Interview with Zhang Liaoyuan, CEO of Three Squirrels: What is more important than returning to 10 billion is to figure out who you are

"It's easy to design a business, but it's too difficult to design an organization" "Distribution is the most important task for the three squirrels in 2024" "We have been reflecting on why we haven't been able to move forward after the revenue of 10 billion yuan that year...... These are the words repeatedly mentioned by Zhang Liaoyuan, founder and CEO of Three Squirrels, in an exclusive interview with a reporter from China Securities Journal in Hefei, Anhui Province.

After the "darkest moment" in the past few years, the performance of the three squirrels at the beginning of 2024 is off to a good start. The first quarterly report shows that the revenue of the three squirrels during the reporting period was 3.646 billion yuan, a year-on-year increase of 91.83%. In 2024, what are the important tasks in front of the three squirrels? What are the new contents of the "high-end cost-effective" strategy? and can the goal of "returning to 10 billion" be achieved?

Low gross profit refractive efficiency improvement

On April 16, the three squirrels disclosed a quarterly report, from January to March this year, the three squirrels achieved a total operating income of 3.646 billion yuan, a year-on-year increase of 91.83%, a net profit attributable to shareholders of listed companies of 308 million yuan, a year-on-year increase of 60.80%, and a non-net profit of 263 million yuan, a year-on-year increase of 92.84%.

The first quarter of holidays such as New Year's Day and Spring Festival is often the peak season for the sales of nut products, and the gift box products of the three squirrels are also selling hot in the first quarter of this year. During this year's New Year's Festival, the sales of a variety of "nut gifts" products launched by the three squirrels distribution channels far exceeded expectations, and the distribution of a full range of standard gift boxes and gift bags was sold out across the board.

Behind the good start is the growth of demand driven by the "high-end cost-effective" strategy. "Nuts are more expensive in the minds of consumers, and there is an imbalance between supply and demand. Although the demand for nuts is still weak this year, we have lowered the price through the 'high-end cost-effective' strategy, and consumers may have wanted to spend some money to buy other snack gift packs, but they found that they could buy three squirrel nut gift boxes with an additional price of about 10 yuan, and the demand for three squirrel products was fully released during the New Year's Festival. Zhang Liaoyuan introduced.

The "high-end cost-effective" strategy that leads the three squirrels out of the "darkest moment" of performance, that is, based on market demand-oriented, consumer-centric, innovation-led, through the integration and reorganization of the whole link and all elements, to achieve "shorter links, more advanced tools, and more collaborative organizations", under the basic conditions of leading the total cost of the whole transaction in all categories and all channels, to achieve higher product quality, more differentiation, and more affordable prices, and at the same time superimpose brand power, so that consumers can feel the new value of the brand again.

According to Three Squirrels, the price of macadamia nuts in 2023 will drop by about 30% compared with 2022, and the monthly sales of this product on the Douyin platform will exceed 10 million yuan, while the price of air-dried duck neck in supermarkets is 9.9 yuan, snack stores are 5.9 yuan or 6.5 yuan, and the price of Three Squirrels community retail stores is only 5.6 yuan.

The price cut is undoubtedly a positive for consumers, but it also brings concerns about the profit margins of the three squirrels. According to the 2023 annual report of Three Squirrels, the gross profit margins of the three major categories of nuts, bakery and comprehensive products are 23.06%, 20.15% and 29.29% respectively, all of which have declined. In this regard, some industry insiders believe that the price reduction of the three squirrels is to sacrifice profit margins in exchange for performance growth, and the competitive strategy of price reduction is difficult to maintain for a long time, so the three squirrels must find new growth momentum.

In Zhang Liaoyuan's view, the current low profit margin actually reflects the company's efforts to reduce brand premiums, and is the result of improving the efficiency of the whole process. "From raw material processing to sales, and then to reach the terminal, the whole process was very bloated in the past, and the profits of each link were more, which led to the increase in the final price increase of the product. Zhang Liaoyuan said that for the previously highly premium products, the "high-end cost-effective" strategy is to remove unnecessary or even wasteful links in their costs, so as to achieve cheaper and hotter products, and cheaper and cheaper.

Zhang Liaoyuan further said that when the scale of the industry continues to develop, its optimization space, agglomeration effect and intensive effect will gradually amplify. In 2023, the three squirrels will mainly optimize the main links from raw materials to processing to delivery to consumers, such as the optimization of express fees, distribution paths, and dealer models. The products sold by the three squirrels through Douyin e-commerce are shipped directly to consumers from the factory, saving storage costs and removing a lot of intermediate links.

In 2024, in addition to further improving the efficiency of each link, the important force of the three squirrels to reduce costs is in raw materials. Zhang Liaoyuan said that this year, the three squirrels will carry out larger-scale and larger-scale centralized procurement on the raw material side, further promote the global cooperation of nut raw materials, and at the same time deepen the origin of local nut raw materials in China. "We have set up raw material procurement points and rough processing plants in Guangxi and Yunnan, and the cost reduction of raw materials will help reduce the overall cost on a large scale. Zhang Liaoyuan said.

Anchor the "double hundred" distribution target

Starting from e-commerce, the three squirrels in the omni-channel layout, what will be the new layout in terms of sales channels in 2024?

"Three squirrels from nuts to all categories of snacks, from online to offline, all categories, all channels. Zhang Liaoyuan said that in the online business, the three squirrels have done a relatively complete job from Taobao, Jingdong, to Douyin, Pinduoduo, and then to WeChat private domain. In particular, the scale growth driven by short video e-commerce has driven the sales growth of omni-channel, and in the first quarter of 3.646 billion yuan of omni-channel revenue, short video revenue exceeded 1 billion yuan, and the proportion of revenue increased significantly compared with the same period last year.

The expansion of offline channels is the important task of the current three squirrels.

On the one hand, laying offline snack stores is the channel force of Three Squirrels in 2023. "In terms of offline snack stores, the three squirrels took a lot of detours last year. Zhang Liaoyuan said frankly that last year, the three squirrels learned from the mass selling snack store, observed the changes in supermarkets and the trend of hard discounts, and finally found the positioning of the community snack store - to be a more professional snack store, which is reflected in its own brand, high value, health and cost performance.

Zhang Liaoyuan revealed to a reporter from the China Securities Journal that at present, nearly 200 community snack stores have been opened in the Three Squirrels community, and ready-made products will be added to the community snack stores in 2024. At the same time, the community snack store will launch a new store type from June to July this year. Zhang Liaoyuan also said frankly that the current profitability of community snack stores has not met expectations, and this year will make up for the lack of intermediate links and release the profit potential of community snack stores.

On the other hand, deep cultivation of offline distribution is the most important and priority channel strategy of the three squirrels in 2024. A few days ago, the three squirrels held a distribution "double hundred" strategy kick-off meeting, the so-called "double hundred" is "one million terminals, ten billion scale". At this kick-off meeting, for distributors at all levels, Zhang Liaoyuan mentioned the strategy of "all or nothing, careful planning, attention to accidents, and scale of battle".

According to the 2023 annual report, the offline distribution operating income of Three Squirrels is 1.641 billion yuan, which is not far from the company's previous plan to achieve the overall distribution business target of 5 billion yuan in 2023. "Reflecting on the past five years, we have not found a systematic breakthrough method in distribution, and the distribution strategy of the three squirrels will be a big breakthrough in 2024. Zhang Liaoyuan said that in this process, from product design to business model design, to supply chain design, organizational design, and then to individual performance design, it is necessary to plan carefully. At the same time, pay attention to the unexpected "mediocrity" and "success", and then form a large-scale distribution model of three squirrels.

Specifically, the "million terminals" distribution target in 2024 is actually to penetrate the product into the "capillaries" of the terminal. In the past six months, Zhang Liaoyuan has led a team to visit first-line community retail stores, inspect the terminal market, investigate the distribution system, and are eager to find innovation in the distribution model.

Zhang Liaoyuan said that no matter how much retail changes, China's main sales channel is actually in millions of "mom-and-pop stores". In the past, why couldn't consumers buy nut gift boxes in the "husband and wife shop" at the door of their homes? The "high-end cost-effective" strategy should be deepened, on the one hand, the price should be lowered, on the other hand, the distribution network should be optimized, the intermediate links between the brand warehouse and the "husband and wife store" should be reduced, and the previous distribution network should be changed to achieve organizational reengineering.

"Back to 10 billion" is redefined

At the end of 2021, Zhang Liaoyuan once said: "Create another 10 billion squirrels in 5 years!" The planning goal of the three squirrels in 2024 is also "return to 10 billion". At present, the media, investors, etc. still have doubts about whether the revenue of the three squirrels can return to 10 billion in 2024, and Zhang Liao's principle gave his own answer: from the perspective of the performance in the first quarter, it is not difficult for the revenue to return to 10 billion, but the meaning of "returning to 10 billion" needs to be redefined.

"The performance in 2024 will definitely exceed expectations, and the company has not talked about the target revenue of 10 billion yuan this year, we are concerned about whether the business model and organizational model of the entire company have been improved, and whether it can be ready for the next 2-3 years to reach a new high of 20 or 30 billion sales. Zhang Liaoyuan said that what is more important than the proportion of 10 billion yuan is the company's layout for the next year, such as the supply chain layout of "one product and one chain", the global layout of nuts, and the layout of large single products such as Shaqima quail eggs.

In Zhang Liaoyuan's view, it comes from reflection - in 2022, he will grind the bottom in the "darkest moment", learn from the pain and find the root cause, and come to the conclusion that the structure of the entire Chinese snack industry has been greatly adjusted, and big changes have generated great opportunities, but the "play" is different from the past.

"In the past few years, our biggest reflection is why we didn't go up after the revenue reached 10 billion? This time, the gravity is deeper than the goal of 10 billion, and we have to figure out who we are. Zhang Liaoyuan further said that in the three-level competition relationship of the enterprise, the lowest layer is the product dispute, the second layer is the supply chain dispute, and the highest level is the corporate culture dispute. The real corporate culture is the cognitive and knowledge structure of the enterprise, and it is necessary to know how to do the strategy, how to do the business, and how to motivate people. Only in this way can we harness the business and adapt to change.

The number of new SKUs (single products) on Three Squirrels in 2023 is the sum of the past years, which can reflect the effect of the double improvement of Three Squirrels' business model and organizational model. Figuring out the relationship between omni-channel and truly being market-oriented is also the result of the improvement of the organizational capabilities of the three squirrels.

Zhang Liaoyuan introduced that in addition to unified large single products, each channel will correspond to different products, and consumers have different price bands and flavor needs for products in different scenarios. In the past, the disadvantage of different prices in different channels of the same product was that it was not clear that different products should be adapted to different channels, and the company's organizational capabilities could be improved to achieve more accurate product delivery.

Echoing the "one product and one chain", how do the three squirrels do "one product and one chain"? Zhang Liaoyuan introduced, first of all, we must define user value and make full use of the role of large-scale platforms such as Douyin. Position product quality according to the user's expected price, predict the supply chain affordability, and quickly test the affordability on the platform. With the potential of large single products, the supply chain of single products will be optimized in reverse, "depending on the raw materials, how to do production, and how to send express delivery".

The core of the "one product, one chain" model lies in how to define user value. Therefore, it is particularly important to let the channel and market lead the product under the strategy of "integration of product and sales". Zhang Liaoyuan said that after the reform, the superiority of the company's organizational ability is reflected in the fact that the product people understand the market, the market people understand the products, and the organization is truly consumer-centric. At the same time, the potential of each individual is unleashed and the organization is activated.

Reviewer: Xiong Yonghong Editor: Zhang Lijing Proofreader: Ya Wenhui Producer: Zhang Nan Issued: Fei Yangsheng