As we enter the stage of deep cultivation of all channels, how can snack food brands achieve certain growth?

In the process of channel transformation, what changes will occur in the layout of leisure food brands, and where are the new channels for achieving sales growth? This article analyzes the timing and focus of leisure food brands' omni-channel layout, and conducts differentiated layout to break through the siege. Let's take a look.

In the past two years, what are the new channels for snack brands to achieve sales growth? Content e-commerce, instant retail (O2O), and snack collection stores may be the most frequently mentioned keywords:

• Content shelf e-commerce uses content to shorten the decision-making process from seeding to ordering. Food and beverage is one of the categories that is most likely to trigger purchases.
• Instant retail channels enable faster delivery and satisfy consumers’ “what you see is what you get” demand, while also offering a certain percentage of combined order discounts;
• Snack stores are rooted in community locations, closer to consumers, and select SKUs/undertake long-tail goods, slow-moving goods, and goods near the end of their term to make greater margins...

The Community Marketing Institute once pointed out, based on the financial performance of snack brands in the past year, that against the background of the rise of the above-mentioned new channels, one of the ways for snack brands to achieve certain growth is to expand and strengthen the mindset of core categories, share risks and profits with distributors, and place advantageous core categories on more terminal shelves, thereby reaching more consumers.

So, what are the characteristics of the leisure food customer groups in different channels? What should leisure food brands pay attention to when developing different channels? If they lack core category awareness, how can leisure food brands achieve certain growth?

Recently, Guosheng Securities released "Omni-channel Deconstruction of Snack Foods: A Thousand Ships Compete, Only Those Who Think of Change Will Win", which comprehensively disassembled the omni-channel strategy of snack food brands. The Community Marketing Institute summarized the highlights and shared them with readers.

1. Why is it the right time for snack brands to expand into all channels?

Looking back at the development of the trillion-dollar snack industry over the past four decades, its development logic is closer to "small commodities, large circulation", that is, every change in channels will lead the industry forward and breed new investment opportunities. Companies that can grow through cycles and expand and strengthen their brand awareness can grasp new traffic depressions and iterate new products for new channels, thereby forming a strong control over all channels.

After more than 40 years of channel changes, the transition from the old stage to the new stage of the snack food industry presents the following characteristics: In the last e-commerce explosion stage (2012-2018), three snack food giants that seized the online dividend were born: Be & Cheery (2010), Bestore (2012), and Three Squirrels (2012). At the beginning, they relied on OEM and operated in a multi-category, multi-sku, and multi-channel manner, using small profits but quick turnover to satisfy consumers' picky tastes who like new things and get tired of old ones.

Subsequently, due to the adoption of OEM, the shortcomings of the above players were exposed: serious product homogeneity, repeated failures in product safety, difficulty in cutting marketing costs/difficult to increase net profit margins, and the snack food industry entered a new stage: the online traffic dividend is no longer there, the communication points between brands and consumers are becoming more and more dispersed, and consumers' snack food consumption shows a trend of consumption stratification. The demands for health, functionality, and cost-effectiveness coexist, and consumers want both delicious and healthy food. New ingredients, new processes, and new product forms emerge in an endless stream...

With the stratification of consumption and refinement of scenarios, new channels are emerging and deriving:

• From the perspective of target customer groups, online import channels such as Tmall Global and offline membership stores/boutique supermarkets meet the needs of middle- and high-income groups, while traditional channels such as traditional comprehensive e-commerce/content shelf e-commerce, discount stores, community group purchases, and hypermarkets meet the needs of mass consumers for cost-effectiveness;
• From the perspective of consumption scenarios, Nielsen research shows that membership stores cover a radius of more than 5 kilometers, while KA stores, BC supermarkets, and discount stores cover a radius of about 2 kilometers; convenience stores CVS, category specialty stores, and mom-and-pop stores are mainly community stores, completing the last mile of reach; while traditional online e-commerce, content shelf e-commerce, and 020 (instant retail channels) complete full coverage of consumption scenarios from the dimensions of time and space;
• From the perspective of channel structure changes, due to the strong instant nature of snacks, emotional/impulsive consumption is the majority, and they are often low in value and high in frequency, so the online share is about 13% lower than that of fast-moving consumer goods. In the past five years, the channels that have maintained growth are various e-commerce and offline specialty stores.

At present, snack companies can be divided into three categories according to the different roles they play in the industry chain:

1. The first category is self-manufacturing, which focuses on product polishing. Most of them have brand awareness in subdivided categories and can continuously improve profit margins by improving purchasing bargaining power, optimizing supply chains, and brand premium power. Their channel power mostly relies on offline basics to adhere to omni-channel development. Representative players include Want Want China, Dali Foods, Weilong Delicious, Cha Cha Foods, Taoli Bread, Yanjin Shop, Ganyuan Foods, and Jinzai Foods;
2. The second category is brand retail, which relies on OEM, operates in multiple categories, multiple SKUs, and multiple channels, with brand building as the core, and has a relatively low net profit margin. Representative players include Three Squirrels, Bestore, and Laiyifen.
3. The third type is the chain type (focusing on braised food), which relies more on opening stores to tell a growth story. Although a large proportion of production and channels are self-owned, the replication efficiency of organizational management is not as good as the above two. Representative players include Juewei Foods, ZiYan Foods, Zhou Hei Ya, and Huang Shang Huang.

This article focuses more on the first two types of players to analyze the differences and key points of their channel layouts.

Among them, brand retail companies have achieved a maximum revenue of around 10 billion yuan, but their net profit may be less than that of manufacturing companies whose revenue is only half of that level. For example, the most profitable Three Squirrels had a revenue of 9.77 billion yuan in 2021 and a net profit attributable to the parent of 410 million yuan. Taoli Bread had a revenue of 6.34 billion yuan in 2021, but a net profit attributable to the parent of 760 million yuan.

Whether from the perspective of increasing revenue or optimizing profits, with the differentiation of consumer groups and the dispersion of consumer touchpoints, insight into channel characteristics and optimization of omni-channel layout have become the only way for snack food brands to grow bigger and stronger.

2. What are the key points of the layout of snack food brands under different channels?

The Community Marketing Institute will present the differences and key points of the leisure food brand layout in various channels by dividing them into online + offline, traditional channels + new channels.

1. Online, mainly traditional e-commerce + new content e-commerce

For traditional e-commerce represented by Taobao, the market diversion and traffic dispersion occurred around 2017. According to a survey by TouBao Research Institute, the CR3 in 2017 was 86%, and Taobao accounted for nearly 70%, but in 2021, the CR3 dropped to 62%, and Taobao accounted for less than half.

However, the good news is that the online retail scale of snacks has continued to grow since 2017, with a compound growth rate of 22.2%. Consumers aged 18-38 account for 75%, and white-collar workers account for 47.2%.

Therefore, affected by the rise of new channels, the Three Squirrels that used to rely on Taobao e-commerce have also been affected. For example, the growth rate of Three Squirrels' online revenue has declined significantly since 2019, and its online revenue in 2021 has declined by 10% year-on-year (Taobao and JD.com declined by 21% and 12% year-on-year respectively). Constrained by its business model, the net profit of Three Squirrels has remained below 5% from 2019 to 2021.

In content e-commerce, food and beverages are often listed at the top of sales categories on various platforms (often in the top three) because they have live streaming genes embedded in them. According to statistics from Guoji.com, in 2021, the sales of food and beverages on Douyin and Kuaishou platforms exceeded 70 billion yuan. As the e-commerce capabilities of various platforms are improved, the sales scale this year will have a further growth trend. Among them, the best-selling leisure food categories are nuts/specialties (32%), followed by grains, oils, rice and noodles/dry goods from north and south/seasonings (26%), and the brand concentration is very low, with CR3 only 4.56%.

In content e-commerce, due to the characteristics of the channel's customer base (the customers who pursue live streaming e-commerce are mostly price-sensitive customers) and the channel's ability to provide discounts for purchases above a certain amount (top anchors can get products at more favorable prices), the snack items that are currently most likely to sell well are mostly cost-effective and have the ability to be stockpiled.

According to statistics from Chan Mama in the past month (November data), among the top 10 best-selling meat snacks on Douyin, 9 are priced below 20 yuan, and 7 are priced below 10 yuan. Among them, Zhenbang Beef Dices 20g/bag and Whole Large Duck Wing Hunan Braised Food only sell for 1.5 yuan, with sales of 100,000-250,000/75,000-100,000, and conversion rates of over 70% and 40% respectively, all thanks to live streaming.

2. Offline channels: traditional circulation + membership stores/discount stores/boutique convenience stores

Offline, traditional distribution channels mainly include thousands/tens of thousands of distributors, snack wholesale circulation markets in the sinking market, traditional supermarkets, convenience stores and a large number of mom-and-pop stores; new distribution channels include high-end membership stores, new-style chain convenience stores, category specialty stores/snack chain stores/snack hypermarkets (often discount stores).

2.1. Traditional distribution channels

The advantage of traditional distribution channels lies in their deep moat and the ability to create big single products in a short period of time. For example, Dali Foods had a total of 6,039 distributors and 13,420 full-time sales staff supporting more than 2 million terminal outlets by the end of 2021. Its Dali Garden cakes and soft bread launched in 2010 exceeded 1 billion yuan in retail sales in just 1-4 years.

What does it mean to have more than 100,000 or 1 million terminal outlets?

According to new distribution statistics, when the number of distribution outlets exceeds 6 million, their distribution in first-tier, second-tier, third-tier, fourth-tier and below cities are 15,000 (3%)/35,000 (6%)/75,000 (13%)/4.8 million (80%) respectively, because first-tier and second-tier cities only account for 15% of the national population.

Currently, the snack food companies that are capable of building millions of terminal outlets include Master Kong (4 million), Nongfu Spring (2.37 million), Dali Foods (2 million), and Yili Group (1.91 million), but their single-outlet output is only 10,000 to 20,000 yuan. Yili has the highest single-outlet output, which is around 60,000 yuan.

What is the secret to building a huge distribution network? Take Qia Qia Food as an example. According to its company announcement, we can summarize it as follows: in terms of internal organization building, by establishing BUs around core categories, fully delegating power, and building internal organizational competitiveness through employee shareholding and internal competition; in terms of external organization building, by recruiting partners through distributors, delegating power to distributors, improving labor efficiency, online management, and providing subsidies. Specifically, Qia Qia Food has done three things in the past few years:

1. Around 2014-2015, with product categories as the core, the design, procurement, cost, and market were handed over to the division for planning, and BUs (business units) were established. At this time, BUs were more focused on breaking down strategic goals under the headquarters strategy;
2. Around 2017-2018, Qia Qia Food formed product division and sales division, set up performance BU under each division, and launched employee stock ownership plan, internal competition, bimonthly PK and other methods to enhance organizational competitiveness;
3. Since 2020, Qia Qia Food has streamlined the number of distributors and implemented digital management to cultivate business partners. Partners are recruited by distributors. Qia Qia provides monthly subsidies to partner companies, and distributors pay rewards to increase their business enthusiasm. Qia Qia further adjusted the business unit into a category center. Category managers began to be responsible for all channels and all profits and losses of products, and the category BU began to cooperate freely with the sales BU.

However, the problem with traditional distribution channels is that traditional supermarkets, as the largest base of terminals, are still seeing a continuous diversion of customers and a decline in sales per square meter. In 2021, there will be more than 5,000 large KA supermarkets, a continuous decline from the high of 12,000 in 2012; there will be 25,000 BC supermarkets, with a compound growth rate of -4% over the past three years.

When the decision-making path for food and beverage becomes shorter, the scenarios are segmented, and consumer demand is graded, food and beverage companies need to think more about how to resonate with channel transformation, such as better cost-effectiveness or stronger product power. For example, Yanjin Shop has done various subtractions: since 2020, it has streamlined its product line, transferred some KAs to dealers for operation since 2021, and pursued quality from the number of islands in the store (16,000 in 2020), targeting consumer stratification and creating 9.9 yuan mass-market packages with extreme cost-effectiveness, etc.

2.2. New offline distribution channels

This includes high-end membership stores, new-style convenience store chains, category specialty stores/snack chains/snack hypermarkets.

First of all, high-end membership stores mainly target middle- and high-income groups. For example, 60% of Sam's Club's paying members are located in first- and second-tier cities. Most of them are female white-collar workers aged 25-45 with a bachelor's degree or above. They have high time costs and high quality of life, and they need high-end membership stores to select "broad categories and narrow products" for SKUs. The number of SKUs is often around 1,000-4,000, much lower than that of traditional supermarkets (tens of thousands).

High-end membership stores maintain their differentiated operating advantages mainly by focusing on overseas brands + private brands (local brands are often below 20%), and focusing on food and grocery categories (accounting for about 40% of sales). For example, Sam's Club focuses on Member's Mark's wines and beverages, Costco's Kirkland focuses on nuts, and HEMA incorporates more local elements, such as entering into categories such as craft beer, baking, flowers, and fresh meat that have become increasingly popular in recent years, and cooperates with suppliers to launch channel-specific products.

The opportunity for snack food brands and companies to deploy such channels is that the starting point of the channel is high enough. Once they can capture the niche middle and high-end consumer circles, they can enter other channels at low cost with the high starting point.

For example, Ganyuan Foods once produced a product for Sam's Club, which was packaged and distributed by California Wilderness (Wan Jiali) - mustard-flavored macadamia nuts, which once became a popular online product. However, Sam's Club has membership thresholds/store size restrictions. Ganyuan met consumers' demand for an alternative to big brands by promoting mustard-flavored macadamia nuts with its brand logo on e-commerce and other channels.

Secondly, new-style chain convenience stores are the only offline sub-channel that has maintained growth in recent years due to their stronger ability to resist epidemic risks.

According to statistics from Kantar Data, KPMG and other institutions, due to environmental influences, there is a clear trend of head concentration, the proportion of community stores has increased, and the average customer spending has an upward trend; the penetration rates of packaged food and packaged beverages in existing convenience stores are 10% and 20%-25% respectively, and the gross profit margins of related products of mom-and-pop stores/local convenience stores/leading convenience stores can reach 20%/25%/35% respectively. Small-sized and quantitative products in this type of channel are more popular/easier to increase profit levels.

The last type of snack consumption channel that continues to grow is snack chain stores, which are often also snack discount stores.

The Community Marketing Institute has made many introductions. In the context of dispersed consumer touchpoints and consumer stratification, this type of business meets the consumers' demand for cost-effectiveness, closer proximity to consumers, and affordable prices for big brands. A large number of traditional big brands/Internet celebrity brands/Internet celebrity follow-up brands have contributed a steady stream of unsold/long-tail/expiring items to be cleared out for this type of channel. Therefore, this type of channel mainly targets young people (no more than 25 years old) or middle-aged and elderly customers with low purchasing power. In the early stages of their establishment, chain stores will open stores intensively around specific regional markets and take root in the sinking market. Snacks Are Busy and Snacks Have Ming are representative players among them.

Therefore, I will not go into details here.

3. Summary: In the omni-channel era, how can leisure food companies carry out differentiated layout?

To sum up, the dispersion of consumer touchpoints, fragmentation of consumer scenarios, and stratification of consumer groups/demands are the general background for leisure food companies to undergo channel changes. While content e-commerce/membership stores/discount stores are gaining vitality, traditional supermarkets and comprehensive e-commerce are also facing the dilemma of higher customer acquisition costs, market diversion, and difficulty in producing hit products.

Every time there is a channel change, new investment opportunities will emerge. How to seize new traffic pools, understand channel characteristics and make differentiated layouts has become a must-answer question for all brands to go through the cycle.

Therefore, traditional snack companies driven by manufacturing core categories, on the one hand, have made drastic changes in their organizational structure around core categories, and have improved their control over different channels by streamlining their teams and improving labor efficiency, thereby further increasing economies of scale; on the other hand, they have responded to the challenge of declining traffic in traditional distribution channels by resonating with channel changes and improving the price/performance ratio/product strength of goods; brand retail companies rely more on equity multipliers and turnover rates to maximize efficiency, and have now entered a new situation of optimizing the supply chain, opening more high-efficiency stores and improving profit margins.

As the post-epidemic recovery continues, the retail industry is still rapidly reshuffling, and leisure food companies still need more insights and changes.

Source: Community Marketing Research Institute (ID: Community_Marketing), insights into community consumption