INSIGHTS
The Fall of a Chinese Snack Giant: Oishi Fails to Innovate and Adapt
BY Shine HuNov 20, 2019

Recently, snack food manufacturer Oishi submitted its prospectus to the Hong Kong Stock Exchange, finally making its decision to go public after 26 years of trials and tribulations operating in China’s snack food market.

The brand name Oishi comes from Philippine enterprise Liwayway Marketing. Oishi used the name for its puffed snack series Prawn Crackers and Shrimp Flakes during the brand's debut in China in 1993.
According to a report by Frost & Sullivan, Oishi was the largest producer (by retail value) of crispy snack foods (excluding potato chips and rice crackers) in China for three consecutive years from 2016 to 2018. According to the prospectus, the company is selling 72 kinds of crispy snack food, 43 types of candy products, and 22 types of beverage products in China[1].

However, a downturn in sales in recent years has been causing alarm and grounds for excavation into the factors contributing to the company's regression.

Reliable data shows that from 2016 to the H1 of 2019, Oishi's revenue from China, its core market, has been dropping steadily on an annual basis. In 2016 71.3% of the company's revenue was made in China. In 2017, the figure dropped to 68.7%, followed by 67.6% in 2018, and its downward spiral continued in 2019, where H1 statistics show a dismal 66.3% of revenue made in China[2].

According to the prospectus, Oishi's earnings in China fell by 2.2% between 2016 and 2018.

So, have Chinese people suddenly sworn off snacking? On the contrary, China's snack market has never been better. According to data, the retail sales of China's snack food market increased from $89.9 billion in 2014 to $118.2 billion last year and is expected to reach $171.7 billion by 2023. Oishi’s flagging fortunes are likely attributable to a failure to address evolving retail and marketing channels compounded by a lack of innovation during product development.  

Late to embrace e-commerce

Fueled by the rapid development of the express delivery industry and e-commerce platforms such as Taobao and JD.com, China has constructed one of the world's most developed e-commerce sectors. There has been rapid growth in the industry for over twenty years. However, Oishi only started its e-commerce channel in 2018. Before that, it mainly relied on bricks and mortar sales driven by its extensive network distributors and retailers[3].

While Oishi ignored the rapidly growing opportunities in e-commerce, its primary competitors were attracting new customers and pulling the proverbial digital rug out from under Oishi's feet. During this period, companies like Three Squirrels wrested key market share away from Oishi and hurting its bottom line in China's snack sector.

Oishi's most significant competitors and best examples of early adopters of e-commerce in China's snack sector are Three Squirrels, Be&Cheery, and Bestore, which were the top three best-selling snack brands during this year's 11/11 Single's Day shopping festival[4].

Three Squirrels' online sales exceeded 932 million yuan during the 11/11 Single's Day shopping festival, while Oishi's e-commerce sales in the first half of this year were only 53 million yuan ($7.58 million)[5].
Three squirrels' e-commerce business was founded in 2012 when the growth curve of China's e-commerce sector was at its steepest. Last year Three Squirrels revenue hit 7 billion yuan.

Lagging product upgrading

In addition to missing e-commerce development opportunities, Oishi has also failed to stay abreast of new drivers of consumer preference in China's snack food sector. Its product development strategy has remained relatively unchanged over the last three decades, and its design and offering look dated. Additionally, the company has not responded to pervasive health and wellness trends in China.

The popularity of products from companies like Three squirrels, Be&Cheery and Bestore showcase a change in preference towards smaller servings of healthier snacks, such as nuts and dried meat.

A report by Frost & Sullivan shows that in the snack food sector in China, the nuts segment has experienced its most rapid growth in recent years, translating to an ever-increasing market share[6].

However, Oishi mainly sells fried puffed food, which is less healthy in consumers' eyes. Additionally, amongst its extensive range of products, most have been met with lukewarm receptions by Chinese consumers who still prefer Oishi's Prawn Crackers and Onion Rings[7], which were some of the first products launched by the company.

In contrast, it's arch-rival in the puffed food sector Lay’s of Pepsi is rolling out potato chips in novel flavors such as matcha, cherry blossom, and durian. These new flavors attract new consumers, especially young people who like to taste new things.

At present, the post-90s and post-00s generation have become a new driving force of consumption. Oishi’s failure to target this key demographic and to develop innovative and novel products that would attract the interest of this group is problematic and an issue that will need immediate rectification.

Teaching Old Dogs New Tricks: The Transformation of Wantwant Group

If Oishi needed some proof that it's possible for old dogs to learn new tricks, it need look no further than its long term competitor, the Wantwant group. The similarities between the groups make Wantwant and excellent model highlighting the potential of Oishi and help emphasize the necessity for Oishi to evolve.

Wantwant Group is also a veteran of China's snack food sector, and like Oishi has also suffered a palpable downturn of late[8].

Founded in 1989, this Taiwan-based enterprise entered Chinese mainland market in 1992,  the earliest among other leisure food enterprises. Wantwant Group experienced a long period of rapid development, but from 2014 to 2017, its revenue declined for three consecutive years, among which 2016 revenue decreased by 16.5% compared with 2014[9].

Therefore, from 2017, Wantwant Group started strategy tweaks, including launching nearly 50 new products. A prominent piece is the upgrading of its hero product Hot-Kid Milk, with the new edition containing 3.6% milk protein. The new product uses white Tetra Pak packaging, making it eye-catching.
Such efforts have reignited interest in the company and have translated to sales of 100 million yuan in just a few months.

Besides, to respond to consumers' increasing demand for a healthy diet, it rolled out its new product series Fix Body in this September, which are all "low carb" foods, low in sugar and calories, tasty and fortified with nutrients[10].

Traditional snack food brands that hope to regain momentum should, first of all, focus on developing products that are healthier and also cater to the demands of China’s younger generation. Brands should also leverage a multichannel e-commerce retail strategy with a significant investment in marketing.  

Disclaimer: All photos are from website.

Shine Hu
ChemLinked Research Analyst
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