Introduction: Corporate strategy should return to the fundamental logic of 'more, faster, better, cheaper.'

In the FMCG industry, snack foods are undoubtedly a hot track. According to the '2022 China Snack Food Industry Research Report' released by Red Star Capital Bureau, from 2016 to 2020, the market size of China's snack food industry grew from 822.4 billion yuan to 1,298.4 billion yuan, with a compound annual growth rate of 12.09%. China Commercial Industry Research Institute predicts that the market size will exceed 1.5 trillion yuan in 2022. Currently, several snack food companies that have been developing for years, such as Three Squirrels, Bestore, Qiaqia Food, Yanjin Shop, and Lai Yifen, have all gone public, while new entrants like Xue Ji Roasted Seeds, Panda Momo, and Snack Busy are also catching up. Low industry concentration means there is still room for growth. However, with intensifying internal competition and changes in the external consumption environment, the snack food industry is undergoing transformation. With the advent of the new retail era, the previous approach of heavily spending on traffic and scale has gradually become outdated. Corporate strategy should return to the fundamental logic of 'more, faster, better, cheaper.' Facing these changes, companies may need to redesign their top-level strategies in terms of channel expansion, brand image, and business models. This article focuses on several well-known snack food companies to analyze their model transformations.

Two Models

In operations, companies can be divided into 'asset-light' and 'asset-heavy' models. The 'asset-light model' refers to companies that do not own factories, focusing instead on high-value-added links such as brand promotion and channel marketing. This makes it easier to build brand awareness at the front end and expand revenue scale, but it also tests the company's back-end management and integration capabilities. Bestore and Three Squirrels belong to this category, although the latter has begun building production lines, leaning toward the asset-heavy model. The 'asset-heavy model' means the company controls the entire chain from R&D, production, warehousing, logistics, to sales. Operating costs are relatively high, and initial growth may be slower, but a stable foundation is more conducive to building core competencies. Qiaqia Food and Yanjin Shop are examples, with their own factories and mature offline supply chains. Another established snack food company, Lai Yifen, does not have its own production base, but it has a large number of direct-operated stores, with store revenue accounting for over 95% of its total revenue. Therefore, it can also be classified under the 'asset-heavy model.' However, the number of franchise stores for Lai Yifen is increasing, seemingly transitioning toward a 'direct-operated + franchise' asset-light model.

Both models have their advantages and disadvantages. Three Squirrels started on the internet and, under the asset-light model, quickly built brand awareness and captured the minds of young consumers through heavy marketing. However, due to high sales expenses, it also squeezed profit margins to some extent. Additionally, as the cost of acquiring online traffic increases, the original playbook has gradually become unsuitable for the current environment. In contrast, Qiaqia Food, as an asset-heavy company with years of development, may not be as efficient or fast-growing as asset-light companies, but its supply chain from production to channels is very complete, with strong distribution capabilities in supermarkets. Its deep penetration into the upstream industry chain also contributes to its high gross margin, making its profitability second to none in the industry. Reflected in financial data, in 2021, Three Squirrels' revenue was 9.7 billion yuan, while Qiaqia Food's revenue was 5.9 billion yuan, almost half of Three Squirrels'. However, Three Squirrels' profit was only 400 million yuan, while Qiaqia Food's profit was 900 million yuan, more than double that of Three Squirrels. Lower sales expenses are a major reason for Qiaqia Food's high profitability. In the first three quarters of 2022, the sales expenses of Qiaqia Food, Three Squirrels, Bestore, and Yanjin Shop were 405 million yuan, 1.205 billion yuan, 1.288 billion yuan, and 339 million yuan, respectively; the sales expense ratios were approximately 9%, 23%, 18%, and 17%; and the net sales margins were 14.32%, 1.75%, 4.10%, and 11.09%, respectively.

Performance Changes

Previously, Three Squirrels and Bestore leveraged the internet dividend to achieve rapid growth, especially Three Squirrels, whose revenue mostly came from 2C e-commerce platforms. In 2019, Three Squirrels was the first to reach the 10-billion-yuan scale. In 2021, Bestore achieved revenue of 9.324 billion yuan, approaching the 10-billion-yuan mark. Notably, after Three Squirrels' explosive growth in 2016, growth stabilized in 2017, and in 2018, profit increased by less than 1%. In subsequent years, the company fell into a state of 'increasing revenue without increasing profit' or 'increasing profit without increasing revenue.' Bestore's trajectory was similar: after rapid growth, net profit increased slightly in 2020, turned negative in 2021, and in the first three quarters of 2022, it achieved revenue of 7.002 billion yuan, a year-on-year increase of 6.61%, but net profit attributable to shareholders was 287 million yuan, a decrease of 8.84%, and non-GAAP net profit was 218 million yuan, a decrease of 10.69%.

In contrast, Qiaqia Food, although its revenue scale is not as large as the above two companies, has shown more stable overall performance, with both revenue and profit growing positively. In the first three quarters of 2022, it achieved revenue of approximately 4.383 billion yuan, a year-on-year increase of 12.91%; net profit of approximately 626 million yuan, an increase of 5.45%; and non-GAAP net profit of approximately 524 million yuan, an increase of about 6.99%. Yanjin Shop, also an asset-heavy company, achieved double growth in revenue and profit from 2018 to 2020, with relatively large increases. In 2021, due to heavy investment in supermarket channels and misjudging the closure of supermarkets, net profit declined. After adjusting its strategy, it achieved significant growth again in the first three quarters of 2022, with revenue of approximately 1.969 billion yuan, a year-on-year increase of about 21%; net profit of approximately 218 million yuan, an increase of about 183%; and non-GAAP net profit of approximately 192 million yuan, an increase of about 656%.

It can be seen that in the early stage of rapid growth in the snack food market, some asset-light companies gained scale advantages first. However, as the internet dividend gradually fades, the incremental market has become a stock market, and the industry has entered a stage of stable development. The stability of some asset-heavy companies with full industry chain layouts is becoming increasingly prominent. In response to these changes, Three Squirrels has initiated drastic reforms, including:

  • Expanding offline channels. In fact, since 2016, Three Squirrels has opened its first offline store, and since then has gone further down the path of direct-operated, franchise, and Squirrel Town. However, due to the pandemic and proactive optimization, many stores were closed. In 2021, Three Squirrels slowed down its store expansion and turned its attention to new distribution business. Currently, it is transitioning to an asset-heavy model, promoting supply chain construction and building a traditional distribution network.
  • Reducing costs. Generally, asset-heavy companies can build production lines and, combined with a big single-product strategy, prioritize production of core categories. After driving sales growth of other categories with core categories, they can add new production lines. Additionally, self-built factories can eliminate intermediate links, shipping products directly from factories to terminal sales outlets. Furthermore, they can extend to the upstream industry chain to control costs when expanding offline markets. Currently, Three Squirrels is learning this model, focusing on the nut category while building a complete supply chain, and cooperating with channels to open up the offline market.
  • Improving product strength. With the improvement of mass consumption levels and increasing attention to health, consumers are paying more attention to the health impact of snack foods. Companies laying out the full industry chain to strengthen supply chain management and improve industry chain standardization also helps with quality control.

However, it is not easy for a company to transform from an asset-light to an asset-heavy operation, especially for companies like Three Squirrels with a very weak offline foundation. The time and trial-and-error costs required in the early stage are very high. Currently, the company's demonstration factory has started production, but the offline market is still being cultivated. The improvement of product strength and channel expansion need to complement each other to promote successful transformation. Three Squirrels is fighting a difficult battle.

Model Changes

But it is worth noting that there is no inherent superiority between the 'light' and 'heavy' models; companies should decide based on their own development stage and specific circumstances. Three Squirrels is one of the companies that stood out with the 'light' model. In 2012, during the wild growth of e-commerce, 'Squirrel Dad' Zhang Liaoyuan sensed a huge business opportunity, plunged into the e-commerce track, and founded the Three Squirrels brand. At that time, Taobao provided traffic support to new brands, capital favored this internet model, and young consumers were not averse to new consumption methods. With favorable timing, location, and people, Three Squirrels rode the wave. In the same year's Double 11, the fledgling Three Squirrels won the sales championship in the snack category. In the following years, Three Squirrels rapidly expanded and grew into a leading company in the snack food industry. It can be said that the founder, with keen business acumen, precisely grasped the pulse of the internet era and implemented a matching business model, which is the main reason for Three Squirrels' success. However, as the internet dividend gradually fades, Three Squirrels is also actively exploring new models to adapt to changes.

Besides Three Squirrels, many new consumer brands have emerged in the market in recent years. Most of them entered consumer minds through marketing methods like seeding and weeding in the early stages, completing the 0-1 brand building. But when the internet effect weakens, these companies enter the 1-10 development stage. How to achieve transformation through better products, more competitive cost control, and a more stable supply chain system has become an immediate issue. As one of the new consumer brands, Genki Forest is an example of transitioning from 'light' to 'heavy.' The company first proposed the concept of '0 sugar 0 fat,' sparking a health consumption trend. As its products were warmly received, Genki Forest also developed traditional offline channels, but perhaps due to pressure from beverage giants, it faced a supply crisis when suppliers cut off supplies, which prompted Genki Forest to build its own factories. (Image source: Genki Forest official website)

Currently, Genki Forest not only has hit products but also occupies a place in both online and offline markets. By building its own factories, it has enhanced its ability to resist risks and further improved its core competitiveness.

Which is more important, 'light' or 'heavy'? In fact, there is no unified standard answer. For startups completing the 0-1 journey, they need to choose the model that best leverages their advantages and is easiest to scale based on their own situation and industry trends. When companies mature and enter the 1-10 stage, they need to think about how to maintain long-term growth. For example, Three Squirrels is building a traditional distribution network to expand offline, no longer confined to the e-commerce market; Genki Forest, after self-producing beverages, 'threw away' erythritol. In the long run, they should shift to whichever model is more beneficial to them.