WanChen Group exposed the bottom line of bulk snacks

Zebra Consumer 任建新

In the past two years, the bulk snack track has been so hot, is it really that profitable?

On April 23, the only listed bulk snack company, Wanchen Group, disclosed its 2023 annual report, revealing the reality of the bulk snack industry.

After reading Wanchen Group's annual report, the industry can be summarized in a few sentences: expansion is indeed aggressive; profits are indeed thin; competition is extremely fierce.

In both visible and invisible battlefields of the bulk snack industry, the smoke of war is everywhere. 2024 will undoubtedly be a year of bloody competition.

Aggressive Expansion

Wanchen Group was originally named Wanchen Bio, with its main business being mushroom cultivation and sales, particularly excelling in varieties like enoki mushrooms and shimeji mushrooms. The company went public on the ChiNext board in April 2021.

China's large population drives continuous growth in demand for edible fungi, but the industry is fragmented with too many players, resulting in low concentration. Even leading companies struggle to achieve significant scale.

Moreover, because edible fungi are highly substitutable with vegetables, even industrialized cultivation solves regional and climate issues but cannot offset seasonal consumption fluctuations. From late spring to early autumn, when green vegetables are abundant, edible fungi face a sales slump.

In its first year as a public company, Wanchen Bio suffered a Waterloo in performance due to falling edible fungi prices and rising raw material costs, with net profit attributable to shareholders plunging 75.61%.

Before Wanchen Bio, companies like Xinghe Bio and Zhongxing Junye had already gone public on the A-share market but failed to attract sustained market attention due to unstable growth and performance.

Against this backdrop, Wanchen Bio pivoted swiftly into the bulk snack industry, capitalizing on the sector's momentum. Crucially, its controlling shareholder had founded Snack Workshop as early as 2007, accumulating industry experience.

In August 2022, Wanchen Bio formally entered the bulk snack industry. The following year, it rebranded as Wanchen Group (300972.SZ), completing its first full fiscal year post-transformation.

Riding the trend, the company indeed took off.

By the end of 2023, Wanchen Group had 4,726 bulk snack stores, positioning it among the industry's leaders. According to its website, store count exceeded 5,200 by April this year.

Annual revenue hit 9.294 billion yuan, up 1,592.03% YoY, with bulk snacks contributing 8.759 billion yuan—a 13,057.81% surge. For Q1 2024, the company forecasts revenue of 4.7–5.1 billion yuan, up 516.91%–569.42% YoY.

Razor-Thin Profits

Wanchen Group paid a price for its rapid scale-up.

While its mushroom business had volatile but consistent profitability—peaking in 2020 with a 21.36% net margin on 450 million yuan revenue—2023 saw a net loss of 82.93 million yuan, down 273.72% YoY. Q1 2024 net profit is projected at 5.5–7.1 million yuan, still down nearly 90% YoY.

Bulk snacks operate on a hard-discount model where low prices are the only weapon to attract customers.

How to balance low prices with quality while ensuring profits for suppliers, the company, and franchisees? Scale is key. Direct procurement from manufacturers cuts middlemen, stabilizing upstream output and allowing negotiated margins.

As essentially a middleman, bulk snack firms buy wholesale and sell to franchisees at a markup, inherently capping profitability. Wanchen Group's gross margin for bulk snacks dropped 4.88 pp to 9.52% in 2023.

However, scaling up gradually reduced marginal costs. H2 2023 gross margin rose to 9.99% from H1's 7.87%, while sales expense ratios declined. Excluding share-based payments, Q3 and Q4 net profits were 5 million and 70 million yuan, with net margins of 0.18% and 1.82%, respectively.

For Q1 2024, bulk snack net profit (ex-share payments) is estimated at 110–130 million yuan, with a net margin of 2.39%–2.60%.

Intense Pressure

Though a latecomer, Wanchen Group leveraged acquisitions to scale rapidly.

As regional bulk snack brands proliferated nationwide, Wanchen used its listed platform to acquire brands like "Lu Xiaohan," "Haoxianglai," "Laiyoupin," and "Yadi Yadi." In September 2023, it consolidated these under "Haoxianglai" and later acquired veteran chain "Laopodaren."

By single-brand store count, Haoxianglai likely leads. But the November 2023 merger of rivals Snack Busy and Zhao Yiming created a combined entity far surpassing Haoxianglai.

For the foreseeable future, industry battles will center on store expansion. Snack Busy Group recently announced a "10,000-store" plan, pledging 1 billion yuan to penetrate northern markets.

As brands expand and stores cluster, clashes are inevitable. In Shandong, Haoxianglai and Zhao Yiming have already engaged in price wars, with discounts as steep as 5.8 折。

To woo franchisees, Snack Busy waived 加盟费， management fees, and even 装修费 profits in Q1. Haoxianglai countered with similar zero-fee policies.

Such battles demand massive funding. In December 2023, Snack Busy secured 1.05 billion yuan from Haoxiangni and Salted Fish 控股. Wanchen, despite holding over 1 billion yuan cash, is urgently planning a 300 million yuan 定向增发。

In this scale-driven industry, no player will let rivals grow unchallenged. 2024 promises even fiercer warfare.