Is snack discount store a good business?

Starting from the current situation of the booming snack discount stores, this article objectively analyzes the essential logic behind the development of snack discount stores and looks forward to the future development direction of the industry. It is recommended for students who are interested in the marketing cases related to snack discount stores. I hope everyone can get inspiration from it.

Thanks to the efforts of foodies, there are always new ideas in the “eating circle”.

Since the beginning of this year, discount snack stores of various brands, such as Zhao Yiming Snacks, Laiyoupin, Snacks Are Busy, Tangchao Snacks, Snacks Optimization, and Love Snacks, have sprung up all over the country and blossomed in low-tier cities. Du Yang, a consumer from Jieshou City, Anhui Province, told us that since November last year, more than a dozen branded snack discount stores have opened in our small county with a permanent population of only more than 600,000, including Laiyoupin and Haoxianglai.

Chen Nan, a consumer in Bobai County, Guangxi Province, thousands of miles away, said that in the past year or so, more than a dozen branded snack discount stores have suddenly emerged in the local area. Even snack discount store brands such as Zhao Yiming and Snacks Are Very Mang often offer discounts of 40% to 80% off across the entire store even though their prices are already lower than those of other supermarkets.

In addition to opening stores crazily in the sinking market to increase density, the brand strategy of snack discount stores is also surprisingly similar. That is, "more and lower prices". The number of SKUs in snack discount stores can usually reach thousands, and the main focus is on low prices.

Taking Yiyoupin as an example, the prices of 268ml Nestle Silky Latte and 250ml Red Bull sold in this store are 4.5 yuan and 4.9 yuan respectively, both lower than the distributor's unified suggested retail price of 6 yuan. Moreover, these are not near-expiry products but fresh-date products.

This pricing strategy is very attractive to county consumers who are already very price sensitive. When we visited Laiyoupin stores in Jieshou City, we found that the cash registers were full of customers waiting to check out. At the same time, some consumers reported on social media that local snack discount stores were engaging in price wars, directly selling out the shelves, and waiting in line for checkout for more than 30 minutes.

But behind the booming business of snack discount stores in county towns, there are also some sobering questions: How do snack discount stores achieve low prices? For a small county town with a permanent population of only a few hundred thousand, can it really accommodate so many snack stores? Is joining a snack discount store really a good business?

1. Make money from white-label products and attract traffic from big brands

In fact, the root cause behind the current popularity of branded snack discount stores lies in the industry characteristics of snacks that “there are categories but no brands”, which also determines that they are naturally suitable for doing cost-effective business for the general public.

Because the snack industry has a relatively low market entry threshold, coupled with small product specifications and a wide variety of products, not only are there abundant sub-categories, but the individual products within sub-categories are also highly substitutable. Consumers naturally have a mentality of constantly trying new things and conducting trial and error when it comes to snacks.

Therefore, except for a few brands that can gain consumer repurchase with the mindset of "brand is category" and thus have a certain degree of brand potential, most other snack brands are often constrained by a low single product repurchase rate, making it difficult for phenomenal single products to emerge, and the brand premium space is naturally limited.

This can be indirectly confirmed by the fact that Liangpin Puzi's previous efforts in high-end snacks had little effect, and by the fact that the higher-ranked products in Douyin's peanut snacks are mainly low-priced white-label products.

In order to make their snacks "cheaper", branded snack discount stores have also launched a combination of punches. In store promotion, branded snack discount stores often use factory prices, wholesale prices, and "XX, we are super cheap" to cultivate consumers' perception of low prices in stores.

In terms of products, for well-known brands such as Yili, Mengniu, and Red Bull, brand snack discount stores directly adopt the large-scale direct purchase model from manufacturers, bypassing the "layers of price increases" of traditional distributors to achieve the goal of low prices.

However, considering the problems of commodity inventory, capital flow and so on caused by large-scale purchases, current brand snack discount stores also need to rely on a large number of stores to promote sales to solve this problem. This is why brand snack discount stores have launched various franchise policies and continue to increase the number of stores.

When it comes to white-label products, unlike the upstream OEM, midstream channels, and downstream franchise model of branded snacks, branded snack discount stores do not look for manufacturers for OEM, but instead sell large quantities of white-label products directly in the store by bulk.

And because the manufacturer's supply prices of these white-label products are not as public as those of well-known brands, consumers lack channels for price comparison, which also creates profit space for branded snack discount stores.

Therefore, the profit model of branded snack discount stores can be summarized as follows: white-label products are responsible for increasing store profits, while big-brand products are responsible for attracting customers at low prices. Industry insiders said that the current comprehensive gross profit margin of branded snack discount stores is generally 18%-20%. In the actual operation process of franchisees, the net profit of a single store may be even lower.

Zhang Ziwei, a franchisee of a branded snack discount store, told us that generally speaking, in the early days of a branded snack discount store in a county, based on the activities launched by the store and the curiosity and herd mentality of county consumers, the average daily customer flow in the first few days of opening can reach 700-800 people. However, as the enthusiasm of county consumers fades, the average daily customer flow of subsequent stores can reach 300 people, which is the ceiling. Calculated based on an average customer price of 40 yuan per person and a gross profit margin of 20%, the gross profit of a store per day is about 2,400 yuan.

On this basis, the average daily rent of 700 yuan, water and electricity costs of 300 yuan, commodity loss costs of about 100 yuan, and the average daily salary of 6 employees of 600 yuan need to be deducted. The final net profit is only 700 yuan, and the corresponding store net profit margin is only 5.8%.

2. Is it really profitable to join a snack discount store?

Behind the lower profit margin is the high investment that county franchisees have to make to open a branded snack discount store.

Taking the example of joining Zhao Yiming snacks, according to official statements, franchisees need to invest a franchise fee of 38,000 yuan, a deposit of 20,000 yuan, a management fee of 9,000 yuan/year, and equipment fees of 70,000-100,000 yuan. The initial distribution cost is between 180,000 and 250,000 yuan. The total of the above costs is about 400,000 yuan.

Chen Yang, the site selection manager of a certain snack discount brand, told us that brand snack discount stores are generally located at the core traffic lines in the county, at the intersection. The advantage of this location is that through the display of the front door, the brand image can be displayed on several sides, and then consumers can be intercepted on the roads that consumers must take when going to get off work or picking up their children in the county, so as to increase the number of people entering the store. And because brand snack discount stores need to display thousands of snacks at the same time, the area of ​​a single store must be more than 120 square meters. Simply put, "small stores in big cities, large stores in small cities."

However, stores that meet this requirement in the county are also scarce resources. Franchisees need to face two practical problems. First, the rental cost of such a relatively good location in the county is higher; second, they need to pay high transfer fees. This year, when Chen Yang helped franchisees choose locations, the highest store transfer fee was 300,000 yuan.

As for store decoration, the exterior of current brand snack discount stores generally consists of large door fronts, while a large number of lights need to be installed inside to illuminate the goods, which also increases the store decoration costs.

After adding up the above costs, it is conservatively estimated that branded snack discount franchisees in county towns will need to invest at least 800,000 to 1 million yuan in the initial stage to be established.

From Chen Yang's words, we can also understand that the single-store profit model provided by franchisee Zhang Ziwei is indeed more credible. Moreover, even if a single store can achieve an average daily net profit of 700 yuan under ideal conditions, the franchisee's cost recovery cycle will take more than 3 years. This payback period is even longer than the 14-month payback period of Mixue Bingcheng, which is in the current new tea beverage industry, which has been seriously involuted.

Moreover, with the increase in the number of discount snack shops in county towns, product homogeneity and price wars are inevitable. Industry insiders said that under the price war, the gross profit margin of branded snack discount shops in county towns is being pulled down to 8%-10%.

In order to increase profits, some snack discount stores have started to be cunning in pricing. Zhao Min, a consumer in Jieshou City, Anhui Province, told us that when she went to Laiyoupin to buy a baby squid product, the price was 39.8 yuan per catty. But on Pinduoduo, the general price of baby squid is about 20-25 yuan per catty. After realizing that she was "tricked", she rarely goes to Laiyoupin to buy snacks.

As Zhao Min said, when we visited several local Laiyoupin stores in October this year, we found that the previous situation of crowds and consumers having to queue up to pay was no longer seen.

Not only that, branded snack discount stores usually use the method of reducing prices for big-name snacks to attract customers, but brands including Nongfu Spring, Oreo, Meike, and Weilong are worried that such low prices will damage the company's pricing system and thus affect the interests of terminal dealers, so they are not very willing to cooperate with branded snack discount stores. This makes branded snack discount stores face the embarrassing reality of being unable to continue to increase customer flow by introducing "big single products."

The above problems have further prolonged the cost recovery cycle of franchisees of branded snack discount stores in county towns. After realizing this problem, some franchisees chose to close their stores. For example, during a visit to Jieshou City, Anhui Province, we found that the local Haoxianglai store had already closed.

3. Can snack discount stores usher in an era of tens of thousands of stores?

Regarding the current popularity of branded snack discount stores in county towns, Chen Yang frankly admitted that on the one hand, because branded snack discount stores are still in the early stages of development, the entire industry is booming under the impetus of capital, making many investors feel that branded snack discount stores will be a good business, and thus a large number of franchisees have entered the market.

On the other hand, snack discount store brands also hope to achieve the goal of 10,000 stores as soon as possible by sinking into the market, and thereby form a competitive advantage. Based on this, many brands currently require franchisees in county towns to open two stores, otherwise they will directly allow new franchisees to enter. Under pressure, old franchisees can only continue to add new stores.

However, it should be pointed out that branded snack discount stores still face considerable difficulties in reaching the same scale of tens of thousands of stores as new tea and coffee stores.

From the perspective of product attributes, compared with other chain formats, the non-instantaneous and weakly addictive nature of snack discount stores, as well as the objective existence of convenience stores, grocery stores, kiosks, and e-commerce diversions, make the store opening ceiling naturally lower than other chain formats.

Secondly, from the perspective of brand differentiation, snack discount stores are essentially a channel for selling goods. Consumers have weak brand awareness and place orders more out of convenience. This is very similar to convenience stores, community stores, and grocery stores, but the latter satisfy more needs and target more people.

In summary, the 10,000-store model can be divided into two categories. The first is that high-frequency demand brings large market space. Such as Chinese snacks, convenience stores and community stores. The second is that the market space is average (less than 200,000 stores in the category), but branding and differentiation can be made, such as coffee and braised food. For snack discount stores, the demand is relatively single, which is essentially currency, and the brand and service value-added are low, so the 10,000-store model is more difficult.

Perhaps the snack discount store brands are also aware of this problem, so they are increasing the number of stores through mergers and acquisitions. For example, in September, Wanchen Group completed the acquisition of five snack brands, including Haoxianglai, Laiyoupin, Adi Adi, Lu Xiaochan, and Laopo Daren.

Public information shows that Haoxianglai currently has more than 1,700 stores in 62 cities across the country, and Laiyoupin has more than 1,000 stores in 68 cities across the country. Adi Adi has more than 400 stores, mainly covering Jiangxi, Chongqing, Shaanxi, Fujian, and Sichuan. Lu Xiaochan has more than 230 stores, covering Jiangsu, Shanghai, Fujian, and Guangdong. Laopo Daren is mainly located in Zhejiang Province, with 538 stores at present.

This also means that after the completion of the acquisition by Wanchen Group, the number of its hypermarket retail stores will exceed 3,800, which is second only to Snack Bar, which announced on October 11 that the number of stores has exceeded 4,000.

In addition to mergers and acquisitions, snack discount store brands are also gradually making efforts in marketing. For example, Snack Busy recently held the "2023 Snack Carnival" at Qu Yuan Square, Chuhe Hanjie Street, Wuhan. Brand spokesperson Zhang Yixing assisted on site and simultaneously started online live streaming. According to official statistics, as of October 12, the total GMV of the 10-hour live streaming of this "Snack Carnival" exceeded 22 million, ranking first in the GMV of a single live broadcast of snack foods.

Therefore, the competition among snack discount stores will gradually evolve from the initial competition of price and scale to the competition of comprehensive capabilities such as supply chain and marketing capabilities. As the industry reshuffle accelerates, some players will be cleared out or acquired by large brands, and the market share will gradually concentrate on the top brands.

In this round of competition among branded snack discount stores, Three Squirrels, Laiyifen and Bestore will continue to be impacted. In the first half of this year, due to the rapid increase in the number of branded snack discount stores, the revenue of Three Squirrels, Laiyifen and Bestore all declined to varying degrees.

The reason for this situation is that when more and more consumers are educated about low-priced snacks, it will be difficult for them to accept the high premium of "Liangpinpu" products, and this situation will become more and more serious in the future.

Therefore, how to resist the impact of these brand discount stores on their own performance will be a problem that "Liangpin Shops" must face now.

Author: Return

Source: WeChat public account "ValuePlanet (ID: ValuePlanet)"