INSIGHTS
Experiences from the Chronology of China’s Snack Market
BY Yilia YeFeb 21, 2022
The development of China’s modern snack industry has undergone four stages, whose emphases are quantity, brand, channel and health demand. To win the competition in Era 4.0, stakeholders should realize product differentiation, develop both online and offline channels, and create featured products.

The recent three decades witnessed the rapid development of China’s snack industry as well as its evolution. According to iiMedia data, China’s snack market hit 1,120 billion CNY in 2020, and is expected to reach 1,156.2 billion CNY in 2021. In addition, we see more and more new food products emerged in China Meanwhile, some products who were once extremely popular now decline. This article summarizes the development stages of China’s snack industry and offers suggestions to enterprises to cope with the current challenges.

Chronology of China’s snack market

Era 1.0 quantity is the king

China’s snack market embarked upon its rapid development in the 1990s, whose first stage lasted approximately 10 years, ended in the early 2000s. During this period, the sales of snack food giant enterprises were featured with the mode of “one main SKU + mass production + comprehensive distribution channels + huge retail scale”. That is, those big enterprises focused on the R&D of limited products, then produced them in large quantity and reached the consumers nationwide through plenty of distributors.

The success of such mode could be exemplified by Uni-President, White Rabbit. and Strong. Uni-president entered into China’s mainland market in 1990, and its featured product crispy instant noodles was a great hit among teenagers at that time. White Rabbit must be one of the best-known local brands whose milk candy was even sent to the then-US-president Nixon as a gift. In 1993, “Strong” (“喜之郎” in Chinese) was engaged in jelly sector and nearly monopolized the market within five years1. These enterprises set a good example of marketing and the core of some strategies are still widely used today.

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Era 2.0 chain brand

While those giant food enterprises were making huge profits, asset-light strategy, a new sales mode, gradually emerged on Chinese market. Unlike traditional food enterprises taking on all things, the enterprises of Era 2.0 focused more on brand reputation. They committed themselves to covering snack SKU as much as possible, but entrusted OEM (original equipment manufacturer) to do the manufacture. The sales of the products relied on their self-built channels. Most were small or medium size stores at the curbside.

Bestore is the beneficiary of asset-light strategy. Its career began at nuts and dried fruit products in 2006 then expanded to nearly all categories of snacks including biscuit, pastry, sugar, bean products, meat products, tea, etc. As of the end of 2020, Bestore had 2,701 offline stores with sales revenue of 7.89 billion CNY2. Now Bestore is one of the top snack brands in China.

Era 3.0 online channels

2012 was another watershed year for China’s snack industry. It was a stage that Internet-based industries, especially E-commerce, were booming. Quite a few new enterprises caught the opportunities to expedite their own development. One of the best examples is the success of Three Squirrels. Unlike traditional food brands, Three Squirrels was sold online only when it initially launched in 2012. It well utilized Internet promotion with low cost to maximize the brand exposure and occupied in the consumers’ mind. In the double 11 shopping festival of 2012, the sales value of Three Squirrels reached 7.66 million CNY and further hit over 1.05 billion CNY in that of 20193.

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Owing to the prosperity of e-commerce, consumers have more choices, and enterprises can get closer to consumers. In Era 3.0, online selling became a significant channel and the adaptability with Internet became a new aspect of enterprises’ core competitiveness. Enterprises failing to catch the new trend would gradually fall behind, such as Want Want, Uni-President, and Master Kong.

Era 4.0 health becomes the new demand

Although Three Squirrels, Baicaowei, and Bestore became the top snack brands in China, their market share dropped from 35% in 2020 Q1 to 23% in 2021 Q11. The reduction was associated with fierce competition, food safety issues and negative news of those companies, but one of the most important factors lies in the change of consumption demand. At present, the snack industry has been upgraded to Era 4.0, in which “health” is the core demand of consumers. In this stage, nearly all categories can be healthified, which could be exemplified by zero sugar drinks and high protein biscuit.

Generally speaking, enterprises could consider the following ways to design a healthy snack:

Addition:

1) Add Chinese traditional nutritious food materials, e.g., Quaker Five Black Multi-Grain.

2) Produce functional snacks by adding innovative ingredients, e.g. hyaluronic acid drinking water.

3) Add ingredients based on the specific demands of targeting groups, e.g., ingredients benefiting Children’s growth, substances assisting youngsters’ beauty.

Subtraction:

1) Reduce sugar.

2) Reduce salt.

3) Formula that helps lose weight, e.g., meal replacement.

The most successful case of Era 4.0 must be Genki Forest, which is famous for its sugar-free products like sparkling water. Genki Forest’s sparkling water launched in 2018 and remains popular till today. In 2020, the sales value of Genki Forest hit 3 billion CNY, representing a 270% YoY growth. It is noteworthy that the sales of sparking water contributed over 70% of all4 . After the success of Genki Forest, more and more enterprises placed their emphasis on “sugar-free” and “fat-free” food and beverage, high protein products, functional food, etc. Well-known brands include ffit 8, WonderLab and buffx.

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Strategies to win the market

Focus on the segmented category

Although snack giant enterprises like Bestore and Three Squirrel covered lots of SKU, they do not have a featured product, which makes them have no distinct difference with their competitors. Nowadays, brands focusing on specific categories are more easily attracted by young consumers, and that is why Wang Baobao (cereal products) and Saturn Bird (coffee) obtained huge success. In addition, enterprises should have a deep insight on the consumption demands. Although taste is still an important factor, consumers now have higher standard on other senses, including smell, auditory sensation, visual sensation, and even touch sensation.

Develop both online and offline channels

Food enterprises should take the advantages of both online and offline channels to promote their business. Concerning the higher cost of online operation and the huge market offline (offline channels represented over 85% of the overall consumption), more and more enterprises started to set up offline stores. According to the financial report issued by Three Squirrel, it had more than 1,000 offline stores by the end of 20215. Similar strategy was also taken by Baicaowei, another famous snack brand that relied on online channels only previously. Meanwhile, those traditional food giants realized the importance of online channels and invested more on e-commerce. For example, Yanjinpuzi established its e-commerce company in 2014, and Want Want started to develop omni-channel from 20176.

Realize product differentiation

Today enterprises have achieved the consensus that product differentiation is the key to win the competition, but what are the methods? According to “Children Snack Market Research White Paper”, enterprises can innovate their products by upgrading nutritious ingredients, such as using whole grain or organic ingredients, and making the products featured with high protein, low fat or low sugar. Besides, the application of healthy processing method like non-fried is also a good way to make the product differentiated. In addition, enterprises can design interesting package to attract consumers.


Yilia Ye
ChemLinked Regulatory Analyst
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