With 10,000 mass-market snack shops opened, franchisees are worried about making back their investment

Mingminghenmang Group, China's first snack chain brand with 10,000 stores, has recently faced fierce market competition and profitability challenges.

With the emergence of the first brand with 10,000 stores, competition in the mass-market snack industry has risen from scale to a higher dimension.

On June 12, the total number of snacks and Zhao Yiming snacks stores nationwide exceeded 10,000. Industry insiders predict that the total number of stores of the two brands will exceed 13,000 by the end of the year. At the same time, the merged Snacks Group has been officially renamed Mingming Henmang Group (hereinafter referred to as Mingming Henmang).

On the same day, Yan Zhou, founder and CEO of Snacks Henmang, and Zhao Ding, founder and CEO of Zhao Yiming Snacks, issued a joint letter. The two founders mentioned that with a larger scale, the group will be able to integrate better supply chain resources on the product side, provide suppliers with better sales channels, and bring more competitive products to stores.

Lin Jing, a franchisee of Snacks Is Busy, told Times Finance that the group has not yet introduced any preferential policies to franchisees with more than 10,000 stores, but the prices of many commodities have been reduced this year, with some reductions as high as 30%. The stores have also recently launched a number of new products.

Zhang Yi, chief analyst at iMedia Consulting, believes that in the face of Mingminghenmang, which has tens of thousands of stores, other brands need to strengthen the differentiation of their brands and products in the competition if they want to find new potential growth opportunities.

1. The first brand with 10,000 stores was born

It took Mingming half a year to expand the number of stores from 7,000 to 10,000.

In 2023, the mass-market snack industry ushered in a year of integration. Hunan's local snacks, Henmang, merged with Jiangxi's Zhao Yiming Snacks. Fujian-based Wanchen Group (300972.SZ) integrated its four snack brands and launched them under the "Haoxianglai" brand. It also acquired Zhejiang's mass-market snack brand "Lao Lao Da Ren". Subsequently, the two major industry leaders accelerated their expansion.

In December last year, Mingminghenmang Group received a total investment of 1.05 billion yuan from Haoshangni and Yanjinpuzi Holdings. In January this year, the group announced that it plans to invest more than 1 billion yuan in half a year for national market development and launch the most preferential franchise policy in history, including 0 franchise fee, 0 management fee, 0 training fee, 0 service fee, 0 profit for decoration, and a one-time subsidy of 100,000 yuan for opening a store.

With preferential franchise policies and capital support, Mingminghenmang has become the first brand in the mass-market snack channel to have 10,000 stores, with stores covering more than 20 provinces and cities including Hunan, Hubei, Guangdong, Jiangxi, Henan, Guizhou, Sichuan, Chongqing, etc. "Based on the scale of 'one thousand stores in one province', there is still huge room for development for the brand and even the industry in the future," an industry insider analyzed.

In Zhang Yi's view, the positive impact of having more than 10,000 stores on the company is very obvious. The scale of 10,000 stores has a very strong signal effect on enhancing the company's brand awareness and influence.

In addition to enhancing brand potential, from the perspective of operational efficiency, a large-scale store network helps optimize supply chain management, reduce procurement costs, and improve operational efficiency. Scaling will have a relatively positive effect on continuing to expand market share and increase market control in the future.

For mass-market snack chain companies, the number of stores determines their bargaining power in the industry chain, so quickly opening stores and expanding the scale has become the first priority for the survival of entrants. In terms of store layout, they first increase the density within a certain radius around the base market to obtain higher supply chain, warehousing logistics and store management efficiency.

After the store scale reached 10,000, Lin Jing showed Times Finance the price adjustment list that would be implemented in June. Products of Mingminghenmang's shareholders Yanjinpu and Haoshangni were on the list. Among them, the delivery price of a certain quail egg of Yanjinpu was reduced from 185 yuan to 158 yuan, and the retail price was reduced from 23.5 yuan to 19.8 yuan; the delivery price of a certain red date of Haoshangni was reduced from 130 yuan to 91 yuan, and the selling price was reduced from 16.8 yuan to 11.8 yuan, with the highest reduction of up to 30%.

Mingminghenmang Group told Times Finance that after reaching 10,000 stores, the group's strategy this year has not changed much and it will continue to adhere to the national development strategy and go deep and thorough.

2. “Wanchens” followed closely behind

Despite being the first to reach the scale of 10,000 stores, Mingming is very busy and does not have much time to breathe.

According to the plan of Wanchen Group, another leading brand, it is expected that the number of stores will exceed 10,000 in 2024. As the two giants in the mass-market snack market, the competition between the two sides will continue for some time.

According to a research report by Huatai Securities, the total number of stores of the top 30 mass-market snack chains in my country has exceeded 26,000. A research report by China Merchants Securities predicts that the industry could increase to more than 100,000 stores in the future, which still has huge development potential.

Leading enterprises Wanchen Group, as well as "players" such as Snacks Youming and Ai Snacks are still accelerating their expansion and "involve" in franchise policies. Haoxianglai and Snacks Youming implement 0 franchise fees, 0 service fees, and 0 management fees, and provide decoration and area subsidies. Ai Snacks' new franchise policy in the second half of 2024 shows that new franchise stores within a 300-meter diameter of the "Mou Xianglai" brand will receive a subsidy of 200,000 yuan, within 100 meters, and within 50 meters. Subsidy 400,000 yuan.

In addition to attracting new franchisees, the favorable franchise policies also attracted existing franchisees. In early June, Chen Xin, a franchisee of Haoxianglai, opened a new franchise store. He told Times Finance that if the franchise policies were equally favorable, he would prefer to choose a familiar brand.

Lin Jing told Times Finance that if there is a suitable store location, he plans to continue expanding his store. "Mass merchandising is a trend, but newbies should be cautious when entering the industry. Brands are opening more stores, so the payback period may be extended."

Franchisees have also clearly felt the intensification of brand competition. "Not long ago, the brand development staff of Snacks was very busy and came to the store to remind us to pay attention to the situation of surrounding competitors taking over the store." As for how to deal with it, Lin Jing said that the company said that each store has its own policy, depending on the specific situation. Previously, a franchisee who joined Zhao Yiming Snacks in the northern market also told Times Finance that a competing brand approached him during the renovation stage.

Since 2022, Li Xu has successively joined 5 Haoshanglai stores (including Adi Adi). He told Times Finance that at the end of last year, a competing store opened near one of his stores, which directly led to a monthly sales drop of about 20%.

As of the end of May, the number of Wanchen Group stores exceeded 6,000, and the number of Snacks Youming stores also reached 3,000 in March this year. Brand stores including Ai Snacks and Snacks Youxuan also exceeded 1,000.

3. What to compete for after 10,000 stores

Following the industries of freshly brewed tea, coffee, catering, and braised food, mass-market snacks have become another sector in the consumer field with more than 10,000 stores.

In 2023, Mingminghenmang's national store turnover reached 20 billion yuan, and it is expected to maintain rapid growth in 2024. Wanchen Group also maintained a high revenue growth rate. In 2023, the company's mass-market snack business achieved operating income of 8.759 billion yuan, an increase of 13057.81% over the previous year; in the first quarter of this year, the company's revenue was 4.83 billion yuan, a year-on-year increase of 534.03%.

It is worth noting that despite continued revenue growth, low profit margins remain a dilemma currently faced by mass-market snack brands.

Wanchen Group data shows that the net profit of the mass-market snack business in each quarter of 2023 was -12 million yuan, -66 million yuan, -43 million yuan, and 16 million yuan, respectively. After deducting the accrued share-based payment expenses, they were -11 million yuan, -31 million yuan, 5 million yuan, and 70 million yuan, respectively, with corresponding net profit margins of 2.03%, -2.23%, 0.18%, and 1.82%, respectively. In the first quarter of 2024, after deducting the share-based payments brought about by equity incentives, the net profit margin of its mass-market snack business was about 2.5%, still hovering at a low level. Times Finance asked Wanchen Group how to increase its profit margin, but no response was received as of press time.

In fact, the more stores you open, the higher the management and operating costs will be, which has also led to the small profits but quick turnover model of mass-market snack brands.

According to channel research by Guotai Junan Securities, it is estimated that leading companies are close to breaking even, and expansion to other locations will increase costs such as warehousing and distribution. The most economical and efficient delivery range is estimated to be 300 kilometers.

Based on this, each company strategically chooses to densify its base market first. When expanding, it will prioritize concentrated breakthroughs in certain cities in neighboring provinces around the base market. After a certain density is formed, branch warehouses will be opened, thus forming a supply chain system capable of high-speed turnover.

According to Mingminghenmang Group, after the continuous integration of the two brands, a unified procurement supply chain service and unified operation management standards have been formed. At present, Mingminghenmang has established hundreds of thousands of square meters of modern logistics warehouses in Changsha, Hengyang, Nanchang and other cities, and has achieved an average daily throughput of 1.8 million pieces and 24-hour distribution capabilities based on an integrated supply chain. The group has 25 warehouses across the country.

At an investor relations event in April this year, Wanchen Group also stated that the group had merged its supply chain in the first half of last year. Basically, the headquarters manages the negotiation and pricing of most of the goods, and retains about 10% of SKUs for local procurement to ensure that regional consumers can buy local specialty products.

By the end of the first quarter, Wanchen Group had 31 storage centers across the country, with modern logistics warehouses covering over 300,000 square meters. On May 18, Haoxianglai opened a DC warehouse for snacks in southern Jiangsu. The warehouse covers an area of ​​over 20,000 square meters and has a daily delivery capacity of 100,000 pieces.

However, companies with lower efficiency and weaker management are expected to be unable to break even in the weaker foreign markets due to fierce competition, and begin to close stores and sell off their businesses, thus gradually forming a pattern of regional oligopoly.

Zhang Yi also believes that after reaching the scale of 10,000 stores, enterprises need to improve their comprehensive management capabilities, product innovation capabilities, upgrade services, and optimize supply chain efficiency and costs. In addition, there is still homogeneous competition among enterprises. How to attract consumers and meet their needs through unique products and services is the key to improving competitiveness in the future.

In the past six months, Mingminghenmang has opened large snack stores such as "Zhao Yiming Snacks Research Institute", "Super Snackshenmang", and "Snackshenda", and has also subdivided its categories and opened a spicy-themed store "Snackshenla". Snacksyouming has also opened two MAX stores since March 30, and all the products in the stores are in large packages.

In an internal letter, the two founders of Mingminghenmang mentioned that the group not only needs to concentrate on polishing and expanding by replicating mature typical stores, but also needs to have breakthrough innovation and create new store types.

(At the request of the interviewees, Lin Jing, Chen Xin, and Li Xu are pseudonyms in this article)

Author | Zhang Xuemei Editor | Li Qian This article is written by the author of Operation School [Times Finance], WeChat public account: [Times Finance APP], original/authorized to be published on Operation School, and any reproduction without permission is prohibited.

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