Qiaqia Food once mentioned at a promotional event that the worse the economy, the more snacks are needed to relieve stress. In the past, from White Rabbit, Uni-President, and Want Want in the early 1990s to Bestore, Three Squirrels, and Lai Yifen in the 21st century, China's snack industry has gone through more than thirty years. Now, riding the tailwind of market demand, new-style roasted nuts have become the new darling of the snack market. Recently, Xueji Roasted Nuts announced the completion of a 600 million yuan Series A financing round, co-invested by Meituan Longzhu and Qicheng Capital. Image source: Xueji Roasted Nuts WeChat official account. Earlier, emerging snack brands like Panda Momo and Snacks Busy also had capital backing. For a time, snacks seemed to be a hot commodity again. But the cheers ultimately belong to a few. Listed snack brands like Qiaqia Food, Three Squirrels, and Lai Yifen are not happy. With declining performance and falling stock prices, the old snack internet celebrities have collectively entered a bottleneck period. In fact, the snack industry still has prospects. According to iiMedia Consulting data, from 2010 to 2021, the market size of China's snack food industry continued to grow, from 410 billion yuan to 1.1562 trillion yuan, with a compound annual growth rate of about 9.9%. It is expected to exceed 1.3 trillion yuan by 2023. While the market expands, industry competition also intensifies. A prominent manifestation is that over the past year, the domestic snack market has staged a game of "ice and fire." On one side are the old internet celebrities with declining performance and searching for new growth; on the other side are new internet celebrities with continuous financing and rapid expansion. During this period, food safety issues of former popular brands like Three Squirrels and Bestore shocked consumers and damaged their reputations. Under this stark contrast, the performance of former popular brands has sounded an alarm for the industry. On the premise of ensuring food safety, how to become an "evergreen tree" in the snack track has become a long-term proposition for snack food players.
01 Old Snack Internet Celebrities Collectively Enter a "Bottleneck Period" In 2011, Qiaqia Food was listed on the A-share market, becoming the "first stock of roasted nuts" that year. A year later, Zhang Liaoyuan launched Three Squirrels, capturing the hearts of a large number of young consumers. Before that, Be & Cheery and Bestore had already emerged through online channels. In offline channels, with the upgrading of consumer demand, the collection snack chain brand Lai Yifen had already taken the lead in opening new markets and positioning. At that time, the sales of leisure snacks were mainly based on supermarkets. As the first to try, Lai Yifen quickly grew. In 2003, Lai Yifen had more than 88 stores; in 2006, it expanded from Shanghai to Jiangsu; in 2010, it introduced capital, pioneering the industry. Image source: Lai Yifen official Weibo A decade later, this approach no longer works. Under performance pressure, old brands have collectively "fallen out of favor." Looking at the first half of 2022, the performance of many snack brands was lackluster. Among them, Three Squirrels was the only brand with declines in both revenue and net profit. In the first half of this year, Three Squirrels' total revenue was 4.114 billion yuan, a year-on-year decrease of 21.8%, while net profit attributable to the parent company dropped directly from 351.8 million yuan to 82.1343 million yuan, a year-on-year decrease of 76.65%. This performance is not surprising. In the first quarter of 2022, Three Squirrels' revenue and net profit had already declined. Revenue was 3.09 billion yuan, down 15.85% year-on-year; although net profit achieved 160 million yuan, it was down 48.75% year-on-year. In response to the continuous decline in net profit, Three Squirrels explained in its financial report that the decline was due to rising raw material prices and freight costs, inventory reduction due to the epidemic, excessive brand promotion investment, and store closure deposits. On the other hand, Bestore's net profit growth in the first half of 2022 was minimal. According to the financial report, total revenue in the first half of this year was 4.895 billion yuan, a year-on-year increase of 10.72%, and net profit attributable to the parent company was 193 million yuan, a year-on-year increase of 0.67%. The first to bear the brunt was Three Squirrels. Since 2016, Three Squirrels' marketing expenses have been rising, from 918 million yuan to a peak of 2.298 billion yuan in 2019. On the other side, Bestore, under the banner of "high-end snacks," has also been using marketing expenses to support its image. From 2018 to 2021, Bestore's sales expenses were 568 million yuan, 1.581 billion yuan, 1.57 billion yuan, and 1.672 billion yuan, respectively. Heavy marketing spending, but quality lags behind. Since last year, Three Squirrels and Bestore have both been embroiled in food safety scandals. Issues such as moldy nuts and plastic foreign objects in mooncakes have damaged the reputation of "old snack internet celebrities." Every family has its own troubles. "Melon seed king" Qiaqia Food's total revenue in 2022 was 2.678 billion yuan, an increase of 12.49% year-on-year, and net profit attributable to the parent company was 351 million yuan, an increase of 7.25% year-on-year. Although Qiaqia achieved double growth in revenue and profit, it failed to boost capital market confidence. On the day the financial report was released, its stock price fell nearly 10%, and at one point hit the limit down during trading. Clearly, apart from melon seeds, Qiaqia Food has not had a hit product for a long time. Over-reliance on the melon seed market, losing imagination, Qiaqia Food's drawbacks are also obvious. Looking at a longer timeline, brands that rely on offline stores have also had a hard time due to the epidemic. Yanjin Shop's 2021 annual report disclosed that in 2021, it achieved revenue of 2.282 billion yuan, a year-on-year increase of 16.47%; net profit was 151 million yuan, a year-on-year decrease of 37.65%. In contrast, Lai Yifen suffered even more. In 2020, when the COVID-19 outbreak occurred, Lai Yifen's net profit directly lost 65 million yuan. More importantly, with the entry of Three Squirrels and Bestore, the "big brother" Lai Yifen clearly lacks momentum. In recent years, Lai Yifen's revenue growth has been declining for several consecutive years. From 2017 to 2020, its operating revenue was 3.636 billion yuan, 3.891 billion yuan, 4.002 billion yuan, and 4.026 billion yuan, with year-on-year growth of 12.35%, 7.01%, 2.86%, and 0.59%, respectively. Looking at the former snack internet celebrities, they are gradually weakening, unable to keep up with market changes, and lacking hit products and product strength seems to be their "common problem." This trillion-yuan leisure snack market is not as glamorous as imagined; competition is becoming increasingly fierce.
02 New Snack Internet Celebrities Are Ambitious On one side are many listed companies troubled by performance; on the other side are new brands with continuous financing. Last month, the nut and roasted goods chain brand "Xueji Roasted Nuts" announced the completion of a 600 million yuan Series A financing round, co-invested by Meituan Longzhu and Qicheng Capital. Thus, it, which was established in 2014 but had little presence for years, has become a "new internet celebrity" in the snack field. According to Cailian Press VC/PE Data, since 2021, there have been 26 snack-related financing events in the primary market, of which four had single investments exceeding 100 million yuan. Xueji Roasted Nuts is also the brand with the largest investment amount in recent years. The new snack internet celebrities are ambitious and expanding rapidly. According to Xueji Roasted Nuts' plan, the number of stores nationwide will expand to more than 1,000 in 2022. As of now, Xueji Roasted Nuts has 700 stores nationwide. A common point is that unlike the packaging forms of old internet celebrity brands like Qiaqia and Three Squirrels, new internet celebrity brands emphasize fresh roasting and bulk sales. For example, Xueji Roasted Nuts promotes the concept of "conscience roasted goods," Qi Wang Peanuts, which started in Jiangsu, Zhejiang, and Shanghai, emphasizes "small pot slow roasting," and Huanxi Peanuts displays the slogan "national roasted goods" in stores. Image source: Qi Wang Peanuts official Weibo More crucially, they all adopt a self-production model rather than OEM. In many stores of these brands, you can see machines for on-site processing and stir-frying. Ensuring food safety and freshness from the source caters to the new generation of consumers' focus on food quality, but such a production process inevitably determines high prices, which also discourages some consumers. A consumer in Jinan prefers to call Xueji Roasted Nuts "Xueji Gold Store." She told Connecting Insight, "Although the quality of Xueji's products is good, the prices are also very expensive." Another brand favored by capital, "Panda Momo," chooses to enter from creative fresh snacks. It has signed more than 80 stores in regions such as Hunan and Hubei. Established less than a year ago, Panda Momo mainly promotes self-made yogurt snack cups and handmade freshly mixed spicy strips, as well as nut categories like cashews and macadamia nuts. Looking at the entire leisure snack track, snack collection stores are also attracting capital attention. In May this year, "Linshi Mofa" received nearly 10 million yuan in angel round financing, and discount snack brand "Snacks Busy" received 240 million yuan in Series A financing, co-led by Sequoia Capital China and Gaorong Capital; also stimulated by the demand for consumption downgrade due to the epidemic, another discount snack store "Snacks Youming" received four rounds of financing. Among them, Snacks Busy, which promotes "not expensive, delicious, true bulk sales," adopts a franchise model. Five years after its establishment, its store count has exceeded 1,200, and it is expected to achieve sales of over 6 billion yuan in 2022. Of course, while taking too fast steps, product quality is often overlooked. On the Heimao complaint platform, there are many complaints about Snacks Busy, mostly concentrated on issues like "foreign objects in food" and "food safety." Image source: Snacks Busy official Weibo. The momentum of new brands is strong, but it is not easy to stand out in the leisure snack track. "There are categories, but no brands" is a long-standing problem in the industry. If they do not want to repeat the mistakes of old brands, new brands need to work hard in many aspects.
03 What Will the Second Half of the Snack Game Compete On? China's snack market has developed for thirty years, consumers have changed from generation to generation, and competition in leisure snacks has entered the second half. According to the "2022 China Leisure Snack Industry Report," in the past seven years, the compound annual growth rate of the domestic leisure snack market has remained above 11%, and it is expected that the market size will exceed 1.5 trillion yuan this year. For the snack industry, the support point for any brand is first the product. As we all know, the leisure food industry has a low entry barrier, many players, and severe product homogeneity. Just like Qiaqia Food's melon seeds and Three Squirrels' daily nuts in the past, and now Xueji Roasted Nuts' milk dates, to stand out among many brands, creating hit products is the most important. Among them, seeing the decline in profitability, high-endization is a common direction for brands. In August this year, Be & Cheery launched the "Benwei Zhenguo" nut series new products to enter the high-end market; Qiaqia Food also launched a high-end melon seed product called "Kuizhen," priced at over 100 yuan. Bestore, which has always touted high-end, launched the fitness snack "Liangpin Feiyang" in 2020. At the same time, to find new growth curves, some brands have extended their reach to more segmented markets. Three Squirrels launched four sub-brands: Xixiaoque, Tiegongji, Xiaolu Lanlan, and Yanglege Maohai, while Bestore successively launched Xiaoshixian and T-break. But so far, these progresses have not been smooth. According to Caijing.com, Three Squirrels once said that except for Xiaolu Lanlan, the other sub-brands have been shelved. Behind this, from R&D expenditure, the proportion of brands like Three Squirrels and Be & Cheery is less than 1%. To create new hit products, it is not enough to just talk; real investment is needed. To create good products, R&D is one aspect, and supply chain is another. As mentioned above, old players like Three Squirrels and Bestore still belong to the "OEM production" model. Under this model, food safety issues occur frequently, and old brands are panicking. It is imperative to change the asset-light model of internet OEM. In August 2022, Three Squirrels' daily nuts demonstration factory officially operated, integrating production, shipping, and other links, allowing products to reach consumers directly, ensuring food safety to a certain extent. Three Squirrels self-built factory, image source: Three Squirrels WeChat official account. In addition to self-built factories, traditional brand Qiaqia Food is also working on source supply. In the upstream sunflower seed raw material supply, it mainly adopts a centralized procurement model of "company + order agriculture + growers." In 2020, its sunflower seed procurement volume accounted for more than 20% nationally. Large-scale procurement undoubtedly gives Qiaqia Food bargaining power upstream. If the supply chain is the moat of brands, then channels are the key to expanding market scale. In terms of channels, whether it is Three Squirrels relying on online or Lai Yifen relying on offline, their performance declines are telling the industry the importance of omni-channel sales. In the past, online channels were the foundation for survival, but now traffic is becoming more expensive, and Three Squirrels' promotion fees and platform service fees are rising. In 2021, Three Squirrels' sales expenses reached 2.07 billion yuan, a year-on-year increase of 21.01%. In 2019, Three Squirrels proposed the "10,000-store plan," which is to open 10,000 stores by 2022. The reality is that the "black swan" of the epidemic disrupted Three Squirrels' plan. In stark contrast, Lai Yifen's predicament comes from online. For a long time, Lai Yifen has been deeply cultivating offline channels, with offline revenue accounting for 90% of total revenue. Because of this, it missed the good opportunity for e-commerce layout. The sudden epidemic, rising store rents, and rising labor costs are risks that Lai Yifen cannot avoid. From this point of view, only by opening up an omni-channel sales model can brands more flexibly resist risks. New brands may act faster. For example, in 2019, Xueji Roasted Nuts opened a Tmall flagship store to achieve online-offline integration; Snacks Busy adopts a franchise model to expand stores. Although the leisure snack market size exceeds one trillion yuan, due to the numerous sub-categories, each sub-track has the opportunity to produce a unicorn or even a listed company. This also means that the current leisure snack market is still full of uncertainty. How brands follow the trend and capture consumers is still a compulsory course that requires continuous research. Source: Connecting Insight (ID: lxinsight) Author: Wang Huiying
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