Like a spring breeze overnight, snack discount stores have densely appeared on streets and alleys. Lin Ming (pseudonym), a resident of a fifth-tier small county town, recently found several such stores near his home, including two 'Snacks Very Busy' outlets. These stores are more fashionable than ordinary convenience stores and offer lower prices. A bottle of cola sells for 3 yuan in supermarkets, but only 2.4 yuan at 'Snacks Very Busy'. A bottle of water priced at 2 yuan in convenience stores costs just 1.2 yuan at 'Zhao Yiming Snacks'. Overall, products in snack discount stores are mostly 20-30% cheaper than in regular supermarkets. More attractively, these stores offer a wide variety of products, mostly sold in bulk. You can buy a small pack of spicy strips or a whole catty, which appeals greatly to young people who love snacks but have limited budgets. This low-price, rapid-expansion model reminds many of the 'subsidy wars' in the internet sector, such as when Didi and Kuaidi competed fiercely, offering passengers huge discounts of 1-3% off, making rides extremely cheap. Later, under capital's matchmaking, Didi and Kuaidi merged, and those big discounts disappeared.
History tends to repeat itself: after a period of intense rivalry, the two major brands in the snack discount sector—'Snacks Very Busy' and 'Zhao Yiming Snacks'—recently announced a strategic merger. Consumers immediately questioned: will prices remain this low after the merger? Will there be price hikes to 'harvest the leeks'? In my view, the likelihood of price increases after the merger is relatively small. Looking deeper, this merger reflects both proactive moves and reactive responses, with both imaginative potential and hidden risks.
The 'Low-Price Logic' of Snack Discount Stores Low price is arguably the crudest but most effective trump card in various business models. Especially in an era of increasingly rational consumers, low prices that abandon various gimmicks alleviate consumption anxiety and become a powerful tool for companies to tap into incremental growth. However, domestic business models centered on 'low price' are mostly online, as asset-light operations make cost control easier. In contrast, offline low-price models are relatively rare. Especially in the snack industry, products in offline stores like Liangpin Shop and Lai Yifen are relatively expensive. So how can snack discount stores achieve low prices while maintaining rapid store expansion? Lower selling prices depend on lower costs. In cost control, snack discount stores employ many unique strategies.
First, channel costs. In the traditional model, snacks go through multiple layers after leaving the factory, such as agents and distributors, each adding fees like shelf fees, entry fees, and barcode fees. Snack discount stores, however, cooperate directly with manufacturers or large distributors, bypassing various levels of distributors, thereby reducing channel costs.
Second, because snack discount stores have a wide variety of products, with store SKUs typically ranging from 1,200 to 1,300, large-scale procurement further lowers purchase prices. Compared to channels like supermarkets and specialty stores, snack discount stores can reduce procurement costs by 10-20%.
Additionally, after large-scale procurement, store location selection is also strategic. Snack discount stores mostly choose communities in lower-tier markets or near schools. 'Snacks Very Busy' once proposed 'deep penetration into counties and towns', meaning '300 stores in provincial capitals, 15-30 stores in each prefecture-level city, 3-5 stores in each county under those cities, and 1 store in 40% of townships under each county'.
Image source: Zhao Yiming Snacks official website
Choosing communities or schools in lower-tier markets not only lowers rental and labor costs but also boosts foot traffic and repurchase rates. Data shows that effective customer flow per square meter in snack discount stores is over 3.5 times that of premium snack channels, with customer repurchase rates as high as 70-80%. Thus, the essence of the snack discount store business model is to compress various costs to achieve low prices and scale effects, then use scale advantages to maintain low costs, forming a virtuous cycle.
Therefore, scale is the core of the snack discount store business model. However, under low costs and low selling prices, snack discount stores are indeed not a high-margin business. Data shows that 'Snacks Very Busy' has a gross margin of only about 18%, compared to Liangpin Shop's 28.95% in H1 2023 and Lai Yifen's gross margin as high as 42.48%. At this stage, the most important action for snack discount brands may not be to earn more profit, but to further compress costs through scale expansion and rapid turnover, solidify the foundation of the business model, and capture more market share. Minsheng Securities data shows that in 2022, China's snack discount industry scale was about 30 billion yuan, with stores reaching 10,000, and it is expected to reach 100,000 stores in the future, meaning there is still 10 times expansion space. In this vast blue ocean, 'Snacks Very Busy' and 'Zhao Yiming Snacks' are the leading players. 'Snacks Very Busy' started in Changsha in 2017 and now has over 4,000 stores; 'Zhao Yiming Snacks' started in Yichun in 2019 and has over 2,500 stores. After the merger, their total store count exceeds 6,500, surpassing the 3,700 stores previously announced by Wanchen Group, ranking first in the snack discount track.
The 'Hidden Struggles' and 'Handshakes' Behind Low Prices In business, there are no eternal enemies, only eternal interests. Now, the merger of 'Snacks Very Busy' and 'Zhao Yiming Snacks' is fundamentally driven by interests. Looking back, both companies' rapid growth has been aided by capital. In April 2021, 'Snacks Very Busy' completed a 240 million yuan Series A financing round, with investors including Sequoia Capital China, Gaorong Capital, Qicheng Capital, and Mingyue Capital. In February this year, 'Zhao Yiming Snacks' received a 150 million yuan Series A financing from Heiyi Capital and Liangpin Shop.
Zhao Yiming Snacks financing history. Image source: Qichacha
From a capital perspective, investment behavior seeks maximum returns. When competition only wastes resources, a merger is a win-win choice. Before the merger, Liangpin Shop sold its entire 3% stake in 'Zhao Yiming Snacks' to Heiyi Capital for 105 million yuan. Thus, Heiyi Capital became the sole investor in 'Zhao Yiming Snacks', gaining greater say and facilitating the merger. For capital, a merger of invested companies quickly forms a 'giant', leveraging greater scale effects, with more room for imagination and potential for larger returns. For the companies themselves, the biggest benefit of the merger is enhanced competitiveness. Currently, the snack discount industry is not highly concentrated. Huaxi Securities believes the industry is in a rapid growth phase, with CR3 (market share of the top three players) at about 30%, meaning 'Snacks Very Busy' and 'Zhao Yiming Snacks' still have significant market space to capture.
Image source: Weibo @Snacks Very Busy
This year, the snack discount track has shown clear consolidation trends. Besides the merger of 'Snacks Very Busy' and 'Zhao Yiming Snacks', in September, Wanchen Group merged its subsidiaries Laiyoupin, Haoxianglai, Yadiyadi, and Luxiaochuan under the unified brand 'Haoxianglai Brand Snacks'. Amid intense industry competition, mergers are both reactive responses and proactive choices to gain competitive advantages. Why can the snack discount sector consolidate frequently? Ultimately, it comes down to differences in brand and category. Horizontally, snack brands like Liangpin Shop and Lai Yifen adopt a 'category as brand' strategy, attracting consumers through big single-product innovation and segmentation. If they merged, it would lead to brand misalignment and blurred positioning, creating more problems. In contrast, the soul of snack discount stores lies in 'price', not 'category'. Their business models are nearly identical, store styles and brand tones are similar, and because supply chains are similar, product categories are also close, making mergers relatively easy.
Hidden Concerns Under Capital's Push Mergers seem to boost scale, but they also harbor hidden risks. After achieving scale through mergers, management challenges arise. A typical example is Wanchen Group: in the first three quarters of this year, Wanchen Group achieved revenue of 4.9 billion yuan, a year-on-year increase of 1264.75%, but turned from profit to loss, with net profit attributable to shareholders at -56.5556 million yuan, a year-on-year decrease of 250.67%. The main reason for the profit decline is the surge in sales costs and management expenses from expanding snack discount business. In the first three quarters, Wanchen Group's sales costs increased 55.41 times year-on-year to 249 million yuan. Additionally, its management expenses increased 12.59 times year-on-year to 254 million yuan.
Image source: Haoxianglai official website
The problems Wanchen Group encountered will also be faced by 'Snacks Very Busy' and 'Zhao Yiming Snacks'. Although the two companies remain independently operated after this strategic merger, management overlaps are likely in the future. Increased sales and management costs leading to profit decline may be their primary challenge.
Profit decline occurs not only at the macro level of the group but also at the micro level of franchisees. Snack discount brands have expanded rapidly not only due to their business model and capital support but also by attracting numerous franchisees quickly. However, frenzied franchising in a limited market leads to oversaturation. In some cities, five or six snack discount franchise stores can appear on a single street. If they fail to capture foot traffic, large-scale closures may occur, even triggering a chain reaction. Media reports indicate that some snack discount stores in certain cities have already closed, and while some haven't closed, their gross margins have been compressed from an initial 18% to 8%.
Image source: Snacks Very Busy official website
Inherently, the competitive moat of snack discount stores is not thick; relying solely on merger advantages is insufficient to form a defensive barrier. Low price has never been a core competitive advantage. The ability to keep prices extremely low while continuing to make profits is the true core capability snack discount stores need to build. Capital is profit-driven, and mergers in the snack discount sector are inevitable. Whether a 'one super, many strong' situation will emerge remains to be seen. After the merger, more long-term strategies should be considered. For example, beyond low prices, create more hit products, cultivate loyal customers, and enhance user stickiness. To create hit products, snack discount companies need to co-develop with manufacturers or collaborate with other brands for cross-industry products. Additionally, they should increase investment in their own supply chains to avoid being strangled by upstream suppliers. At the same time, strictly control product quality, enhance audit efforts and after-sales guarantees, and avoid major food safety issues that could damage brand image. As competition in the existing market intensifies, the snack discount sector will inevitably become more heated. Players without capital support will find it hard to grow stronger; those with capital backing may not rest easy either. How long this low-price frenzy can last ultimately depends not on 'burning money' but on efficiency and quality.