Suddenly, like a spring breeze overnight, snack discount stores have spread across the country, driven by consumers' preference for cost-effectiveness. Lin Ming, who lives in a small fifth-tier county town, recently noticed several snack discount stores opening near his home, with Zhao Yiming Snacks, Laiyoupin, and Snacks Busy even clustering at the same intersection. In these stores, you can buy Nongfu Spring water for 1.2 yuan, cola for 2.1 yuan, Wanglaoji for 2.8 yuan, and Lay's potato chips for 3 yuan. Overall, products in snack discount stores are generally 20-30% cheaper than in supermarkets. For young people like Lin Ming, these stores are a godsend. They can choose from a wider variety of products at lower prices. Moreover, the bulk-selling model allows them to flexibly choose purchase quantities based on their needs and budget, satisfying cravings without causing snack accumulation and waste. This "simple and crude" way of attracting customers has allowed discount stores to quickly take away market share from snack stores like Three Squirrels, Bestore, and Laiyifen, and even leave many convenience stores and small supermarkets struggling to compete. More and more snack industry practitioners feel a sense of crisis. To meet the challenge, on November 29, 2023, Bestore announced its largest price cut in 17 years, with 300 products averaging a 22% reduction and a maximum reduction of 45%, followed by second and third rounds of price cuts. Three Squirrels officially disclosed that its star product macadamia nuts were discounted by about 30%, and dried duck necks by about 33%. Laiyifen's chairman Shi Yonglei stated on his social media that the Laiyifen team has always been user-centric, selecting high-quality raw materials globally, and continuously optimizing costs across the industry chain to offer the cheapest prices at the same quality, truly benefiting consumers. The entire snack industry is undergoing an unprecedented transformation. The "Price War" Shows No Signs of Stopping Traditionally, China's snack channels have been predominantly offline. In 2023, supermarkets and hypermarkets accounted for the largest share of snack distribution channels, exceeding 40%; convenience stores and mom-and-pop shops together accounted for about 24%; and e-commerce channels accounted for about 19.6%. This is why offline channels play an irreplaceable role in snack consumption. According to the "Leisure Snack Industry Analysis Report" released by Hengzhou Chengsi, China's leisure snack market size will exceed 1.5 trillion yuan in 2023. However, considering the wide variety of snack categories and the relatively small scale of most enterprises, the competitive landscape of China's leisure snack industry is relatively fragmented. According to New Distribution data, the CR5 of China's leisure snack industry in 2022 was 14.7%. Among them, Mars had the largest share at about 3.5%; PepsiCo and Want Want held market shares of 3.3% and 3%, ranking second and third; the remaining individual companies each had less than 3% market share. With rising consumption levels and growing snack demand, coupled with the closure of some poorly managed supermarkets after the pandemic, the snack bulk retail market has seen development opportunities. Last year, leading companies like Snacks Busy and Zhao Yiming received financing in the hundreds of millions, further fueling the snack discount store track. Image source: Dongguan Securities Although most products in snack discount stores are sold at very low prices, according to Huaxi Securities estimates, Snacks Busy's store profit margin is around 6%-8%; Zhao Yiming's net profit margin in 2022 and the first half of 2023 reached 3.2% and 2.7%, respectively. The "small profits, quick turnover" business approach has squeezed the operating space of those leisure snack giants that tout "premium" positioning, prompting Bestore and Three Squirrels to cut prices successively. From financial reports, the profit margins of several major snack giants have declined since last year. In Q3 2023, the gross margin year-on-year growth rates for Bestore, Three Squirrels, and Yanjin Puza were -0.41%, -0.23%, and -0.89%, respectively. In the same Q3, many leisure snack brands fell into the dilemma of declining performance. For example, Bestore's revenue decreased by 14.33% year-on-year, Three Squirrels' revenue decreased by 14.07%, and Laiyifen's revenue decreased by 7.61%. While revenue declined, these brands had to rejoin the "price war." But compared to blindly competing on low prices, today's price war is more about pursuing extreme cost-performance, testing companies' ability to control every link in the upstream and downstream supply chain. Finding "Balance" in Affordable Pricing At its core, the "snack discount store" is still a battle for cost-performance, especially in lower-tier cities where price directly determines product competitiveness. According to the "2023 Consumption Trend Insight Report," regarding consumption habits formed during the pandemic, 63% of respondents mentioned being more rational in consumption, characterized by living within means, avoiding advance consumption, planned spending, buying fewer non-essentials, comparing prices before purchasing, valuing cost-performance, and emphasizing product practicality. Under the "prudent and savvy" consumption trend, "extreme affordable" and "quality affordable" products will always be favored by consumers. Snack discount stores, with their "more, faster, better, cheaper" characteristics, can well meet consumers' demand for high cost-performance products. Generally, snack discount stores mainly sell bulk products, with a rich product range and fast new product updates. According to Euromonitor data, Zhao Yiming's snack brands have an average SKU of about 2,000, with monthly updates of 100+ SKUs; Wanchen's snack brands have an average SKU of about 1,600, with monthly updates of 100-150 SKUs. Image source: CIC Consulting In terms of price, by eliminating the distributor link and sourcing directly from factories, snack discount stores offer higher cost-performance. For example, Oreo Birthday Cake cookies are priced at 9 yuan in offline supermarkets, about 6.9 yuan on e-commerce platforms, but only 5.4 yuan in snack discount stores; Dove chocolate is 9.5 yuan in supermarkets, 7.0 yuan online, but 5.4 yuan in discount stores. Overall discounts range from 60% to 80% off, making them highly attractive. The "more, faster, better, cheaper" features have led to a 393.7% year-on-year increase in searches for "snack discount stores" on Meituan, with a 250% increase in reviews. During the same period, transaction volume for "snack discount stores" on the platform increased by 517.6% year-on-year, order volume by 232.5%, and user numbers by 241.2%. Image source: Author's photo Looking ahead, as the number of snack discount stores approaches saturation and competition shifts from incremental to existing market, brands will turn to competition in the supply chain, products, and branding. Drawing on the evolution experience of offline supermarket chains - membership warehouse clubs - O2O, later snack discount enterprises will extend upstream through brand OEM, acquisitions, or equity participation, reducing procurement costs while ensuring food safety and building brand power. Therefore, the future development of snack discount stores will show two major trends: first, segmenting brands to form a layout across "high, medium, and low" price points, and even considering introducing daily necessities beyond food to mitigate the impact of low prices on profits; second, strengthening cooperation with upstream manufacturers, promptly feeding back downstream demand changes, promoting new product development, and forming differentiated supply. Breaking Before Establishing: Snack Sector Faces Structural Opportunities Under the affordable trend, the entire snack track will face new structural opportunities. CITIC Securities research report predicts that in 2024, the performance of mass consumer goods will still depend on the recovery of overall consumption sentiment, with the snack sector having relatively clear structural growth opportunities. Analysts believe that, on one hand, from a market size perspective, the snack industry is still in an existing market environment without an absolute leader. On the other hand, online and offline demand will persist long-term, with live streaming, private domains, and community group buying further driving channel reform in the snack industry. Separately, snack companies like Yanjin Puza and Three Squirrels have seen some growth in e-commerce channel sales. Among them, in the second half of 2023, Three Squirrels achieved revenue of 894 million yuan on Tmall, a year-on-year increase of 14.18%, and 538 million yuan on JD.com, a year-on-year decrease of 10.93%; emerging e-commerce platforms represented by Douyin grew rapidly, achieving revenue of 768 million yuan in the second half of 2023, a year-on-year increase of 264%. Ganyuan Foods has transformed into a "channel + product" dual-driven model. In Q3 2021, it entered the Sam's Club channel, then introduced to membership stores like Hema, Metro, and Costco, promoting mid-to-high-end nut products such as salted egg yolk cashews, honey amber walnuts, and wasabi macadamias, thereby finding new growth points. To quickly improve channel execution, Weilong piloted "sales assistance" in some cities. That is, in lower-tier cities, it assists distributors in hiring sales specialists to cover retail terminal outlets, effectively managing channel fee allocation, promoting terminal coverage, and increasing per-store output. In core cities, it establishes sales offices and internal sales teams to better serve key channels and retail terminals. But besides building their own channels, most brands have also chosen to cooperate with snack discount stores. At the end of January this year, Three Squirrels listed four nut products in snack bulk retail stores like Snacks Busy and Zhao Yiming Snacks. Ganyuan Foods has established cooperative relationships with systems like Snacks Busy, Zhao Yiming, Snacks Youming, and Laiyoupin, with cooperation items including classic three-piece sets, potato chips, mixed beans, mixed nuts, and peanuts. Weilong directly showcased its results: according to announcements, in October 2023, Weilong sold 420,000 boxes of products through snack bulk retail channels, covering all categories including seasoned flour products, vegetable products, and soy products. Yanjin Puza also mentioned in its earnings call that in the first half of 2023, revenue from channels like snack bulk retail increased by over 200% year-on-year. Image source: Pexels In fact, "discount stores" are not a new concept. The two major U.S. discount chain giants, Dollar General and Dollar Tree, have seen continuous revenue growth for nearly 20 years since their listings around 2005, and both now have around 10,000 stores; Japan's 100-yen store brand Daiso and soft discount store brand Don Quijote have also grown steadily over the years. Taking Dollar General as an example, its discount stores are located closer to communities, with consumers typically living within a 3-4 mile radius, about a 10-minute drive, and the dense layout provides convenient shopping experiences, with about one community discount store per 10,000 people in the U.S. About 75% of its stores are in towns with populations of no more than 20,000, concentrated in population centers with a higher proportion of low-income individuals, and over half of its customers have annual incomes below $50,000. Moreover, daily necessities account for the largest share of products sold in Dollar General stores, usually exceeding 70%, including various daily chemical cleaning products, packaged food, health medicines, pet supplies, tobacco, etc., along with fixed $1 products and seasonal items to attract customers. From an overall trend perspective, although domestic snack discount stores are very similar to Dollar General in site selection logic, the format is still in early development, with main SKUs being snacks and beverages, and basically no other consumer goods. However, they are gradually evolving towards foreign grocery and discount stores, but due to the diversity and high merger value of China's snack industry, snack discount stores have stood out first. Based on public market information, some snack discount stores have begun selling pet snacks in-store, and it is not ruled out that more products will use this channel to quickly reach consumers in the future. Zhao Yiming founder Zhao Ding once admitted, "Competition among peers is getting increasingly fierce; we must find new opportunities."Recommended Reading