The Secret Behind the Myth of Snack Wholesale Scale | Series Insights (Part 2)

Why is it difficult for traditional brands to replicate the low-price model?

(This article is authored by Tang Jiansheng, a senior expert in consumer insights and business analysis)

The snack wholesale industry can create a myth of ten thousand stores, with the core being a set of counterintuitive business designs: franchisees earn profits, and the headquarters earns scale.

Unlike traditional franchise models, wholesale snacks center on “symbiotic empowerment,” building a commercial closed loop through extreme efficiency in products, prices, and supply chains, allowing franchisees to achieve profitability first, while the headquarters leverages economies of scale to reduce costs and earn profits from the supply chain. This is also the underlying secret of rapid expansion for leading companies. To achieve a closed loop, three core issues must be resolved simultaneously: what to sell (sellable products), how much to sell (competitive prices), and how to deliver (efficient low-cost supply chains). These three are interlinked and indispensable, collectively supporting the myth of ten thousand stores in snack wholesale and establishing a competitive barrier that traditional brands find difficult to surpass.

Sellable Products: Dual Drivers of Traffic and Profit

Snack wholesalers abandon the traditional retail approach of “casting a wide net” for product selection, adopting a three-tier product combination of “standard products for traffic + private labels for profit + proprietary/custom brands for gross margin enhancement,” achieving an efficient closed loop of “attracting traffic - conversion - profitability.” The industry shows a gradual contraction in the proportion of private labels, with a continuous increase in the share of proprietary/custom brands, optimizing the overall gross margin structure, where each product carries a clear commercial mission.

Major branded standard products are the most efficient traffic entry points for stores and are the core “traffic base.” They primarily focus on fast-moving consumer goods such as Coca-Cola, Yibao, and Wangwang, covering high-frequency, essential categories like soda, chips, and bottled water. These products have the lowest gross margin, with some even close to loss, but their advantages of price transparency, high frequency of demand, and low consumer decision costs allow them to quickly implant the core mindset of “affordability” in consumers’ minds. The average selling price of major branded standard products is lower than that of offline supermarkets, with significant price appeal. This segment can contribute nearly 40% of store traffic, as brands exchange small profits for large traffic, establishing a foundation for customer acquisition, increasing consumption frequency, and driving subsequent profit conversion.

Private label bulk snacks were once the core of store profitability and the key to stable earnings for franchisees, with the combined share of private labels and proprietary/custom brands in leading companies’ product structures accounting for about 60%-80%. Private labels focus on high cost-performance and quick turnover, covering all categories such as puffed snacks, baked goods, cooked food, and candied fruits, occupying a significant portion of store revenue. They reduce quality control costs by using the same factory sources, lower terminal costs through small-specification customization, and achieve price advantages with zero marketing costs, primarily focusing on bulk weighing and small packaging forms, maintaining a high gross margin. This significantly lowers the threshold for consumers to try new products compared to online shopping. The combination of major brands attracting customers and private labels generating profits forms a complete profit closed loop; however, private labels also face industry-wide issues of homogenization, inconsistent quality, and low repurchase rates, with leading companies gradually replacing private labels through customization and proprietary branding.

Proprietary/custom brands are the long-term competitive barriers and gross margin cores in the snack wholesale industry, with leading companies continuously aiming to increase the share of proprietary brands as an important development goal. After establishing channel trust, the gross margin of proprietary brand products laid out by leading companies is far higher than that of standard and private label products. Companies adopt a development path of “first building channel trust, then launching proprietary products,” significantly compressing costs by skipping intermediate links and achieving channel brand upgrades, which traditional brands cannot reach with their “first make products, then lay out channels” model. Leading snack wholesale companies are equipped with professional large product selection teams, leveraging digital capabilities for high-frequency product iteration, with the proportion of customized SKUs continuously increasing. They also enhance the differentiated competitiveness of proprietary brands through direct sourcing customization and collaborations with well-known IPs, further enhancing the overall gross margin of the brand.

Competitive Prices: Efficiency-Driven Structural Advantages

The markup rate of snack wholesalers is far lower than that of traditional supermarkets and snack brands, making this structural advantage an insurmountable moat. The core logic is to use the combination of “low gross margin × high turnover × scale” to offset gross margin differences, forming an extreme quality-price ratio matrix; low prices are not a gimmick but the norm in the industry.

This price advantage is comprehensive, with prices clearly more favorable than supermarkets and e-commerce, supported solely by comprehensive cost reductions across the supply chain. By implementing targeted cost control strategies for different categories, low prices become a sustainable norm. Even with an overall lower gross margin, leading companies can achieve considerable net profits through high turnover and scale effects, operating a virtuous cycle of “low price → scale → efficiency → even lower prices.”

Cash procurement is the core support for low prices. Leading companies use zero payment terms, cash settlements, volume commitments, and even capacity buyouts to save costs for factories, secure production capacity, and plan production, thus obtaining considerable procurement discounts and ensuring priority in peak seasons. The efficient operation of cash flow not only grants companies strong bargaining power in the supply chain but also ensures overall stability in the supply chain.

Efficient Low-Cost Supply Chain: The Core Foundation for Ten Thousand Store Expansion

If products and prices are the front-end blades of snack wholesale brands, the supply chain is their back-end support. Leading companies maximize supply chain efficiency, building core capabilities that traditional brands find difficult to replicate; the efficiency gap is the core competitive difference between brands.

Leading companies set up multi-regional warehousing centers, creating a 300-kilometer distribution circle, achieving a layout of “where the store is, there is the warehouse.” The T+1 replenishment time far exceeds that of traditional brands. The storage layout close to the end is effective in reducing losses and improving replenishment efficiency, allowing stores to operate under a state of “small inventory, high replenishment frequency,” reducing capital occupation. Meanwhile, the inventory turnover days of leading companies are far lower than those of traditional brands, significantly improving capital turnover efficiency, which not only reduces inventory losses and decreases near-expiry products but also allows for quick adjustments to SKUs based on market demand, better adapting to regional consumption differences.

Digitalization elevates supply chain efficiency to a new level. Brands use data-driven approaches to replace experience-based decision-making, employing AI algorithms to analyze consumption data for precise product selection, flexible pricing, and early warnings on near-expiry products. Digital tools like image recognition AI scales and intelligent ordering systems significantly reduce labor costs and support high-frequency product launches, shifting the supply chain from “passive response” to “active prediction,” providing solid data support for rapid iteration and precise development of proprietary brands.

The Dilemma of Traditional Brands: Seeing the Scale Dividend but Unable to Escape the Shackles of the Model

Traditional brands are not unaware of the value of scale; however, they have always been unable to replicate the scale myth of snack wholesalers. The core reason lies in the high difficulty of reconstructing the entire commercial system, compounded by four core contradictions trapped in their inherent operational logic, making it challenging to adapt to the new industry rules of snack wholesalers.

First, there is a cognitive and operational deviation in the franchise model. Traditional brands view franchising merely as a “tool for light-asset expansion” rather than a symbiotic empowerment system with partners. They are unwilling to give up the quality control and management security brought by direct sales models while failing to grasp the core logic of wholesale brands, which is “using the supply chain to support franchisees, allowing them to profit first,” ultimately falling into a win-win dilemma of “direct sales with heavy assets dragging losses, and franchises lacking control falling into chaos.”

Second, there is a misalignment in the underlying cognition of price and brand positioning. Traditional brands have a core cognitive bias, equating “upscaling” directly with “brand premium capability.” In the wave of rational consumerism, this positioning has become a fatal shackle for development. At the same time, the definitions of price differ fundamentally: traditional brands treat “price” as a marketing tool, viewing price reductions as passive defenses that sacrifice profits, leading to a vicious cycle of “not lowering prices leads to death, and lowering prices leads to death.” In contrast, wholesale brands view “low prices” as a natural result of structural benefits, a proactive output of core supply chain capabilities, making low prices sustainable.

Third, the generational gap in supply chain thinking leads to a cost structure that is difficult to match. Traditional brands’ supply chains follow a “trade mindset,” essentially just buying and selling goods, lacking control over product production and specification customization, making it impossible to achieve cost reduction through customization and direct sourcing. In contrast, wholesale brands adopt a “manufacturing mindset,” centering on cost control through production, building price advantages through private label direct sourcing, specification customization, and zero marketing costs, holding absolute power in the supply chain. This disparity in thinking and capability means that even when traditional brands see the scale dividend, they cannot compete with wholesale brands on cost structure.

Fourth, the foundational shackles of capital market logic pose a developmental constraint for traditional brands. Traditional listed companies are bound by financial report performance, unable to tolerate strategic losses incurred for scale, adhering to a “profit-driven growth” logic and needing to deliver profits to capital every quarter. In contrast, wholesale brands, supported by VC capital, can “exchange losses for scale,” following a “growth-driven profit” logic, spending years to burn out scale barriers and only realizing profit after the industry landscape stabilizes. The essential differences in capital patience leave traditional brands always lagging behind during industry iterations, unable to engage in the reconstruction of new industry rules.

Core of the Model: Scale is the Result, Efficiency is the Reason, and Symbiosis is Fundamental

The myth of ten thousand stores in snack wholesale is built upon the extreme efficiency of products, prices, and supply chains. The core goal of this model is always to ensure that franchisees make money. Franchisees of leading companies can achieve stable monthly net profits, and the industry’s closure rate is at an extremely low level. It is precisely this profitability effect that attracts more entrepreneurs to join, forming a virtuous cycle of “increasing franchisees - expanding procurement scale - reducing supply chain costs - enhancing price advantages - generating more customer traffic.” Once set in motion, this cycle creates a powerful development momentum.

The harsh reality of the business world is that during model iterations, it is never about who works harder but about who can adapt better to new rules. The decline of traditional brands is fundamentally a disconnection between old models and new industry rules; they can see the path ahead but cannot take steps forward. As the market share of the snack wholesale duopoly exceeds 70% and stores are spread across the streets, issues such as brand internal competition, declining single-store revenue, and severe homogenization are quietly emerging. In the next article of this series, I will analyze the significant dilemmas the rapidly developing snack wholesale model will soon face after reaching ten thousand stores, as well as where the core competitive points of the industry will lie in the future.

This article is exclusively published by Yicai, and represents the author’s views, not investment advice.

(This article is from Yicai)