entire food industry and food trade, which is undeniable and worthy of affirmation. As an industry related to people's livelihood, the prosperity and vitality of the snack industry is also what the country hopes to see." For the capital market, what makes it more excited is the 3 trillion yuan market space of the snack industry. The report "Development Report of the Snack Industry under the Background of Consumption Upgrade" released by the Commerce Department's Circulation Industry Promotion Center predicts that by 2020, the total industrial scale of the snack industry will approach 3 trillion yuan. But even if capital is optimistic, the road to the capital market for the "three giants" of the internet snack industry has not been smooth. Be & Cheery, with the geographical advantage of e-commerce platforms, is considered lucky. In 2016, listed company Haoxiangni acquired Be & Cheery for 960 million yuan, allowing Be & Cheery to enter the capital market first. As the "leader" of the internet snack industry, Three Squirrels' road to listing was full of twists and turns. From 2017 until July this year, after waiting for more than two years, Three Squirrels finally opened the door to the capital market and successfully listed on the ChiNext board of the Shenzhen Stock Exchange. Bestore submitted its prospectus at the beginning of this year. As of the time of writing, its IPO is still in the queue. The aforementioned source close to Bestore believes that soon, the "three giants of internet snacks" will gather in the capital market. Regarding the current situation of internet snack brands rushing to the capital market, Zhu Danpeng, a Chinese food industry analyst, believes that capital is icing on the cake under the original business model, but capital is also greedy and may not provide timely help. One must be strong oneself; enterprises need to be indispensable in brand, channel, product, promotion, including online-offline interaction and symbiosis. "Capital is a good thing for the future development of the industry," said Wang Bin, vice president of Qiaqia Food. On the one hand, for food enterprises, capital can make enterprises more standardized and improve food safety awareness. On the other hand, capital entering enterprises can promote product innovation and innovative development. -06- The Wound of Homogeneity and Low Prices The difficulty of internet snack enterprises in listing is not without reason. After several years of development, problems such as homogenization, low-price competition, and low industry barriers still plague the entire snack industry. "Most brands use price wars as a weapon to grab market share and compete for 'market sales first,' resulting in good products not selling at good prices. The entire industry is unwilling to make good products, dragging down the industry's development." Yang Hongchun has long been tired of the industry's years of price wars. However, during this year's Singles' Day, price was still one of the main weapons. Internet snack enterprises, including the "three giants," pushed varying degrees of discounts on major e-commerce platforms to attract consumers with cost-effectiveness. Interestingly, Bestore, which claims to focus on premium snacks and abandon price wars, did not "stay out of it." As a conventional weapon, price wars have brought some growth, but another result is that the profit margins of snack enterprises are generally low. Looking at the currently listed snack enterprises, Be & Cheery's listed parent company Haoxiangni had revenue close to 5 billion yuan in 2018, but net profit was only 130 million yuan, with a net sales margin of only 2.20%. Three Squirrels' 2018 revenue exceeded 7 billion yuan, with net profit of 304 million yuan and a net sales margin of only 4.34%. Bestore's prospectus shows a gross margin of 3.74% in the first half of 2018. "On the one hand, brand competition has entered a white-hot stage. Since the snack industry has low barriers, many enterprises engage in price wars. On the other hand, the nut market, which is mainly involved in the snack industry, is already very mature and transparent, and most ingredients rely on imports. Importers have already taken a large share of profits. Without control over upstream resources, profit margins will be low," Zhu Danpeng said. Whether it is homogeneous competition or current low-price competition, the root cause is the low entry barrier of the snack industry. An industry insider analyzed that because the snack industry does not require cutting-edge technology, technical barriers and entry barriers are low, so the cost of imitating product innovation is low and following trends is easy. "From an industry perspective, many enterprises have not found their core positioning or differentiated competition methods in the market," said Zhao Gang, senior vice president of Bestore. He believes that a notable feature of the market is that after a new category product appears, other enterprises follow quickly, which reflects a lack of persistence in their own market positioning. In Wang Bin's view, homogeneous competition is not unique to the snack industry. Enterprises currently trapped in homogeneous competition have not made consumers aware of their brands. Enterprises should start considering brand building. Zhu Danpeng also believes that in a homogeneous market, to highlight core competitiveness, enterprises should, on the one hand, highlight product quality and their own brand; on the other hand, build the entire service system of the brand. -07- Collective Transformation Zhang Liaoyuan realized the seriousness of the problem two years ago. After the Singles' Day battle in 2017, he and his team found that although sales reached a new high, the growth rate had slowed significantly, from 91% in 2016 to 2.7%. In Zhang's view, apart from uncertain technical factors, the main reasons were the slowdown of the Singles' Day explosion point and the extension of the battle line. "Consumers' sensitivity and impulsiveness to price are no longer strong. Consumption has changed from sporadic to essential." Zhang said. The subsequent situation confirmed his concerns. In 2015 and 2016, Three Squirrels' revenue growth rates were 121.00% and 116.47%, respectively. By 2017 and 2018, they plummeted to 25.58% and 26.47%. Haoxiangni is also in the same boat, with revenue growth falling from 86.14% and 96.47% in 2016 and 2017 to 21.59% in 2018. "Rapid cooling!" The aforementioned industry insider told reporters, "When the high-speed growth brought by the internet dividend fades, change and transformation have become industry consensus." The transformation paths and slogans of the three companies differ: Three Squirrels aims to "become a true supply chain enterprise"; Bestore has taken the premium route, with Yang Hongchun expecting premium products to account for more than 50% of total sales in the future; Be & Cheery has proposed the concept of "full-chain digitalization," aiming to complete the overall intelligent layout through digitalization. Apart from these differences, several internet snack brands have also made a common choice—laying out offline. At the end of 2018, Three Squirrels announced it would open 150 offline stores in 2019. Be & Cheery, after turning to online and abandoning offline, announced it would return offline. Bestore, which has the most offline advantages among the three, with over 2,000 offline stores, also proposed to accelerate its offline layout. In Wang Bin's view, the current offline growth in the snack industry is fast. However, whether online or offline, they are just purchasing channels. No matter how developed logistics is, online snacks have a certain lag, so offline channels have their advantages. The timely consumption characteristics of the snack industry also require offline layout. A person related to Three Squirrels told reporters that the shift to offline is because 19% of the entire leisure food market is online, and 81% is still offline. If sustained growth is desired, the focus must still tilt toward offline. However, he believes that it is difficult to immediately change the current competitive landscape of the snack industry. Offline layout is a long-term strategy that cannot yield immediate returns, but it is crucial for the long-term development of enterprises and the construction of a three-dimensional shopping scenario. -08- New Battlefield Laying out the new offline battlefield is indeed not easy. A person related to Three Squirrels revealed that as of September 5, 2019, Three Squirrels had a total of 84 offline direct-operated stores and over 120 alliance stores. More than half of 2019 had passed, and the store opening speed had not met previous expectations. Be & Cheery's actions were relatively slower. In 2017, Be & Cheery had already proposed laying out offline, but it was not until June 2019 that Be & Cheery's first store, "Be & Cheery • Snack Premium," opened in Hangzhou. "Everyone is looking for a way out, but the transformation effects are not obvious yet." The aforementioned industry insider told reporters that currently, all enterprises are trying, but none have truly succeeded. He believes that the main challenge is that snack enterprises that started purely on the internet have been operating with light assets, with little accumulation and advantage offline. The offline supply chain and marketing tactics are also vastly different from online. A person from a traditional leisure food enterprise believes that what internet snack enterprises have done over the years is essentially brand building and resource integration, while offline layout has high barriers in channels, markets, and technology. He Jihong analyzed to reporters that the cost for online enterprises to move offline will be high. The food industry, especially the snack industry, has very low gross margins. Self-built stores require rent, labor, and product management costs, which is unrealistic for online enterprises. If there was no prior layout, the cost of entering supermarkets is also obvious, and the barcode fees for each product are considerable. Wang Bin believes that the reason internet enterprises go offline, besides the disappearance of online dividends, is the differentiation of internet e-commerce platforms. "With the proposal of new retail, traditional internet e-commerce platforms have also begun to integrate online and offline. Internet enterprises relying on platforms naturally move offline." It is for this reason that the aforementioned traditional leisure food enterprise person believes that internet snack enterprises going offline still use the to B channels of internet platforms, rarely or never building their own dealer systems, which to some extent limits their offline expansion. "Even if these barriers are broken, offline is still a field full of traditional enterprises." In this person's view, once they step in, internet snack enterprises will not only face online opponents but also engage in close combat with traditional leisure food enterprises. Source: Caijing National Weekly Tips will be paid 400-2000 yuan once adopted.