Shulou(Shulou.com)06/02 Report--

The category of snack food is scattered, and there are many entrants, but not many consumers are familiar with it and are able to become the best among them. In this highly dispersed industry, three squirrels, quality shops and Baicaowei rank among the top three in the industry with a market share of 11%, 6% and 5% respectively, making them one of the few giants in the industry.

Recently, new news has come out one after another, and there has been a sudden change in the leisure snack industry that has been keeping a low profile.

On Feb. 23, PepsiCo bid $705 million to take over e-commerce snack company Baicawei from Haoxiangyou Health Food Co., Ltd., in order to increase the size of China's online snack market.

On February 24, good products Dianzi Co., Ltd. was officially listed on the main board of the Shanghai Stock Exchange. this is also the first company on the Shanghai Stock Exchange to hold an online listing ceremony. After opening at 9:30, its market capitalization reached 6.9 billion yuan per share, up 44.03%. By 15:00 on the 26th, the share price had risen again to 20.74 yuan per share, nearly double the issue price of 11.9 yuan per share.

Coupled with the three squirrels listed in July last year, the three giants of the leisure snack industry have all embarked on a new journey. Combined with the snack industry manufacturers have listed in the past two years, this change has been brewing for a long time, the listing of quality stores is only a matter of time.

But to be listed at this particular point in time, it is obvious that there is not only based on their own considerations, but also the influence of the industry.

High growth and low profit "upside down"

According to the prospectus issued by the quality store, its offline and online income is basically the same. Compared with the three squirrels, the biggest difference is that their sales channels are more offline, which is also reflected in the data provided in the prospectus.

As shown in the above figure, from 2016 to 2019, the online income of good goods stores increased from 33.69%, 42.21%, 45.52% and 45.19% respectively, and the proportion of offline income was 66.31%, 57.79%, 54.48% and 54.81%, respectively. The income structure gradually tends to balance. Quality stores start offline and gradually expand to online. By contrast, however, online is still inferior to offline.

However, the offline layout of the good goods store did not stop as a result, but accelerated. According to its prospectus, as of June 30, 2019, there were 747 direct stores and 1490 franchise stores, and the number is still increasing.

While offline stores are expanding, their sales costs are also rising rapidly. According to the prospectus, the sales expenses of good shops are 719 million yuan, 952 million yuan, 1.055 billion yuan and 568 million yuan respectively, accounting for 22.83%, 22.20%, 19.45% and 18.75% of the income in the same period respectively. Among them, the promotion expenses alone reached 192 million yuan, 230 million yuan and 318 million yuan respectively.

Overall, in the past few years, sales expenses have gradually climbed to 1 billion yuan, accounting for about 20% of income, which is the root cause of high gross profit and low net profit.

After deducting administrative expenses, sales expenses and R & D expenses, operating profit margins fell to less than 10%. Although there was a better growth in the first half of 2019 compared with the previous three years, it only rose to 6.9%.

Under the rapid growth, profitability stays in single digits, indicating that with the rapid growth, the operating efficiency of enterprises is declining, resulting in a surge in costs and low profit margins. In fact, this is also reflected in the prospectus of quality stores.

From 2016 to June 2019, inventory turnover at quality stores fell significantly, from 6.65 to 3.97, according to its prospectus. The decline in inventory turnover efficiency directly leads to a surge in operating costs, and it is not difficult to understand the decline in net profit.

This profit level restricts its investment in brand building and new product research and development, and will also be in a disadvantageous position in the long-term competition, which is the reason why it chooses to speed up the listing process.

Was halved offline.

The epidemic is menacing and has had a wide range of effects both offline and online. As an O2O snack enterprise established offline and generating power online at the same time, the online and offline business income of quality stores accounts for about 50% respectively, and even more offline business accounts for more than 50%.

According to the original plan, good goods stores will arrange the stock preparation of enterprises according to the production and vacation conditions of upstream suppliers on the eve of the Spring Festival to ensure an adequate supply of goods for offline stores and online platforms, but all this was broken with the arrival of the epidemic.

As a Hubei-based enterprise, on January 23, a "city closure" in Wuhan forced the closure of all local offline stores, while nearly 40 per cent of the 2300 stores were concentrated in Hubei province. for quality shops, this closure has suffered heavy losses.

According to the prospectus, income in Hubei accounted for 56.66%, 53.02%, 51.48% and 48.33% of total income from 2016 to June 2019, respectively, meaning that the epidemic had the most significant impact on the Hubei market, which accounts for most of the revenue.

However, the losses were not limited to Hubei, and soon offline stores across the country were closed and their income was cut off.

Offline income is plummeting, and online is not optimistic. Especially at the special time of the Spring Festival, most logistics enterprises have already had a holiday, and the logistics enterprises that persist in striving on the front line during the Spring Festival, except for a few such as JD.com and Shunfeng, many small and medium-sized logistics enterprises have gone out of business, while the logistics enterprises that are still in operation are subject to traffic control, and the logistics efficiency is not high.

Hubei, as a stronghold of good shops, is closed offline, and there is no good place to go online. Due to the poor logistics caused by traffic control, the goods outside cannot enter and the goods inside cannot go out, which only makes it more difficult for Hubei stores concentrated in Wuhan.

The actual losses to quality stores caused by the epidemic may be greater than predicted. As its main leisure snacks are seasonal, there is an off-peak season, and festivals are the peak season for its sales, but this year, due to the comprehensive influence of logistics, offline shutdown and other factors, it directly leads to the suspension of production and operation, and the sales volume is greatly reduced.

In addition to the sharp decline in sales, its inventory supply has also been directly affected. For example, as a label-operated snack brand, its inventory depends on the production of upstream suppliers. Affected by the epidemic, it is difficult for upstream suppliers to return to work, resulting in a decline in shipments, which in turn affects the inventory supply of good goods stores, which will also have a new direct impact on its revenue.

This makes the good shops that are interested in IPO begin to accelerate the process of entering the capital market. Of course, this is only part of the reason why it is eager to appear on the market. What is more important is the increasingly fierce competition in the snack market, and there is not much time left for quality shops to seize the market as soon as possible before the decisive battle arrives. At this time, the blessing of capital is essential.

The White-hot Competition in the trillion Leisure Retail Market

According to public data, the output value of China's snack food industry was 401.4 billion in 2010 and 919.1 billion in 2017, with a compound annual growth rate of 12.56 percent. It has reached 1.0297 trillion in 2018, and is expected to maintain double-digit growth this year and next. At that time, the output value of the whole industry is expected to reach 2 trillion.

From the overall situation of the market, the current industry is still in its infancy, and there is no obvious leading food company in the industry. But at the same time, there are some new trends in the industry, such as the strategy differentiation of the Big three, the gradual increase of industry concentration and the integration of online and offline all-channel.

According to the China Business Industrial Research Institute, the market share of companies such as three squirrels and Baicaowei increased in 2018. The market share of three squirrels rose to 11.2% from 10.9% in 2017, while Baicaowei increased to 6.2% from 6.1% in 2017, while the market share of quality stores fell by 0.1% to 5.0%.

But even the top three squirrels have a market share of only 10%, suggesting that the market is far from winning or losing. In addition, in view of the low barriers to entry, scattered brands and serious homogenization caused by fierce competition, the three giants have adopted different strategies.

For example, in terms of brand building, the three squirrels have always aimed at building the brand IP of three squirrels, which is intended to form their own brand identity through the brand IP; in the channel, they pay more attention to online sales, which is similar to Baicaowei.

Unlike the three squirrels, the good shop, which started offline, has always focused on offline. At the same time, in recent years, the catch-up of online channels has also accelerated; brand recognition, mainly promote high-end snacks, brand spokesmen are more popular traffic stars such as Yang Zi, Yi Qianxi, and so on, into the mainstream vision of young people.

However, from the channel point of view, online and offline integration is an obvious trend. First of all, the negative impact of the disappearance of online traffic dividends and the increase in customer costs makes offline channels receive attention.

The profitability and growth rate of the three squirrels that have been on the online route for a long time have something to do with their over-reliance on online, while the online and offline dual-channel route taken by quality shops has been paid more and more attention. however, it will take time for good shops to achieve real integration online and offline. after all, the most fundamental thing of online and offline integration is the connection of people and goods yard data, not simply the patchwork of "online + offline".

From 2006 to 2016, the domestic snack retail industry experienced a "golden decade" of the snack industry, and these giants have sprung up during this time, and they have all enjoyed many benefits from the industry dividend. Now, in the face of such a huge market, everyone is naturally determined to win.

In the leisure snack market where there are a large number of eaters, especially there are many large companies that have already been listed, it is not easy for quality stores to continue to forge ahead. For example, the well-known brands listed earlier, such as negotiation Food and Laiyi, have also targeted this potential market and made use of favorable resource advantages to expand their territory.

For a long time, the product homogenization of snack enterprises is serious, which also makes them tired of marketing, resulting in high marketing costs and the continuous erosion of net interest rate.

As companies have introduced external capital to compete for market share, leading to increasingly fierce competition, the three squirrels scrambled for the opportunity to go public and finally went public in July last year. The listing of three squirrels has stirred up thousands of waves with one stone, which has put pressure on quality shops until this year. Under the heavy pressure of the epidemic, the pace of listing has been accelerated.

On February 24, the good goods shop logged on to A shares and finally ushered in the dawn. As of Feb. 26, its share price has risen continuously, with a market capitalization approaching 8.4 billion. The real-time share price of the three squirrels listed earlier reached 65.35 yuan per share, with a total market capitalization of 26.205 billion yuan, which has increased by 3-4 times compared with its listing price last year, and it has only been 7 months after its listing. But the market capitalization is already 3-4 times of the current market value of the good shops, which shows that the "Matthew effect" of the giants has been further expanded under the capital support.

Therefore, despite the popularity of good-quality shops, there are still many challenges for good-quality shops.

Face the three major challenges

In addition to dealing with competition from all aspects of the food industry, we also need to face several major operational challenges mentioned in the prospectus.

First of all, it is the brand recognition challenge of high-quality shops.

In the face of fierce competition, quality stores choose to position themselves as high-end snack providers in an attempt to create a high premium leisure snack brand through differentiation.

But the question is that, surrounded by snack manufacturers who generally take the low-price route in the market, it will take time to see whether high-end snacks can withstand doubts from the market. If it is not handled properly, it is likely to become a "luxury" snack.

Secondly, R & D expenses and sales expenses show a "scissors and fork" situation, on the one hand, marketing costs are high, on the other hand, R & D investment is insufficient. In essence, it is that the corporate brand has insufficient customer acquisition capacity, the customer acquisition cost is too high, and the R & D funding is insufficient, which leads to the lack of a stable foundation for the matching high-end snack labels.

For example, its R & D strength is weak, and it is difficult to effectively break through the technologies such as leading food traceability on the supply side, which affects the process of solving food safety problems related to the lifeline of food enterprises.

As a snack enterprise that does not produce snacks, most of its main products are made by other production enterprises, so it is inevitable that there will be defects in quality. Prior to this, quality shops, three squirrels and so on have been questioned by the outside world and investigated and dealt with by relevant departments because of food safety problems. The "OEM" business with light assets can maintain a good gross profit, but if the quality is not up to standard, it will lead to the complete collapse of a food company.

Therefore, if we want to continue this "light asset" model, we must increase investment in R & D and form a traceable food quality management system, so that consumers can eat at ease and buy at ease; at the same time, R & D investment is still an important part of its offline online data system, and the lagging R & D technology will directly drag down the implementation of its omni-channel layout strategy.

Finally, there is the problem of high inventory.

When it comes to the operation of the enterprise, it is the lack of asset turnover efficiency of the enterprise, which is not a small challenge for the shops of good products. After all, as an enterprise whose offline revenue exceeds online revenue, the insufficient offline turnover will be a drag on its overall offline operation, and improper disposal will lead to its loss.

According to the number of inventory turnover disclosed in its prospectus, the number of inventory turnover from 2016 to June 2019 was 5.19 and 3.97 respectively, which has shown a downward trend. This is also a cause for vigilance for enterprises with high liquid assets such as quality shops.

In the long run, it is only a matter of time before the huge potential and fast-growing leisure snack market turns into a capital Colosseum, but we need to practice basic skills while seeking capital intervention, so that when the industry dividend arrives, we can seize the opportunity and win the initiative.

In this regard, it still needs to make a lot of efforts on how to stabilize the status of the top three in the industry after the listing of the quality goods store which faces many challenges.

(official account of Liu Kuang / tr. by Phil Newell) ID:liukuang110

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