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    Trick or Treat: The Rise of China’s Snack Food Stores

    As the snack food market expands rapidly in China, franchise store owners in towns and small cities might be biting off more than they can chew.

    With their low prices, stylish interiors, and tightly packed shelves, snack food chain stores have become ubiquitous in the streets of China’s towns and smaller cities.

    Fueled by a robust snack food market and the growing spending power of residents in fast-developing urban areas, many people — young entrepreneurs, in particular — have set up shop in recent years, mostly through franchising, in an attempt to cash in on the trend.

    Yet fierce competition and unforeseen costs mean even those who enjoy a roaring trade can struggle to turn a profit, with stores often popping up and then disappearing just as fast. So, who are the winners and losers in China’s snack rush?

    Boom times

    The snack food market in China has maintained a compound annual growth rate of more than 11% since 2015, and there’s ample room for further expansion, according to a 2022 industry report by Redstar Capital, a research and financial news group based in southwestern China.

    Nowhere is this market growth more evident than in county towns and smaller, developing cities, where snack stores almost outnumber bubble tea shops — another trend that has swept the nation. Most of these stores are stylishly decorated, well-lit, and spacious, often covering more than 100 square meters. They display celebrity endorsements and special offers at their entrances, and inside the shelves are filled with a variety of products in colorful packaging, at prices often considerably lower than in supermarkets.

    In the streets, young people carry shopping bags emblazoned with the logos of Super Ming and Busy For You, two fast-growing brands favored by consumers for their competitive pricing and convenient locations near residential areas.

    Many snack store owners say they chose to enter the market because they believed the demand for children’s snacks was inexhaustible, or because they were sure the one-stop shop concept would be a success in the untapped markets of developing urban centers.

    Enshi in the central Hubei province has a population of about 800,000, making it a relatively small city by China’s standards. Luckin Coffee, the fast-expanding domestic coffeehouse, opened its first outlet there only last year. However, walk the city’s downtown in any direction and you will likely pass a different snack food store every few hundred meters.

    Xu Lifang, who lives in Yulin, in the southern Guangxi Zhuang Autonomous Region, says snack outlets have sprung up throughout her city, too. In her community, two rival stores opened up around the same time and now regularly try to drum up trade by blasting their “best value” slogans through loudspeakers. Not far away, another store is also preparing to open.

    “It seems like snack stores have appeared everywhere overnight. They’re expanding at an astonishing rate,” says Xu Wen, a resident of Bengbu, a city of about 3 million people in the eastern Anhui province.

    On its official website, Busy For You advertises that its franchise business is expanding rapidly, with an average of six stores opening every day. The chain had just over 1,000 stores in March 2022; by the end of June this year, that figure had risen to 3,000, and the company says it plans to “penetrate deeply into China’s counties and towns.”

    Super Ming, headquartered in Yichun, Jiangxi province, had 84 stores nationwide when it began franchising in 2021 and now boasts over 2,200, mostly concentrated in towns and small cities. Yummy Snack, which debuted in the southwestern Sichuan province in 2021, opened over 100 new stores every month in 2022 and plans to open 16,000 more by 2026.

    Better options

    Chen Haisheng owns a snack store covering 40 square meters in the central Tianhe District of Guangzhou, Guangdong province. Entering the market is easy, he says. “The business model is simple, and the initial investment required is minimal. As long as you choose the right location and keep your prices competitive, you can make money.”

    He pays around 7,500 yuan ($1,030) a month in rent and utilities, and his employees — mostly university students working part time — earn 20 yuan an hour. Chen says his primary customers are students and young professionals living in the surrounding neighborhood.

    “Generally speaking, most young people have modest incomes and no special hobbies. Other than rent and food, most of their money is spent on cheap snacks,” he says. The average transaction per customer in his store is around 30 yuan, although he regularly introduces special promotions and discounts to encourage them to spend more.

    Chen says that, despite making a monthly profit of about 20,000 yuan, he still feels dissatisfied with his business and plans to return home eventually to Shaoguan, a much smaller city in the north of Guangdong. He believes running a similar store in a less-developed area offers better profit potential.

    In addition to cheaper rent and labor costs, the inconvenience of shopping in smaller cities and towns creates fertile ground for the expansion of snack food stores. Chen says that, unlike in metropolises where there’s a convenience store or supermarket on every corner, smaller urban centers tend to have limited options. For years, his home city had only a single, modest shopping mall offering a small selection of products at higher prices than online stores.

    Logistics is also an issue for online shoppers in less-developed areas of China. Package deliveries to remote towns and rural areas can take a day or two longer compared with major cities, and some villages don’t even have door-to-door services, requiring people to travel to the nearest town to collect their parcels.

    In addition, rural areas often have many elderly residents who are caring for young children. Chen believes that for those unfamiliar with, or wary of, internet shopping, the arrival of a well-lit and smartly decorated store stocking their favorite snacks will be welcome news.

    Li Wei, who opened a snack store in his native Pingxiang, Jiangxi, recognized the market potential of China’s lower-tier cities after moving home from Guangzhou last year. Covering about 150 square meters, his store offers not only food products but also some kitchen and household items. Although the average customer spends less than 100 yuan per purchase, his business is thriving.

    When he opened his store, Li had to restock multiple times a day. “Don’t assume that people from small towns have no money. The purchasing power of residents here should not be underestimated,” he says.

    He has found that, compared with consumers in highly developed urban areas, residents in his city are less brand-conscious: “The smaller the town, the less people care.” In addition to products from major players like Want Want and Lays, he stocks many cheaper, lesser-known brands, which provide the bulk of his profits.

    “For locals, brand and food quality might not be the top considerations. They have more inherent trust in brick-and-mortar stores and feel that offline shopping is better,” Li says. His store generates a daily revenue of about 4,000 yuan, and during special promotions it can be more than 7,000 yuan.

    Snowball effect

    With the average profit margin for a snack store estimated in the region of 20%, Li initially estimated he’d be making around 24,000 yuan. However, he quickly realized that, in reality, that profit “really only existed on paper.”

    At first glance, a snack food store might seem like a no-fail business proposition, he says, “but once you’re in you realize that the simpler the business model, and the lower the barriers to entry, the harder it is to make money in that industry.”

    To open a store in such a highly competitive market, the only viable route is to buy a franchise.

    With the core business strategy being low margins and high sales, stores need to offer a wide variety of products at low prices, and be able to quickly identify and exploit trends. Small, independent stores have limited inventory and find it hard to establish partnerships with multiple brands, so they buy from wholesalers at higher prices. This means they will also likely struggle to restock products to keep pace with demand, weakening their competitiveness.

    In this situation, buying a franchise is the best option. A franchise promises a more comprehensive product selection and sourcing at lower prices, while bigger brands are highly visible thanks to their social media activities. “These stores generate their own traffic,” says Li. “Consumers already trust them and won’t need to compare them with other brands to determine whether their goods are quality or not.”

    The cost of a snack store franchise varies depending on a chain’s popularity and the types of services it offers. For most, it’s around 50,000 yuan. In addition, companies will set minimum requirements for a franchisee’s first inventory purchase — at Super Ming, for example, they are required to spend at least 180,000 yuan. Opening a store also requires a deposit, management fees, equipment, transfer fees for store rentals, and labor costs. In all, the ballpark cost of opening a branded snack store in a town or small city can run to about 600,000 yuan.

    Based on Li’s projected monthly profit of 24,000 yuan, it will take him more than two years to break even. And that’s the best-case scenario. As he puts it, “From the moment a store becomes a franchise, the owner no longer has any control over its operation.”

    To break even as fast as possible, snack store owners often get caught up in endless price wars. “When dealing with a certain consumer base, providing discounts in return for customer loyalty is the wisest choice,” explains Li, who points to the “loss leader” products — those sold below market price — that he displays at the door to attract customers. “When you consider the cost of transportation, stocking some drinks costs us more than their actual retail price.”

    Neighboring rival stores also compete aggressively, regularly going beyond their chain’s official activities to offer their own promotions to drive sales, such as member discounts, lottery draws, and free giveaways. When these marketing campaigns become too frequent, though, consumers’ attitudes change. “Originally, people in developing markets weren’t sensitive to prices, but now they will compare products from multiple sources and choose the cheapest,” further squeezing stores’ razor-thin profit margins, Li says.

    Overstocking is also a sword of Damocles looming over store owners. Outlets offer a dizzying array of products, but only a fraction sell well and turn over quickly, and even then, consumers’ tastes change frequently. Some food manufacturers introduce a new flavor every two or three months, and stores will often overstock to ensure they can meet the potential demand.

    The snack market in developing cities and towns is closely tied to online trends. “You never know what product will suddenly become popular,” says Li, who adds that the ability to restock quickly has become a key indicator for evaluating a store’s competitiveness. Generally, owners will purchase larger quantities of inventory to make it easier to restock their shelves. To gain access to high-demand products, many also accept the unwritten rule of “bundling,” which is purchasing “slow-moving” goods alongside popular items.

    “Some owners will open multiple franchise stores to reduce inventory,” Guangzhou storekeeper Chen explains. “Unsold goods from one store will be brought to another. This keeps the products moving.” The downside is that the cost of opening a store is increasing. “Inexperienced beginners will stick to a single store. Regardless of how high their revenues look on paper, the end result is they will get dragged down by inventory after several months.”

    Furthermore, quality control of products is a major issue. Many snack food stores opt for lesser-known bulk products to increase their offerings and reduce procurement costs. “These products are cheaper, but some have packaging defects, are difficult to store, or come from small factories, making their quality unreliable,” says Li, who also expressed his frustration that, after franchising, shop owners cannot source goods from elsewhere. They can only accept the prices set by their chain’s headquarters and choose from its product catalog.

    “At this point, we have limited choice. When business is bad, we’re stuck with the products, but when business is good and we order more, the likelihood that we’ll run into problems increases,” he says. He likens running a franchise to rolling a snowball downhill — there’s no telling where it will end up or how big it will get.

    A new bubble?

    Zhang Qi, who works in franchise development for a fast-moving consumer goods chain, describes the snack store business as being similar to real estate, as they are both high-turnover industries. The faster snacks are sold, the quicker funds are recouped, while the larger the scale, the more a brand is recognized and the easier it is to secure franchising.

    The speed in which a brand expands largely will determine whether it survives in this intense market. As a result, many have chosen to replicate the successful franchise model laid out by Super Ming founder Zhao Yiming, which targets small profits and high sales volume.

    The effects of this frenzied expansion are obvious. Having a lot of franchisees means brands must continually introduce new products at a rapid rate. For example, Super Ming has more than 2,000 products in its portfolio and is adding over 100 more every month. This puts pressure on brands to ensure quality control.

    On the other hand, the influx of franchisees has helped create the appearance of a prosperous industry. As more investors get involved and new chains emerge, the snack store boom bears a resemblance to the early days of the tech industry, characterized by a rapid cash injection and fierce competition — making it a market where only players with enough capital have a chance to succeed.

    To improve brand management and help small business owners set up their outlets, snack store brands have begun to introduce hands-on support services, providing help with decoration and offering free equipment including advertising boards. However, anecdotal evidence shows the decoration contractors are mostly local businesses, some of which will quote above market price due to a lack of oversight by the brands. And for the free equipment, unless the contract stipulates a specific model or brand, it can be difficult to guarantee the quality.

    In addition, most snack store chains have requirements for franchising that stipulate a store’s size and location, and they may prohibit franchisees from opening outlets close to similar businesses to prevent malicious competition. Franchisees who fail to meet the criteria — particularly inexperienced and impulsive entrepreneurs — end up paying a high price to purchase rights or assets to reach the standard. These factors further intensify the market, and industry insiders say they are concerned that snack food stores will see a wave of closures after the franchising boom ends.

    Li in Pingxiang has been observing the snack store market closely, wondering which brand will have the last laugh. “It definitely won’t be the franchisees who entered the industry just because they want to make some quick money,” he says. Right now, he is worried about year-end, which is when stores reconcile accounts, settle bills, and negotiate their rent. It’s a peak time for closures. He just hopes that his store won’t be among those shutting their doors for good.

    Reported by Yang Jia.

    (Due to privacy concerns, all interviewees have been given pseudonyms.)

    A version of this article originally appeared in Xianwei Story. It has been translated and edited for brevity and clarity, and is published here with permission.

    Translator: Carrie Davies; editors: Xue Ni and Craig McIntosh.

    (Header image: A Busy for You store. Xianwei Story)