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Author: Wen Yu, Editor: Xiao Shi Mei

In July 2023, a piece of news about Chinese spicy snacks becoming popular overseas suddenly exploded the entire Internet, and even became the number one trending search on Weibo, causing huge repercussions and heated discussions at home and abroad.

Over the past 20 years, spicy snack foods in China, represented by spicy strips, have been controversial and received mixed reviews. However, the industry has continued to develop, grow, and mature, and has become a Chinese delicacy that is popular around the world. If we were to summarize the future of this industry in one sentence:

The slope is long and the snow is thick, but there is still a long way to go.

[Promising Future]

Meituan has previously conducted a survey specifically on the taste preferences of Chinese people. The results show that among the five flavors of salty, sour, sweet, spicy and fresh, spicy is the most popular among Chinese people. 52% of consumers like spicy taste, and this proportion is even higher among young people.

It is an indisputable fact that extensive social exchanges have greatly promoted the integration of food culture. In the past, eating spicy food was only a habit in certain specific regions, but now it has evolved into a cultural experience and lifestyle shared by all people. This integration can even break the restrictions of national boundaries and races. The success of Lao Gan Ma and Weilong in overseas markets is the most direct example.

A large customer base, high-frequency consumption attributes, stable retention rate, and low consumption threshold all determine that spicy food has a bright future. This can also be seen from the operating data of related companies.

In 2023, Yanjinpu's revenue from spicy braised snacks was 1.482 billion yuan, a year-on-year increase of 56.71%. In the first half of this year, it continued to grow by 25.81% to 898 million yuan.

Weilong's performance is even more remarkable. According to its latest financial report, the company achieved revenue of 2.939 billion in the first half of the year, a year-on-year increase of 26.3%; net profit attributable to the parent company was 621 million, a year-on-year increase of 38.9%. Among them, the flavored noodle products, vegetable products, soy products and other businesses increased by 5%, 56.6% and 17.5% year-on-year respectively, and the online channel and offline channel revenue increased by 33.2% and 25.4% respectively, achieving significant breakthroughs in all channels and all product lines.

According to the latest "2023 China Spicy Snack Food Industry Innovation and Consumer Demand Insight Report" released by iiMedia Research, the scale of China's spicy snack food market is 51.7 billion yuan in 2022, and this figure is expected to reach 92.7 billion yuan by 2026, nearly doubling. If the entire spicy snack industry is taken into account, the market size is much larger.

From 2015 to 2020, the proportion of spicy snacks in my country's snack foods increased from 18.26% to 20.26%, and further increased to 21.53% in 2022.

Spicy snacks are still a growing industry with undoubted prospects and potential, but this does not mean that the development of the industry will be smooth sailing. On the contrary, the pain points are always there.

Innovation is the key

If the biggest obstacle to the development of spicy snacks in the past was safety, then the biggest problem facing the industry now is innovation.

Terminal survey data from iiMedia Research shows that in 2023, 57.2% of Chinese spicy snack consumers hope that the spicy snack food industry will make flavor innovations and changes, which accounts for the highest proportion among all options.

Products are outdated and homogeneous competition is prominent. How to innovate in product categories and flavors to meet the ever-changing consumer demand has become an urgent practical issue and also a development consensus of the entire industry.

As a leader, Weilong has taken the lead and continued to focus on the development concept of "not just one kind of spicy". It not only pursues product diversity, not limited to spicy strips, but also pays attention to the diversity of flavors, including spicy, sweet and spicy, and fragrant and spicy. In 2023 alone, the company has launched several sub-brands such as Little Witch Konjac Vegetarian Tripe and Crispy Spicy Chips.

Weilong invented spicy strips at the end of the last century, and all the players quickly followed suit, eventually making the entire market worth tens of billions; later Weilong pioneered the konjac snack track, and now this field has also been made into a tens of billions market. Whether there will be another Weilong to stand out and develop a spicy strip or the next konjac snack is the biggest expectation and suspense in the industry now. To achieve this, you must truly understand consumers.

The basic consumer base of spicy food is the younger generation. Consumers under 35 years old consume 80% of the entire spicy snack market. Whether or not a company can hit the inner world of this group is the key to the success of product innovation. But the problem is that the entire industry is mainly dominated by small and medium-sized enterprises, and there are only a handful of companies that truly have brand awareness and marketing capabilities. From the current situation, Weilong is probably the only one that can really come up with some novel strategies in youth marketing.

In the first half of this year, Weilong launched an unexpected durian spicy bar, combining the durian that young people love with its own products. Once it was launched, it quickly became a hot topic on the Internet. The popularity of durian spicy bars has not yet subsided, and Weilong's human cat bar konjac sour has successfully achieved marketing breakthroughs. By implementing the concept of "konjac sour = human cat bar", the distance between the company and the pet raising circle has been further shortened, directly hitting the emotional appeal of contemporary young people.

Whether you are willing to accept it or not, the era where you can just produce a product and make money in the market is over. In the future, what is most needed, whether it is products or marketing, is innovation. This change may even directly subvert the industry's competitive landscape.

[Concentration Improvement]

Looking at the development history of the entire spicy snack industry, it has experienced many turns and inflection points in just over twenty years.

The period from 2000 to 2009 was a wild development stage, with enterprises of varying sizes springing up all over the country. Although there were some liquidations during that period, the overall situation was still relatively disordered and chaotic.

On December 10, 2009, with the release of the "National Standard for Spicy Strips" by the State Administration for Market Regulation, spicy snacks officially entered the right track of development, and good money began to slowly drive out bad money.

After 2015, the rise of e-commerce has given latecomers certain opportunities. A group of cutting-edge brands represented by Yanjinpuizi have taken advantage of the Internet traffic dividend to gain market share and achieved rapid growth in a short period of time.

Food safety and channel changes were the two most critical variables that affected the competition in spicy snacks in the past. However, as the traffic dividend gradually dries up, it is no longer realistic to hope to achieve cross-domain development through channels, and the importance of innovation capabilities will continue to be amplified.

Head enterprises have the know-how of the industry and have advantages that small and medium-sized enterprises cannot match in product development, marketing innovation, supply chain management, and other aspects. Only these enterprises can quickly integrate resources in a short period of time and respond to market changes and demands. Therefore, the spicy food industry is likely to quickly move towards a "K-shaped" differentiation in the future, that is, head enterprises move upward and tail enterprises move downward.

In fact, even without considering the issue of innovation, it will be difficult for small companies to compete with large companies in the future.

To give a simple example, large factories can reduce costs and increase efficiency through various means such as production technology improvement, large-scale production, and large-volume procurement, and then pass on the released profits to consumers, which can not only improve the competitiveness of products, but also improve the competitiveness of enterprises. The "increase quantity without price increase" campaign launched by Weilong in the past period of time is based on this advantage. In contrast, it is difficult for small factories to have this ability. In the past, they could make up for the gap by making small moves on raw materials, but it will become increasingly difficult in the future.

▲Weilong intelligent production

Therefore, increasing industrial concentration is an inevitable trend.

Looking at the spicy snack food industry across the country, Weilong is the absolute leader, but its market share is only in the single digits. The combined market share of the top five companies in the industry is only about 10%.

As snack foods, the top 5 companies in the mixed nuts industry (Wolong Food, Three Squirrels, Qia Qia Food, Bestore, Be & Cheery) account for about 40% of the market, and the top 5 companies in the candy industry control half of the domestic market. In contrast, the leading companies in spicy foods still have a lot of room for advancement.

From liquor to milk powder, from home appliances to automobiles, the development history of various industries has confirmed a general rule, that is, the increase in industrial concentration is conducive to the industry's move towards higher quality and greater development. With this as a reference, China's spicy food still has a promising future.

Disclaimer

The content of this article related to listed companies is the author’s personal analysis and judgment based on the information disclosed by listed companies in accordance with their legal obligations (including but not limited to interim announcements, regular reports and official interactive platforms, etc.); the information or opinions in the article do not constitute any investment or other business advice, and Market Value Observation shall not bear any responsibility for any actions arising from the adoption of this article.