Recently, the domestic snack brand Three Squirrels (SZ:300783) released its 2023 performance report. From the level of economies of scale, the three squirrels have focused on optimizing the stores under the logic of high-end and cost-effective, although the revenue has declined slightly, but the profit side has achieved a strong recovery.
However, the double-digit profit growth did not boost the confidence of the capital market. In recent years, the second and third largest shareholders of the three squirrels have also taken turns to reduce their holdings, making the company's implementation of the "high-end cost-effective" slogan quite high and low.
Based on the new vision for the future, the overall planning goal of the three squirrels in 2024 is to "return to 10 billion and become stronger in the whole country". However, in terms of its current business situation, it is not easy to achieve its goal in the fierce competition of many snack brands to cut into the sinking market and start the battle for the position of quality and price.
1. Revenue has fallen for four consecutive years, and the revenue of e-commerce channels has changed
According to the financial report, Three Squirrels will achieve operating income of 7.115 billion yuan in 2023, a year-on-year decrease of 2.45%, which is the fourth year of negative revenue growth. Since landing on the Shenzhen Stock Exchange in 2019 with the title of "No. 1 National Snack Stock", the brand's annual turnover briefly exceeded 10 billion yuan, but then began to decline all the way.
Specifically, the revenue of Three Squirrels fell by 3.72% and 0.24% year-on-year in 2020 and 2021, respectively, and decreased by 25.35% from 9.770 billion yuan to 7.293 billion yuan in 2022. On the other hand, the revenue of BESTORE has increased from 7.894 billion yuan in 2020 to 9.440 billion yuan in 2022, and it has achieved corner overtaking.
According to the product division, the nut category is still the "pillar" of the three squirrels' revenue. In 2023, the product will achieve revenue of 3.812 billion yuan, accounting for half of the country. However, under the premise that the operating cost decreased by 3.50% compared with 2022, the operating income and gross profit margin of this category both declined, with a decrease of 7.18% and 2.94%, respectively.
However, the three squirrels are still full of confidence in the nut category, and they said in their financial report that the overall revenue of nuts increased by more than 60% during the New Year Festival, of which the online market share of "nut gifts" exceeded 35%. In addition, the brand's self-built manufacturing plants for the four core nut categories of Daily Nuts, Macadamia Nuts, Pecans, and Pistachios have been officially put into operation.
Looking at the bakery products that are regarded as the second growth curve by the three squirrels, the proportion of this category in the total revenue is stable at about 15%, but the revenue will decrease by 4.28% from 1.134 billion yuan in 2022 to 1.086 billion yuan, and the gross profit margin will also decrease from 24.76% to 20.15%, a decrease of 4.61 percentage points.
Founder Zhang Liaoyuan has repeatedly declared that the brand's goal is to become a "pure Internet snack brand" after founding Three Squirrels. Even though Three Squirrels is currently speeding up the deployment of offline channels, online third-party e-commerce channels are still the brand's main sales front, and the revenue pattern has quietly changed.
In 2023, Three Squirrels' revenue from third-party e-commerce platforms will be 4.951 billion yuan, accounting for 69.59%. Further division shows that among the platforms that account for more than 10% of the revenue, the revenue scale from Tmall and Jingdong has seen a double-digit decline, while the revenue of the Douyin platform has increased by 118.51% to 1.204 billion yuan.
Looking to the future, the three squirrels revealed that they will take "Shake + N" synergy as the core to strengthen omni-channel. Through the content attributes of short video e-commerce, the brand will continue to create large single products and empower omni-channels, gradually promote the creation of regional and in-depth distribution of daily products, and the dense layout of community snack stores in the local market.
Second, the cost is "squeezing water", and the profit growth trend is still unstable
In recent years, more and more brands have rushed to the track, and the snack industry has gradually seen an imbalance between supply and demand. The supply-side methods and channels are diversified, but the homogenization of content and the rise of the price threshold are gradually misaligned with the quality-price ratio of consumers, which ultimately leads to the lack of supply and demand docking.
In the new era of consumption with great changes in "people, goods and fields", the supply-side structure and market-side demand are facing adjustments. Based on this, Three Squirrels put forward the overall strategy of "high-end cost performance" in 2023, and strive to achieve sustainable growth of "all categories and all channels" with diversified product aspects through a series of internal and external changes.
With "high-end cost performance" as the basic orientation, Three Squirrels rebuilt the offline store system, created its own brand community snack store, and optimized the original offline store type. By the end of 2023, the brand has opened 149 community snack stores, with a total contract area of 19,200 square meters and 266 original stores.
At the same time, the total operating cost of the three squirrels in 2023 will drop to 5.555 billion yuan, a year-on-year decrease of 3.55%, of which the decline in R&D expenses is the most significant, from 38.4391 million yuan in 2022 to 24.919 million yuan. Although the brand's sales expenses fell by 19.27% year-on-year to 1.238 billion yuan, it was still good.
Through the financial report, it is not difficult to find that the "combination punch" of the three squirrels to reduce costs and increase efficiency has achieved initial results. In 2023, the brand will achieve a net profit attributable to the parent company of 220 million yuan, a year-on-year increase of 69.85%, and a net profit of 102 million yuan after deducting non-profits, a year-on-year increase of 148.72%.
Broken down into the single-quarter benefits, it can be seen that the three squirrels recorded a loss in the second quarter of 2023, with a limit of 38.0885 million yuan. Since the second half of 2023, the brand has achieved a recovery against the trend in the painful period of industry transformation, and its net profit in the third quarter increased by 40.86% compared with 2022 to 16.0094 million yuan.
However, in the long term, the profitability of the three squirrels is still difficult to call stable, with ups and downs like a "roller coaster". From 2019 to 2022, the brand's net profit attributable to the parent company was 239 million yuan, 301 million yuan, 411 million yuan and 129 million yuan respectively, with profit growth rates of -21.43%, 26.21%, 36.43% and -68.61% respectively.
In other words, even if the three squirrels try to squeeze water out of supply chain and operational management costs, their profit levels in 2023 will only recover to half of their peak. Because of this, the market is still skeptical about the long-term profitability of the three squirrels, believing that it has not found a new profit growth point.
Third, the capital side "cashed out" and left the market one after another
It is worth noting that along with the announcement of the three squirrels' 2023 financial report, there is also an announcement of personnel changes.
According to the announcement, Yang Rongfeng and Wu Bin, directors of Three Squirrels, applied for resignation as directors of the third board of directors due to personal reasons. Among them, Yang Rongfeng will no longer hold any position in the company after his resignation, and Wu Bin will still serve in other positions in the company after his resignation.
At the same time, Su Jun and Liu Congcong applied for resignation from their positions as non-employee representative supervisors of the third board of supervisors of Three Squirrels, and Li Jingwu resigned as an independent director of the company's third board of directors, a member of the nomination committee of the board of directors, a member of the audit committee, and the chairman of the remuneration and assessment committee.
According to the information, Yang Rongfeng is a partner of Today Capital (Hong Kong) Limited (hereinafter referred to as "Today Capital"). AS OF THE END OF 2023, LT GROWTH INVESTMENTIX (HK) ("LT GROWTH"), A SUBSIDIARY OF TODAY'S CAPITAL, HELD 6.51% OF THE SHARES OF THREE SQUIRRELS, A DECREASE OF 6.1 PERCENTAGE POINTS FROM THE END OF 2022.
THE THREE SQUIRRELS ANNOUNCED ON MARCH 21 THIS YEAR THAT LT GROWTH PLANS TO REDUCE ITS HOLDINGS BY NO MORE THAN 1.8% OF THE FORMER'S TOTAL SHARE CAPITAL DUE TO ITS OWN CAPITAL NEEDS. According to this calculation, after this reduction, the shareholding ratio of today's capital in the three squirrels will be reduced to less than 5%, and this is the ninth announcement of the latter's shareholding reduction in a year.
When Three Squirrels was listed, the shareholding ratio of Today Capital reached 16.73%. ACCORDING TO MEDIA STATISTICS, SINCE THE THREE SQUIRRELS ANNOUNCED THE LIFTING OF THE BAN ON THE INITIAL OFFERING OF RESTRICTED SHARES IN JULY 2020, THEIR SECOND LARGEST SHAREHOLDER NICE GROWTH AND THIRD LARGEST SHAREHOLDER LT GROWTH HAVE REDUCED THEIR HOLDINGS AND CASHED OUT A TOTAL OF MORE THAN 3 BILLION YUAN.
It is reported that NICE GROWTH is actually a fund under IDG Capital, a well-known venture capital. Tianyancha information shows that in the 4 rounds of financing experienced by the three squirrels before the listing, IDG Capital participated in 3 rounds, and was the original shareholder of the three squirrels like Today Capital, holding 20.61% of its shares at the beginning of the listing, but there were frequent subsequent reductions.
THREE SQUIRRELS ANNOUNCED ON JUNE 30, 2023 THAT NICE GROWTH SOLD A TOTAL OF 9,632,600 SHARES FROM JANUARY 16 TO JUNE 9, REDUCING ITS SHAREHOLDING TO 9.26%. On the same day, NICE GROWTH is expected to reduce its holdings by a total of no more than 23,941,100 shares, that is, no more than 6% of the total share capital.
AFTER REDUCING ITS HOLDINGS OF 8.932 MILLION SHARES FROM JULY 10 TO DECEMBER 29, 2023 IN A BLOCK TRANSACTION, NICE GROWT HELD ONLY 5.59% OF THREE SQUIRRELS AT THE END OF 2023, WHICH WAS FURTHER REDUCED TO 5% AT THE END OF MARCH 2024. From this point of view, NICE GROWT's shareholding reduction plan may continue.
The "exodus" of the original shareholders in turn has undoubtedly dampened the confidence of the secondary market in the three squirrels. As of the close of trading on April 19, 2024, the share price of Three Squirrels closed at 24.50 yuan per share, with a total market value of only 9.825 billion yuan, less than 10 billion US dollars, far from the total market value of 36 billion yuan at its peak.
According to the first quarter report of Three Squirrels in 2024, the number of shareholders as of the end of March 2024 was 32,500, a decrease of 4,699 or 12.65% from the previous month. Data from Oriental Wealth Network also reminds that the number of shareholders of the three squirrels has declined for three consecutive periods since the third quarter of 2023, which is lower than the industry average.
Zhu Danpeng, an analyst of China's food industry, said when summarizing the performance of the three squirrels in 2023 that the "high-end cost-effective" strategy has helped the three squirrels open source and reduce expenditure, reducing hidden costs. However, in the case of increasingly fierce competition in the snack industry, the brand needs to continue to upgrade, innovate and iterate in the system.
It is true that reducing costs and increasing efficiency can help brands recover in the short term, but in the leisure snack track with low user stickiness and high marketing dependence, innovative means to attract users are the long-term path to cultivate new consumption momentum. If the three squirrels want to revive their former glory, they need to work brand differentiation and product personalization.