As cities rush to revive consumer sentiment, snack stores with minimalist decor and footprints rivaling Miniso stand out. Recently, Bestore opened a 1,200-square-meter superstore in Wuhan, becoming its largest store nationwide and making a significant splash in the snack industry. The new store attracted over 10,000 visitors in its first three days, with cumulative sales exceeding 760,000 yuan. Bestore's development in recent years has been less than satisfactory, starting with capital reductions and followed by negative publicity. Although its full-year revenue continued to grow in 2022, both growth rate and profits slowed markedly. By 2023, the company closed 122 stores in the first quarter, and of the 346 stores closed last year, 227 were loss-making. Despite this, Bestore remains committed to offline channels. The new Wuhan store is three to four times larger than typical snack retail stores and offers over 3,000 products. In recent years, the snack industry has found less success in e-commerce compared to offline. According to the "2022 China Leisure Snack Industry Research Report," offline channels remain the primary sales channel for domestic leisure snacks, with snack stores, supermarkets, and convenience stores accounting for 83% of total sales, while online channels account for only 13%. This has driven a wave of internet snack brands to go offline. Besides Bestore, Three Squirrels and Be & Cheery have also opened numerous stores. Fleeing the internet has become a collective self-rescue strategy for internet snack brands.
Unsustainable Marketing, Unreturnable Offline Compared to other internet snack brands, Bestore originally started offline. In 2006, Bestore opened its first store in Wuhan, and its expansion accelerated, surpassing 1,000 stores by 2012. That same year, Bestore formally established its online channel. By 2016, its online revenue reached 1.425 billion yuan, growing to 4.858 billion yuan by 2021, more than tripling from 2016. In other words, Bestore has long had offline roots among internet snack brands. Currently, online and offline revenue are roughly balanced, but from the company's actions and future plans, it's clear this snack giant has shifted its course toward offline. In 2023, Bestore announced plans to open 1,000 new stores. According to its 2022 financial report, Bestore had 3,226 stores, with 661 new directly-operated and franchise stores opened last year, contributing 49.58% of revenue. Once upon a time, Bestore, Three Squirrels, and Be & Cheery formed a tripod in the internet snack world. What has made Bestore nostalgic for the offline market? First, the collapse of online channels cannot be ignored, especially with the rise of countless new brands amid the live-streaming and short-video boom. Brands like Wangxiaolu, Wangbaobao, Snack Research Institute, and Xuanma often dominate live-streaming rooms, naturally holding online advantages from birth. Bestore has been hit hard by new brands with little room to fight back. According to a research report by BOC International, as early as 2021, the top three snack brands by market share—Three Squirrels, Be & Cheery, and Bestore—held a combined 17.3% market share on Alibaba's platform, down 3% year-on-year. In December 2021, Wangxiaolu's sales rose 37.2% against the trend. The aggressive rise of newcomers triggered a chain of butterfly effects. As online presence declined, Bestore had to continuously increase sales costs. Since 2015, Bestore's sales expenses have steadily risen, from 1.288 billion yuan in 2020 to 1.672 billion yuan in 2021 and 1.756 billion yuan in 2022, accounting for 16.32%, 17.93%, and 18.6% of revenue, respectively. Other major brands face similar issues. For example, Three Squirrels' 2022 annual report shows that nearly 70% of its revenue came from online channels, with promotion and platform service fees reaching 979 million yuan. However, the results of burning money were disappointing: revenue from third-party e-commerce was 4.788 billion yuan, down 26.09% year-on-year.
Perhaps shifting to offline is a win-win solution, reducing some marketing costs while capturing offline consumer markets to compensate for online deficiencies. Offline channel costs are lower than online. Take Lai Yifen, which has always focused on offline, as an example: last year, its marketing expenses decreased by 5.89% year-on-year instead of increasing.
However, after years of intense online competition, are there still opportunities in offline? Moreover, Bestore is not the only brand opening physical stores. As of December 31, 2022, Lai Yifen had 2,128 directly-operated stores and 1,494 franchise stores, a net increase of 200 stores year-on-year. Offline channels, including direct sales, franchising, and distribution, contributed over 87% of revenue. Additionally, a large number of snack retail brands are surging in: Mrs. Lao Po, Snack Busy, Snack Youming, Zhao Yiming Snacks, and others. Among them, Snack Busy, founded in 2017, has surpassed 3,000 stores nationwide, with over 1,000 new stores added in the first half of 2023 alone. Whether Bestore can withstand this pressure remains to be seen.
The Crazy Expansion of Snack 'Stores' Compared to the past, today's snack stores have changed dramatically. Take Bestore's new store as an example: the space is divided into 11 sections, including not only snacks but also other segmented scenarios such as coffee, sugar control, and fat control, catering to fitness enthusiasts, infants, and the elderly. Bestore has long been planning for segmented tracks. As early as 2020, Bestore launched a children's snack sub-brand, "Bestore Xiaoshixian," to deepen its presence in the children's snack market, with products including nutritious lollipops and rabbit-shaped hawthorn sticks. For the silver-haired generation, it introduced low-GI snack series; for fitness enthusiasts, it incubated the sub-brand "Bestore Feiyang." With the wellness trend surging, Bestore also launched products like bursting sesame balls and bird's nest coconut stew series. Clearly, walking into a snack brand store, one side of the shelves displays cola, chips, and spicy strips, while the other side quietly builds product systems for various scenarios and segmented needs.
Since when have snack brands placed such emphasis on product updates? By the end of 2021, Bestore had covered 15 major categories, including meat snacks, seafood snacks, vegetarian mountain delicacies, preserved fruit, red dates and dried fruit, and nuts and fried goods, with a total of 1,555 SKUs across all channels. In the first half of last year alone, Bestore launched 398 new SKUs. The rapid update speed is driven by two factors. On one hand, in the entire snack track, beyond the broad consumer market, the consumption potential of segments like fitness, children, and the elderly is significant. For example, according to the "Children's Snack Market Survey White Paper," the current children's snack market size is about one-tenth of the leisure snack market, and it is expected to reach 150 billion yuan by 2023. JD.com consumption data shows that from January to August 2022, food and beverage accounted for the highest proportion (13.4%) of orders from the "silver-haired" group. The "2023 Health Food Consumption New Potential White Paper" released by Magic Mirror Market Intelligence shows that China's health food market reached 957.565 billion yuan in 2020 and is expected to exceed 1.5 trillion yuan by 2025. More critically, no true leader has yet emerged in these segments. On the other hand, after Bestore's pork jerky became its first 500-million-yuan product in 2021, its subsequent hit product capabilities have been lackluster. The homogenization of snack brands is alarming. For pork jerky alone, there are over ten brands with both good reputation and sales, including Be & Cheery, Three Squirrels, Weiziyuan, Qingzhifang, Shuangyu, Aodan Traditional, Fuluyuan, Hengchenzhen, and Manpu. Bestore is determined to create the next hit product, which means the brand's product development must be constantly innovative. Last year, Bestore launched new products such as chia seed whole wheat toast, hand-torn jerky, crispy pork jerky, and 0-added-sucrose dried yellow peaches, with decent results: new product sales increased 57.4% year-on-year. Although there is still a distance from achieving hit status, this does not hinder the brand's efforts. Snack stores are expanding crazily, and brands want to achieve all-around coverage in an increasingly downgraded consumer market, which is expected. At the same time, they are also planning to enter the catering track, adding categories such as coffee, bakery, short-shelf-life bread, Chinese pastries, beverages, and imported products. In fact, as early as 2021, Bestore attempted "Tbreak Bestore Tea Break" stores, and Lai Yifen also officially launched its coffee brand "Laika," which has entered over 400 Lai Yifen stores, but neither has made much of a splash. Perhaps in the near future, snack stores will focus on everything except snacks.
Does the Snack Industry Not Believe in Franchisees' 'Tears'? In the offline store layouts of several major snack brands, franchise stores have already become a significant pillar. Bestore had 718 directly-operated and 1,698 franchise stores in 2020, growing to 998 and 2,228 respectively by the end of 2022. Lai Yifen's franchise stores have also exceeded 1,400. New snack retail brands, including Snack Busy, Mrs. Lao Po, Zhao Yiming Snacks, and Snack Youming, mostly choose to open franchising to grow wildly. Snack Busy recently announced surpassing 3,000 stores, adding 1,000 in the first half of the year alone. Not long ago, Snack Youming, which secured a B+ round of financing, even claimed it would open 16,000 stores by 2026. Looking around streets and alleys, clean and stylish snack collection stores are indeed increasing. Forward predicts that the compound annual growth rate of China's leisure food industry market size will be around 10% from 2023 to 2028, reaching approximately 2.6 trillion yuan by 2028. Will franchising a snack store be a good business? It is reported that current franchise snack stores generally require a store area of about 100 to 120 square meters. Taking Zhao Yiming Snacks, which Bestore has invested in, as an example, the brand's franchise hotline shows that franchise stores must be no less than 120 square meters, with a storefront width of no less than 8 meters. The location should preferably be in a commercial street or shopping center, within a business district with a foot traffic of no less than 50,000. In terms of costs, the franchise fee is 38,000 yuan, a deposit of 20,000 yuan, an annual management fee of 9,600 yuan, and decoration costs of 80,000 to 120,000 yuan. Excluding rent and transfer fees, the initial investment is about 500,000 to 600,000 yuan. It is reported that Zhao Yiming's comprehensive gross margin is 18%-20%. How long will it take to recoup the investment for such a store? If gross margin is 20%, monthly rent is 12,000 yuan, utilities and miscellaneous expenses are 5,000 yuan, and labor costs are 16,000 yuan, the monthly break-even point is 155,000 yuan. To recoup in 18 months, monthly sales need to be 372,000 yuan, or 12,400 yuan per day. With an average transaction value of 40 yuan, that means selling 310 orders per day.
However, not every franchisee can smoothly survive these long 18 months. First, the proliferation of snack stores makes it difficult for franchisees to profit steadily in a crowded environment. According to Zhao Yiming Snacks' official website, it currently has over 1,800 stores, with a 95% success rate, an average of over 200 new stores per month, and a 65% rate of franchisees opening second stores. Previously, someone on Xiaohongshu revealed that there were six snack stores on one street. Amid the store-opening boom, the frequency of store closures cannot be ignored. In Chongqing, a local brand called "Zuishang Snacks" had over 200 stores at its peak, but now nearly 30% of its stores have closed, and closures continue. Second, as snack stores squeeze each other, the average transaction value in the consumer market is decreasing. Previously, a survey showed that under the bulk snack model, product unit prices range from 3 to 15 yuan, with per capita consumption between 25 and 30 yuan, still a gap from the 40 yuan franchisees expect. To reverse this situation, since June this year, price wars among major snack retailers have been imminent. According to statistics from New Consumption Daily, Zhao Yiming Snacks launched Dragon Boat Festival discounts combined with regular full-reduction offers, and some Zhao Yiming franchisees offered 6.5 or 5.5 discounts to attract customers. Snack Youming and Snack Youxuan used Douyin group-buy coupons with discounts. Mrs. Lao Po launched a "spend 100 get 50 off" promotion for its anniversary. Dai Yonghong attracted customers with "9.9 Zhong Xuegao" and small gifts. Xiaoxin Henmang launched a 30% discount across all stores. Whether these measures work remains to be seen. On Xiaohongshu, there are countless snack franchisees transferring or fleeing, but even as their enthusiasm wanes, the vitality of the entire snack market remains. According to a research report by Huachuang Securities, it is estimated that by 2025, the number of domestic snack collection stores could reach 30,000. However, according to Zhaimen Canyan data, as of the end of 2022, the total number of domestic snack collection stores had reached about 13,000.
This means there is still market space for nearly 20,000 stores, waiting for the next batch of franchisees. The business world does not believe in tears; someone will always enter the game.