▲Image source: Three Squirrels official Weibo
In the first half of 2021, Lai Yifen's profit increase without revenue growth was related to investment income. Annual report data shows that Lai Yifen's wealth management products and equity transfer gains in H1 2021 were 68.0368 million yuan, accounting for 62.81% of net profit. In other words, without this substantial investment income, Lai Yifen's net profit in H1 would still be in a loss state; moreover, such income unrelated to main business is not sustainable. In the post-pandemic era, snack consumption is gradually stabilizing, and traditional festivals like the Mid-Autumn Festival in H2 2021 and e-commerce shopping festivals are expected to drive further performance growth. "Bu Er Research" believes that whether the three snack manufacturers can seize the opportunity in Q4 2021 still depends on their channel and product accumulation, and tests their adaptability to new consumption trends.
****Channels: Online involution vs. shifting offline
The rise of online shopping channels has spawned many e-commerce snack brands, with Three Squirrels being a prominent representative. Currently, the growth dividend of platform e-commerce has peaked, manifested in reduced revenue contribution and higher platform fees. The 2022 annual report shows that nearly 70% of Three Squirrels' revenue comes from online channels, with promotion fees and platform service fees reaching 979 million yuan, a decrease of 347 million yuan year-on-year. The spending did not translate into revenue; revenue from third-party e-commerce was 4.788 billion yuan, down 26.09% year-on-year. Bestore also faces high marketing expenses, with last year's expenditure at 1.756 billion yuan, up 5.01% year-on-year. In contrast, Lai Yifen, rooted in offline stores, saw marketing expenses decrease by 5.89% to 1.203 billion yuan. "Bu Er Research" found that with significantly higher online customer acquisition costs and high total marketing expenses, the three snack manufacturers have reached a consensus: accelerate offline expansion. According to Frost & Sullivan forecasts, the total retail sales of China's leisure snack industry in 2022 will be approximately 1.56 trillion yuan, with offline retail sales reaching 1.30 trillion yuan, accounting for about 83%. Three Squirrels began offline expansion in 2019, opening two types of stores: Tou Shi Dian (feeding stores) and Lian Meng Xiao Dian (alliance stores). As of December 31, 2022, Three Squirrels had 23 feeding stores and 538 alliance stores, contributing 12.95% of revenue. According to Everbright Securities' June 2021 estimates, feeding stores are over 300 square meters with an average annual investment of 8 million yuan; alliance stores are about 70 square meters with an average annual investment of 1.25 million yuan. Bestore's offline stores are mainly direct-operated and franchised, with franchised stores currently the focus. Financial data shows that as of December 31, 2022, Bestore had 3,226 stores, with 661 new direct-operated and franchised stores opened last year, more than double the number of Three Squirrels' stores, contributing 49.58% of revenue. Lai Yifen has a completely different expansion logic. Unlike Three Squirrels' IP-based stores, Lai Yifen has always focused on the offline market, expanding offline chain channels through counters and shelves. As of December 31, 2022, Lai Yifen had 2,128 direct-operated stores and 1,494 franchised stores, an increase of 200 year-on-year. Offline channels including direct-operated, franchised, and distribution contributed over 87% of revenue. In terms of channel revenue contribution in 2022, Three Squirrels had a 60-40 split between online and offline, Bestore had a 50-50 split, and Lai Yifen had a 10-90 split. "Bu Er Research" believes that from actual revenue data, Three Squirrels and Lai Yifen have imbalanced channel layouts: the former relies heavily on online, the latter on offline. Bestore can be said to "walk on two legs" and stood out in the community group buying trend brought by the pandemic. In 2020, Bestore established a social e-commerce business unit, accelerating layout on channels like Douyin and Kuaishou, capturing early traffic dividends from community group buying. Financial reports show that in H1 2021, Bestore's group buying channel grew significantly, with revenue from this channel up 263.58% year-on-year. Lai Yifen also has advantages in community group buying, with dense offline layouts conducive to concentrated efforts. In H1 2021, Lai Yifen's community business grew 80% year-on-year, achieving performance of 160 million yuan. Three Squirrels joined multiple community group buying platforms like Meituan Select and Duoduo Maicai in H1 2021, with community group buying revenue growing over 300% year-on-year. Community group buying is a non-platform e-commerce; if its business logic can be proven, it may be a new opportunity for snack manufacturers' channel upgrades. However, community group buying is currently undergoing industry reshuffling. "Bu Er Research" believes that the group buying war relying on offline store networks, whether it is a channel upgrade or involution, and whether it can empower snack manufacturers, remains uncertain.
****Categories: Seizing niches vs. seeking comprehensiveness
"Bu Er Research" found that although the three snack manufacturers have relatively complete snack product matrices, their actual focuses differ. Three Squirrels uses a "nuts + selected snacks" product matrix, with single products like pecans and daily nuts. Although the 2022 annual report does not mention specific SKU data, Three Squirrels' investor relations activity record released in August 2021 shows it maintains a dynamic balance of 400-500 SKUs. In brand IP-ization, the three little squirrels represent nuts, flower tea, and dried fruits respectively. Its 2022 annual report shows that mixed nuts contributed 56.32% of sales, down 18.80% year-on-year.
▲Image source: Three Squirrels official Weibo
Bestore insists on full-category coverage. Its 2022 annual report shows Bestore has 17 categories and 1,655 SKUs. At the same time, it has launched children's snacks "Xiaoshixian," fitness snacks "Liangpin Feiyang," tea break products "Tbreak," breakfast and dinner meal replacements, and holiday gifts. Bestore CEO Yang Yinfen said in a 2020 interview with self-media "Xiaoshidai" that the future high-end strategy will be achieved by focusing on segmented markets. Lai Yifen's 2022 annual report shows it has 12 core categories, over 1,000 SKUs, and 400 newly developed SKUs. Additionally, Lai Yifen entered the sauce-flavored baijiu industry in 2020, launching the "Zui Ai" series of sauce-flavored baijiu. "Bu Er Research" noted that in nut products, Three Squirrels and Bestore have similar prices; in products like pork jerky, Three Squirrels is priced higher than Bestore. According to Taobao data, Three Squirrels' pork jerky is priced at 36.9 yuan/100g, Bestore's at 15.9 yuan/100g, and Lai Yifen's at 19.9 yuan/100g. According to Pacific Securities statistics, in H1 2021, the top three snack industry market share were Three Squirrels, Baicaowei, and Bestore, with CR3 at 16.88%, down 7.10 percentage points year-on-year, indicating a decline in leading companies' market share. Competition in the traditional snack track is intensifying. When popular categories become a red ocean, snack manufacturers seek a "second growth curve." Long-tail segmented markets are becoming a breakthrough point. "Bu Er Research" found that under the favorable stimulus of the three-child policy, infant and child food is becoming a new product focus for Three Squirrels and Bestore. Three Squirrels launched the "animal series" brand Xiaolu Lanlan in 2020, covering infant and child food for ages 6 months to 14 years, including products like rice seasoning seaweed, nutritional rice seasoning, and children's soy sauce. 2022 annual report data shows that in 2022, Xiaolu Lanlan's revenue was 491 million yuan, accounting for less than 7% of total revenue. Almost simultaneously, Bestore launched the Xiaoshixian brand, focusing on children's snacks for ages 3-12, with over 20 new SKUs including biscuits, jelly, functional candies, and children's fish sausages. The 2022 semi-annual report shows that Xiaoshixian's sales in H1 2022 were 219 million yuan, but profit was not disclosed.
▲Image source: "Meet in the Season" official Weibo
The three snack manufacturers are also trying to please younger consumers: Lai Yifen uses traffic star Fan Chengcheng as brand ambassador to leverage fan purchasing power; Three Squirrels has embedded in hit TV dramas like "Ode to Joy" and uses personified IP to occupy user minds; Bestore partnered with popular variety show "Call Me by Fire 2" last year, inviting Zhang Zhilin and Zeng Bite as brand ambassadors.
▲Image source: Screenshot of "Call Me by Fire 2" advertisement
Beyond celebrity endorsement marketing, they need fresh food to capture young people's stomachs again. Before the Mid-Autumn Festival last year, the three snack manufacturers launched mooncake gift boxes with "a bit" of youthful elements: "internet-famous" flavors, museum co-branding, premium packaging... To become bigger and more comprehensive, they must balance long-tail markets. Is it better to deepen in selected categories or continuously expand category boundaries? Regardless, they need young people to buy in.
In conclusion: Who can become the "new favorite" in the snack industry? Like many traditional industries, the snack industry seems to have reached a stage of breaking and rebuilding. Currently, the entire leisure food industry faces severe homogenization in products and channels; past hot products may no longer support the long-term development of the entire brand. One company's innovative attempts are often replicated by peers in a short time. This is the drawback of OEM production: brands do not have a true moat. Although traditional snacks have entered stock competition, no giant with an absolute "moat" advantage has emerged. With consumption recovery after the pandemic, its combination with snacks may breed more new opportunities. Amid rapid changes in channels, brands, and consumption concepts, new turning points may appear at any link. The battle for the "first snack stock" continues; who will dominate the trillion-yuan snack market remains to be seen.
This article references:
- "From Bestore's 15th Anniversary: The Business Wisdom of Leisure Snacks," Yilan Business
- "Why Three Squirrels Can't Run Anymore," Economic Daily
- "'June 1st' Approaching: The Trillion-Yuan Snack Market's 'Involution' Battle," Beijing Business Today