Landscape and Trends
First, let's discuss the industry's landscape and trends. There are three trends to watch: Trend 1: Southern core cities are basically covered, and the industry is now in a phase of mutual cross-attack. Trend 2: Top players are accelerating their entry into the northern market. Trend 3: The validation of the northern store model before year-end will determine the next steps for industry expansion. Before diving into specifics, let's outline the main players. In the previous article, we mentioned that if simply divided, 2010-2017 was the budding period for snack hard discount; 2017-2023 was the accelerated growth period. Among these, 2022 was a key node, with capital injection, dense media coverage, and many regional snack hard discount stores being established. Currently, although there are many snack hard discount stores across the country, based on total store counts and growth momentum, the main players are as follows: Snacks Very Busy, Love Snacks, Snack Premium, and Dai Yonghong, headquartered in Hunan; Snacks Youming, headquartered in Sichuan; Zhao Yiming, headquartered in Jiangxi; Wife's Adult, headquartered in Zhejiang; and Sugar Nest, headquartered in Fujian. In terms of total store count, Snacks Very Busy, Snacks Youming, and Zhao Yiming are in the top three. Additionally, the listed company Wanchen Biology, which entered through acquisitions in the second half of 2022, currently owns five chain brands: Jiangsu's Hao Xianglai, Lai Youpin, Lu Xiaochuan, and Snack Workshop, and Jiangxi's Ya Di Ya Di. Currently, Snacks Very Busy, Snacks Youming, Zhao Yiming, and Wanchen Biology, including Love Snacks with its rapid growth, are all accelerating cross-province expansion. Wife's Adult in Zhejiang and Sugar Nest in Fujian are chain brands established before 2017, mainly operating in their home bases. The rest are local chain brands with 100-200 stores or even dozens. Next, let's discuss these three trends. Trend 1: Southern core cities are basically covered, and the industry is now in a phase of mutual cross-attack. The main industry players are basically distributed in the south. After establishing a firm foothold in their respective base markets, they have been expanding to other provinces since the end of last year. For example, Snacks Very Busy, mainly in Hunan and Hubei, with Zhao Yiming in Jiangxi to the east and Snacks Youming in Sichuan to the west, has chosen to expand westward to Chongqing and southwest to Guangxi. Snacks Youming, based in Sichuan and the Guangdong Greater Bay Area, is moving into Jiangxi. Zhao Yiming, with Jiangxi as its base, is expanding to neighboring provinces such as Anhui, Hunan, Hubei, and Guangdong. Love Snacks has grown from Hunan to Hubei and is now vigorously developing Sichuan. Along with regional chain brands in other provinces, overall, southern core cities are basically covered, and the industry is now in a phase of mutual cross-attack. Trend 2: Top players are accelerating their entry into the northern market. In major cities in northern provinces, snack hard discount formats have emerged, such as in Shaanxi, Hebei, and Shandong. This includes both the chess-like layout moves of top players and local small regional brands. The current focus is on Henan. Geographically, from south to north, Henan cannot be bypassed, and as a populous province, it is coveted by all chain brands. Seizing prime locations, opening stores adjacent to competitors, and price wars on the C-end are currently intense among some top brands in the Henan market. Trend 3: The validation of the northern store model before year-end will determine the next steps for top players' expansion. Retail requires a period of testing and validation to obtain a relatively effective store operating model. In terms of consumer habits, there are differences between north and south; for example, compared to the south, roasted seeds and nuts are an important category in the north. Why before year-end? Because winters in the north are cold, and it gets dark early; how consumers will behave in stores needs validation. By this winter, with abundant data, it will be clearer whether the store model is working, whether to accelerate expansion, or to consider other options. Snack hard discount has been accelerating since the end of 2022, and the competitive landscape is changing rapidly, beyond many people's predictions. Some say it's a money-burning game, others say it's a passing fad that won't last. There are many media reports, but most are superficial piles of data and information, rarely discussing its essence. Next, I will cut into the industry from two dimensions: "competition" and "hard discount" to help you better understand the snack hard discount industry.
The Essence of Competition
First, let's talk about competition. Last month, I visited a friend who runs a community retail business. Over the past few years, they have combined online group buying for low-price traffic, supply chain incubation, and offline store product selection capabilities to create an innovative community retail model. I asked him if there was anyone in China with the same model. He said no. I asked why. He said others can't learn it. I said, if your innovative model has no followers and no competitors, you need to think about whether your model is replicable and how big the scale and imagination space really are. What am I trying to say with this? Competition proves you've found the right place; the intensity of competition reflects the industry's scale and future imagination space. Why is snack hard discount the right place? Data shows that in 2022, China's leisure snack market size exceeded 1.5 trillion yuan, with a compound annual growth rate of over 10%. This is a big market. In this big market, who are snack hard discount stores competing with? Anyone vying for the same customer base is a competitor. But "compete" and "contend" are different—same direction is compete, opposite direction is contend. What does that mean? In 2022, leisure snack sales channels included supermarkets, mom-and-pop stores, e-commerce, hypermarkets, and convenience stores, accounting for 39.7%, 16.6%, 15.5%, 12.6%, and 7.7% respectively. Before 2023, snack hard discount stores were in a "compete" relationship with each other because, as a new channel model, they were together vying for market share from the above channels. How rapidly has this format developed? Look at its growth rate: In 2021, it was less than 10 billion yuan; in 2022, about 30 billion yuan; in 2023, it's expected to reach 70-80 billion yuan. This includes both cuts from existing channels and stimulated increments—the new scenarios created by snack stores easily lead to impulsive consumption. As an innovative channel, early on, various chain enterprises maintained a benign "same-direction compete" relationship. But since this year, the competitive situation has changed rapidly. The southern market has shifted from "compete" to "contend," while in the process of entering the northern market, both "compete" and "contend" exist simultaneously. Next, close combat and mutual fighting will accelerate. This is inevitable in the development of things. Any new thing can be divided into four stages, and the core strategies for different stages are different. Stage 1, budding period, the core is innovation. Through model innovation, quickly gain market recognition. Stage 2, growth period, sales volume is key. Only with sales volume can there be scale—in homogeneous competition, scale is the moat. Stage 3, maturity period, profit is most important. Through synergies and brand moats, ask the market for profit. Stage 4, decline period, cost is most critical. All declines are essentially replaced by lower-cost, more efficient models. Currently, snack hard discount is in the accelerated growth period. The land grab is ostensibly to lock in advantageous regions, but essentially it's for sales volume, for scale, and to win on efficiency in the future. Recently, I've been in contact with some local small chain brands. They basically entered at the end of last year or the beginning of this year. With local resources, quick imitation capabilities, and enthusiasm for catching trends, they quickly opened 100-200 stores. But in reality, many people entered the battlefield without knowing what kind of battlefield it is, how big the war will be, what competitors they face, and what resources are needed. Remember, the real battlefield is not in close combat, but before the war begins. What does that mean? Various snack stores look similar in decoration, product selection, and display. When competition occurs, you see promotional wars and price wars, but what's truly important is what you can't see. Next, I will break down snack hard discount chains in detail, and you will understand the essence of this industry.
The Essence of the Industry
Why do I say the concept of "hard discount" makes it easier to understand the essence of this industry? ALDI is a typical representative of traditional hard discount, and its core lies in: low gross margin, high turnover. The manifestation is: limited SKUs, simple decoration, small to medium area, private labels, low prices, and no value-added services. To understand hard discount, you can look at this book: The author once served as a member of ALDI's management committee, and this book is almost the only book globally that deeply discusses ALDI's model and methods—I discussed ALDI's influence in the hard discount field in my previous article. Of course, China's snack hard discount is not exactly the same as ALDI. ALDI deals in food and daily necessities, which are more daily necessities and purposeful consumption, while snacks are impulsive consumption. The category attributes determine different terminal manifestations, but in the pursuit of low gross margin and high turnover, they are consistent. During economic downturns, the public has a greater demand for more cost-effective goods. Through low prices, convenience, and experience, consumers are drawn into snack hard discount stores, and then money is made through low gross margin, high turnover products. Hard discount is not new; it's a format that has been validated over long cycles in developed markets. Returning to our core topic—where is the true battlefield for snack hard discount chains? It's a company's systemic capabilities. Specifically, we analyze from three aspects: front-end operational support, back-end supply chain efficiency, and product selection capabilities that span both ends. First, front-end operational support. Store location is the foundation, and I won't elaborate here. Stores in similar locations may look similar, but sales can vary greatly. Why? The role of snack store staff is to stock shelves, display, weigh, and settle; they don't make recommendations. Sales rely on the product's silent selling power. What products does a store eliminate? What does it bring in? For bulk items, look at monthly sales per bin; for packaged items, look at individual SKUs. Through data aggregation and analysis at headquarters, it's easy to know which products sell well and which don't. At the front end, the headquarters must provide capability output. The operations supervisor plays this role. Besides daily operational standards, an important function of the supervisor is to communicate with stores, translating data analysis and insights into specific replacement and new product actions to achieve high turnover and sales. Of course, this also involves product selection capabilities. "Internet-famous products" in a fragmented market must be sold quickly and centrally. Snack stores must maintain a certain elimination rate. On a monthly basis, through continuous data comparison and analysis, do bottom-end elimination to improve overall sell-through and turnover. Deciding what to eliminate relies on data; deciding what new products to bring in relies on the product selection team's capabilities. Then, at the store level, through operational support, it's converted into actual sales. Refined operations are very important, and there are big differences among companies. Why is product selection said to span both ends? Because products come from suppliers, which involves a core—back-end supply chain efficiency. Why are snack store prices low? The key lies in supply chain efficiency. Two points to focus on: First, timeliness and distribution costs. We see street-side stores, but effective expansion requires a warehousing and distribution center; otherwise, costs won't come down and distribution won't keep up. This is a large investment and an industry barrier. Second, look at the out-of-stock rate. Especially for high-turnover products, avoid stockouts; it affects consumer experience and, more importantly, single-store output. Of course, the core of supply efficiency also lies in cutting out intermediate links. In the traditional distribution model, from factory to brand central warehouse, to first-tier and second-tier distributors, to terminals, and finally to consumers, the markup rate is between 1.8 and 2. What about snack hard discount? Directly from factory to the company's warehousing and distribution center, then through terminals to consumers, with a markup rate between 1.3 and 1.4. This is why snack store prices are 20-30% lower than other channels. These are closely related to the bargaining power with suppliers. Sales volume determines bargaining power, bargaining power affects efficiency, and efficiency affects sales volume—scale basically equals efficiency, and this is a positive feedback loop. For your understanding, let's do a simple breakdown: Snack hard discount chain = upstream centralized procurement + logistics distribution + front-end delivery + consumer insight Only when each module is done well can systemic capabilities be formed. Snack hard discount is a true efficiency revolution. Whether you are a brand owner or a distributor, you need to think about how to face it. The real battlefield is not in close combat, but before the war begins—this statement applies not only among snack hard discount players but also to the challenge this model poses to traditional distribution models. Snack hard discount achieves the integration of distribution and retail, which is fatal to distributors and also has a huge impact on brand owners' channel systems. I will write a separate article to deeply interpret the impact and challenges of snack hard discount on traditional distribution models. What we can't see is the true battlefield of snack hard discount competition. Some people start with the goal of a 10,000-store scale and design resource allocation accordingly; others use limited funds to catch a trend. The founder's values, vision, and strategic capabilities will determine the company's direction and the future competitive landscape of the industry. In the next two to three years, regional small and medium players will accelerate the reshuffle. How will the leading chain enterprises develop? I won't make any predictions here. I want to say: War is not about struggle and sacrifice; it's about endurance and suffering. If you win this war, it may not be because you did something right, but because your opponent did something wrong.
Final Words
Finally, let's talk about how we view new things. First, look at data; data represents rational reasoning. If it affects business, don't recognize it; if it's outside your cognitive range, deny it; habitual negative judgments to show depth. Such emotional and intuitive judgments are not advisable. Second, look at history. Is this truly new, or has it existed before? What are similar situations, and what are others' experiences? Third, look at logic. What is logic? Simply put, it's the framework and rules of thinking. Study data to understand the current state. Study history to know how the present came to be. Combine the two and use logical deduction to judge the future direction. Snack hard discount will face various situations you might anticipate: quality issues, franchisee bankruptcies and losses, vicious competition, etc. But remember, consumer demand is the nuclear reactor, and the replacement of inefficiency by efficiency is the direction of business evolution—this is our big logic. This is the second article in the "Snack/Discount" series. For subsequent interpretations, please follow New Distribution. We have established a community on the theme of "Snack/Discount." If you're interested, you can add our WeChat to join. Additionally, the "Distributor Member Club" will hold its second sharing session this month on August 10th.