Strategic Analysis of Cross-Industry Expansion by Consumer Brands

Based on in-depth research on strategic transformation of consumer brands, I am providing you with a detailed analysis report. It should be noted that no specific news reports were obtained through web searches, so the following analysis is mainly a systematic analysis based on industry trends, business logic, and publicly available business principles.

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Currently, China’s consumer market is undergoing profound structural changes, with new consumer brands generally facing multiple growth pressures. From a macro perspective, the trend of consumption downgrade and the rise of rational consumerism have put pressure on customer unit prices, while intensified market competition has led to a continuous rise in customer acquisition costs. Taking the new tea beverage industry as an example, the store density of leading brands has reached saturation, and tea beverage outlets in first- and second-tier cities have almost been fully divided up, making the traditional growth model driven by store expansion nearly reach a bottleneck.

From the perspective of the enterprise lifecycle, many consumer brands have passed their high-growth period and face the challenge of natural growth slowdown after entering the mature stage. Take Mixue Ice Cream & Tea as an example: it achieved a rapid increase in the number of stores through its “low-price strategy + franchise expansion” model, but when store density reaches a certain level, the dilution effect on single-store turnover is inevitable. The same logic applies to snack food brands such as Three Squirrels. After the e-commerce traffic dividend faded, high customer acquisition costs have become a key bottleneck restricting development.

Against this backdrop, cross-industry expansion has become an important strategic option for consumer brands to seek a second growth curve. Enterprises hope to break through existing business boundaries and open up new revenue sources and profit growth points through category extension and scenario expansion.

Cross-industry expansion by consumer brands usually follows the following types of strategic motivations:

Consumer brands have mature store networks and user communities, and cross-industry expansion into adjacent categories can effectively reuse existing traffic resources. For example, if Mixue Ice Cream & Tea sells breakfast, it can utilize the idle time of its stores in the early morning and its large consumer base to achieve “time period monetization” and “customer base reuse”. Similarly, Three Squirrels’ supermarkets can import its brand awareness and membership system into new retail scenarios, reducing customer acquisition costs for the new business.

A strong channel network is a core asset of consumer brands. Cross-industry operations can dilute channel construction costs and improve channel utilization efficiency. If the site selection, decoration, and operation systems of Mixue Ice Cream & Tea’s tens of thousands of stores only serve the freshly made tea beverage business, there is obvious resource idle time during off-peak hours. By introducing high-frequency consumer categories such as breakfast, the output per unit area and operational efficiency of stores can be significantly improved.

By cross-industry expansion into new consumption scenarios, consumer brands can strengthen the connection between the brand and consumers’ lives, and improve brand penetration and user stickiness. Three Squirrels’ expansion from an online nut retailer to community supermarkets is essentially building a comprehensive consumption scenario of “snacks + daily necessities”, trying to become the “snack steward” for community families.

A single category is vulnerable to fluctuations in the economic cycle and consumption trends. Diversified layout helps smooth performance fluctuations and enhance the enterprise’s risk resistance capability. During economic downturns, rigid demand categories such as breakfast and snacks often perform relatively steadily, and cross-industry operations can help enterprises balance the cyclical risks of a single business.

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The breakfast market is a large but highly fragmented segment of China’s catering industry. According to industry research, the scale of China’s breakfast market exceeds one trillion yuan, but the degree of branding is low, and the chain rate is less than 5%. This market has the following characteristics: first, it has strong rigid demand attributes, high consumption frequency, and high price sensitivity; second, the consumption scenario has a moderate degree of standardization, suitable for chain replication; third, it is highly complementary to the customer base and consumption time period of freshly made tea beverages.

Mixue Ice Cream & Tea has obvious synergistic advantages in entering the breakfast market. From the perspective of time periods, tea beverage consumption is mainly concentrated in the afternoon and evening, and store utilization rate is low in the morning. Introducing the breakfast business can effectively fill this time gap and improve the overall operational efficiency of stores. From the perspective of customer base, Mixue Ice Cream & Tea’s core customer base is young consumers and student groups with high price sensitivity, which highly overlaps with the mainstream consumer groups in the breakfast market. From the perspective of supply chain, Mixue Ice Cream & Tea has established a nationwide procurement and logistics network, which can support the large-scale operation of breakfast categories.

However, Mixue Ice Cream & Tea also faces many challenges in entering the breakfast market. First is the leap in category operation capabilities. Although freshly made tea beverages and freshly made breakfast both belong to the catering category, there are significant differences in product research and development, ingredient management, cooking equipment, and food safety control. Second is the operational pressure during specific time periods. The breakfast period has extremely high requirements for meal preparation speed and efficiency, which requires competing with the tea beverage business for limited store space and human resources. Third is the cultivation of consumption habits. Although Mixue Ice Cream & Tea has brand awareness, consumers’ recognition and acceptance of its breakfast categories require time and marketing investment.

From a financial perspective, the gross profit margin of the breakfast business is usually lower than that of the tea beverage business. The comprehensive gross profit margin of the tea beverage industry can reach 50%-60%, while the gross profit margin of the breakfast market is generally in the range of 30%-40% due to low unit prices and fierce competition. This means that the breakfast business may put downward pressure on the company’s overall gross profit margin in the short term, and profitability needs to be gradually improved through scale effects and operational efficiency enhancement.

The long-term sustainability of Mixue Ice Cream & Tea’s breakfast business depends on the following key factors:

If the breakfast business can achieve supply chain sharing, store sharing, and customer base sharing with the freshly made tea beverage business, forming obvious synergistic effects, then this strategy has strong sustainability. Conversely, if the breakfast business needs to independently build a supply chain and operation system, the marginal benefits of cross-industry expansion will be greatly reduced.

The breakfast business has extremely high requirements for timeliness and standardization, which requires strong store operation capabilities. Mixue Ice Cream & Tea needs to assess whether its existing franchisee system has the ability to operate both the tea beverage and breakfast businesses simultaneously, and whether it needs to invest a lot of resources in franchisee training and store renovation.

Under limited resources, whether the breakfast business is worthy of being a strategic focus depends on its potential contribution to the company’s overall revenue and profits. If the breakfast business is difficult to achieve profitability in the short term, its strategic positioning may need to be re-examined.

Comprehensive assessment shows that Mixue Ice Cream & Tea’s cross-industry expansion into the breakfast market has certain rationality in strategic logic, but faces significant challenges in execution. It is recommended to adopt a strategy of “pilot first, gradual verification”, test the breakfast business model in some mature stores, and verify operational feasibility and financial returns before deciding whether to promote it on a large scale.

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Community retail has been an important growth pole in the retail industry in recent years. With the improvement of consumers’ demand for convenience and immediacy, the “supermarket at the doorstep” model is favored by more and more consumers. Compared with traditional hypermarkets and e-commerce channels, community supermarkets have the following advantages: closer to consumers, high shopping convenience; can provide high-frequency consumer categories such as fresh food, snacks, and daily necessities; relatively low operating costs, and great potential for per-unit-area efficiency.

Three Squirrels has unique resource endowments in entering the community retail market. First, Three Squirrels has established strong brand awareness and supply chain capabilities in the nut and snack sector, and its product strength and brand strength can drive traffic to community supermarkets. Second, Three Squirrels has accumulated a large amount of online member data, which can support precise site selection and precise marketing. Third, snacks are a high-frequency consumer category in community supermarkets, and Three Squirrels’ self-operated products can contribute high gross profit to the supermarkets.

Three Squirrels’ launch of supermarkets marks its strategic transformation from a pure e-commerce enterprise to an omnichannel retailer. This transformation has the following strategic considerations:

As the e-commerce traffic dividend faded, the online customer acquisition cost in the snack food industry continues to rise. The growth rate of Three Squirrels’ online sales has slowed down significantly, and it needs to explore new growth channels. Community supermarkets provide a new entry point to reach offline consumers, which helps break the dependence on a single channel.

Through community supermarkets, Three Squirrels can build an omnichannel system of “online traffic diversion + offline experience + member operation”. Consumers can purchase products online, pick up goods in stores, and enjoy services, forming a retail ecosystem with online-offline synergy.

Community supermarkets can serve as a display and sales window for Three Squirrels’ private label matrix. In addition to nuts and snacks, Three Squirrels can also introduce products in other categories, and improve gross profit levels through private label strategies.

However, Three Squirrels also faces professional challenges in physical retail operations when opening supermarkets. First is the ability of site selection and store opening. Physical retail has extremely high requirements for site selection, which requires accurate passenger flow prediction and rent negotiation capabilities. As a newcomer to retail, Three Squirrels has relatively weak accumulation in this field. Second is the challenge of category management and supply chain. Community supermarkets need to manage thousands of SKUs, which have extremely high requirements for category management capabilities and supply chain response speed. Third is store operation and management. Physical retail requires a large number of front-line employees and management talents, and labor costs and management complexity are significantly higher than e-commerce businesses.

From a financial perspective, the investment payback period of community supermarkets is relatively long. The initial investment of a single community supermarket is usually between hundreds of thousands and millions of yuan, and the payback period may take 2-3 years or even longer. In the early stage of expansion, the community supermarket business may drag down the company’s overall profits, and it takes a long time to achieve break-even.

The sustainability of Three Squirrels’ community supermarket strategy depends on the following key factors:

The success or failure of community supermarkets largely depends on the quality of site selection. Blind and rapid expansion may lead to losses in a large number of stores and drag down the company’s overall performance. It is recommended to adopt a strategy of “steady expansion, focus on core cities”, and expand outward after establishing a density advantage in key cities.

Competition in community supermarkets is fierce, and Three Squirrels needs to establish unique competitive advantages. Its differentiation may come from: strong private label product strength, online-offline integrated member operation capabilities, differentiated store experience, etc.

Physical retail requires long-term capability accumulation, including store operation, category management, supply chain optimization, etc. Three Squirrels needs to invest resources to build this capability system, or quickly acquire it through mergers and acquisitions or other methods.

Comprehensive assessment shows that Three Squirrels’ cross-industry expansion into community supermarkets has certain rationality in strategic logic, but the execution difficulty is relatively high. It is recommended to adopt a strategy of “small steps, verify the model”, pilot the community supermarket business in some cities, and verify the single-store profit model before deciding on the expansion pace.

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The impact of cross-industry expansion by consumer brands on the valuation of core businesses is complex and needs to be analyzed from multiple dimensions. From the perspective of capital market valuation theory, enterprise value depends on the discount of future cash flows. Cross-industry expansion may affect enterprise valuation through the following paths:

Exploring new growth space and enhancing future growth expectations; diversifying single business risks and enhancing performance stability; creating synergistic effects and improving overall operational efficiency; realizing valuation revaluation and obtaining a diversification premium.

Resource dispersion, which may weaken the competitiveness of core businesses; risk of losses from new businesses, which reduces overall profits; increased management complexity, which affects operational efficiency; the market’s cautious attitude towards diversification, which may lead to valuation discounts.

For Mixue Ice Cream & Tea, the impact of cross-industry expansion into the breakfast business on its valuation needs to be analyzed in detail:

If the breakfast business can be successfully launched and scaled up, it will open up a new revenue source for the company and enhance the market’s expectations for its future growth. Considering the large scale and steady growth of the breakfast market, this strategy may be recognized by the capital market.

The breakfast business has strong synergistic effects with the freshly made tea beverage business, including time period complementarity, customer base sharing, supply chain reuse, etc. If these synergistic effects can be effectively exerted, they will improve the company’s overall operational efficiency and profitability, supporting its valuation.

The breakfast business is a new field for the company, and there is a possibility of operational failure. If the expansion of the breakfast business is not smooth or losses exceed expectations, it may drag down the company’s overall profits and affect valuation performance.

Mixue Ice Cream & Tea’s cross-industry expansion into the breakfast business may have a neutral to positive impact on its valuation in the short term, and the long-term impact depends on the business implementation. It is recommended that investors pay attention to the pilot effect and financial performance of the breakfast business, and assess its actual contribution to the core business.

For Three Squirrels, the impact of the community supermarket strategy on its valuation also needs to be analyzed in detail:

Three Squirrels’ strategic transformation from a pure e-commerce enterprise to an omnichannel retailer is an inevitable choice to cope with the bottleneck of online growth. If this transformation is successful, it will break the market’s concern about its “e-commerce dependence” and enhance the valuation imagination space.

The community supermarket business may be in a loss state in the early stage of expansion, dragging down the company’s overall profit margin. Before profitability improves, this strategy may put certain pressure on valuation.

The capital market usually holds a cautious attitude towards the diversified expansion of consumer brands. If the market believes that Three Squirrels’ cross-industry strategy is too radical or deviates from its core capabilities, it may lead to a valuation discount. Conversely, if the market recognizes its strategic logic and is optimistic about its execution capability, it may obtain a valuation premium.

Three Squirrels’ community supermarket strategy may have a neutral to negative impact on its valuation in the short term (due to expected losses from the new business), and the long-term impact depends on the strategy’s execution effect. It is recommended that investors focus on the single-store profit model and expansion pace of community supermarkets, and assess their actual contribution to the core business.

If the cross-industry business is successfully launched and profitable, with significant operational synergistic effects, it will enhance the market’s growth expectations and confidence in the company’s profitability, and may lead to valuation expansion. Mixue Ice Cream & Tea may obtain a new positioning as a “comprehensive catering operator” due to its successful entry into the breakfast market, and its valuation multiple will increase. Three Squirrels may obtain a new positioning as a “new retail enterprise” due to its successful construction of an omnichannel system, and its valuation multiple will increase.

If the cross-industry business develops steadily, neither significantly dragging down the performance of the core business nor bringing significant incremental contributions, the market may maintain the existing valuation level. The impact of the cross-industry business will be regarded as “neutral”, and valuation mainly depends on the performance of the core business.

If the cross-industry business develops unsuccessfully, with continuous losses or strategic mistakes, it may drag down the performance of the core business and lead to valuation contraction. The market may think that the company is “neglecting its main business”, deviating from its core capability circle, and question the strategic judgment of the management.

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To assess the sustainability of cross-industry expansion by consumer brands, it is recommended to consider the following dimensions:

Whether the cross-industry business has strategic synergy with the core business, including customer base synergy, channel synergy, supply chain synergy, etc. The higher the synergy degree, the greater the possibility of successful cross-industry expansion. Mixue Ice Cream & Tea’s breakfast business has strong time period and customer base synergy with its freshly made tea beverage business, and Three Squirrels’ community supermarkets have certain category synergy with its snack retail business.

Whether the company has the core resources required for cross-industry expansion, including capital, talents, management capabilities, etc. Insufficient resource matching may lead to difficulties in strategy execution. Mixue Ice Cream & Tea has certain accumulation in catering operations, but the breakfast business is still a new field for it. Three Squirrels has shallow accumulation in physical retail and faces great challenges in capability building.

The scale and growth potential of the target market determine the upper limit of cross-industry expansion. The breakfast market is large but highly competitive, and community retail grows steadily but has difficulty in making profits. The attractiveness of the target market will affect the long-term value creation capability of cross-industry expansion.

Whether the company can establish competitive advantages after cross-industry expansion determines the long-term sustainability of cross-industry expansion. If it is only a simple business extension without competitive barriers, the cross-industry business may be difficult to obtain sustained competitive advantages.

Not all consumer brands are suitable for cross-industry expansion, and cross-industry strategies have clear applicable boundaries:

Only when the core business has stable competitiveness, market position, and profitability is it suitable to consider cross-industry expansion. If the core business itself faces challenges, cross-industry expansion may lead to resource dispersion and exacerbate the difficulties of the core business.

Cross-industry businesses need to have certain capability transferability with the core business. Otherwise, capabilities need to be built from scratch, and the marginal benefits of cross-industry expansion will be greatly reduced. Mixue Ice Cream & Tea’s cross-industry expansion from tea beverages to breakfast has certain transferability of catering operation capabilities. Three Squirrels’ cross-industry expansion from e-commerce to physical retail has great difficulty in capability transfer.

Cross-industry expansion requires a large amount of capital, talents, and management resources. If resources are tight, it may lead to poor strategy execution. It is recommended to consider cross-industry expansion only after the core business generates stable cash flow.

Cross-industry expansion requires grasping market timing. Entering too early may make it a “pioneer that fails”, and entering too late may miss opportunities. Whether the timing is mature for Mixue Ice Cream & Tea to enter the breakfast market and for Three Squirrels to enter community retail needs to be evaluated specifically.

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From the perspective of industry development trends, cross-industry expansion by consumer brands is becoming a new normal. Against the backdrop of fading traffic dividends and slowing growth, more and more consumer brands are beginning to explore category extension and scenario expansion. The forms of cross-industry expansion are increasingly diverse, ranging from product cross-border, channel cross-border to scenario cross-border.

Cross-industry expansion presents several notable characteristics: first, the direction of cross-industry expansion is increasingly diversified, evolving from traditional category extension to scenario extension and lifestyle extension; second, the methods of cross-industry expansion are increasingly innovative, from self-construction to mergers and acquisitions, from direct operation to franchise, with more flexible model choices; third, the pace of cross-industry expansion is increasingly cautious, shifting from the past “go big and fast” to “small-step trial and error”, emphasizing verification before expansion.

Facing growth pressure and the temptation of cross-industry expansion, consumer brands need to carefully evaluate the pros and cons of cross-industry strategies:

Whether choosing cross-industry expansion or not, it is necessary to continuously strengthen core capability building. Mixue Ice Cream & Tea’s core capability is the operation of freshly made tea beverages under the “low-price strategy + franchise expansion” model, and Three Squirrels’ core capability is “brand and supply chain of nuts and snacks”. Cross-industry expansion should not be at the expense of core capabilities.

Any cross-industry strategy should follow the principle of “pilot verification, gradual promotion”. Verify the feasibility of the business model in a small scope, accumulate operational experience, evaluate financial returns, and then decide whether to promote it on a large scale.

The core value of cross-industry strategies lies in creating synergistic effects. If the cross-industry business lacks substantive synergy with the core business, the significance of cross-industry expansion will be greatly reduced. It is recommended to prioritize fields with strong synergy with the core business for cross-industry expansion.

Cross-industry expansion is a long-term strategy that requires patience and determination. One cannot expect results in the short term, and even more so, cannot waver in strategic resolve due to short-term fluctuations. It is recommended to set clear milestones and evaluation criteria, and regularly review strategic progress.

For investors focusing on consumer brands, it is recommended to evaluate cross-industry strategies from the following perspectives:

Whether the strategic logic of cross-industry expansion is clear, whether the synergistic effects are real, and whether the competitive advantages are reliable. Avoid being misled by “stories”.

The key to the successful implementation of cross-industry strategies lies in execution capability. Evaluate whether the company’s management capabilities, talent reserves, and organizational structure can support cross-industry expansion.

What impact does the cross-industry business have on the company’s revenue, profits, and cash flow? If the cross-industry business incurs losses in the short term, it is necessary to evaluate whether the company has sufficient resources to bear it, as well as the path and timetable for profitability.

What is the capital market’s attitude towards the cross-industry strategy, and how does the valuation change? The market usually gives a premium for successful cross-industry expansion and a discount for failed cross-industry expansion.

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Cross-industry expansion behaviors by consumer brands such as Mixue Ice Cream & Tea selling breakfast and Three Squirrels opening supermarkets are strategic explorations against the backdrop of slowing growth in core businesses, and have certain commercial rationality. From the perspective of strategic logic, cross-industry expansion can bring multiple values such as traffic synergy, channel reuse, scenario extension, and counter-cyclicality. However, cross-industry expansion also faces multiple challenges such as operational capabilities, resource investment, and market competition, and its sustainability needs to be evaluated specifically.

The impact on the valuation of traditional core businesses depends on the execution effect of cross-industry expansion. Successful cross-industry expansion can enhance growth expectations and valuation levels, while failed cross-industry expansion may drag down performance and valuation performance. It is recommended that investors focus on the strategic logic, execution capability, and financial impact of cross-industry expansion, and carefully evaluate the value creation potential of cross-industry strategies.

In general, cross-industry expansion by consumer brands is a double-edged sword. Under growth pressure, cross-industry exploration of new growth points is an understandable strategic choice, but it is necessary to maintain strategic resolve and execution discipline to avoid blind expansion like “seeking inappropriate remedies in a panic”. It is recommended that consumer brands, on the premise of sticking to their core capabilities, ca