On October 28, Three Squirrels issued an announcement revealing its plan to acquire Ailingshi, a snack discount store brand in Changsha, and Aidazhe, a full-category discount brand in Tianjin. Although the transaction is still in the preliminary planning stage and no formal agreements have been signed, it has already caused quite a stir. This move by Three Squirrels undoubtedly further deepens its layout in the offline retail sector. Tang Guangliang, founder of Ailingshi, stated that the bulk snack market will form a tripartite competitive landscape. Why is Three Squirrels undertaking this acquisition? What impact will it have on industry trends? Three Squirrels Acquires Ailingshi and Aidazhe Yesterday, Three Squirrels publicly announced its investment plan. The announcement stated that in recent years, offline retail formats such as bulk snack stores and community discount supermarkets have rapidly risen, and new channels have spurred the prosperity of new product categories. The company's wholly-owned subsidiary, Anhui Yijianshi Venture Capital Co., Ltd., plans to invest a total of over RMB 360 million to establish deep cooperation with Ailingshi, Aidazhe, and Zhiyang Food, leveraging Three Squirrels' brand, supply chain, and management capabilities to jointly expand the offline market and enter the new track of dairy and beverage products. Both Ailingshi and Aidazhe are discount chain brands, and this move indicates that Three Squirrels will further embrace the discount format. Since its establishment in 2020, Ailingshi has rapidly expanded in regions such as Hunan and Hubei. In August 2023, Ailingshi further expanded its business scope by taking control of the local Chengdu snack chain brand "Dinosaur and Teddy." Subsequently, in September, Ailingshi fully acquired the Guizhou-based bulk snack brand "Hu Weihong," and in October, it took control of the Shaanxi snack brand "Snack Bubble." According to the "China Discount Chain Brand TOP List" compiled by New Distribution at the end of 2023, Ailingshi ranked sixth, with over 1,400 stores. Unlike Ailingshi, which focuses on snacks, Aidazhe is a community-oriented full-category discount supermarket. It started with a soft discount model and has now developed into a combination of soft and hard discount operations. Founder Li Yue opened the first store in 2018, with an area of only 170 square meters, but annual sales reached RMB 25 million, demonstrating impressive sales per square meter. It is reported that Aidazhe's sales account for 30% of the total supermarket retail sales in Wuqing urban area of Tianjin. Zhang Liaoyuan, founder of Three Squirrels, is very satisfied with this cooperation. Yesterday, he released a video to officially announce that Aidazhe will become a business partner of Three Squirrels. Three Squirrels: A Turnaround Against the Odds Founded in 2012, Three Squirrels was born in the era of booming e-commerce, initially starting with online snack sales and maintaining the top position in online snack categories for eight consecutive years. On July 12, 2019, Three Squirrels listed on the A-share market, going public on the ChiNext board of the Shenzhen Stock Exchange (stock code 300783), and was hailed by the media as "the first national snack stock." The success of its online business did not satisfy Three Squirrels; the company actively tried to expand from online to offline. As early as 2016, Three Squirrels opened its first physical snack store. After listing, the company vigorously promoted its store expansion plan, launching the "10,000 Stores Plan." However, offline expansion was not easy. By 2022, Three Squirrels faced a "wave of store closures," shutting down over 500 stores. While Three Squirrels struggled in the offline market, many lamented the difficulty of offline business. Meanwhile, the hard discount snack channel began to rise, growing rapidly within a few years. Although it took away some market share from Three Squirrels, it also proved the huge potential of the offline market. After a brief period of confusion, Three Squirrels quickly found the secret to reconciling with the market. Starting in 2023, the company implemented a high-end value-for-money strategy and launched its own brand community snack store, "Three Squirrels National Snack Store," transitioning from resistance to gradually embracing the hard discount snack format. This transformation achieved initial success. In 2023, Three Squirrels' net profit reached RMB 220 million, a year-on-year increase of 69.85%; in the first three quarters of 2024, it achieved operating revenue of RMB 7.169 billion, a year-on-year increase of 56.46%; net profit was RMB 341 million, a year-on-year increase of 101.15%. The acquisition plan announced yesterday indicates that the company will further embrace the discount format, not limited to snacks but expanding to full categories. Future Trends: Vertical Integration of the Industry Chain Over the past year, there have been numerous mergers and acquisitions in the domestic discount sector, with the most frequent in the hard discount snack segment, involving several leading brands. In September 2023, Wanchen Group announced the merger of its four snack chain brands, Haoxianglai, Laiyoupin, Luxiaochuan, and Yadiyadi, under the unified name "Haoxianglai." In November 2023, Snack Busy and Zhao Yiming Snacks announced a strategic merger, later renamed Mingming Henmang Group. As of June this year, Wanchen Group's total number of stores reached 6,638, while Mingming Henmang's store count has already surpassed the 10,000-store mark. In terms of scale, Wanchen and Mingming Henmang are undoubtedly the two leading brands. After the completion of Three Squirrels' acquisition, whether the "tripartite" landscape as mentioned by the founder of Ailingshi will form is still difficult to predict, but signs are already emerging. The rise of snack discount stores and the differentiation of the competitive landscape have also kicked off a transformation in the relationship between suppliers and retailers. Hard discount has gradually become a powerful channel, with increasing demand for high cost-performance products. Brand premium effects are weakening, and their bargaining power in the channel has significantly declined. To increase profit margins, retailers are expanding upstream to develop private labels. For example, Hema developed its own brand, NB, and Pangdonglai developed its own brand, DL. Brand owners, in order to regain initiative in the channel, are directly reaching consumers and extending downstream. For instance, in mid-December last year, Haoxiangni joined forces with Yanjin Shop to invest in Snack Busy. The boundaries between upstream and downstream are gradually blurring, showing a trend of vertical integration in the industry chain. Three Squirrels, originally a brand owner, has been extending downstream since 2016 by opening physical stores. Yesterday, the company announced its intention to acquire two discount brands, further strengthening its layout in the downstream market. If Ailingshi and Aidazhe can effectively synergize with the Three Squirrels brand in the future, the expected returns will be very substantial. In the future, vertical integration of the industry chain may become a major trend.