The leisure snack industry is entering a new inflection point, presenting both challenges and opportunities for overtaking on curves. Recently, Q3 reports from leisure snack companies such as Three Squirrels, Qiaqia Food, Bestore, Lai Yifen, and Yanjin Shop have been released. Overall, the results are positive, with Bestore performing steadily and Three Squirrels continuing to decline. However, we should examine this from the perspective of strategic layout and effectiveness. "Omnichannel layout will become a new competitive factor for leisure snack companies, along with innovative R&D for more segmented consumption scenarios. As consumption advances, the supply chain also needs urgent upgrades," an industry insider told us. We observe that head brands are beginning to converge in strategic layout, with competition focusing on omnichannel, multi-model parallel, segmented categories, mid-to-high-end tracks, and full supply chain integration.
Leisure Snacks
Q3 Financial Reports: A Tale of Two Extremes
Comparing the Q3 financial reports of five listed leisure snack companies, it's a tale of two extremes. Bestore, Three Squirrels, Qiaqia Food, Lai Yifen, and Yanjin Shop reported revenues of 7.003 billion yuan, 5.333 billion yuan, 4.384 billion yuan, 3.25 billion yuan, and 1.97 billion yuan respectively for the first three quarters. In terms of revenue, Bestore has overtaken Three Squirrels to take the top spot. In terms of net profit, both Bestore and Three Squirrels saw declines, at 8.84% and 78.86% respectively. Meanwhile, Qiaqia Food, Lai Yifen, and Yanjin Shop showed growth, with Lai Yifen and Yanjin Shop increasing by 453% and 182.85% year-on-year respectively.
Specifically, Three Squirrels is still in a continuous decline phase. According to its Q3 report, it achieved revenue of 5.333 billion yuan, a year-on-year decrease of 24.57%; in Q3 alone, revenue was 1.219 billion yuan, down 32.63% year-on-year, and net profit was 11.3653 million yuan, down 87.43% year-on-year. For the significant drop in net profit, Three Squirrels explained in its financial report that it was mainly due to revenue and gross margin fluctuations during the strategic transformation period, as well as increased expenses from intensified marketing of nut categories. We observe that Three Squirrels is undergoing the painful process of transformation and faces significant challenges. Online traffic has peaked, but its offline channel development is not satisfactory, leading to insufficient risk resistance. Earlier this year, it announced a new ten-year strategic direction, focusing on the nut industry. According to them, they are still in a strategic adjustment period, and it will take time for supply chain and channel layout to yield benefits. But this time gives other players in the track an opportunity to overtake.
Bestore has been relatively stable, not only overtaking Three Squirrels in revenue but also in strategic layout. Adhering to the high-end snack strategy, with full-category layout, omnichannel development, and multi-brand operation, it has stronger risk resistance and commendable performance. Bestore achieved operating revenue of 7.003 billion yuan in the first three quarters, a year-on-year increase of 6.61%. Currently, its online and offline businesses are growing in a balanced manner, with continuous store expansion. In the first three quarters, it opened 562 new stores, bringing the total to 3,163. In Q3, it continued to focus on high-density layout in key markets, opening 219 new stores to further expand market share in mature markets.
On the other hand, Yanjin Shop also performed well. Its Q3 report showed revenue of 760 million yuan, a year-on-year increase of 34.73%, and net profit of 89.7837 million yuan, up 213.19% year-on-year. It is reported that Yanjin Shop began its mid-to-long-term strategic transformation in 2021, following the "multi-brand, multi-category, omnichannel, full supply chain, and globalization" approach. Now, it is reaping good returns.
In fact, in the past two years, leisure snack companies have generally faced major tests, including the ongoing pandemic and rising raw material costs, causing market volatility. The question to answer is: "How to find your own certainty in the current uncertain environment?" Regarding their strategic transformations, it's evident that the speed of transformation and the intensity of investment and execution directly reflect in market performance. "Retail Business Review" believes that the market competitive landscape is not yet stable; once strategic steps lag, competitors will overtake. Leisure snack companies need to step out of their comfort zones, follow consumption rhythms for strategic layout, think about how to combine online and offline models, how to tap into more potential categories in segmented tracks, and how to build competitive barriers in the supply chain. These will be the key tests for leisure snack companies in the coming period.
Understanding the Market Inflection Point Battle
Let's look at the entire industry. According to the "2022 China Leisure Snack Industry Research Report," the domestic leisure snack market has maintained a compound annual growth rate of over 11% in the past seven years, and it is expected to exceed 1.5 trillion yuan this year. However, our insights show that while the market size expands, internal competition is fierce, and brands face three competition points.
Competition Point 1: Omnichannel Layout. In fact, we see that almost all head brands are proposing omnichannel strategies. Whether it's Three Squirrels, which is primarily online but continuously expanding offline, or Bestore, which is primarily offline but has achieved balanced online performance, omnichannel development has become a must-answer question. Brands must not only do it but also walk well on both online and offline legs to have stronger risk resistance. NeilsonIQ China Managing Director Song Ye once said that in the future, China's retail channels will continue to explore new development models. First, traditional supermarkets and hypermarkets will undergo transformation and reform, developing small-format stores such as community stores, specialty stores, and convenience stores that integrate online and offline channels to solve consumer convenience and meet community needs. This is a popular direction for future physical supermarket transformation. Second, O2O omnichannel transformation and upgrading are gradually becoming industry consensus. With the formation of user habits and innovation in new retail models, future growth potential is enormous. The current explosion of new retail formats such as social e-commerce, live-streaming e-commerce, community group buying, and instant retail also provides leisure snack brands with more combinations in business models, bringing higher increments.
In terms of omnichannel layout, Bestore is relatively mature. Its online and offline channel layout has become more balanced, with online revenue accounting for 57.74% and offline for 42.26%. According to announcement data, Bestore's online sales declined. In Q3, e-commerce business sales decreased by 12.19% year-on-year, while franchise business, direct retail business, and group buying business sales increased by 2.87%, 14.34%, and 38.87% respectively. At the same time, Bestore continued to expand offline stores in Q3, with the total number reaching 3,163 by the end of September. It also adopted a group buying model that deeply integrates online and offline. For example, in community e-commerce, Bestore quickly laid out community group buying platforms such as Meituan Select and Xingsheng Youxuan, achieving penetration and coverage of community users in 62 cities, with a year-on-year increase of 67% in community consumers served. "The early layout has given Bestore a channel structure where online and offline each account for half, which provides a certain sustainable core competitive advantage for the company's future development," said Zhu Danpeng, vice president of the Guangdong Food Safety Guarantee Promotion Association.
Three Squirrels, which started with e-commerce, has also placed heavy bets on omnichannel layout and actively expanded offline. Zhang Liaoyuan once said, "For a brand from 0 to 1, online efficiency is the highest because what you see is what you get. If you find the consumer's needs and sell to them, they recognize you, and even if the brand is a bit rough, it's okay. But people's life radius is mostly offline. To take a brand from 1 to 10, you have to go offline." According to the 2022 Q3 report, Three Squirrels' distribution layout has begun to show initial results. During the reporting period, Three Squirrels continued to advance its new distribution business, laying out key wholesale markets nationwide and county-level sinking markets, with both online and offline efforts. As of now, Three Squirrels has established long-term stable brand authorization distribution cooperation with 885 distributor partners, indicating that it is committed to building a three-dimensional sales channel network covering e-commerce, distribution, and stores.
Other head brands are also increasing omnichannel coverage. Yanjin Shop has begun to focus on developing channels such as e-commerce, CVS, snack specialty stores, and campus stores. For example, it cooperates with snack bulk brands like Snack Busy and Dai Yonghong, and uses Douyin influencers for seeding and traffic diversion. We believe that omnichannel will become a brand's moat. More noteworthy is instant retail. Relying on offline store network advantages, achieving fast delivery "to home" for immediate consumption may become a new explosive window.
For example, when we search for Bestore on JD Daojia and Meituan, we can find the nearest Bestore store. JD Daojia can achieve fastest 30-minute delivery through Dada. This logic is store-centric, using multi-touchpoint traffic paths of home delivery, in-store, and group buying to enhance single-store traffic expansion capabilities and segmented population operation capabilities.
Competition Point 2: Segmented Tracks. Multi-level consumer groups, diversified consumption needs, differentiated consumption times, and diverse consumption scenarios are forcing the leisure snack track to enter segmentation. Currently, we observe that brands are beginning to innovate and develop products around specific groups and scenarios such as children, women, fitness, health, and the elderly. For example, in the children's snack track, the "White Paper on Children's Snack Market Survey" shows that the current children's snack market size is about one-tenth of the leisure snack market. From 2019 to 2023, the children's snack market will grow steadily at a compound annual growth rate of 10%-15%, with market expectations exceeding 600 billion yuan, making it a new growth point for the leisure food market. Bestore and Three Squirrels have launched children's food sub-brands "Bestore Xiaoshixian" and "Little Blue Blue" respectively. Be & Cheery launched the "Tong An'an Children" series, targeting children aged 3-12. Lai Yifen also launched children's food products like the "Yizai Children's Snack Series." In terms of performance, children's segmented business has become a new growth curve for some brands. For example, Three Squirrels' Little Blue Blue, according to its 2021 annual report, saw its input-output ratio improve quarter by quarter, with full-channel sales exceeding 550 million yuan in 2021. The 2022 semi-annual report shows Little Blue Blue's revenue reached 261 million yuan. Another example is Bestore's sub-brand "Xiaoshixian." According to its 2021 financial report, "Bestore Xiaoshixian" achieved full-channel terminal sales of 417 million yuan, and in the first half of 2022, its full-channel terminal sales reached 219 million yuan, a year-on-year increase of 21.33%. It is reported that Bestore conducts R&D and innovation based on the special needs of the children's snack segment. In the first half of 2022, it launched a total of 29 new products, continuously enriching its product matrix. Moreover, Bestore also launched fitness snacks "Bestore Feiyang," with core characteristics of low carbs, low fat, high protein, and controlled energy. Previously, Bestore CEO Yang Yinfen stated that the short-to-medium-term goal for fitness meal replacement is 1 billion yuan in sales, showing confidence in this segment. "Retail Business Review" believes that more potential segmented markets for leisure snacks need to be tapped, and they will become new growth curves for companies. Of course, whether these segmented consumer markets can bring explosive growth remains to be verified over time. Once a segment is proven mature, head brands will successively increase investment, such as the aforementioned children's snacks and fitness snacks.
Competition Point 3: Mid-to-High-End. Under consumption upgrading, consumers have higher-level demands for leisure snacks. "The mid-to-high-end market still has huge room for explosion. Especially in segmented categories, the battle for the mid-to-high-end market will be the main battlefield in the coming period," an industry insider said. For example, Bestore took the lead in the industry in 2019 to propose a high-end snack positioning and co-built the "China High-end Leisure Food R&D Center." Other brands are also targeting the mid-to-high-end market. Yanjin Shop is targeting the emerging deep-sea snack market, launching the sub-brand "31° Fresh," positioned as mid-to-high-end nutritious and healthy snacks, forming a competitive advantage. Be & Cheery officially announced a brand positioning upgrade to become the preferred nut and dried fruit healthy snack brand for young people, and launched the "Benwei Zhenguo" series of nut products, officially entering the high-end nut market. Qiaqia Food also launched the high-end sunflower seed product "Kuizhen" for the high-end market. Of course, the ultimate landing point for mid-to-high-end is the upgrade of the entire supply chain.
According to the "2022 China Leisure Snack Industry Research Report," with the development of the leisure snack industry, cost control and product quality are increasingly becoming important competitive factors. Through digitalization and supply chain management to lay out the industrial chain, improving the standardization of the industrial chain to reduce costs and control quality has begun to become the transformation direction for enterprises.
Three Squirrels, which previously relied mainly on e-commerce and traffic, is now also focusing on full supply chain construction. For example, it built its first daily nuts demonstration factory with a daily production capacity of about 45,000 boxes. Yanjin Shop also stated during investor research, "We firmly grasp the supply chain to achieve cost advantages in large single products." "Retail Business Review" believes that omnichannel, segmented tracks, and mid-to-high-end have become the three major competition points in the leisure snack industry. Head brands such as Three Squirrels, Bestore, Qiaqia Food, Yanjin Shop, and Lai Yifen have all made strategic layouts, but the competition lies in sustained effectiveness. The inflection point has arrived, and the market still has significant variables.