Three Squirrels

Three Squirrels: Li Feng as Chairman of the Second Supervisory Board

Three squirrels invest in building a blockchain one-item-one-code platform

2019 Annual Report

More than 300 million to establish 10 companies

Three squirrels plans to invest 240 million in 6 new companies Net profit declines in first year of listing

Three Squirrels Proposes Establishment of Five Wholly-Owned Subsidiaries

On March 20, Three Squirrels announced (in Chinese) plans for a CNY 240 million (USD 33.85 million) investment in five subsidiaries related to international trade, supply chain management, logistics, computer technology and intelligence sales. This will involve wholly-owned subsidiaries being set up by Three Squirrels supply chain management companies. Three Squirrels was established in 2012. The company is headquartered in Anhui province. It was the first enterprise in China to be positioned as a pure Internet snack brand. According to its 2019 financial report, its annual sales exceeded CNY 10 billion (USD 1.41 billion), becoming the first company in the snack industry to cross the 10 billion threshold. The strategy changes mainly related to its released (in Chinese) financial report for last year. Its operating income increased by 45.61% compared with the same period of the previous year, but the total profit had fallen by 20.27%. Net profit attributable to shareholders decreased by 17.80% compared with the same period last year. Moreover, in Q4 2019, operating income was CNY 3.48 billion (USD 490 million), and net profit was nearly CNY 46 million (USD 6.48 million). As Zhang Yiyuan, the founder of Three Squirrels said, "companies are most afraid of stagnant growth. Once the growth stops, the problems will come." Besides its own operating problems, other players in the snack industry are showing strong competitiveness in market share and have taken actions. At the end of last year, Alibaba's Tmall supermarket launched its own snack food brand, Bonbater, which has not yet been promoted on a large scale. Three Squirrels' market value is about CNY 25 billion (USD 3.53 billion) now, and its main competitor Bestore's market value is about CNY 22.8 billion (USD 3.21 billion). These are the two joint top-ranked companies' situations, while the second-place company Baocaowei was purchased by PepsiCo on February 23, 2020, for USD 705 million. In order to improve its profit and stand steadily in the market, this leading snack maker took several actions. On March 2, Three Squirrels announced that they would recruit thousands of people in 40 days, accounting for a quarter of the total number of employees. Two days later, on March 4th, the company launched a 'cloud selection fair,' which now collects quality products online, including snack foods and pet foods nationwide. These actions will bring Three Squirrels much potential to expand its business nationwide and improve its sales revenue, but whether it will solve the problems of profit drop while revenue increases we will need to wait and see.

Three squirrels financial report: 2019 revenue exceeds 10 billion, net profit declines 17.8%

Three squirrels launchs takeaway service Accelerate the channel integration!

Three squirrels opened 10,000 stores

Three squirrels: open shops in sunk market

Three squirrels and its "ferryman"

Three Squirrels Listed on Shenzhen Stock Exchange with A Daily Limit Upper-Price

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.

Three Squirrels' Shares Open for Purchase, More Twists and Turns Ahead?

At last, Three Squirrels (三只松鼠) is going public on China A-share through innumerable hardships. On July 3, 41 million shares of this Chinese snack company opened to purchase on Shenzhen Stock Exchange with the price of RMB 14.68 per share. Its market value reached CNY 5.9 billion, or USD 860 million. 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. The company has turned a relatively mundane product into a successful and recognizable domestic brand. Nonetheless, unexpected twists and turns were awaits on the way of initial public offering (IPO) for the cute nut-selling creatures. The company have entered the IPO listing queue three times but suspended the process twice. On March 29, 2017, it submitted an IPO prospectus to the  China Securities Regulatory Commission(CSRC), later in October, CSRC “suspended the review” due to “signing lawyer resignation”; another two months later, the eve before the Issuance Appraisal Committee's review, CSRC canceled the audit on the grounds that “there are still related matters that need further verification”; until June 25, 2018, the company entered the IPO queuing stage for the third time. Finally, the long wait ended on May 16, 2019 when CSRC announced at its 39th and 40th work conference that Three Squirrels passed IPO screening. "Sunshine is always after wind and rain (a famous Chinese song)," -- it should be the case for Three Squirrels in terms of its IPO and a reasonable PE ratio of 22.99. However, the author still concerns its future. As one of the greatest beneficiaries of Tao-brand (companies which emerged and grew big from e-commerce platform Taobao), Three Squirrels has been questioned for its outsourcing model that largely relied on original equipment manufacturer (OEM) and e-commerce platform marketing. The loose control of both upstream and downstream, not only put the company in great risk in quality control, but also became more dependent on those e-commerce platforms. According to company prospectus, seven consumers sued Three Squirrels for discovering worms in its dried fruit products. The National Quality Inspection Department also found that several nuts products showed excessive fungus -- a direct result of OEM model. The outsourcing of manufacturers would be a hanging sword on its head. How to build a close tie with scattered manufactures? How to be fast in reaction to market shifts, for example, a new flavor of nuts or a new category of snack? Most importantly, how to control product quality? Although Three Squirrels has been firmly on the e-commerce platform for sales champions, it ignored its offline channels. Its competitors like BESTORE (良品铺子)  and a listed company Laiyifen (来伊份) in China were quite strong in offline physical stores(1356 and 2697 physical stores respectively), which provide them more freedom to transit from online to offline after the slowdown of the Internet traffic premium. Considering the growing but still humble snack penetration rate online of 11 percent in 2017 and only 53 physical stores, how can Three Squirrels fight back while losing its first-mover advantage? Last but not least, as the prospectus of the Three Squirrels shows that the sales volume of its online channels accounted for about 90% in 2018, the repurchase rate online was poor and pitiful. How to keep an increasing revenue while having one-time shoppers that accounts for more than 65% of the customers? To be continued.