Author：Butao Wang Jul 12, 2019 01:48 PM (GMT+8)

Three Squirrels stock price increased to the daily limit of CNY 21.14 soon after opening.

Three Squirrels listed on Shenzhen Stock Exchange. Photo credit: Three Squirrels

At last, Three Squirrels (三只松鼠) had its initial public offering on China's A-share market on July 12 through innumerable hardships.

On July 3, 2019, this e-commerce originated snack company opened for subscription with 41 million shares on the Shenzhen Stock Exchange with the price of CNY 14.68 per share.

On the first day of IPO, the stock price surged to CNY 21.14, reaching the 44% limit soon after opening. For China's A-share IPOs, the measures were introduced by the Shanghai and Shenzhen stock exchanges in June 2015 to cap the first-day gains to tame speculative price swings -- the first-time limit of 20% multiplied by another 20% limit with half an hour suspension, making it a 44% increase limit for a new stock listed in China' stock market for the first day. 

Founded in 2012, Three Squirrels is a leading snack brand that achieved USD 1.5 billion sales in 2018 through selling nuts, seeds, dried fruits and other snacks. It is not only the first food brand tapping into e-commerce, but also currently the largest snack retailer on major Chinese online retail sites. Below is a quick review of its milestone events:

On June 19, 2012, Three Squirrels got its first investment five days later. Only six months after that, its sales in China's Single's Day Shopping Festival reached CNY 7.6 million.

On January 2013, the monthly revenue exceeded CNY 20 million, easily leaping to the first place in the nuts sector. Moreover, the turnover exceeded CNY 35 million on 2013 Single's Day Shopping Festival, followed by consecutive jumps to CNY 100 million, CNY 251 million and CNY 435 million in 2014, 2015 and 2016 respectively.

Behind Three Squirrels' IPO is a huge snack market estimated to reach CNY 2 trillion by 2020 with a yearly CAGR of 22%. By comparing the recent three years revenue with other players in the sector, we can find that the Three Squirrels tops in both revenue and growth rate.

However, due to the lower threshold of the sector for new entrants and the greater penetration of the Internet that has transferred several brick-and-mortars snack brands to an online-offline business model, Three Squirrels is facing fierce competition.

In terms of the rate of gross profit, the traditional physical stores such as Laiyifen (来伊份) and Qiaqia Food (恰恰食品) that mainly operated offline showed their advantages. The promotion activities and group buying strategy in physical stores leverage the gross profit offline while online sales channels need to consolidate its market position by a lower price.

If we further compare Three Squirrels and Bestore (良品铺子), the two e-commerce based companies, we would find an early strategic difference between the two. Three Squirrels gained 89.32% revenue from online channels in 2018, the number for Bestore is only 44.49% for the same year. Although Three Squirrels has been firmly on the e-commerce platform for sales champions, it ignored its offline channels. BESTORE was quite strong in offline stores(1356 and 2697 physical stores respectively), which provide the company more freedom to transit from online to offline after the slowdown of the Internet traffic premium.

Besides, their product lines differentiate in early stage that Three Squirrels failed to catch early-mover advantage in product categories of meat snacks, confection and pastry. 

To be continued.