---
title: "The Snack 'War': Another Traditional Industry Being Eaten Up by the Internet"
description: "The snack industry is undergoing a transformation as internet-based brands like Three Squirrels and Bestore challenge traditional players. With e-commerce driving growth, these new companies focus on branding and digital sales, while facing challenges in offline expansion and market consolidation."
author: "张茹"
publisher: "New Distribution"
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published: "2019-06-09"
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# The Snack 'War': Another Traditional Industry Being Eaten Up by the Internet

> The snack industry is undergoing a transformation as internet-based brands like Three Squirrels and Bestore challenge traditional players. With e-commerce driving growth, these new companies focus on branding and digital sales, while facing challenges in offline expansion and market consolidation.

Click 'Read Original' for details.
Source: China Newsweek (ID: chinanewsweekly)
Author: Zhang Ru

In the snack section of Beijing BHG Premium Supermarket, a few people stand scattered. A customer with a child has a few items in their basket, while others glance and walk past quickly. The shelves are neat, full of colorful products, yet lacking appeal.

The mall is quiet, but online is bustling.

Nuts and roasted seeds, dried meat and jerky, preserved fruits, candies and chocolates—there is a wide variety. Just the images are enough to whet one's appetite. After browsing a few, one is dazzled. Then, with discounts, full-reduction offers, and coupons, the fence of rationality is finally broken, and one happily adds to cart, pays, and completes the order in one smooth flow.

Snacks have finally become a big 'cake.' In one brand's online store, the monthly bestseller exceeds 500,000 orders, almost unimaginable for physical stores. During the 2018 Double 11, Three Squirrels and Bestore ranked in the top three in food sales with 682 million and 400 million yuan respectively. The other company in the top three was Moutai, the national liquor.

In the fiercely competitive snack industry, customer retention means the rise and fall of brands, and changes are quietly taking place.

**Big Water, Big Fish**

Most post-80s' childhood memories of supermarket shopping can be summed up by a series of snack giants, such as Danone and Kraft for biscuits, Mars (Dove, Snickers, etc.) for chocolates and candies, and Pepsi for puffed snacks and beverages.

These mature foreign companies entered China with the reform and opening-up policy, quickly overwhelming local snack manufacturers that lacked brands, had limited variety, and were highly fragmented. They occupied supermarket shelves and became the primary choice for a generation of shoppers.

It was not until twenty years later that new waves emerged.

Between economic development and changing social needs, new opportunity windows appeared. Local snacks that were healthier and more suited to Chinese tastes began to sprout and compete with imported products.

The landmark moment was the start of e-commerce for snacks in 2010. Companies like Three Squirrels, Bestore, and Zhou Hei Ya rode the wave, receiving billions in capital investment and accelerating their growth. According to a Ministry of Commerce report, from 2006 to 2016, the compound annual growth rate of China's snack industry reached 17.98%.

From 2015 to 2017, Bestore's compound growth rate reached 31.5%, far exceeding the industry average.

According to its prospectus, Three Squirrels' revenue grew from 924 million yuan in 2014 to 2.89 billion yuan in the first half of 2017. Founder Zhang Liaoyuan stated that the company's full-year revenue in 2017 was 6.85 billion yuan, outpacing many traditional companies like Want Want and Master Kong.

A comparison: Sanquan, a frozen food company, took eight years to expand from a single base in Zhengzhou at the time of its listing to now having large bases around Beijing, Shanghai, Guangzhou, and Sichuan, and from a few rice and flour product lines to over a hundred categories.

'Don't talk about $1.5 million today. Even if you give me 100 million yuan, I couldn't create another Three Squirrels on Tmall because the Taobao dividend is gone,' Zhang Liaoyuan attributed Three Squirrels' success to stepping on the rhythm of internet development at every turn.

The market is also changing. Once, offline channels were king, and only strong brands could secure a place on supermarket shelves. Haitian Soy Sauce and Master Kong each had tens of thousands of distributors. With the growing prosperity of e-commerce and social media, channels have long been fragmented, and the market is increasingly dispersed.

With the power of capital, China's snack industry has completed a comprehensive upgrade from production to channels in a decade. Bestore, which started offline and has the most mature sales channel integration, saw its online revenue share grow from 26.5% in 2015 to 44.8% today. Internet snack brand Three Squirrels relies almost entirely on online sales, with a ratio of 90%, far surpassing traditional companies like Master Kong (14%) and Want Want (11%).

**From 'Making Products' to 'Building Brands'**

Expanding the snack industry chain, two curves with different trends are clearly visible.

Traditional companies' high ground is 'forward-leaning,' with the largest investment in R&D and production. New companies, on the other hand, have the lowest participation in this segment. They excel at using digital sales methods, building brands, and leveraging strong operations to shorten the distance between them and customers.

Take Three Squirrels as an example. This snack company hardly produces snacks itself; it is more like an industry chain platform: it designs products, sources raw materials from nearly 500 upstream suppliers, has partner processing plants produce them, sells them on e-commerce platforms like Tmall and JD.com, and then delivers them to customers via courier. Compared to traditional companies, it is asset-heavy in capital but asset-light in fixed assets, focusing on online operations rather than traditional channels.

Lighter and faster. In this model, companies can quickly capture and respond to customer needs, adjust production lines at low cost, and facilitate diversified, decentralized production. Three Squirrels currently has over 200 categories, while Lai Yifen, established ten years earlier, has only over 1,000 categories.

Selling snacks is a high-frequency, high-substitution, high-coverage mass business, and it is common for different brands' products and prices to 'fight' each other. As Bestore's prospectus mentions, leisure snack brands have a high degree of product homogeneity, with categories ranging from nuts to duck necks, making them competitors with Qiaqia, Juewei, and Zhou Hei Ya.

In a red ocean, how to win customer attention?

Among Chinese snack brands, too many have 'aged before getting rich'—the White Rabbit and Jianlibao in memory have lost the interest of young consumers due to outdated products and channels.

Bestore's path is to shift to high-end, launching premium snacks with a comprehensive push in visuals, brand, content, and products. It has successively changed its brand ambassador and logo, adjusted store structure, expanded overseas, and opened multi-format super retail stores, showing an urgent desire for change.

The attempt seems not to have gone smoothly. During the Spring Festival peak season in January-February, Bestore's sales of higher-priced premium gift boxes fell by nearly 10%, and its market share declined, falling behind Three Squirrels and Haoxiangni, which acquired Baicaowei. This shows that customers are still price-sensitive when it comes to snacks.

According to CBNData's '2018 Online Snack Consumption Trend Report,' the largest consumer group for online snack consumption is aged 23-28, and the post-90s generation's preference for snacks far exceeds that of other age groups. Despite limited spending power, these young people like novelty and prefer options that resonate with their personality and emotions.

When you shop on Taobao and are called 'dear,' you won't remember which store it is, but the one that calls you 'master' is almost exclusively Three Squirrels.

'The soul of our brand is fun. By creating brand IP images, down-to-earth social marketing, and other fun creative communication, we make the brand close to young people. This is our most prominent advantage.' Three Squirrels' logo is three squirrels with wide-open mouths. They have also released anime and picture books, providing thoughtful service and cute marketing to give customers a three-dimensional perception of the brand and strengthen the connection with customers.

Whether an industry can produce a 'unicorn' company is directly related to its own operations, but the overall environment of the industry is also inseparable.

The 'China Food Industry Development Report (2012-2017)' states that the 'small, weak, and scattered' pattern of the domestic food industry has not fundamentally changed—among the 11.8 million licensed food production and operation enterprises nationwide, the vast majority have fewer than 10 employees, and small and micro enterprises and small workshops still account for over 90% of the industry.

The embarrassing reality is that most snacks we eat today, whether branded or not, are basically produced by contract manufacturers. These small factories each have their own production standards, rough management, and questionable quality (some big brands still have food safety issues), making integration quite difficult.

'We have to spend more money to ensure quality,' said Bestore founder Yang Hongchun, noting that low net profit has become a common problem across the industry.

**A Fragmented Market**

In 2017, there were 2,771 leisure food companies in China, with no clear leader.

Euromonitor data shows that from 2011 to 2018, the top three listed companies in China's leisure food market each had a market share of less than 20%. In 2018, the CR3 of China's leisure food industry was only 19.7%, indicating a still low industry concentration.

Statistics on China's leisure food industry concentration from 2011-2018
Figure/Forward Industry Research Institute

'The industry is too big; who knows how it will develop?' Yang Hongchun said. 'The few of us together don't even have a few percentage points.'

Setting aside the complex offline market, the online landscape has already taken shape.

Three Squirrels at 14.3%, Baicaowei at 9.8%, and Bestore at 3.7%—the top three online players have basically formed. That is why every move of Three Squirrels and Bestore after launching IPOs has attracted attention. Given their sales volume, the importance of their listing on the capital market to the entire industry is self-evident.

Figure/Guotai Junan Securities Research Report

Now, whether in terms of category or sales channel, major brands are converging, all vying for a piece of the snack 'cake.'

Qiaqia, which mainly focuses on sunflower seeds and roasted nuts, has begun to enter the nut market. At the 2018 annual shareholders' meeting, Chairman Chen Xianbao stated that the company would fully position itself in the nut field and was determined to 'all in on nuts.'

Want Want, which has gone through a 'midlife crisis,' has tried a series of eye-catching cross-border marketing campaigns like Want Want sweaters, steamed bun sofas, and Bond Coffee Sauce. It is now increasing its offline direct-operated stores, planning to open 150 themed stores nationwide by the end of the year.

Bestore's offline stores are gradually shifting from street-side stores to shopping mall stores. Currently, nearly 400 shopping mall stores have entered top business districts in cities like Wuhan, Nanjing, Hangzhou, and Chengdu. In the future, more than half of new stores are planned to be concentrated in large shopping malls.

Three Squirrels is also accelerating its offline pace. Its prospectus states that it plans to open offline experience stores in second- and third-tier cities, using raised funds to complete the layout of 100 stores within a two-year construction period.

'Online sales have reached a node,' Zhang Liaoyuan summarized in an interview last year, stating that in the future, Three Squirrels will choose two routes: self-operated stores and Alibaba's Retail Link. This includes self-operated 'feeding stores' of over 200 square meters, focusing on consumer experience and product display, with plans to open 150 in 2019.

Snack brands that have sunk down with early advantages still face numerous challenges. One example is that in 2018, Zhou Hei Ya's rapid growth came to an abrupt halt, with both revenue and net profit declining. The full-year net profit was expected to fall nearly 30% from the previous year, marking its worst 'performance decline' since listing. The root cause is that Zhou Hei Ya has basically completed its layout in first- and second-tier cities, and it struggles to acquire customers in lower-tier markets, making profitability difficult.

Leveraging internet advantages, snack e-commerce companies bypassed the channel barriers of traditional giants and grew rapidly. However, after entering offline, how to drive traffic online, break through online growth bottlenecks, maintain store efficiency while expanding, and increase profitability will be challenges all snack brands need to face.

How to win is not a question that can be clearly answered at the moment. After all, the market is vast, and the only constant is change itself.


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