Snack shops are fighting a price war to snatch franchisees.

In China's snack market, competition among snack hypermarkets has entered a fierce stage. From price wars to various preferential policies for franchisees, major brands are seeking breakthroughs and expansion. However, this fierce competition has also brought a series of problems, including supply chain challenges, product differentiation difficulties and the risk of market saturation.

01 Starting a price war and competing for franchisees, the snack hypermarkets are in a fierce battle

"Real business wars are always so plain and simple!"

Recently, a Hunan consumer posted that in Shaoyang, Ningxiang and other places in Hunan, snack shops Henmang and Haoxianglai, which are located on the same street, have been engaged in a price war. According to the above consumers, the two newly opened stores are offering a 38% discount for members, which is applicable to all regular-priced items. Some Haoxianglai stores also offer a 15% discount, and after the discount, you can get a 10 yuan discount on a purchase of 35 yuan or more.

In Ningxiang, Hunan, some snack shops are offering 15% off on all regular-priced items. After the discount, you can get 16 yuan off for purchases over 30 yuan, 32 yuan off for purchases over 60 yuan, and 48 yuan off for purchases over 90 yuan. The final price is less than 50% of the regular price.

"Since Haoxianglai opened across the street, Snacks is Busy has started offering all kinds of discounts, three or four times a month on average, as if they were free." A consumer from Ningxiang said, "Haoshanglai has opened every store across from or next to Snacks is Busy. No one can resist taking advantage of the discounts, and the queues in the store start at two hours, with an average of three baskets per person."

Image source: Xiaohongshu

Franchisees have also felt the "run" among the franchisees. The latest franchise policy disclosed by the official WeChat account of Zhao Yiming Snacks shows that franchisees who sign contracts between July 1 and September 30 and open before October 30 can enjoy the "five zero" policy benefits: franchise, management, training, decoration, and service are all free. In addition, there are 100,000 yuan in one-time subsidies, promotion subsidies, and big sign subsidies.

Brands including Snacks Are Busy, Haoshanglai, and Snacks Youming have offered various preferential policies such as 0 franchise fees, 0 management fees, 0 training fees, and 0 service fees.

These brands also encourage franchisees to engage in close combat with stores of rival brands.

Many brands include certain "competitive product subsidies" in their franchise subsidies. For example, Snacks is busy saying that there is no upper limit on subsidies for opening a store within 50 meters of a competitor's high-selling store, and when engaging in a price war with the opponent, the subsidy for gross profit is up to 15%. On the other hand, Haoxianglai also said that anyone who opens a store within the range of a competitor will receive an additional subsidy of 50% of the store's annual rent.

Not only in Hunan, the competition among snack hypermarkets has long been fierce.

In January this year, a Hunan franchisee of Busy Snacks "complained" online that someone claiming to be a business investment staff of Haoshanglai asked him to flip the card. The video posted by the franchisee showed that the suspected Haoshanglai staff said that he could get a subsidy of 200,000 to 500,000 yuan for flipping the card.

The so-called "flipping the brand" means using high-priced cash or subsidies to allow competitors to change into their own franchise stores and reopen.

Subsequently, a notice suspected to be from the Snacks Group circulated on the Internet, stating that "a competing brand named Xianglai obtained confidential personal phone information of our franchisees through improper means, and guided our franchise stores to change to a certain Xianglai brand by offering attractive conditions." The notice was dated January 22.

On the other hand, several franchisees from another mass-market snack brand "Laiyoupin" (belonging to Wanchen Group) also released a joint letter on the social platform in January, saying that Laiyoupin franchisees have recently received frequent calls from business personnel of Zhao Yiming's company (a brand under the Snacks Group), requiring franchisees to change their signs and move stores at a high price, otherwise they will open a store next to or opposite it.

According to the Red Star Capital Bureau, both Snacks is Busy and Wanchen Group acknowledged the existence of the above situation, and at the same time called on the industry to stop irrational competition and promote the healthy development of the industry.

02 The bonus period is over. If you don’t expand, you may die.

Fighting for stores, snatching people, and competing on low prices all stem from the snack hypermarkets' urgent desire to expand.

Judging from the scale of stores, the leading players in this field are Busy Snacks Group and Wanchen Group. The former’s brands include Busy Snacks and Zhao Yiming Snacks, while the latter’s main brand is Haoshanglai.

On June 12 this year, the Snacks Is Busy Group announced that it would be renamed the "Mingming Is Busy" Group (hereinafter referred to as the same), and stated that the total number of stores under its brands nationwide has exceeded 10,000, making it the first 10,000-store brand in the snack chain industry; the semi-annual report of Wanchen Group shows that as of the first half of 2024, its brands have a total of 6,638 stores nationwide.

The attraction of snack hypermarkets to consumers lies in the rich and low-priced snacks in their stores. From a business model perspective, the low prices of snack hypermarkets are achieved by establishing direct links with the source factories, eliminating the traditional distributor link, thereby reducing the product premium. Hypermarkets even subsidize some branded snacks themselves.

This also means that the gross profit margin of snack hypermarkets is extremely low. From the perspective of the hypermarket’s own model, if they want to make money, they must continue to expand to maintain their scale advantages and achieve extreme cost compression.

The above phenomenon can be seen from Wanchen Group's semi-annual report. In the first half of 2024, the company achieved a total operating income of 10.915 billion yuan, a year-on-year increase of 392.45%; but the net profit attributable to shareholders of listed companies was less than one million, at 934,600 yuan. As far as the snack business is concerned, Wanchen's revenue in the first half of the year soared 4 times to 10.674 billion yuan, but behind this, after excluding the accrued share-based payment expenses, the net profit was 280 million yuan, and the net profit margin was only 2.62%.

Competition among snack hypermarkets did not have to be so fierce before because the model enjoyed certain dividends in its early stages of growth - it was like Pinduoduo's version of an offline snack store, with convenient channels and low prices. Snacks have a strong attribute of impromptu consumption. In this case, the direct purchase model of hypermarkets makes them more cost-effective in front of supermarkets and membership stores; the chain store-style unified decoration can crush many mom-and-pop stores in the sinking market. All of these help it to acquire customers.

However, under the franchise model, more and more stores are opening, and in low-tier markets, stores are becoming more dense. "Two stores opened within 200 meters in half a year, one is Haoxianglai and the other is Zhao Yiming, and the two are diagonally opposite each other," Henan consumer Cao Hui told Spicy. The population of her county is less than 700,000.

The "2023 China Snacks Retail Industry Blue Book" shows that the snacks retail model will overtake other models from 2017 to 2022, developing rapidly at a compound growth rate of 114.6%. From 2022 to 2027, the snacks retail model is expected to continue to maintain rapid growth, but the compound growth rate is expected to drop to 27.3%.

However, there may not be many brands with 10,000 stores. According to a 2023 report by Caitong Securities, there may be about 40,000 new snack hypermarkets in China. After Mingminghenmang Group broke the 10,000 mark, Guohai Securities reported that it is expected to exceed 13,000 stores by the end of the year.

The competition has transitioned to the red ocean stage, and the overall market situation is that various brands have also entered each other's territories.

In the past, Mingminghenmang Group and Wanchen Group have been divided into the north and south camps for many years. The former's snacks, Henmang and Zhao Yiming snacks, were born in Hunan and Jiangxi respectively, while the latter's brands are mostly based in East China, North China, Central China and other places.

In December last year, Mingminghenmang Group announced that it would invest more than 1 billion yuan in the next six months to enter the national market, focusing on northern markets such as Henan, Hebei, Shandong, Shanxi, and Shaanxi. At the same time, Wanchen Group also stated that in order to make its Haoxianglai brand nationwide, it would invest 1.2 billion yuan in brand building, supply chain construction, operation team construction, franchisee support, etc. in the process of national market development, with a focus on the southern market.

In order to achieve faster expansion, mass-market snack shops have started to work in groups in the past. In fact, today's two leading players, "Mingming Henmang Group" and "Wanchen Group", are the result of group integration. The former was born from the strategic merger of "Snacks Henmang" and "Zhao Yiming Snacks" in November 2023, and the latter announced in September 2023 that it would merge its "Laiyoupin", "Haoshanglai", "Adi Adi", "Lu Xiaochan" and other brands into "Haoshanglai Brand Snacks", and acquired another brand "Laobaodairen" in the same month.

In addition, some regional brands are also integrating, including Hunan’s "Love Snacks" announcing its controlling stake in Shaanxi’s "Snacks Bubble" in October 2023, Guangdong’s "Snacks Cabin" integrating "Snacks Momo", and so on.

With frequent mergers, there are not many blank spaces left for mass-market snack companies.

What is more urgent is that external rivals are also waiting for an opportunity to catch up.

The overall production and entry barriers of the snack industry are not high, and the supply and demand sides are scattered all year round. This means that only snack brands that grasp the "channel" have the opportunity to occupy the consumer's mind ahead of their peers, and then take over the traffic and convert it into purchasing power. The growth of the "winners" who have successfully occupied the market before is often accompanied by the dividends of the channel. For example, the development of Qia Qia depends on the traditional supermarket channel that has continued to grow in the past, and the start of Three Squirrels relies on the rise of traditional e-commerce.

Against this background, some snack brands have also opened offline stores to cater to current consumption trends and pay more attention to cost-effectiveness.

For example, Three Squirrels announced the opening of a batch of new stores in May this year under the strategy of "high-end cost performance", and also shouted out the attractive slogan of "0 franchise fee, 0 decoration fee, 0 distribution fee". Among them, the stores located in communities and commercial streets overlap with the customer base of snack hypermarkets to a certain extent.

At the same time, in order to further reduce prices, branded snacks are also building their own factories. If mass-market snack shops that mainly rely on OEM do not have store scale to maintain supply chain advantages, their core competitiveness such as "channels" and "low prices" will be impacted.

03 Where will the future breakthrough point be for snack mass merchandising?

Spending a lot of money on price wars may hurt 1,000 enemies and 800 of your own. How can mass-market snack shops find a way out of internal competition?

Supply chain advantages and differentiation need to be continuously cultivated.

With the expansion of the scale of hypermarkets, many snack brands have actually regarded them as new growth at the moment. The financial reports of the snack industry in the past year show that hypermarkets have really boosted the performance of snack companies. For example, the "bulk scale" products customized by Jinzai Food for this channel increased revenue by 200% year-on-year in 2023. Qiaqia Food also issued an announcement stating that the company has added new cooperation channels in February and March 2023, and more than a dozen single products have been tested in snack stores such as Snacks Are Busy, Zhao Yiming, and Wife Daren.

This trend continues to this day, with no signs of abating. In December 2023, Haoshangni and Yanjinpu announced an investment of over 1 billion in Mingminghenmang Group, further binding the two parties.

For the snack hypermarket system, this in-depth cooperation with industry parties will undoubtedly strengthen the stability of its supply chain in the future. The product differentiation among different snack hypermarkets is not that great. Among the thousands of SKUs, low-priced white-label snacks account for the majority. In order to obtain a stable supply of branded snacks, it is actually a test of the snack hypermarkets' bargaining power.

After being deeply tied to branded snacks, not only can they gain greater bargaining power, but the increase in the proportion of branded snack products can also increase the appeal of hypermarkets in the minds of customers. After all, even in the sinking market, consumers are paying more and more attention to brands.

In addition, snack hypermarkets are also exploring the issue of achieving differentiation.

In June, Snacks is Busy opened a store called Snacks is Spicy in Changsha, which sells over 2,200 types of spicy snacks, with the lowest price being only 50 cents. It is called "Latiao Paradise" by consumers. Before this store, it also opened Snacks is Big, which sells large-packaged snacks, and Super Snacks is Busy, which has a strong influence on the Internet and is suitable for taking photos and checking in.

As of now, Busy Snacks has not announced its more specific plans for store types, but with the segmentation of overall snack products, opening more vertical stores is one way.

In the long run, the snack hypermarket business is essentially about hard discounts, and it is an inevitable trend to continue to participate deeply in the upstream product selection and sales. According to Huachuang Securities' research report, the proportion of traffic-driving products in hypermarket snack SKUs will decrease. In addition, they may gradually eliminate white-label products with poor quality and efficiency, and try to cultivate their own brands. In the process of national expansion, if they can further reduce costs and increase efficiency and improve overall operational capabilities, it will also bring stronger competitiveness to snack hypermarkets.

Author |Tin
This article is written by the author [剁椒TMT] of Operation Party, WeChat public account: [剁椒Spicy], original/authorized to be published on Operation Party, and any reproduction without permission is prohibited.

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