The dilemma of Three Squirrels’ e-commerce marketing!

As the annual "Double Eleven" approaches, domestic snack players are gearing up and taking action in order to successfully fire the "first shot" in the upcoming e-commerce promotions and New Year's Festival promotions. Among them, in addition to players such as Qia Qia and Taoli Bread that have been deeply engaged in niche categories, there are of course comprehensive brands such as Bestore, Laiyifen and Three Squirrels .

In fact, not only this year's "Double Eleven", the traditional snack market has already entered a stage of fierce competition, and Three Squirrels, as a domestic snack giant, is under great pressure. As more and more players enter the nut market, which is Three Squirrels' main market, Three Squirrels has also made a series of strategic attempts, which can be seen from its recently released financial reports.

Increased profits but no increased revenue

Recently, Three Squirrels released its third-quarter 2021 financial report. The financial report shows that in the third quarter of 2021, Three Squirrels achieved revenue of 1.809 billion yuan, a year-on-year decrease of 8.59%; net profit was 90.4289 million yuan, a year-on-year increase of 18.29%. It can be said that during this quarter, Three Squirrels completely turned from "increased revenue but not increased profit" after its listing to "increased profit but not increased revenue".

In fact, since its listing, Three Squirrels has been working hard to balance revenue and profits. In 2019, Three Squirrels exchanged profits for scale, and although its revenue exceeded 10 billion yuan, its net profit declined; in 2020, Three Squirrels' net profit increased, but its revenue also declined for the first time. It can be seen from its recent financial report that Three Squirrels chose to prioritize profits in 2021. The reason for this result is not unrelated to its recent strategic adjustments.

On the one hand, Three Squirrels has continued to reduce SKUs, which has greatly improved its operational efficiency. This quarter, Three Squirrels continued to reduce SKUs around the strategy of focusing on nuts, which not only optimized the product line to a certain extent, but also significantly improved its own profitability. The financial report shows that in the third quarter, Three Squirrels reduced about 400 SKUs and its gross profit margin increased by 3.7%.

On the other hand, Three Squirrels continues to optimize its new brands, further improving its profitability. During the quarter, Three Squirrels reduced SKUs and focused on its advantageous products, while also reducing single online promotions and strengthening omni-channel gross profit control. Taking its new brand "Xiao Lu Lan Lan" focusing on baby snacks as an example, the financial report shows that Xiao Lu Lan Lan's omni-channel revenue in the first three quarters was 332 million yuan, and the revenue scale is still growing; in addition, its net profit in the first three quarters also increased by 67.35% year-on-year to 442 million yuan.

However, as Three Squirrels' revenue and profits have always been difficult to balance, its own growth has begun to stall, and its stock price has once again been overshadowed. It is reported that the recent market value of Three Squirrels is about 15 billion yuan, which has evaporated by about 20 billion yuan compared with its historical highest market value of 36.6 billion yuan.

Success in e-commerce, but trapped in e-commerce

Three Squirrels, which started out online, relied on the dividends of Internet e-commerce and reached a scale of tens of billions of yuan in a very short period of time, becoming one of the top snack giants in China. However, while Three Squirrels was expanding rapidly with the help of online channels, it also encountered a growth bottleneck caused by the fading of online dividends.

Firstly, the huge Internet dividends have caused players in the industry to flock online one after another, resulting in the continuous erosion of Three Squirrels' market share. The unique halo of online channels also allowed Three Squirrels to achieve sales of 7.66 million yuan on "Double Eleven" in the same year as its launch. Influenced by this, peers such as Laiyifen, Baicaowei, and Liangpin Puzi began to chase traffic dividends and plunged into the online battlefield. As competitors rushed to join the game, the online track became crowded, and Three Squirrels' online advantage was no longer obvious.

Secondly, fierce industry competition has caused the cost of online customer acquisition to continue to rise, resulting in the repeated compression of Three Squirrels' profit margins. In order to seize market position, the marketing expenses of brands such as Laiyifen, Baicaowei, and Liangpin Puzi, which have successively entered the online market, have continued to rise, and the online customer acquisition costs of Three Squirrels have also become increasingly high. In addition, as the Internet traffic dividend gradually disappears, although Three Squirrels has retained its position as the sales champion, its gross profit margin has also fallen below 30%, far lower than other brands in the same industry.

Looking at the history of Three Squirrels' development, although its online strategy enabled it to grow from an unknown small business into a leader in the domestic snack market, it also caused its revenue growth to reach a bottleneck. Therefore, in order to get rid of this growth dilemma, Three Squirrels, which has always focused on online marketing, has begun to focus on offline channels.

Walking on two legs

As the advantages of offline channels in the snack industry become increasingly apparent, Three Squirrels, which once started out as a traffic business, has also embarked on the path of transformation to "profit-seeking", actively embracing offline stores and starting to walk on "two legs". It is reported that Three Squirrels has taken steps towards offline expansion since 2019, opening a number of feeding stores mainly based on direct operation models, as well as alliance stores mainly based on franchise models, to ensure the scale growth of its offline business. However, while Three Squirrels' offline stores are expanding, they are also experiencing a "wave of store closures."

Therefore, as the speed of opening new stores began to slow down, Three Squirrels had to embark on the path of "new distribution". On July 1, 2021, Three Squirrels' distribution division was completely upgraded. It not only recruited a team of 230 high-quality dealers, but also established distribution cooperation with more than 80% of the top 100 chain supermarkets in China. These actions all reflect Three Squirrels' emphasis on offline channels. The reason why Three Squirrels has gradually shifted its development focus from online to offline in recent years is self-evident.

First of all, offline is actually the “main battlefield” for snacks. Although snack food has been growing rapidly online for many years, offline channels including food stores, supermarkets and convenience stores are its main sales channels. According to Frost & Sullivan's forecast, the overall retail scale of my country's snack industry will be approximately 1.56 trillion yuan in 2022, of which offline retail sales will reach 1.3 trillion yuan, accounting for approximately 83%. In this context, the offline market has naturally become the top priority of Three Squirrels’ future strategic layout.

Secondly, the profit margins of offline channels for snacks are significantly higher than those of online channels. If online brands want to achieve rapid growth, they need to increase investment in advertising space, direct traffic, technical services, etc. However, as the cost of acquiring customers becomes increasingly high, Three Squirrels has been spending more and more on online marketing, sometimes even exceeding the cost of opening a store. In addition, the promotional efforts of general online activities are relatively strong, which also means that Three Squirrels' online profits will be further thinned, while there is no need to consider these offline.

Finally, focusing on offline distribution will also help Three Squirrels build an omni-channel closed loop. Focusing on distribution means Three Squirrels is transforming from online reliance to omni-channel integration. The immersive service experience of offline consumption and the instant satisfaction of “buy whenever you want” can complement the scenario of placing an order online with one click and waiting for door-to-door delivery. In this way, Three Squirrels can not only cover a variety of consumption scenarios, but also make resources interconnected and complementary, and realize integrated online and offline operations to the greatest extent.

The pain of transformation is hard to eliminate

Thanks to the active expansion of offline channels, Three Squirrels' new distribution revenue is also growing rapidly. As of the first half of this year, its share has reached about 40%, which shows that its offline distribution has achieved initial results. Even so, it is still as difficult for Three Squirrels to achieve leadership offline as online.

On the one hand, offline channels cannot be established overnight, and Three Squirrels still needs long-term accumulation. For Three Squirrels, which excels at online operations, offline layout is not as simple as opening a store, recruiting a few dealers and distributing products. Offline operations need to deal with more complex people, goods and places. Therefore, although Three Squirrels has been operating in the offline market for many years, the results are still very limited. It is reported that Three Squirrels has a 20% share online, which puts it in a relatively leading position, while its offline share is only 2%. Therefore, it may be difficult for Three Squirrels to achieve the same results offline as online in the short term.

On the other hand, offline competition is equally fierce, and Three Squirrels still faces huge competitive pressure. Competition in the snack industry has always been fierce. Although the earliest giants in the industry, such as Bestore, Baicaowei, and Laiyifen, may not be as large as Three Squirrels in terms of online scale, most of them still have advantages over Three Squirrels offline thanks to years of hard work. What's more, in recent years these brands have been strengthening their channel layout and striving for balanced development online and offline. Therefore, it is conceivable how difficult it is for Three Squirrels to develop offline.

In short, with relatively low efficiency in self-built channels and competitors eyeing them covetously, it is easier said than done for Three Squirrels to walk on "two legs". What's more, at present, the snack industry still faces many problems such as serious product homogeneity, uneven quality, high raw material costs, and weak brand barriers. As one of them, Three Squirrels still has a long way to go in the future.