Good shop, start to doubt yourself？

Writing | ｜H.H
Edit | Yong Yang

After the official announcement of "big price reduction", he handed over a forecast of the worst semi-annual performance since listing.

According to the announcement, the net profit attributable to shareholders of listed companies in the first half of 2024 was 21 million to 30 million, a year-on-year decrease of 84.15% ~ 88.91%; The net profit after deduction is only 7 million to 16 million. Originally, I thought that the net profit in the first quarter fell by nearly 60%, which was already the bottom after the large-scale price reduction of good shops. I didn’t expect the performance in the first half of the year to be even more unexpected.?

Source: Announcement of Good Shop

At present, the price reduction carried out at the end of last year has had a great impact on the profitability of good shops. At the same time, competitors, represented by snack shops, are on a roll, making it even more difficult for good shops to fight.

On June 12th, Busy Snacks Group officially announced that its snacks were busy and the number of Zhao Yiming snacks stores in China officially exceeded 10,000, becoming the first brand in the snack chain industry to break through 10,000 stores. Snack-selling stores, known as "Good Shop Pingti", have quickly captured the city at a lower price in the past few years.

The reality shows that blindly pursuing low prices may not be able to beat competitors, but it will sink itself into a quagmire. To this end, the transformation strategy of good shops began to shift the focus to a healthy direction.

According to "Little Red Book’s User Insight Report on Snack Industry in 2023", in addition to pursuing emotional value, more and more consumers are beginning to pay attention to the ingredient list and have greater health needs. Good shops seize this point to carry out a comprehensive upgrade and advocate "natural and healthy new snacks".

Then, what are the odds of starting a healthy good shop?

The road to price reduction is also blocked?

In November, 2023, Yang Yinfen, the general manager of Liangpin Store, who took office for only three days, issued an open letter, officially announcing that it would implement the largest price reduction for the first time since the company was founded 17 years ago. The average price reduction of its 300 products was 22%, with the highest drop of 45%, which made Liangpin Store return to the image of its neighbors.

Combined with the gross sales margin of about 27% in the previous two years, the good shops after price reduction are very close to the cost line.

At that time, good shops were experiencing a large-scale closure under the background of the rapid rise of snack outlets, and both revenue and net profit were under pressure under the impact of competitors.

According to the 2023 financial report, the annual revenue of good shops was 8.046 billion, down 14.76% year-on-year; The net profit of returning to the mother was 180 million, a year-on-year decrease of 46.26%. You know, this is the first time that the revenue of good shops has declined in the past 10 years. It is no wonder that Yang Yinfen, the general manager, said in an open letter that "it is not only a difficult problem to live, but a question of whether we can live or not".

It is true that the good shops that have been taking the high-end route have to take the initiative to take the initiative in the face of the pressure of competitors and the impact. It’s just that this price-for-quantity strategy has not really helped the good shops get out of the predicament.

Source: Liangpin Shop Official Weibo

In the first quarter of this year, the company’s net profit was 62.48 million. According to the interim results forecast, the net profit was 21 million to 30 million. In the ideal state, the net loss of good shops in the second quarter was also above 30 million.

The price reduction strategy has been carried out for more than half a year, but the losses of good shops are getting bigger and bigger. In contrast, the official of Liangpin Store said that the decline in performance was mainly due to the price reduction of stores and the early termination of the equity incentive plan included in the current profit and loss. Of course, the price reduction is the key reason for the sharp decline in the net profit of good shops, in addition to the reduction of government subsidies and the rapid decline in online channel revenue.

First of all, look at government subsidies. According to the data of past financial reports, in 2023, good shops received a total of 87.057 million government subsidies, and in 2022, this figure was 160 million. By the first quarter of this year, the government subsidies received by good shops had fallen to 9.49 million.

Secondly, the scale of online revenue has shrunk. With the vigorous development of Internet e-commerce, the online revenue of good shops reached 4.858 billion in 2021, accounting for 53% of the total revenue. In the following two years, the online revenue of good shops continued to decline. In 2023, the online revenue of 3.167 billion yuan fell by 32.58% year-on-year.

In contrast, Yanjinpu’s e-commerce business increased by 98% year-on-year in 2023, reaching 828 million; Three squirrels achieved sales of 1.204 billion yuan through the layout of Tik Tok platform, up 118.5% year-on-year.

At present, the good shops that started from traditional stores seem to be caught in the embarrassing situation of "no village in front, no shop in the back". Offline stores can’t beat snack shops by reducing prices. Online stores miss the rise of a new generation of e-commerce platforms such as Tik Tok, and miss the traffic. It is obviously difficult to achieve longer-term development only by shouting the slogan of "high-end snacks".

Competition in track involution and snack industry intensifies.

By the end of 2023, Liangpin Store had 1,256 directly operated stores and 2,037 franchised stores, with a total of more than 3,000 stores. Objectively speaking, a single brand can open 3000 stores nationwide, and its strength should not be underestimated.

Only in the past few years, with the rapid rise of snack shops, the market share of traditional snack brands has been greatly impacted.

According to "Blue Book of China Snack Discount Industry in 2023", the snack discount market developed rapidly with an average annual compound growth rate of 114.6% from 2017 to 2022, and the sales soared from 3.7 billion to nearly 100 billion RMB. Moreover, from 2021 to 2023 alone, the number of snack supermarkets in China increased tenfold from 2,500 to 25,000.

Among them, the most representative is the Busy Snacks and the Ming Ming Busy Group after the merger of Zhao Yiming Snacks.

Just in June this year, Mingming was very busy that the total number of stores of its two major brands in China officially exceeded 10,000, becoming the first Wandian Group in the industry, ranking first in the industry with a market share of 18.5%. In the second place is Wanchen Group, which is a collection of snack brands such as Haoxianglai and Laiyoupin, with a market share of 17.5%, followed by good shops and three squirrels.?

Source: Snacks are very busy official Weibo

Undeniably, as the "Pinduoduo of the offline snack industry", mass-market stores do have a great advantage over traditional brands in terms of price. The original price of each bottle of Coca-Cola in 3 yuan can be bought in 2 yuan. The products of Wang Laoji in 2.6 yuan and Ipoh in 1.2 yuan are only sold in 6.5 yuan, which is usually as low as about 60% compared with the traditional channel discount stores.

Big brand drainage is just a strategy to attract consumers. What really supports the sustainable development of snack shops is the white brand goods in the stores, which is the so-called "flat replacement is more cost-effective".

For example, snacks are very busy. There are more than 1,600 SKUs in the store, among which big-name goods used for drainage account for about 25%, and more than 50% of white-brand goods contribute most of the profits, and the gross profit margin is generally above 30%.

In fact, most players in the snack industry usually exist as brand builders, just like there are many white-label suppliers behind good shops and herbs. Suppliers provide products, and brands add Logo for marketing promotion.

Mass-selling stores follow the same routine, but will reduce costs through large-scale collection, thus making lower prices than traditional brands to make consumers feel more cost-effective.?

Source: Snacks are very busy official Weibo

In addition to low prices, the deeper reason lies in the rich product categories in snack shops. When it comes to three squirrels, most people’s first reaction is nuts. The preserved meat, dried fruit and bread in good shops are also very popular with consumers. Gan Yuan food is good at seasoning nuts, but the difference is that mass-market stores can make consumers buy them all in one stop by differentiating zero food.

Under the impact of snack shops, good shops are struggling, and other competitors are also under attack. In the first quarter of this year, the net profit of Youyou Food decreased by 8.77% year-on-year to 43.29 million, and the gross profit margin of Gan Yuan Food’s main business decreased by 0.99%, of which the e-commerce model decreased by 10.55%. In order to maintain growth, the promotion expenses of Yanjin Shop increased by 90.02% year-on-year to 91.01 million in 2023.

Adhering to the principle of "if you can’t beat it, join it", in the third day of this year, a squirrel official announced that snacks were very busy, and Zhao Yiming snacks reached a cooperation to put the goods on the line to snack shops; Earlier, in 2022, the good shop also launched the snack discount brand "Snacks Hard Home". As of last October, the number of stores of Snacks Hard Home in Hubei Province had just exceeded 300.

It is worth mentioning that in April 2023, Liangpin Store acquired part of the equity of Zhao Yiming Snacks for 45 million yuan through its wholly-owned subsidiary. It’s just that the good shop sold its equity after holding it for less than half a year, and the interval was less than one month, and Zhao Yiming Guanxuan and Snacks were busy merging. Therefore, the good shop took Zhao Yiming to court, which was an episode in the process of exploring a new model.

Can you break the game if you are healthy?

If a good shop only passively accepts the offer under the attack of a mass-market store, it will always let its competitors lead by the nose. It is better to focus on the supply chain, play a good quality card and make healthier snacks with high quality and price ratio.

In April, Liangpin Store released a brand-new brand value proposition "Natural and Healthy New Snacks"; At the 2024 Food Innovation Exhibition held at the end of June, the good shop explained the insight behind the brand-new idea to the outside world for the first time, initiated the new standard of "five reductions", namely, "reducing salt, sugar, fat, oil and food additives", and launched the "thick meat prune" with clean ingredients list, "Dongkui Yangmei" with zero preservatives and 20% sugar reduction.

Source: Liangpin Shop Official Weibo

According to incomplete statistics, since April this year, more than 60 kinds of healthy snacks have been added to good shops. At the same time, it is announced that it will take three years to remove all unnecessary additions from snacks through technological innovation.

In other words, Liangpin Store officially turned the strategic positioning of "high-end snacks" proposed in 2019 to "natural and healthy new snacks".

As a giant in the snack industry, the shift from high-end to healthy quality is inseparable from the support of all links in the supply chain, which is precisely the difficulty that good shops need to focus on next.

First, trace the origin of the product and control the whole link.

In order to make better cookies, good shops and suppliers compared almost all potato producing areas in China, and finally selected Tengzhou potato after more than 300 recipe experiments; Yangmei is a good shop that traces back to the best place of origin and chooses Dongkui Yangmei. After picking, it enters the cold storage at MINUS 18 degrees for quick freezing. Only cleaning and sugar stains are carried out in the processing process, and no preservatives are really added. In addition, it also includes thick prunes, bread and cakes and other products.

Secondly, as a terminal enterprise in the supply chain system, good shops are also pursuing long-term.

As a mass consumer, what many people don’t know is the explosive items such as wild bamboo shoots and sea knots sold by good shops. In fact, behind them are the products launched by the brand side to continuously help suppliers improve their technology and improve efficiency.

Source: Liangpin Shop Official Weibo

Based on this, many natural and healthy new snacks introduced by good shops have achieved good performance. Since the beginning of this year, the sales volume of light and sweet dried mangoes has increased by 275% year-on-year, the fish larvae in bamboo baskets have increased by 167%, and the monthly sales volume of single products has exceeded 10 million, making it the only biscuit product in China that won the Crystal Award in 2024.

In the eyes of the industry, the blind pursuit of price war belongs to the style of "injuring one thousand enemies and losing eight hundred".

Instead of constantly exchanging price for quantity, it is better to refer to the practice of Sam member stores in many supermarkets, ensure the quality and reduce the cost through scale. Even if the price may not be the lowest, it can also form its own moat through a higher quality-price ratio.

The only thing to worry about is that the good shop is not from a research and development company. In 2023, the R&D expense ratio was only 0.54%, which was significantly lower than that of Yanjin Shop (1.94%) and Jinzi Food (1.92%).

It is necessary to increase more R&D investment to continue to cultivate healthy snacks. It will take time to further verify whether the good shops that have entered the loss stage can achieve long-term success.