From Back-Alley Stalls to Boutique Chains: What's Changing in the Snack Food Market?

Fresher, more fashionable rooms, pricier dishes, addresses closer to office workers, and a push to build chains. But upgrading brings its own problems, and none of them are problems these shops have faced before.

Café-style tables and chairs, vintage pendant lamps, a glass façade, a bright sign someone clearly designed — the Erguang Huntun wonton shop at No. 84 Anyuan Road, near Suzhou Creek, looks nothing like what its regulars remember.

"This place feels like one of those internet-famous shops, not old Shanghai," Liu Lu said, looking around, in an interview with QDaily. "I wouldn't say I dislike it. I just don't like it any more than before."

Since it opened on Zhaozhou Road in 1997, Erguang Huntun had always been a late-night stall, serving from 6pm until two or three in the morning. Business was brisk, and it drew every sort of customer — people from the neighborhood, young people working late or unable to sleep, foreign tourists — who came because they had heard of it. Then it became famous: the actor Hu Ge praised it by name on Weibo, Lu Han dropped in, and the shop turned down an offer to open inside Shanghai Disneyland.

Still, Erguang Huntun stayed one small shop in one lane until 2016, when Zhaozhou Road was torn down and every "dark cuisine" stall on it, Erguang Huntun included, had to find somewhere else to go. The owner, Pan Nanyun, moved his shop to nearby Huangjiaque Road. That is when WeChat accounts about Shanghai life started calling Erguang Huntun "a miniature of the city itself."

This June, after 20 years without a single branch, Erguang Huntun finally opened one, on Anyuan Road. A review by a Dianping user called Shuishui Xianglancao shows how far it sits from the old street-market shop: "I'd heard about the Zhaozhou Road one for years, but I never had the nerve to sit down and eat there — especially after seeing the aunties chopping ingredients with a cleaver right on the pavement. The shock was just too much."

The new shop runs to 250 square meters, wide and bright, and feels fashionable and fresh. Its prices, naturally, are a little higher. After 20 years of selling wontons in Shanghai, Erguang Huntun has done what Liu Lu felt in the room: gone from a street stall on Zhaozhou Road to a snack shop with the air of an internet celebrity.

A better room to eat in, pricier dishes, an address closer to young office workers — if we call what is happening to Erguang Huntun an "upgrade," it is far from the only snack shop moving toward the boutique model.

In October 2015, Dahuchun opened a flagship store at No. 136 Sichuan Road (M.), across the street from the site of its first shop. For an old, established brand, the flagship was a brand-new idea, and it works much the way fashion brands say theirs do: it is bigger, and it launches and tests new products. One of its specialties is a foie gras pan-fried bun at 8 yuan apiece; some of the first customers to try it called it a "secret menu" item in their Dianping reviews.

Dahuchun has 85 years behind it, and its dry, soupless pan-fried buns are, to many people in Shanghai, the most authentic version of the dish. Before the flagship opened, though, it had only two shops, both small dumpling counters tucked into lanes. Even after it made the Michelin Guide's recommended list last September, Dahuchun was still, in market terms, nothing more than Shanghai's most authentic pan-fried bun.

Xiaoyang Shengjian, a far better-known name, already has 165 shops in Shanghai. It is changing too, and its "upgrade" shows up most clearly in how fast it rolls out higher-priced dishes. In the past year alone it has added black-and-white pan-fried buns, prawn pan-fried buns and spicy lobster pan-fried buns. For three years running it has also bought subway advertising, which snack brands rarely do — last July it ran spicy lobster pan-fried bun ads on four Shanghai subway lines.

Order any of these newer, non-classic dishes and you can easily spend 40 or 50 yuan. That is not the 10-yuan snack shop people remember either.

Then there was the Wuxi shop called Shaxian Light Meals, which briefly became a talking point. Many people assumed it was an upgraded Shaxian Snacks. In fact it had no authorization from the Shaxian Snacks Group, which owns the trademark; it had simply taken Shaxian Snacks' ingredients, cooking methods and shop décor and given them a high-end finish.

The décor and tableware at Shaxian Light Meals are entirely Japanese in style. The menu keeps the steamed dumplings and the stewed soup pots, but the headline dishes are now things like curry potato chicken rice and salads. A poster circulating online about Shaxian expanding into Japan turned out to be a design the WeChat account Japan Design Outpost had made up on its own. It has nothing to do with the real Shaxian Snacks, yet the bright, airy room and the carefully plated dishes had people saying, "So snack food can look like this."

"I think this place" — Erguang Huntun — "is a bit like Taoyuan Juancun," Liu Lu said. "Too twee." Taoyuan Juancun is a Taiwanese snack chain founded in Shanghai that mainly sells fried dough sticks, sesame flatbreads and baozi, with average spending of about 35 yuan a head. It may look like Yonghe King, but unlike the Yonghe outlets you find beside train stations and hospitals, Taoyuan Juancun serves neither rice dishes nor noodles, and its rooms are much fresher and cleaner. Starting from its first Shanghai shop on Taizhou Road in 2014, the brand has opened 11 in the city one after another, mostly in shopping malls, high-end office towers, or new business parks tucked beside residential compounds.

All of which has made the boutique-snack model — better rooms, more distinctive products, addresses closer to office workers — look like a workable path. Yet neither Erguang Huntun nor Dahuchun thinks it is following Taoyuan Juancun, and both are wary of the word "boutique," even hostile to it. "'Boutique' makes people think high-end. We are definitely still mass-market," Ma Jun, Dahuchun's vice president, told QDaily. Pan Nanyun still cannot say exactly where Erguang Huntun sits: "I'm not positioned like Taoyuan Juancun or Din Tai Fung, but I certainly don't want to be positioned like Shaxian Snacks either. What I'm doing is my own mass-market position."

On one point, though, both are clear: they want chains.

"If you can get big, now is the best time to do it." Pan Nanyun believes the Anyuan Road branch, open a month and a half, is the start of a chain.

Asked why now is the best time, Pan Nanyun offered little in the interview beyond this: "Shanghai's crackdown on street vendors these past few years has slowly wiped out the low-barrier snack stalls." But that is plainly not the real reason for the "upgrade." The good time is a good time made by money. Last year Erguang Huntun took investment from Shenzhen Chihao Hehao Wanhao Network Technology — the name means eat well, drink well, play well. Neither side would disclose the amount, but Pan Nanyun's plans for more branches have a great deal to do with it.

Investors want scale, and scale means chains; a higher price point, meanwhile, marks out how much revenue a customer base can keep contributing. In other words, chain expansion and a higher price point — or at least the promise of both — are what it takes to get the money.

And behind all of this sits rising spending power. According to Meituan's China Catering Report this year, average spending per table in the fast food and snacks category rose from 42 yuan in 2012 to 63 yuan last year, a cumulative increase of 49%. The next-biggest gains were hot pot and Western food, up 19% and 18% per table.

Snacks that cost 10-odd or 20-odd yuan are moving into the 30-to-50-yuan band, sometimes higher. Wei Ran, retail property director at the consulting firm JLL, told QDaily that in first-tier cities, with inflation, better-educated palates and fiercer competition, 40 to 50 yuan has become a widely accepted price for an ordinary white-collar lunch. "In the lunch range, at 20 to 30 yuan, you'll find there are fewer and fewer options. It's not that we aren't trying to sign them for our clients. It's that there simply aren't many left to find."

Dahuchun is one of the food brands owned by the state-run Xinghualou Group, and its upgrade is one product of Xinghualou's push across the whole group to win over younger customers. "An old brand has to hold on to the older generation of customers while also raising younger ones," said Shen Yifeng, deputy general manager of Xinghualou Group. Other old Shanghai snack names, Gongdelin, Shendacheng and Xiaoshaoxing among them, are chasing young people too, developing products like salted egg yolk and pork floss qingtuan, and purple sweet potato daifuku. Having worked out that younger customers care about a restaurant's décor and its address, several of these brands have also begun moving into malls such as Metro City and Vanke Plaza together.

For Dahuchun, a burst of attention much like the one Qingfeng Baozi once got, plus the Michelin listing, was what prompted it to start talking about chains. In a year and a half it opened seven shops and one central kitchen — fairly aggressive, set against more than 80 years with two small shops. Most of the new ones went into shopping malls.

Ma Jun thinks malls bring in more office workers but create a different problem: their opening hours do not match the shop's own peaks. In a mall that opens at 10am, Dahuchun loses breakfast, which used to be a high share of its takings — and that hurts Dahuchun in particular. "If we can't do breakfast, we actually lose quite a lot," he said. And at the mall's own busiest hour, dinner time, not many people want a snack for dinner.

Neighborhood shops outside malls but within reach of office towers do better. That is one of the new patterns Ma Jun has noticed: at lunchtime Dahuchun's shops fill up with office workers from the buildings nearby, while the old regulars and street-market customers built up over the years come in the morning instead. The two crowds sort themselves out.

Pan Nanyun refuses malls outright. Beyond the impossibility of late-night trade, he does not want to give up control of his shops, least of all by sharing his accounts with a mall operator. "Your life and death end up in someone else's hands," he said. Several malls have wanted Erguang Huntun, and one near Great World even agreed to let it keep its finances to itself; at the point of signing, Pan Nanyun walked away, because the mall's lift ate into the shop's floor area without a matching cut in rent.

For Erguang Huntun and Dahuchun alike, this is a concrete problem: how to serve both the street-market customers they have spent years building up and the office workers they now want, and which to give up if they cannot.

Taoyuan Juancun, aimed squarely at office workers, carries far less weight on its back and is glad to go into malls. Founder Cheng Hui argues that big malls guarantee foot traffic and build a brand's reach faster. Rent is expensive, but fast food turns tables quickly, and cheap snacks can become a standing lunch choice for the office workers next door. Dahuchun and Erguang Huntun, by contrast, used to live off breakfast and the night trade respectively.

As single shops, none of them lack customers, and even with the new outlets they have no reason to worry yet. "This one on Anyuan Road definitely won't lose money, but I don't know how much it will make either," Pan Nanyun said. "We've got 20 years of customers behind us. I figure if I open a shop now, people will come."

Erguang Huntun is certainly known among young people, and well thought of. Pan Nanyun said the new shop got no promotion at all; on the first day of its trial run it took nearly 10,000 yuan. He estimates July revenue at around 1 million yuan, with a gross margin of about 50%.

The shop has drawn plenty of staff from the startup parks nearby. Raito is one of them, and comes four or five times a week. We found him at about 3pm on a weekday. "At noon there are too many people — everyone who works around here," he said. The bike ride takes him five minutes. "I'd heard about the place for ages, and a colleague recommended it as soon as it opened. I like the room. Coming to eat at a time like this doesn't feel strange. There are plenty of small food places around here, but they're mostly for laborers. And I eat a lot of delivery food, so I get sick of it."

Between one shop, or two, and a chain of any size, however, lies a large gap. Both men know what the hardest part is: standardization.

Pan Nanyun still has no firm product standards. Asked about weights, he threw out "20 grams, 10 grams" off the top of his head. He reckons he can get 80% of the way there for now — a rough weight for the filling in each wonton, with a margin of a gram or two. "I try to make them about the same size. But every pair of hands moves differently. How can you make them identical?"

For him, a branch is new territory. He brought staff from the original shop to Anyuan Road, and plans to do the same at every future shop, letting old hands train new ones in the procedures Erguang Huntun already has. This year he wants to open one more branch and start fitting out another. Within two years he intends to have six of his own shops and be "on firm ground," and only then think about franchising.

Luo Chuan, who works for Erguang Huntun's investor, told QDaily that they are hunting for people with the right experience — someone who has worked at McDonald's, say — in the hope of raising efficiency and helping Erguang Huntun make the jump from street stall to chain company as fast as possible.

Pan Nanyun clearly has ideas of his own, especially about "partners." Of his earlier refusal of Disneytown, he said the terms were too harsh: "They wanted 20% of revenue, and Disney wanted a say in pricing too." He later turned down Ele.me for much the same reason: "They said they'd run it. How would that work? I'd have no say left."

Even so, Pan Nanyun is working through how to set standards, and how to go from running one shop to running his own shops, then a chain, then a company. "I haven't figured it out yet. One step at a time."

Standardization has left Dahuchun just as harried; more than a year on, it is still rewriting its training materials. Unlike Xiaoyang Shengjian, Dahuchun makes its pan-fried buns with a fully leavened dough, which has to rest at least 45 minutes for two risings — a longer process. Xiaoyang Shengjian uses unleavened dough, wrapped and fried on the spot, which saves both time and space.

Every time they open a shop, Ma Jun says, they train the staff in how to leaven the dough, work it, fry the buns and so on. But the equipment differs from shop to shop — gas in one, electric in another — so the technique ends up differing too. "Even when the leftover dough has risen a bit more, or a bit less, how to fry it so it comes out best is still something we're feeling our way through." Ma Jun is also thinking about machines in place of people. He admits a machine-made bun is not as good as one made by a skilled worker, and that this could cost them repeat customers, but "if labor gets too expensive later on, we'll have no choice. We'll have to put machines in place of hands."

Staff is the thornier problem. Dahuchun's people, accumulated over more than 80 years across two shops, plainly have no idea what running a chain involves, and there is no bench behind them. More than a year into it, Ma Jun says, Dahuchun still "lacks an effective team to support the brand's growth." "If every shop had a good manager and a good deputy manager, we wouldn't have to worry about anything else."

The central kitchen is probably the only thing standardization has produced so far. Dahuchun's sits inside the Sichuan Road flagship, and the filling made there now goes out to all eight of its Shanghai shops. The company plans to build a second one once it reaches 15.

Erguang Huntun wants a central kitchen too. Pan Nanyun insists his wontons be wrapped fresh, so the kitchen would make only filling, rather than shipping out finished wontons the way Jixiang Huntun does. Nor does he think Erguang Huntun could portion the filling precisely at the central kitchen the way Din Tai Fung does; that would make the wontons impossible to wrap.

As it happens, Pan Nanyun has known Yang Lipeng, the founder of Xiaoyang Shengjian, for a long time. When Xiaoyang Shengjian opened its fourth shop, it was right next to Erguang Huntun, and the two even shared the pavement outside. "Xiaoyang Shengjian meant to build a chain from the very beginning," Pan Nanyun said. "I always thought I was just scraping a living, and that sooner or later I'd go back to my hometown."

Pan Nanyun thinks it is not too late to think again. But he believes Erguang Huntun has no direct rival right now, and no other brand's model to copy. What is "worth borrowing from," in his view, is the company culture and the marketing of Din Tai Fung, where the spend per head is far above his own. Both shops, for instance, pull in celebrities; Din Tai Fung has a wall devoted to them, while Erguang Huntun has never made any marketing of it at all.

Dahuchun's plans may take it to nearby cities, or even abroad. It has already registered an international trademark.

While they hurry to open shops, there is a question their customers are bound to ask: does it still taste the way it did in the lane? And if they cannot offer something beyond the wontons or the pan-fried buns themselves, the road up may be a hard one. In the market they are entering, after all, the competition is no longer the street food they grew up with.

Note: Liu Lu and Luo Chuan are pseudonyms.

Cover image: Erguang Huntun, food52; unless otherwise noted, photographs in the article were taken by the reporter.