Bestore lowers prices to survive, is the snack industry's "end of the universe" also a price war?

"Investor Web" by Han Yijia

Looking at the current snack track, rolling prices and channels seem to have become the main storyline.

Among the traditional snack brands, Three Squirrels heavily focuses on online channels and has opened more than 40 live streaming rooms for segmented categories on Douyin. In the first quarter of 2024, the net profit also achieved a growth of 60.08%. Qiakeli Foods has transformed into cooperating with snack bulk stores, achieving a 35.15% growth in net profit in the first quarter of 2024. In the snack bulk track, Zhao Yiming and Snack Busy also merged to establish "Ming Ming Busy," further expanding their presence in offline channels.

As a former "snack three giants," Bestore seems to have failed to recover in time. Recently, Bestore released its 2024 interim performance forecast, announcing that it is expected to achieve a net profit of 21 to 30 million yuan in the first half of 2024, a year-on-year decrease of 84.15% to 88.91%.

From the initial high-end snack positioning to a large-scale price reduction strategy to pursue the low-price route, in the current trend-chasing environment of the snack track, Bestore seems to still be exploring the path to recovery and survival.

Difficulty in Restoring Profitability with Price Reduction

Bestore's net profit situation in recent years has not been optimistic. In 2021, the company's net profit attributable to shareholders was 282 million yuan, a year-on-year decrease of 18.06%; it rebounded in 2022, but by 2023, the net profit attributable to shareholders was 180 million yuan, a significant year-on-year decline of 46.26%. The net profit situation in the first quarter of 2024 has not improved, with a further expansion of the decline by 57.98% year-on-year.

Regarding the significant decline in net profit in 2023, Bestore stated that it was due to the price adjustment resulting from its price reduction strategy, leading to a decrease in gross profit margin. At the same time, this period's government subsidies were affected by the rhythm, resulting in a comprehensive decline in net profit.

In November 2023, Yang Yinfen, the newly appointed Chairman and General Manager of Bestore at the time, announced the principle of "reducing prices without reducing quality" and implemented the largest scale price reduction in 17 years, with an average price reduction of 22% for 300 products and a maximum reduction of 45%. In 2023, the company achieved operating income of 8.046 billion yuan, a year-on-year decrease of 14.76%.

Correspondingly, the price reduction strategy brought about a continuous decline in Bestore's gross profit margin. The gross profit margin in the first quarter of 2024 was 26.43%, a significant decrease of 6.3% compared to 2015, hitting a new low since financial disclosure data. With the overall snack industry gross profit margin level at 18%-25%, Bestore's price reduction strategy further squeezed its profit growth space.

In terms of specific data, besides the price reduction strategy, Bestore's development in both online and offline channels has been weak. In terms of online channels, data shows that Bestore's online e-commerce revenue in 2023 was 852 million yuan, a year-on-year decrease of 19.42%, with traditional platforms such as Taobao experiencing a decline in e-commerce traffic. As for offline channels, although Bestore added 567 offline stores in 2023, it also closed 500 stores, with 324 of them being closed due to losses The continuous decline in net profit has also triggered a reaction in the capital market. In recent years, Bestore's major shareholders have successively reduced their holdings.

In January 2024, Bestore announced that the company's second largest shareholder, Dayong Limited, accumulated a reduction of 20.05 million shares through centralized bidding and block trading, accounting for 5% of the total share capital, reducing its shareholding from 30.30% to 25.30%. In May of the same year, the company announced that Ningbo Hanyi and Dayong Limited planned to reduce their holdings by no more than 12.03 million shares. Although the reduction plan was recently terminated, the continuous reduction intentions of key shareholders including the founding team and the second largest shareholder, coupled with the significant decrease in the shareholding ratio of the main investor, Hillhouse Capital, to 4% at the time of the IPO, have raised doubts in the market about capital withdrawal.

Amid internal and external challenges, Bestore, after lowering prices to survive, continues to struggle in a profit dilemma.

Exploring Market Space through Transformation

In terms of business strategies in recent years, Bestore seems to be constantly seeking breakthroughs.

In 2024, Bestore released a new brand value proposition "Natural Healthy Snacks", with natural healthy snacks represented by newly upgraded wild bamboo shoots, crispy crackers, and plums as the main products. Bestore stated that it will launch more upgraded healthy snacks in the future to continuously enhance the company's product competitiveness.

This is not the first time Bestore has sought transformation for survival. In 2019, Bestore took the lead in proposing a high-end snack positioning in the industry, focusing on three core directions: clearly defined high-quality product standards, a focus on the health and nutrition of segmented populations, and meeting the needs of consumer lifestyle scenarios. This also made Bestore the first snack company to take the high-end route at that time.

In 2020, Bestore achieved revenue of 7.894 billion yuan, a slight increase of 2.32% year-on-year. In 2021, Bestore achieved revenue of 9.324 billion yuan, an 18.11% year-on-year growth. However, starting from 2022, Bestore began to decline, with revenue growth of only 1.24% in 2022 and a 14.76% year-on-year decline in revenue in 2023.

Some market analysts believe that the positioning of high-end snacks is difficult to become mainstream in the snack market. Nowadays, the main consumer group in the snack race is mainly young people, whose overall consumption capacity tends to be affordable and mass-market, and this group is also quite price-sensitive.

Facing the downward trend in performance and the continuous homogenization of the snack industry, in 2023, Bestore also abandoned the initial high-end slogan and initiated large-scale price reduction measures. However, this does not seem to completely reverse the development direction. It is difficult to compete on price alone against bulk retailers. Not to mention that even retail supermarkets are now starting to develop their own snack brands to seize this market.

"In terms of the industry, the shift in online consumer traffic, intensified competition, and the comprehensive blossoming of various snack models offline, as well as the emergence of a series of new species. Looking at users, consumption has entered a rational era, and people are holding onto their wallets tighter. The consumption levels of different population groups are more differentiated and distinct. How to meet the needs of different users is also a test we face." Yang Yinfen, Chairman and General Manager of Bestore, expressed her views on the changing demands in the snack industry in an internal letter released last year Today, Bestore is still striving to catch up with new "points of effort". In the hot snack retail track, Bestore early on laid out Zhao Yiming snacks, but the subsequent development did not go as expected.

In February 2023, Bestore's wholly-owned subsidiary Guangyuan Juyi Company (hereinafter referred to as "Guangyuan Juyi") invested 45 million yuan with Black Ant Capital to jointly invest in Zhao Yiming snacks, obtaining 3% of Zhao Yiming's equity. In October 2023, the company transferred its 3% stake in Zhao Yiming snacks for about 105 million yuan and received an investment income of about 60 million yuan.

However, in November after the transaction was completed, Snacks Busy and Zhao Yiming Snacks announced a strategic merger. The National Enterprise Credit Information Publicity System shows that Snacks Busy and Zhao Yiming Snacks completed the industrial and commercial change registration on the day of the merger announcement. Regarding this "lightning transaction," Bestore believes that "during the holding period, Zhao Yiming never consulted with the shareholder Bestore about the merger with Snacks Busy," and concealed significant transaction information. In November 2023, Bestore officially filed a lawsuit against Zhao Yiming Snacks on the grounds of deliberately concealing significant company matters during the cooperation period and harming the rights of minority shareholders to be informed.

The case is still under trial. Although the grievances between the two parties have not been resolved, this operation undoubtedly directly disrupted the rhythm of Bestore's cooperation with snack retail companies in the market. From the results, Bestore has not given up on laying out the snack retail track and actively promoting the new brand "Snack Stubborn Home" to expand the new snack chain business.

Now, with changes in the snack retail track landscape, new retail companies such as Snacks Busy, Zhao Yiming, and Want to Come occupy a new track, while traditional snack companies like Bestore, Three Squirrels, and Qiaqia Food are constantly exploring new growth paths. Three Squirrels reiterates its goal of tens of billions, and Qiaqia Food deepens its presence in new channels... The challenges brought about by the continuous changes in the industry always lie in front of Bestore. (Produced by Thinking Finance)■