Wanchen Group has penetrated the bottom of mass selling snacks

Zebra consumption Ren Jianxin

In the past two years, the snack track has become so popular, is it really that profitable?

On April 23, Wanchen Group, the only listed company on mass snacks, disclosed its 2023 annual report, revealing the bottom of the mass snack industry.

After reading the annual report of Wanchen Group, the industry is summed up in these words: the expansion is indeed very fierce, the profit is indeed very thin, and the competition is quite fierce.

On the battlefield where snacks are seen and invisible, there is smoke of gunpowder. 2024 will be a year of bayonets.

The expansion is fierce

Wanchen Group, formerly known as Wanchen Biology, the company's original main business is to grow and sell mushrooms, and categories such as enoki mushrooms and shimeji mushrooms are doing well. As a result, the company landed on the GEM in April 2021.

Chinese population is large, the demand for edible fungi is growing, but there are too many industry participants, the overall situation is small and scattered, and the concentration is extremely low, resulting in the industry head enterprises are also difficult to make a large scale.

Moreover, because there is a strong substitution relationship between edible mushrooms and vegetables, even if the factory cultivation of edible mushrooms solves the problems of geography and climate, it cannot change the details of consumption. From late spring to early autumn every year, the supply of green vegetables in the market is sufficient, and it becomes the off-season for the sale of edible mushrooms.

In the year of listing, Wanchen Biotech suffered a performance waterloo due to the decline in the price of edible fungi and the rise in raw material prices, and the net profit attributable to the parent company fell by 75.61%.

Before Wanchen Biotech, a number of edible fungus companies in Galaxy Biotech and Zhongxing Fungi Industry had been listed on the A-share market, all of which were difficult to gain market attention due to insufficient growth and unstable performance.

In this context, Wanchen Biotech seeks transformation and quickly enters the mass snack industry. It is not only because I have seen the outlet of the industry, but more importantly, the controlling shareholder established a snack workshop as early as 2007 and has accumulated some industry experience.

In August 2022, Wanchen Biotech officially set foot in the mass snack industry, and the following year, it changed its name to Wanchen Group (300972. SZ), the first completed fiscal year after the completion of the transformation.

Standing on the tuyere, it can indeed take off.

By the end of 2023, the company has 4,726 mass-marketed snack stores, ranking among the top camps in the mass-selling snack industry. According to its official website, by April this year, the number of stores had increased to 5,200+.

For the whole year, the company achieved operating income of 9.294 billion yuan, a year-on-year increase of 1592.03%, of which 8.759 billion yuan was contributed by the snack business, and the revenue increased by 13057.81% year-on-year. In the first quarter of this year, the company expects total revenue of 4.7 billion yuan to 5.1 billion yuan, a year-on-year increase of 516.91%-569.42%.

Margins are thin

In order to expand the scale, Wanchen Group has also paid the price of performance.

In the past, when we made edible mushrooms, although the performance fluctuated greatly, we were able to maintain profitability. At its peak in 2020, the company won a net profit of 96.13 million yuan with an operating income of 450 million yuan, and a net profit margin of 21.36%. Such a level of profitability, placed in the entire large A shares, is enough to make people blush.

However, in 2023, the company will turn from profit to loss, and the net profit attributable to the parent company will be -82.93 million yuan, a year-on-year decrease of 273.72%. The net profit attributable to the parent company in the first quarter of this year is expected to be 5.5 million yuan to 7.1 million yuan, continuing to decline by nearly 90% year-on-year.

The mass snack industry is a hard discount business model, and all industry players have only one weapon to attract users - low price.

How to achieve low prices on the basis of ensuring the basic quality of products, and make suppliers, companies, and franchisees profitable?

This is an industry that pays special attention to scale effect, and directly connects with upstream manufacturers through the advantages of centralized procurement to reduce middleman links. Upstream manufacturers have ensured stable production and sales through large-scale procurement of mass sales snacks, achieved predictable revenue growth and profit sources, and are also willing to give up part of their profit margins.

Mass snack enterprises are essentially a middleman, purchasing goods in bulk from the upstream and selling them to downstream franchisees at a higher price, resulting in profits.

This model itself has led to the fact that it is impossible for mass snack companies to have a high level of profitability. In 2023, the gross profit margin of Wanchen Group's wholesale snack business will be 9.52%, a decrease of 4.88 percentage points from the previous year.

However, with the expansion of the company's scale, the marginal cost is gradually reduced, and the profitability has a certain trend of improvement. In H1 2023, the gross profit margin of the company's wholesale snack business will be 7.87%, and H2 will increase to 9.99%, while the sales expense ratio will also decrease. After excluding the accrued share-based payment expenses, in Q3 and Q4 of 2023, the company's wholesale snack business will achieve a net profit of 50 million yuan and 70 million yuan respectively, and the corresponding net profit margin will be 0.18% and 1.82% respectively.

In the first quarter of this year, Wanchen Group's wholesale snack business is expected to have a net profit of 110 million yuan to 130 million yuan and a net profit margin of about 2.39% -2.60% after excluding share-based payment expenses.

It's stressful

Wanchen Group's transformation into mass selling snacks is a halfway home, but it is good at "accumulating" and has been able to quickly expand its scale.

Before and after the arrival of mass selling snacks, a large number of small and medium-sized regional brands were born across the country. With the help of its own listed company platform advantages, Wanchen Group has successively won the brands of "Lu Xiaoyu", "I want to come", "Come to Youpin", "Dian Di Di" and so on. In September 2023, the company unified many brands into "Hao Xiang Lai", and subsequently, acquired the old snack chain brand "Wife".

In terms of the number of stores of a single brand, Wanchen Group should be the first in the industry. But Snack is busy and Zhao Yiming suddenly announced a merger in November last year, and the total number of stores of the group's two major brands has far exceeded that of Hao Xianglai.

For a long time in the future, the battle for the mass snack industry will still focus on the expansion of terminal stores.

At the beginning of this year, the snack group has shouted the slogan of "10,000 stores", and plans to invest 1 billion yuan in half a year to develop the national market and do a deep and thorough job in the northern market.

With the expansion of various brands, the encryption of terminal stores, and the encounter between brands are about to break out. In the Shandong market, I really want to come and Zhao Yiming have become popular. According to media reports, the price war between the two sides once hit a 5.8% discount.

In order to accelerate the seizure of franchisee resources, the snack group is very busy in the first quarter of this year, offering a number of preferential policies such as 0 franchise fee, 0 management fee, 0 training fee, 0 service fee and decoration fee 0 profit. I really want to come to the-for-tat, and we are still implementing preferential franchise plans such as 0 franchise fee, 0 management fee, 0 service fee, and 0 delivery fee.

The fight between brands requires huge amounts of money behind it.

In December last year, Snack is Busy Group received a total of 1.05 billion yuan in financing from Miss You and Yanjin Shop Holdings. Wanchen Group also felt the severity of the situation, although there are still more than 1 billion yuan in cash on the account, and it can't wait to plan a new round of financing, and plans to issue a total of no more than 300 million yuan to specific objects.

In the industry of mass snack sales, which wins on an absolute scale, no player will sit back and watch their opponents easily become bigger. In 2024, more intense wars are inevitable.