The snack industry, stirred by discount retail formats, is showing initial signs of divergence. Recently, Three Squirrels, Liangpin PuZi, and Yanjin PuZi released their Q1 2024 financial reports. Three Squirrels reported Q1 revenue of 3.646 billion yuan, a year-on-year increase of 91.83%, and net profit of 308 million yuan, up 60.80% year-on-year. This was attributed to the continuation of its 2023 transformation and the effective implementation of its "premium cost-performance" strategy, which, through a new supply system, made terminal products more cost-effective while maintaining stable gross margins in core categories. Another standout player was Yanjin PuZi. In Q1, its revenue reached 1.223 billion yuan, up 37.00% year-on-year, and net profit attributable to shareholders was 160 million yuan, up 43.10%. Liangpin PuZi appeared more challenged. Q1 revenue was 2.451 billion yuan, up only 2.79% year-on-year, while net profit fell 57.98%. What did Yanjin PuZi do right? Does Liangpin PuZi still have a chance to fight back? Channel War Over the past year, the biggest impact on the snack industry came from discount retail formats—bulk snack stores. On one hand, domestic snack collection stores have gradually shifted from the early soft discount model of HotMaxx to hard discount. On the other hand, the bulk snack track has entered a high-speed development phase. In 2023, China's bulk snack track entered a period of rapid growth. As of October 2023, the number of snack collection stores exceeded 22,000. According to iiMedia Research data, the market size of China's snack collection stores reached 80.9 billion yuan in 2023, and is expected to reach 123.9 billion yuan by 2025. The proliferation of bulk snack stores has changed the pricing ecosystem of leisure snacks and revolutionized offline reach—the influence of traditional KA channels is waning. As a result, companies have introduced various policies to respond. Three Squirrels launched its "premium cost-performance" strategy. Three Squirrels, which rose on the e-commerce wave, has long sought to change its online-offline channel ratio. Founder Zhang Liaoyuan has frequently visited frontline markets in recent years, aiming to further deepen offline distribution business. Since 2018, Three Squirrels has expanded offline channels through platforms like Alibaba's Retail Link and JD's New Channel. These moves indicate that Three Squirrels values the offline market as much as Liangpin PuZi. On one hand, Three Squirrels attracts consumers with a rich product line and low prices; on the other, they have invested heavily in store management and efficiency. For stores in specific scenarios, Three Squirrels introduced high-frequency consumer goods like coffee and short-shelf-life products, effectively increasing average transaction value and sales. In line with offline layout, Three Squirrels has also closely followed changes in consumer demand in product development. They advocate the "five reductions" concept (reduced salt, sugar, fat, oil, and food additives), creating products around pure natural healthy ingredients. These measures make Three Squirrels' products more aligned with modern consumers' demand for healthy eating. However, it was live-streaming e-commerce that helped Three Squirrels deliver its best Q1 report in six years. Leveraging its brand advantages, it built a diversified live-streaming model, such as "city matrix live-streaming," "influencer带货," and "official account live-streaming," effectively improving the efficiency and influence of online sales channels. Through its "Douyin+N" strategy, Three Squirrels achieved a significant increase in short-video revenue, driving growth across all channels. What helped Yanjin PuZi achieve results was precisely its investment in bulk snack stores. Yanjin PuZi started with preserved fruit products and later developed seven major categories including spicy braised snacks, potato snacks, deep-sea snacks, leisure baking, egg snacks, konjac jelly pudding, and dried fruit nuts. Product development is its strength, but channel advantages are not prominent. Yanjin PuZi played the price card with an "ultimate cost-performance" strategy while also working on channels. In the past, traditional direct-operated supermarket channels were the main revenue source for Yanjin PuZi. But since 2021, Yanjin PuZi began laying out bulk snack stores, gradually penetrating through the traffic brought by their rapid development. At the end of 2023, Yanjin PuZi invested 350 million yuan in Snack Hero Group. When it went public in 2017, revenue from supermarket channels accounted for as much as 54%, but by 2023 it was only 8%. Correspondingly, in 2023, revenue from new retail and other channels accounted for 70%. Among them, the bulk snack channel accounted for 20%, with Snack Hero alone contributing over 12%. In contrast, Liangpin PuZi has always adhered to a balanced online-offline development strategy. In 2023, the brand opened 537 new stores in its core four provinces, bringing the total offline store count to 3,293, a net increase of 67 from the previous year. Full-year offline channel revenue reached 4.294 billion yuan, up 4.02% year-on-year. Facing the impact of bulk snack stores, Liangpin PuZi did respond. Last year, Liangpin PuZi implemented price cuts on 300 products across all channels, with an average reduction of 22% and a maximum reduction of 45%. By Q1 this year, these strategies were taking effect. According to the Q1 report, Liangpin PuZi achieved revenue of 2.451 billion yuan, a slight year-on-year increase of 2.79%. If not for the changes brought by bulk snack stores, this online-offline integrated channel approach would be more stable, but as bulk snack stores enter a phase of rapid expansion in the domestic market, Liangpin PuZi, lacking voice in new channels, finds it difficult to deliver impressive financial results. New Problems Despite the different cards each player has played in the industry's channel transformation, they currently face similar issues. Whether it's Three Squirrels, the high-end snack maker using OEM, or Yanjin PuZi, known as the "Huawei of snacks," both have historically enjoyed good gross margins. However, the emergence of discount formats has forced players to lower prices to improve cost-performance, while also eroding their gross margins. Take Liangpin PuZi as an example. In Q1 this year, although revenue recovered somewhat, net profit and non-GAAP net profit were 62 million yuan and 55 million yuan, respectively, down 57.98% and 48.69% year-on-year. The phenomenon of increasing revenue without increasing profit makes the revenue recovery seem "a surprise, but only a little." Three Squirrels is similar. In 2021, its gross margin was still above 29%, but by 2023 it had fallen to 23.33%. Even Yanjin PuZi is not immune. From 2020 to 2023, its gross margins were 44%, 36%, 35%, and 34%, respectively. Yanjin PuZi attributed the decline in gross margin to channel and raw material impacts. Just as the essence of e-commerce is efficiency improvement, the essence of hard discount is to find the most streamlined SKUs at the supply end to meet consumers' primary needs, and to build competitive barriers through supply chain efficiency improvements, providing consumers with high-quality, cost-effective products. This forces companies to extend their reach upstream in the industry chain to reduce costs and gain profits. In addition, some old problems remain unresolved. Three Squirrels' success is inseparable from e-commerce channels, but over-reliance on online sales has also put them in a dilemma. As e-commerce dividends fade, Three Squirrels faces huge challenges. They have begun to realize that only a full online-offline channel layout can withstand market risks. So they started trying to expand offline, but the results were not satisfactory. Last year, Three Squirrels' store count nearly halved. What helped them out of trouble was Douyin, but this is like jumping from one pond to another: in Q1 this year, Three Squirrels' sales expenses reached 592.8 million yuan, compared to 288.5 million yuan in the same period last year, nearly doubling. For Liangpin PuZi, its balanced online-offline channel layout provides a floor, but how to achieve breakthroughs in new channels like Douyin and bulk snack stores remains the most urgent issue. The future snack market is still full of variables. E-commerce platform traffic peaking, slowing growth in bulk snack stores, changing consumer tastes, and the rise of healthy eating trends... These will all have profound impacts on the snack market, and companies need to be more sensitive to these market changes. Recommended Reading