Many years later, in the face of chicken feathers in the snack industry, franchisees will remember the afternoon when "Snack is busy" and "Zhao Yiming" announced the merger.
Although business wars are always bedside fights and bed-end fights, we have seen too many stories of two large companies fighting and eventually becoming a bigger company. But business wars like hard discounts on snacks are still too hardcore.
Many small counties have a small area and a small population, but the snack hard discount store can open three or five. There are "snacks are very busy" on the street, and at the end of the street is "snacks are mingming", and there may be two "Zhao Yiming" in the middle.
This competitive situation is like everyone obviously getting a tic-tac-toe grid, but playing backgammon.
In addition to opening a store, the price war cannot be ambiguous. If you have a 6.8% off carnival, I will distribute buy one get one free coupon. The scene looks like a colorful flag display of gongs and drums, and in the middle of the night, the franchisee settles the account, and it is a day that is getting farther and farther away from the return to the capital.
But that's it, and it doesn't stop these brands from continuing to open stores and expand wildly.
Now "Snacks is very busy" has 4,000 stores in hand, and "Zhao Yiming" has 2,500 stores. On the other hand, Wanchen Group recently acquired the snack brand "Wife" from Ningbo, and since last year, it has successively acquired several regional snack brands such as "Lu Xiaoyu", "Hao Xiang Lai", "Lai Youpin" and "Qi Di Di". The total number of stores is close to 4,000.
Counting the snacks that started in Sichuan, with 2,000 stores, I feel that this industry will soon have a wave of production capacity cleared. If the franchisee rushes in now, it will be no different from chasing Moutai and copying Evergrande in 2021.
So, in the past two years, what is the charm of the snack hard discount store that can make capital pursue, franchisees crazy, and consumers want to stop?
In this issue, I'm trying to make this issue clear.
01
On November 29, 2023, Pinduoduo's market value surpassed Alibaba, which can be regarded as setting a tone for the consumer industry in this era.
Cheap, cheap, still cheap.
Under this tone, countless expensive brands and categories have been blown up. Starbucks was eclipsed, Hua Xizi plummeted, light luxury was almost wiped out, and down jackets, which have raised prices year after year, have become the object of criticism from young people.
The snack industry is no exception.
In the past few years, the three major brands known as BAT in the snack industry, Three Squirrels, Bestore and Baicaowei, have been miserable and miserable in recent years, and their stock prices, revenues, and profits have fallen.
Who called you expensive? It's normal to go into the sewer if you don't conform to the version.
But why they are expensive is actually worth talking about.
First of all, the rise of these three brands is actually the era of the snack industry.
In addition, their channels also make it difficult for them to sell cheaply.
All three companies are taking the e-commerce route. Three Squirrels is a Tao brand originally originated in Taobao, while BESTORE and Baicaowei were originally offline brands, but they saw the dividends of e-commerce, so they chose to quickly transform online. So to some extent, they are all raised by Taobao, which is a microcosm of the surging e-commerce era in the snack industry in the past decade.
The essence of e-commerce dividends is traffic dividends, and cheap cyber rents replace expensive offline store rents.
However, cyber rent is also rent, and it will also increase rent. In my observation, over the past decade, cyber rents have risen much more than shops.
Especially for online brands like Three Squirrels, online revenue accounts for more than 60%. Every cent of sales corresponds to a traffic fee, and when the traffic fee rises, the profit will fall.
Dividends often disappear in an instant, followed by a long transition period like a blunt knife.
02
The snack hard discount store is completely reverse plagiarism of the predecessors, embracing offline, embracing low prices, and conforming to the version.
In my opinion, snacks are naturally suitable for offline.
If you think about it, snacks are used to satisfy cravings, and behind the word gluttony is a type of consumption, which I call "stimulating consumption".
Stimulating consumption has three characteristics. First of all, consumers' impulse to consume needs to be stimulated. For example, when do you want to eat starch sausages, it is likely that you pass by the stall at the entrance of the school and find that they are selling starch sausages, which smell very fragrant. Or if you open a takeaway platform in the middle of the night to eat supper, sometimes you just swipe your phone and see a short video of food, and your DNA is suddenly moved.
Another characteristic is that consumer impulses are often needed to be met instantly. Something that sparks your impulse to buy it is the shortest and most efficient. For example, books in bookstores are much more expensive than online shopping, so why do people still buy them in stores? Because the link is too short, you can take it and go, and you can read it when you get home. Therefore, in the value chain of "stimulating consumption", it is best to make what consumers see is what they get.
Finally, stimulus consumption is easily satisfied, and as long as the purpose is achieved, the impulse disappears. That's why both watermelon and cola are the most delicious in the first bite. To put it bluntly, once the sensual impulse is satisfied, the impulse disappears, and the further back it goes, the more virtuous it becomes.
It can be seen that there are some conflicts between stimulating consumption, snacks and e-commerce in some aspects.
The problem with e-commerce snacks is that no matter how fast the delivery is, it will take several hours, and the link is too long. And the stimulus consumption is too easy to be satisfied, and the unit value of the snack is too low, you can't pay 3 yuan for the "first taste of Coke", right?
The real need to use e-commerce platforms to buy snacks is actually stockpiling. For example, buying New Year's goods at home, or keeping snacks in the company's pantry.
Therefore, in the past decade, the large-scale e-commerce, the snack industry has ignored a large part of consumer demand. Those brands that originated from e-commerce, hummed and worked out of scale, only to find that the real battlefield still has to return to offline.
03
Let's talk about low prices.
The first to make the scale of the "snack hard discount store" model should be the wife who was founded in 2010, but the real outbreak period, that is, the past two years, includes the main players such as Snack is very busy, Snack Youming, Zhao Yiming, and Wanchen Group.
As the name suggests, since it is called a discount store, the main thing is low price.
But what does a hard discount mean?
Some time ago, we talked about the advent store, which is a soft discount model, because the goods have hard injuries, such as clothing out of season, such as snacks and cosmetics are relatively old and become inventory, and dealers need to ship at a low price to return funds, and they will ship at a reduced price.
The hard discount is the opposite, the product itself has no defects, and it is sold at the original price, and there is no need to discount, but it can be sold cheaply. As for profits, they are saved little by little from the operational level. For example, the brand selection is a little worse, the store decoration is a little rougher, the service level is a little less, the advertising is a little less, the procurement scale is a little more, and the miscellaneous costs in the middle links can be saved a little.
This kind of model of relying on the cultivation of the internal strength of the enterprise to reduce the price is called a hard discount.
The source of this model is generally considered to be the German ALDI, not to mention that it is quite middle-class in China, but in Germany, it is a hard discount supermarket. On the one hand, the category is reduced and the SKUs are reduced, and on the other hand, a large number of private brands are used to obtain lower costs.
So when it comes to snack hard discount stores, where does its low price come from?
Here we first dismantle the value chain of traditional snack brands.
The first is the factory link, which is the basis of the snack industry, where agricultural products are transformed into industrial products. If the product is branded, then a part of the premium is generated here. After all, the brand value is not for nothing, you have to advertise and sell it, and you have to spend a lot of marketing costs on TV stations, Aiyouteng, and spokespersons.
Then, large and small distributors and agents are needed to help brands stuff products onto store shelves. To let the dealer do the work, naturally let them take a large piece of the cake. The wider the brand coverage, the more dependent it is on dealers, which is a rigid expenditure.
Finally, when it comes to the terminal store, the big shopping mall may have a series of harsh taxes such as entry fees, bar code fees, display fees, etc., and even need dealers to advance funds. In the end, this money will fall on the price of snacks and let consumers pay.
To put it simply, there are three parts, brand marketing costs, dealer costs, and terminal costs.
And what about hard discounts on snacks?
First of all, brand marketing costs and snack discount stores are more likely to adopt the upstream direct procurement model, directly purchasing white-label products from factories, or purchasing goods from small brands to avoid high brand premiums. And choose the spot settlement without account period trading method, so that the manufacturer is willing to give a more favorable price.
It needs to be added here that hard discounts on snacks will also sell big-name products, after all, it is not easy to do business now, and no matter how big the brand is, there is also a need to ship. What big brands are most afraid of is not that the discount channel can't make money, but that the price is broken, that is, the price system is destroyed, which affects the interests of dealers and traditional channels. That's why these brands will develop some customized products specifically for discount stores. For example, the specifications are one size smaller than ordinary products, or the packaging is a little different, in short, use this method to avoid breaking the price, so that snack hard discount stores can also sell cheap brand goods.
Then there is the cost of dealers, and the snack hard discount store mainly adopts the model of direct distribution of the central warehouse to avoid the price increase of dealers at all levels.
Finally, there is the terminal. Because they are all private label stores, entry fees, barcode fees, display fees, these are naturally not needed, and product selection and display can be completely determined by relying on consumer behavior insights and sales data, so inventory is also avoided to the greatest extent.
Relying on this more efficient and fewer link supply chain, snack hard discount stores can reduce the price increase rate of the same product to 70% or even lower than that of traditional brands, and build a set of their own core competitiveness.
04
Seeing this, everyone should have noticed that my above argument is problematic.
If the hard discount model is so superior, why haven't generations of veteran players done it in the past 20 years?
In the past, whether it was Qiaqia Wangdali Garden or Three Squirrels Good Shop, their goal was to become a national-level snack brand. And the hard discount model has a natural flaw:
Because of the short link and the cancellation of dealers, it relies very much on the brand's own logistics supply chain and on localized operational capabilities, so this model is only suitable for local snakes, and it is difficult to cover the whole country.
In addition, hard discounts on snacks also have to face the large cost of rent, so they generally do not choose first-tier cities to start.
Such a hard injury greatly limits the expansion of the snack hard discount model. So we see that most of the more famous brands today are regional brands, such as snacks are very busy, started in Changsha, and the core position is mainly in Hunan. Zhao Yiming started in Yichun, and he also covered the base camp Jiangxi first.
So, why is this kind of operation model with a very limited scale ceiling now able to appear a group of thousand-store brands, and it is even possible to give birth to a 10,000-store enterprise in the future?
In my opinion, the competition in offline business is very similar to war.
In offline business, location is the location, in any business district, good points are scarce, and it is very important to seize the points.
Of course, if you can't grab the best spot, it's okay to open a few more stores and cover a larger area to form an encirclement.
Therefore, according to the fourth law of Newtonian mechanics, as long as the store is opened enough, the location is on our side.
In addition, there is scale.
The core of hard discounts, in addition to low gross margins and high efficiency, also has economies of scale. If it does not cover the whole country, there are not enough stores, and hard discounts cannot achieve extremely low prices.
As I mentioned in the past, the logic of Chinese business has always been that big cities do small business, and small cities do big business.
When a brand decides to go the low-price route, it is destined to be a mass market of billions of people. In such a market, the scale of competition is to start with thousands of stores, and 10,000 stores are regarded as a stage achievement, and a super chain brand like Mixue Bingcheng has reached the scale of 20,000 stores.
With such a scale, we have the ability to ask for price reduction space from the upstream supply chain, and even transform the supply chain into its own shape to improve efficiency.
Any great chain will have a period of expansion that can be called crazy.
But at this time, it is not suitable for franchisees to rush in with their eyes closed.
Some time ago I read an article in which the point was interesting.
In the competition of franchise chains, the identity of franchisees is twofold. They are both the subject and the object of business.
In any franchise system, there are two products.
One is the goods on the shelves, which are sold to consumers.
Another single-store model that can make money, which is sold to franchisees.
The essence of franchise is that the franchisee buys a business model that has the possibility of making a profit in a certain cycle.
Let's take war as an example, when you enter the battlefield, you have to figure out whether you are a person on the edge of the sand table or a pawn on the sand table. And when hard discounts are competing, a county has five or six stores, and a brand has two or three stores, squeezing the blue ocean track into a red sea in just one year, franchisees are more like the latter.
In fact, the brand doesn't care about the hundreds of thousands of dollars invested by franchisees, they only care about how many counties I cover, whether I have squeezed my opponents out of the market, and whether my valuation has increased from investors.
Until the end of this war, franchisees could not get rid of the identity of "consumables".
05
Finally, I would like to share my opinion.
The outbreak of hard discounts on snacks is essentially a battle royale, which not only happens in the snack track, but also in all consumer goods fields. With the overcapacity of the upstream, the discourse of the market has shifted to the hands of consumers.
The battle royale is dominated by strong channels that can efficiently reach consumers and offer discounts to consumers. And the objects they hunt are brands that have premiums in the past, players in the inefficient supply chain, and terminal merchants who are unwilling to give profits to consumers.
In a recent news, BESTORE announced the largest price cut in 17 years, with an average price reduction of 22% and a maximum price reduction of 45%.
And this is just the beginning, as the game grows in scale, more and more categories, and more and more business entities will feel the challenge.
For example, traditional supermarket stores, all of its categories will face the challenge of vertical hard discount channels, and eventually they can only be forced to join the price war.
For example, under the increasingly efficient logistics and distribution system, some of the traditional subcontracted dealers will be forced to transform, and some dealers can only leave the battlefield.
Another example is a hard discount franchisee, if your ability to choose a point is not strong enough, and the vision of choosing a brand is not accurate enough, then you cannot represent an efficient business model, then you are inefficient and need to be eliminated.
That's where the brutality of battle royale games lies. When business efficiency becomes the ultimate pursuit, no one can escape the fate of being eliminated.