Click image for details The snack industry is undergoing a quiet reshuffle, driven by low market concentration. 2019 will be an extraordinary year for the snack industry. At the turn of the year, three snack companies made major moves: Three Squirrels pivoted to the supply chain, Bestore focused on high-end products, and Baicaowei explored the 3.0 era. In 2019, the competition among these three will extend from capital markets to consumer markets, and the market battle has already begun. Collective Pivot to Seek New Growth Points According to the "Snack Industry Development Report under Consumption Upgrade" released by the Ministry of Commerce's Circulation Industry Promotion Center in 2018, the total output value of the snack industry grew from 424.036 billion yuan in 2006 to 2.21564 trillion yuan in 2016, an increase of 422.51%, with a compound annual growth rate of 17.98%. It is predicted that by 2020, the total scale of the snack industry will approach 3 trillion yuan. To compete for this huge market, the industry has entered a fierce competition, with companies quietly preparing. During the 2012 "Double 11" shopping festival, Three Squirrels became an instant hit, achieving rapid growth, with revenue reaching nearly 7 billion yuan by 2017. However, in 2017, according to Three Squirrels founder and CEO Zhang Liaoyuan, "the times have changed," and Three Squirrels' growth began to slow. To address this, Zhang Liaoyuan announced a strategic transformation for Three Squirrels before the 2018 "Double 11." "With the decline of online traffic and demographic dividends, Three Squirrels spent all of 2018 seeking transformation. In the future, Three Squirrels will gradually become a true supply chain enterprise," said Zhang Liaoyuan. He set a sales target of over 10 billion yuan for Three Squirrels in 2019. Yin Xiang, brand PR director of Three Squirrels, stated that 2018 saw significant growth compared to 2017, but since the company is in the IPO stage, data must be audited before disclosure, "but the transformation can be considered successful." Unlike Three Squirrels, which focuses more on "Double 11," Bestore and Baicaowei are competing in the high-end snack segment this year. On January 7, Bestore held a press conference in Shenzhen, announcing the signing of "popular young star" Kris Wu as the spokesperson for its upcoming high-end products. Bestore founder Yang Hongchun stated that in the future, high-end products will account for more than 50% of Bestore's total sales. According to Zhao Gang, vice president of public relations at Bestore Group, the current proportion of high-end products has not yet reached that target, but the results after product launch have been satisfactory. Baicaowei announced on January 19 that it had signed another "popular young star," Jackson Yee, as its brand ambassador. The rivalry between Bestore and Baicaowei in choosing spokespersons is already evident. Earlier, at the 2018 annual meeting, Baicaowei formally established a strategy for coordinated development of "online and offline" channels, beginning to lay out new retail. Baicaowei's listed parent company, Haoxiangni, also disclosed in its investor relations activity record that Baicaowei is currently accelerating its offline channel layout. Still Need to Find Core Positioning After rapid growth, China's snack industry may enter a bottleneck period in 2019. Industry experts believe that homogeneous competition seems to be an inevitable major problem in China's snack industry at this stage. The collective transformation of the three giants indicates that the industry is facing challenges, and companies are trying to transform to secure future markets. "From an industry perspective, many companies have not found their core positioning or differentiated competitive approach in the market," Zhao Gang believes. A notable feature of the Chinese market is that when a new product category emerges, other companies follow quickly, reflecting a lack of persistence in market positioning. Homogeneous competition has kept the snack industry in a price war. Bestore president Yang Yinfen stated, "Initially, the industry's approach was to fight price wars, and Bestore launched high-end series to avoid price wars." As is well known, discounts, coupons, and promotions are common tactics in the internet snack industry. It is understood that during the Spring Festival and Valentine's Day this year, internet snack companies, including the three giants, offered various discounts on major e-commerce platforms. Three Squirrels and Baicaowei both launched "100,000 bestsellers half-price" and "spend 199 get 100 off" promotions; Bestore offered "spend 300 get 100 off" and "second item 9.9 yuan" flash sales, with high-end snacks also featuring New Year promotional prices. One result of the price war is generally low profit margins. Among the listed snack companies, Baicaowei's parent company Haoxiangni reported a net profit of 108 million yuan in the first three quarters of 2018, with a net sales margin of only 2.68%. Bestore's latest prospectus shows a gross margin of only 3.74% in the first half of 2018. Additionally, Yanjinpu's financial report shows that 70% of its net profit in the first half of 2018 relied on government subsidies. "On one hand, brand competition has entered a white-hot stage; due to the low entry barriers in the snack industry, many companies are engaged in price wars. On the other hand, the nut market, which is the main focus of the snack industry, is already mature and transparent, and most raw materials are imported, with importers taking a large share of profits. Without control over upstream resources, companies' profit margins are very low," said Zhu Danpeng, a Chinese food industry analyst. Low Industry Concentration The reshuffle in the snack industry is quietly underway, driven by low industry concentration. "Bestore's market share is less than 1%," Yang Hongchun said. The snack industry has a large market size, but brand concentration is very low, and even large enterprises have low market shares. Although the three giants—Three Squirrels, Bestore, and Baicaowei—had revenues of 6.8 billion yuan, 5.3 billion yuan, and 4 billion yuan respectively in 2017, their combined market share in the trillion-yuan snack market is less than 2%. "From fragmentation to concentration, then to monopolization and personalization, these are the four stages of industrial development, and the snack industry is no exception," Zhao Gang believes. The snack industry will inevitably see the emergence of relatively concentrated large enterprises. Yin Xiang also stated that on one hand, more concentrated business formats will become a trend, with major players gradually occupying more market share; on the other hand, whether small and medium-sized enterprises will be eliminated depends on themselves, because China has a huge population and enormous consumption potential, and any niche segment can have sufficient market. Therefore, how to find incremental markets within existing markets is a question that both SMEs and industry giants will consider. So, who will be the king? Clues can be seen from the capital market maneuvers of the major players in recent years. The first to act was Baicaowei, which was acquired by Haoxiangni for 960 million yuan in 2016, entering the listing platform. Subsequently, Laiyifen and Yanjinpu completed A-share listings. Currently, Bestore and Three Squirrels are also queuing for IPOs. It is worth noting that compared to other snack companies, Three Squirrels' road to listing has been bumpy. It submitted prospectuses twice in 2017 but failed for various reasons. When asked about the possibility of listing in 2019, Yin Xiang's answer was uncertain. Zhu Danpeng believes that capital is just icing on the cake under the existing business model, and capital is greedy; it may not provide timely help. Companies need to strengthen themselves; brand, channels, products, promotion, and online-offline interaction and symbiosis are all indispensable. Currently, the strengths of the three giants are obvious, but so are their weaknesses. For example, Three Squirrels, despite ranking first in revenue, has been plagued by negative food safety news; Bestore has actively expanded offline for years, but its profit margins need improvement; Baicaowei was the first to enter the capital market, but its offline layout has always been a weakness. Therefore, who will ultimately win remains unknown. Source: Finance & Economy National Weekly Authors: Li Yuxi, interns Ge Lanfang, Pu Xianglin New Distribution will hold the 2019 (5th) FMCG + Internet Conference during the Chengdu Spring Sugar & Wine Fair from March 15-18. This conference will focus on the theme "Breakthrough" and engage in in-depth discussions with brand owners, supply chain service providers, distributors, and retailers. Compared to previous conferences, this summit will be fully upgraded. In addition to original topics such as channel innovation, city distribution logistics, and distributor transformation, it will add multiple parallel forums on new marketing cases, IP + FMCG empowerment, community group buying, and innovative retail. Through three days of ten high-density, high-quality expert sharing sessions, we believe every brand owner and distributor can learn the latest business models, expert insights, and practical methods, finding new tools and approaches for their own breakthrough in 2019 and returning to a path of rapid growth. Review of Previous Conferences -END-