CICC: Review and Outlook of Snack Retail Channel Development

CICC released a research report stating that the snack bulk channel will experience rapid development from 2021 to 2024, with room for expansion in the medium term. Currently, the discount format model in the domestic market is still undergoing continuous iterations, with the offline community discount format gradually expanding from snack vertical categories to composite categories, with the potential to reach a penetration rate of 15%-20% compared to developed overseas markets. The profit forecasts and ratings for individual stocks covering the snack industry will be maintained. Key points from CICC include: Rapid expansion of store locations after capital injection in 2021-2022, with market consolidation accelerating in 2023. Snack category has high consumption frequency and low average unit price, with a stable demand. The snack bulk channel has a clear advantage in terminal prices compared to traditional offline channels due to the elimination of intermediary distributors. With the assistance of capital in 2021, the snack bulk industry has accelerated its development, with approximately 25,000 stores by the end of 2021, over 10,000 by the end of 2022, and an estimated 25,000 by the end of 2023. We estimate that by the end of 2024, there will be 35,000-40,000 stores, with an estimated market retail sales of nearly 140 billion yuan based on an average annual sales per store of 4 million yuan. Market consolidation will accelerate in 2023-2024, with both leading groups surpassing 10,000 stores by 3Q24. Fujian Wanchen Biotechnology Group will integrate top brands such as Haoxianglai and Laiyoupin by the end of 2022 and into 2023. In November 2023, the top brands "Snacks are Busy" and "Zhao Yiming" announced a strategic merger. In late October 2024, Three Squirrels Inc. announced a plan to invest in Ailingshi, with the Ailingshi brand accelerating the integration of regional brands in 4Q24. By 3Q24, both leading groups crossed 10,000 stores. We believe the advantages of leading brands include capital, procurement scale and logistics efficiency, and first-mover store locations. In the medium term, the snack bulk store is expected to continue expanding, with the continuous iteration of the community discount format in progress. The penetration rate of the discount format in the developed overseas market is expected to reach 15%-20%. By estimating the store density in mature markets combined with regional purchasing power coefficients, the mid-term opening space for the snack bulk industry is estimated to be nearly 70,000 stores. The discount format model in the domestic market is still undergoing continuous iterations, with the expectation that the offline community discount format will gradually expand from snack vertical categories to composite categories. Currently, there are offline discount supermarkets in the industry (such as comprehensive discount supermarkets Lelyle and traditional supermarkets transformed into soft discounts as the main format or a combination of hard and soft discounts (such as Haote Mai, Haitegou, and Aizhekuo), as well as snack bulk stores expanding into discount supermarket formats (such as snacks have a sound, come from Wanchen under Wanchen brand, etc.). Profit forecasts and valuations: The profit forecasts and ratings for individual stocks covering the snack industry will be maintained. It is recommended to pay attention to Three Squirrels Inc. (300783.SZ) and Fujian Wanchen Biotechnology Group (300972.SZ) which have layouts in the snack bulk and community discount supermarkets. Additionally, it is recommended to focus on supply chain + brand-type snack companies with fast feedback organization, diverse channels, and supply chain advantages such as Yanker Shop Food (002847.SZ), WL DELICIOUS (09985), Ganyuan Foods (002991.SZ), Jinzai Food Group (003000.SZ), Chacha Food (002557.SZ), etc. Considering the industry's valuation increase before the peak season of the Spring Festival and the complete layout of the Yanchu channel, the target price of Yanker Shop Food is increased by nearly 10% to 67 yuan, corresponding to a P/E ratio of approximately 23 times for 25 years and an upside potential of 8.1%. Risk factors: Intensified industry competition, deteriorating store profitability, ineffective management of franchise stores, food safety.