Click read the original text for details As demographic dividends decline and traffic dividends fade, how will local leisure snacks achieve another decade of high growth? Another snack company has entered the capital market, and with another still queuing for IPO, almost all mainstream snack companies have now listed, marking the "peak of life" for domestic snack enterprises. Recently, Three Squirrels (300783.SZ), the largest leisure snack company by revenue in China, officially listed on the A-share market, with a market value of 8.477 billion yuan on its first day. With rising consumer spending power and increasing health awareness, Western-style snack companies, which primarily produce biscuits, chocolate, and candy, have begun to decline. In their place, a batch of local snack companies has rapidly risen, ushering in the "golden decade" of local leisure snack development. Among them, e-commerce snacks have grown the fastest, driving a number of local snack companies to go public. With the IPO of industry leader Three Squirrels, it can be said that the entire industry has reached its "peak." However, as demographic dividends decline and traffic dividends fade, how will local leisure snacks achieve another decade of high growth? The "Golden Age" of Leisure Snacks In recent years, driven by demographic dividends, rising national income, and increased health demand, a number of snack companies such as Lai Yifen (603777.SH), Yanjin Puzi (002847.SZ), and Guifaxiang (002820.SZ) have gone public. More importantly, with the rapid development of e-commerce, e-commerce snack companies that have only existed for a short time have quickly caught up and even overtaken traditional players. Baicaowei and Three Squirrels have successively listed on the capital market, while Liangpin Puzi is also in the IPO queue. According to the "2018 China Leisure Snack New Retail Research Report" released by Ebrun Power Research Institute, from 2005 to 2014, the average annual compound growth rate of the national leisure food industry was 17.2%, and that of small-category leisure food was 22%. It is estimated that by 2020, the overall market size of leisure snacks will approach 2 trillion yuan, indicating huge growth potential. The "Snack Industry Development Report under Consumption Upgrade" (hereinafter referred to as the "Report") released by the Ministry of Commerce states that with the acceleration of consumption upgrade and the rapid rise of new retail channels, the snack industry has entered the fast lane, showing the characteristics of "fast, wide, diverse, and changing," becoming the most promising and dynamic industry in the future FMCG market. The Report shows that during the 10 years from 2006 to 2016, the total output value of the snack industry increased from 424.036 billion yuan to 2.21564 trillion yuan, a growth of 422.51%. By 2020, the total industrial scale of the snack industry is expected to approach 3 trillion yuan. With the boost of the internet wave, snack e-commerce has also begun rapid growth. The Report states that the snack category has accelerated market penetration through online e-commerce models, cultivating and increasing consumer purchasing habits, with snacks accounting for nearly 30% of online food sales. From 2016 to 2018, Three Squirrels achieved operating revenues of 4.423 billion yuan, 5.554 billion yuan, and 7.001 billion yuan, respectively, and net profits of 237 million yuan, 302 million yuan, and 304 million yuan, with revenue growth rates of 116.47%, 25.58%, and 26.05% year-on-year, respectively. In the first quarter of 2019, the company's revenue and net profit were 2.868 billion yuan and 249 million yuan, respectively, up 27.17% and 6.95% year-on-year. Another similar company, Liangpin Puzi, according to its prospectus, had revenues of 3.149 billion yuan, 4.289 billion yuan, 5.424 billion yuan, and 3.035 billion yuan in 2015, 2016, 2017, and the first half of 2018, respectively. In 2016 and 2017, it grew 36.20% and 26.45% year-on-year, respectively. In 2015, 2016, 2017, and 2018, it achieved net profits attributable to parent company shareholders of 32.32 million yuan, 67.29 million yuan, 113 million yuan, and 112 million yuan, respectively, with year-on-year growth of 118.16% and 14.66%. Such growth rates are enviable for many industries. Boosted by Health and E-commerce The rapid development of China's snack industry is determined by its own characteristics. Compared with traditional Western snacks such as biscuits, chocolate, candy, and fried potato chips, which are increasingly abandoned by young consumer groups due to perceived lack of health, local leisure snacks, mainly nuts, have taken their place. The local snacks that have risen in recent years are mainly represented by nuts and roasted seeds, which exactly cater to the public's healthy eating needs. From a category attribute perspective, nuts, as natural ingredients produced by nature, inherently have a natural and healthy endorsement effect for consumers. The U.S. Food and Drug Administration (FDA) has stated that eating 42 grams of nuts per day can relieve mental stress, and regular consumption of nuts can reduce the risk of heart disease. The National Health and Family Planning Commission also released the latest "Dietary Guidelines for Chinese Residents," which repeatedly includes nuts and seed foods in the daily dietary structure table (recommended daily intake of 25-35 grams per person). Of course, despite the boost from these two trends, companies in the industry have not always had smooth sailing. Three Squirrels' IPO experienced many twists and turns. Regarding the ups and downs on the IPO path, Three Squirrels founder and chairman Zhang Liaoyuan joked at the listing celebration that "we just ate snacks and got through it," but in fact, Zhang had sleepless nights over issues such as food safety and breaking through growth bottlenecks, often chatting with investors about business development until late at night. Li Feng, founder of FreeS Fund, said: "Three Squirrels experienced sustained growth problems and public relations crises in 2017, and the first challenge of contacting the capital market made both investors and management anxious." In the industry's view, the e-commerce snack industry is still very young, and many problems must be solved by the companies themselves, while also facing the common challenge of the food industry—food safety. This is a challenge that many such companies need to face. Bidding Farewell to Dividends: Sink or Swim After reaching the peak, the challenges facing local leisure snacks are increasingly severe. With the decline of demographic dividends and the weakening of e-commerce traffic dividends, this is not good news for the snack e-commerce industry, which is still fragmented and homogeneous. This means that the leisure snack market will bid farewell to high growth, market size growth will slow, and leisure snack companies may enter a game of "big fish eating small fish." According to Guohai Securities' "2018 Leisure Snack Industry In-depth Report," based on 2017 statistics alone, the leisure food industry gathered more than 2,700 players, but among them, there is still no company with revenue exceeding 10 billion yuan. Three Squirrels, Liangpin Puzi, and Baicaowei are accelerating their development pace, or they will fall behind. In this situation, listing and financing may be an important measure to boost rapid development and establish industry advantages. Zhu Yue, executive director of CIC Consulting, told Yicai: "IPO is not only a high point that snack companies strive for, but also a necessary high point to seek the next step of growth. First, internet snack brands have a large gap between gross profit and net profit, and with high operating costs, they urgently need to supplement cash flow through listing to support their operations. Second, internet snack brands almost all adopt the OEM + sales model, with serious product homogeneity, which also gives them little bargaining power in pricing. Through listing and financing, extending their industry chain upstream is the next development direction for many brands." After bidding farewell to market dividends, capital has also become much more cautious about the leisure snack industry. Zhu Yue believes: "Capital's enthusiasm for the snack industry, especially snack brands under the internet+ concept, has declined compared to previous years. Investment has become more rational, and more attention is paid to the company's operations and profitability. In the primary market, since such companies usually adopt a light-asset model, and products are not controlled by themselves due to OEM processing, it is often difficult for capital to have high control over them. At the same time, incidents like food safety scandals can easily cause great reactions in the capital market, so the secondary market is also more cautious in selecting and investing in such targets." Channel is King With the era of traffic dividend explosion over, how will the snack industry continue to maintain high growth? Some industry insiders point out: First, driven by many "foodies," the domestic snack industry market size has reached 2 trillion yuan. Excluding instant food, leisure snacks have a market size of about 1 trillion yuan, still containing huge opportunities; Second, as more and more consumers fall in love with snacks, they are also constantly putting forward higher demands for snacks, that is, consumption upgrade, which will force companies to reform their supply chains. If the reform is in place, they can gain more consumer recognition and occupy a larger market share; Third, China has a vast territory and a large market, but the snack industry still has problems such as being small, scattered, and chaotic. Many consumers do not have convenient access to branded, quality-assured snacks. Therefore, using digital technology to reconstruct the supply chain, improve logistics and warehousing systems, and further reduce distribution costs so that more consumers can easily obtain healthy snacks with high cost performance is also a huge opportunity. In addition, there is a vast overseas market worth exploring. In the current era of declining internet traffic dividends, to continue to gain more users, it is necessary to walk on two legs: online and offline, to occupy a broader market. Of course, whether it is sinking channels into third- and fourth-tier cities domestically or going overseas to Southeast Asia or even Europe and the US, it is essentially about establishing a broader sales channel. When it comes to specific measures, building a complete supply chain system is essential, which will determine the future product competitiveness of the company. Facing increasingly fierce competition in the industry, Zhu Yue said that for snack companies to survive and surpass competitors in the next round of competition, differentiation is definitely an indispensable concept. Only by finding their own characteristics can they tell a good capital story and business logic. In addition, as the consumption internet dividend gradually disappears, how to embrace the new retail concept will be the key for snack companies to consider in the next step. For example, Three Squirrels has begun to launch its offline concept store "Three Squirrels Feeding Store." By establishing its brand image offline, further deepening consumers' understanding of the brand, it will bring new opportunities for future development. To enhance consumer experience, accelerate offline layout, and connect online and offline have become the key directions for snack e-commerce giants. Liangpin Puzi said that with the maturity of the offline store model, it will accelerate the opening of offline stores this year, expecting to add 500 new stores. In Liangpin Puzi's view, offline stores can better occupy the market than online channels, and offline customer experience is better than online. A person in charge of a snack e-commerce company told Yicai: "Compared with many industries, the penetration rate of leisure snack e-commerce is relatively low, and there is still much room for growth. With the weakening of online traffic dividends, laying out offline can better divert traffic to online, which is of great significance for promoting a new round of growth in the snack e-commerce industry." In addition, expanding into overseas markets is also one of the trends. Recently, Qiaqia Food announced that its factory in Thailand, with an investment of about 500 million yuan, has been put into production. Although Chinese snack companies such as Qiaqia and Three Squirrels have accelerated their overseas expansion in recent years, this is the first time they have built a factory overseas. According to Qiaqia's disclosure to Yicai, the total investment in the Thailand factory is 500 million yuan. The first phase has built two automated production lines for sunflower seed products. After production, annual sales are expected to be about 1 billion Thai baht (approximately 225 million yuan), with annual profits expected to reach 100 million Thai baht (approximately 22.526 million yuan). The second phase will introduce internationally advanced nut product production lines, developing nut processing, trade, branding, and distribution businesses. Food industry analyst Zhu Danpeng told Yicai: On the one hand, with the decline of domestic demographic dividends, snack companies urgently need to find new growth points; On the other hand, driven by national policies such as the "Belt and Road" initiative, more and more companies are seeking new growth points overseas. However, most are through export trade. Qiaqia's overseas factory layout this time is expected to explore a new development path for Chinese snack companies going global. How to further cultivate local consumers' Chinese snack consumption habits is also an urgent problem for Chinese snack companies to solve. According to statistics from Nielsen, about 45% of global snack consumption is in Europe, and 33% in North America. In Europe, the largest regional market for snack consumption, the most popular snacks are sugary snacks such as chocolate, hard candy, and chewing gum, contributing nearly one-third of snack consumption share in Europe. For domestic snack companies, these are not areas of expertise. Therefore, consumer education for overseas consumers has become one of the important tasks for snack companies going global. Source: Yicai (ID: diyicaijing88)