"Star Daily" news on October 10th (Reporter Xu Cihao), even the queen of venture capital is not bullish on the snack industry anymore?

Recently, Bestore Co., Ltd. announced that, due to its own financial needs, shareholder SUMDEX LIMITED (English name SUMDEX LIMITED, hereinafter referred to as "SUMDEX") plans to reduce the company's shares by a total of no more than 12.03 million shares through centralized bidding or block trading, not exceeding 3% of the total share capital.

It is reported that SUMDEX LIMITED is a fund under Capital Today. As of the announcement date, SUMDEX LIMITED holds 88.866126 million shares of the company.

Since 2010, Xu Xin started investing in Bestore Co., Ltd. with Capital Today and became the second largest shareholder. However, since May last year, SUMDEX under Capital Today has started multiple reductions. As of October this year, its shareholding ratio has significantly decreased from the original 30.3% to 22.16%. This series of reduction operations involved a cumulative total of 54.1 million shares.

In addition, Capital Today is also gradually reducing its shareholding in Three Squirrels Inc.

According to industry insiders, aside from its own financial needs, the primary reason behind Capital Today's exit from Bestore Co., Ltd. and Three Squirrels Inc. may be largely attributed to the highly competitive and declining industry characteristics of the leisure snack industry itself.

As of today's close, Bestore Co., Ltd. fell by 2.5%, closing at 12.1 yuan, with a market cap of 4.852 billion yuan, while Three Squirrels Inc. rose by 4.83%, closing at 24.32%, with a market cap of 9.752 billion yuan.

Hillhouse, Today Capital's shareholding in the snack company has decreased.

Bestore Co., Ltd. was once the darling of capital. However, the 'Star Market Daily' noticed that Bestore Co., Ltd. has faced institutional shareholder shareholding situations multiple times in recent years.

In the pre-listing equity structure, Today Capital held a 33.75% stake in Bestore Co., Ltd. through Dayong, while Hillhouse Capital held a total of 13.00% through Zhuhai Hillhouse, Hong Kong Hillhouse, and Ningbo Hillhouse.

However, after the release of restricted shares in February 2021, Hillhouse Capital disclosed a plan to reduce its shareholding in Bestore Co., Ltd. Hillhouse Capital completed three rounds of shareholding reduction in Bestore Co., Ltd. from February 2021 to November 2022, reducing its stake from 13% to 5.56%. According to the latest financial report, as of June 30, 2024, it has completely exited the top ten shareholders list.

It is worth mentioning that not only Bestore Co., Ltd., 'Three Squirrels Inc.' also announced on October 8th that its fourth largest shareholder, NICE GROWTH LIMITED (referred to as 'NICE'), reduced its holding of 2400 shares of the company's stock, which is owned by IDG Capital.

According to the announcement, from May 20, 2023, to September 30, 2024, NICE GROWTH LIMITED reduced its shares in Three Squirrels Inc. by a total of 18.5364 million shares through centralized bidding and block trading, accounting for 4.64% of the company's total share capital. Following this equity change, NICE GROWTH LIMITED holds 20.0364 million shares of the company, reducing its stake to 4.99998%, officially bidding farewell to its major shareholder status.

In fact, Today Capital had previously reduced its shareholding in Three Squirrels Inc.

In 2013, Today Capital invested in Three Squirrels Inc. at a relatively low cost, eventually holding as high as 16.73% of the shares through two rounds of capital injections and subsequent conversions, becoming the third largest shareholder of Three Squirrels Inc. at the time of its listing.

But by July this year, LT GROWTH INVESTMENT IX (HK) LIMITED, a subsidiary of Today Capital, accumulated a shareholding of 7.0226 million shares of Three Squirrels through block trading and bulk trading, accounting for 1.75% of the total share capital of the company, reducing its stake to less than 5%.

In the view of analyst Zhu Danpeng in the China foods industry, when capital reaches its peak in stock investments or finds other more attractive investment projects, reducing or selling shares is a common business practice.

However, Zhu Danpeng's analysis suggests that besides their own financial needs, the main reason for Gao Ling and Today Capital to exit Bestore could be the fiercely competitive and declining growth nature of the leisure snack industry itself.

According to the financial report, Bestore achieved revenues of around 8.046 billion yuan in 2023, a year-on-year decrease of 14.76%; net income attributable to the listed company's shareholders was about 0.18 billion yuan, a year-on-year decrease of 46.26%. In the first half of 2024, Bestore's revenue was around 3.886 billion yuan, a year-on-year decrease of 2.52%; net income attributable to listed company shareholders was about 23.8906 million yuan, a year-on-year decrease of 87.38%.

Rise of bulk snack stores, how will traditional brands respond?

For two once-regarded 'capital darlings' in the online snack industry, Today Capital has reduced its holdings. What are the reasons behind this move?

Bestore co-founder Yang Yinfen had previously analyzed the main issues faced by Bestore: changes in consumer trends and offline 'siege' by bulk snack stores within the industry.

At the end of last year, Zhao Yiming Snacks merged strategically with Snacks Are Busy to form the Ming Ming Busy Group. In June this year, Ming Ming Busy Group announced that its stores had exceeded 100 million, making it the first snack industry chain with over one million stores. Prior to this, Wangchen Biology had already integrated the brands Wife, Landlord, Lai Youpin, Haoxianglai, and Yadiyadi, among others. According to the latest financial report data, the total number of stores nationwide is 6638.

The characteristics of the snack convenience store are to focus on the sinking market, emphasize extreme value for money, and in the nationwide expansion, also bring pressure to the growth of traditional leisure snack brands.

Taking bestore co.,ltd. as an example, in 2022, it began to massively close offline stores, with a total of 346 stores closed throughout the year. Among them, 227 were in a loss-making state, and the total number of offline stores at the end of the year was 3,226. At the end of 2023, bestore co.,ltd. announced for the first time in 17 years a large-scale price reduction, with an average price reduction of 22% on 300 products, and the highest reduction of 45%.

Meanwhile, three squirrels inc. is continuously adjusting its franchise store system. In the first half of 2023, three squirrels inc. did not open new stores, closed 222 franchise stores, and had 317 franchise stores remaining.

In 2024, three squirrels inc. put forward the 'high-end value for money' strategy, while also launching its own brand community snack store with a focus on the sinking market and a bulk mode – 'Three Squirrels National Snack Store'. Currently, the first batch of self-operated brand community snack stores by Three Squirrels Inc. are mainly distributed in Anhui and Jiangsu.

In addition, in January this year, Three Squirrels Inc. had a total of 4 nut products (macadamia nuts, cashews, pistachios, almonds) entering all stores of the snack convenience brand 'Busy Snacks' and 'Zhao Yiming'. Later, the product range will gradually expand and the scope will be extended to other snack convenience stores, and may even be channeled for exclusive supply.

Currently, many snack brands are choosing to rely on bulk-style snack store channels.

Taking Yanker Shop Food as an example, as early as 2022, Busy Snacks became the largest customer of Yanker Shop Food. At the end of last year, Yanker Shop Food Holdings, in partnership with haoxiangni health food, invested in Busy Snacks.

"Three Squirrels Inc. and Yanker Shop Food entering bulk snack stores could be a win-win situation." Jiang Han, a senior researcher at Pan Gu Think Tank, told the 'Star Market Daily' reporter that although bulk snack stores and traditional snack enterprises have a certain degree of competitive relationship, they can also jointly develop the market through cooperation.

In the view of Jiang Han, both parties can adopt differentiated product strategies and positioning to avoid direct price competition, but rather meet the needs of different consumers by providing different flavors, brands, packaging, specifications, and other products. In addition, both parties can jointly carry out promotional activities and marketing promotions to expand market share and increase brand awareness. By achieving win-win cooperation, both parties can achieve common development.