Snack discount stores are a rare lively spot in the currently cold consumer venture capital market. Starting with the announced merger of industry leader Snacks Busy and third-place Zhao Yiming in November, followed by Bestore's lawsuit over the merger and its proactive price cuts on hundreds of SKUs, and then Haoxiangni and Yanjin Shop investing 1.05 billion yuan in Snacks Busy Group, the snack industry has seen rounds of competition and efforts centered on low prices and channel construction. Roughly since 2020, focusing on squeezing the gross margin space in the previously fragmented and lengthy snack value chain, snack discount stores have compressed the normal 50% gross margin of old channels to about 30% or even lower, significantly reducing terminal retail prices, and opening the market with a hard discount stance of small profits and quick turnover. Wu Minyi, founder of Hunan convenience store chain Xinjiayi, once highly praised the pioneering role of snack discount stores: "In community convenience stores, the snack category could only sell about a thousand yuan a day. Snacks Busy directly added ten thousand yuan on top of that—selling over ten thousand yuan of snacks a day, plus another two to three thousand from other items, creating such a high daily sales, disruptive format." As a format that follows the discount trend, is one of the few theoretical models that can expand to multi-tier cities, and has the potential for a chain of ten thousand stores, the rise of snack discount stores quickly became industry consensus. According to the "China Retail Hard Discount White Paper" released by New Distribution, the number of bulk snack stores and sales scale rapidly expanded from 2,000 stores and 6 billion yuan in sales in 2020 to approximately 22,000-25,000 stores and 70-80 billion yuan in sales in 2023, a growth of more than tenfold in three years. But at the same time, snack discount is also one of the few offline format changes in recent years without the participation of internet giants, and the overall industry financing amount is limited. Not to mention giant battlefields like community group buying, compared to hot pot frozen food supermarkets that expanded almost entirely through franchising and went public at a rapid pace, the number of stores of leading snack discount players is still relatively limited. Snacks Busy announced in October 2023 that its store count exceeded 4,000. Wanchen Group, which claims to be the industry leader through a series of mergers and acquisitions, had only about 4,100 snack stores in October. That is to say, with category characteristics such as having categories but no brands, small items, low average order value, long tail, and homogenization, snacks, especially Chinese-style snacks, are fragmented both on the brand side and the channel side. Even if a brand reaches the level of a listed company, its annual sales are only at the level of several billion yuan, far behind the big revenue players in the food and beverage sector such as alcohol, dairy, and beverages. Because of these characteristics, there are not many outsiders in the snack track. Its heavy offline sales nature also makes it a rare corner that the low-price killer Pinduoduo has not been able to illuminate, allowing new offline channels to take on the role of squeezing out value bubbles. In this process, before becoming an absolutely strong channel, snack discount stores have already begun to highlight the contradiction between homogenized competition and declining growth, with single-store daily sales also declining from their peak. Although many practitioners remain confident in snack discount: Zhang Xuewu, chairman of Yanjin Shop, said in a recent media interview that he believes snack discount stores/bulk snack stores will rewrite the domestic snack channel landscape and are expected to occupy nearly 30% of the market share. The domestic leisure food market is about 700 billion yuan, and a 30% market share is not small, but a vertical specialty channel supported by over 200 billion yuan still has a lower status than the comprehensive supermarket track where Hema, Sam's Club, and Aldi are located, let alone this is just an ideal forecast. Therefore, when a weak channel that still needs to grow (snack discount) meets the large number of weak brands that already exist in the industry (almost all snack brands), accompanied by games between channels and between channels and brands, the price war it triggers is milder than in other industries, and head clustering and mergers come earlier. Especially when no one is truly at the helm, industry entropy continues to increase. But the reason why snack discount of this scale has attracted industry attention is that it is an excellent category for observing the overall retail e-commerce discount reform. Qicheng Capital, which invested in Snacks Busy, regards snack discount as the first shot in the retail discount reform. The efficiency of this shot comes from where, how channels achieve absolute low prices, how to deal with homogenized competition caused by absolute low prices, how brands compete with channel private brands, which brands can seize the new channel dividend, and whether this will be another offline category that Pinduoduo, the king of low prices and efficiency, cannot conquer after clothing—all can be glimpsed from this. The Other Side of Prosperity: Offline Pinduoduo: Loose Categories and Channel Opportunities As snacks are characterized by small items, long tail, low average order value, and homogenization, with consumption features of continuous novelty seeking and unplanned purchases, there are a large number of small and medium-sized manufacturers and brands upstream, low market concentration, limited absolute number of large single products downstream, and affected by fragmented and regionalized channel patterns, they have long been in a heavy offline sales state with categories but no brands. Although snacks have experienced a high-speed growth period in online sales rate from 0 to 15%, due to the difficulty of covering network logistics costs with low average order value bulk self-selection items, snacks have never achieved a high online penetration rate like beauty and pets, and thus have rarely become a category that Pinduoduo has not transformed, leaving a market space and value depression that constitutes the so-called offline Pinduoduo model. This is also the goal that snack discount stores hope to achieve. Even with the intensification of peer competition and the battle for consumer mindshare, some snack discount stores have begun to upgrade towards white-label branding or private brands, much like Pinduoduo's branding upgrade path back then. But at this time, the difference between online/offline and unlimited shelves/limited shelves lies in the fact that when snack discount stores begin to screen suppliers, it also means that the snack brands entering this rapidly growing channel are always limited and subject to survival of the fittest. Whether they can catch this fast train is also the result of the game between supply and demand. Especially at a time when traditional sales channels are declining and snack discount, although growth is slowing, is still growing, snack discount stores remain a fairly important sales channel, valued by more and more brands, including listed companies such as Three Squirrels, Weilong, and Yanjin Shop. A snack brand told us that there are two basic requirements for entering the Snacks Busy sales system: either be an absolute head brand, playing a traffic-driving role in the overall product mix, with low gross margin but high turnover; or be a factory-based brand with supply chain advantages, providing profits by compressing various intermediate distribution links to achieve profitability. Theoretically, compared to absolute factory-based brands, listed companies or other well-known brands always have more capital accumulation and supply chain accumulation, and they can also adopt measures such as providing channel-customized products with different specifications to temporarily avoid issues like price system control and embrace the new channel of snack discount. Yanjin Shop is such a typical case. Yanjin Shop, which once used supermarket islands as its main sales model, after experiencing the impact of various formats from community group buying to snack discount on traditional retail sales, saw its own performance affected and turned to actively embrace change. Not only has it made Snacks Busy its largest customer since last year and has deep cooperation with other snack discount stores, but it also recently invested real money in Snacks Busy Group, becoming a minority shareholder. While viewing the snack discount channel as a channel that can change the snack landscape, Zhang Xuewu also said that in the past, brands and channels developed together, and brands had little say in front of channels like hypermarkets, but the emergence of new players and new channels gives brands more opportunities. On the other hand, when the primary investment and financing market has long entered winter, industrial capital like listed companies has a longer anti-risk cycle and is more willing to bet on its own industry. According to The Narrow Broadcast, Yanjin Shop's sales scale in bulk snack channels like snack discount has exceeded 1 billion yuan and still maintains a 60%-80% growth rate within the channel. In this case, brands actively embracing channels is not only for their own performance growth but also for maintaining their market position after channel binding. After all, ideally, one of the direct results of a high private brand rate is always that private brands collude with first-tier brands to drive competitors off the shelves. If possible, everyone wants to be the one who stays. PS: From March 14-16, 2024, the 9th China FMCG Innovation Conference, the 2nd China FMCG Hard Discount Conference, and the 2nd China FMCG Distributor Conference will be grandly held in Chengdu! This conference will focus on the theme of "Supply Chain Revolution". Over 3 days, with 1 main forum, more than ten sub-forums and closed-door exchange meetings, we will meet with thousands of FMCG brand owners, distributors, retail transformers, and industry service providers from across the country in Chengdu to jointly discuss the challenges and opportunities, changes and ways out in the era of supply chain revolution.**** In this era of supply chain revolution, a new business era will be born. We hope every participant will still have a place in this wave, and we believe this will be a conference worth attending! 🔺Scan the code for ticket consultation🔺