Scan the QR code in the image to register The Chinese New Year is approaching, and shopping malls are decorated with red blessings and strings of lanterns. More and more people are buying New Year goods. During the holiday, whether watching TV alone or entertaining guests, candies and nuts are essential on the table. Snack and nut companies like Three Squirrels, Bestore, and Qiaqia Foods are certainly pushing for sales at this time. However, for Three Squirrels, this year may not be as good as previous years. From mid-2020 to now, Three Squirrels' stock price has gradually halved, and recently major shareholders have begun to reduce their holdings and cash out. On the evening of February 2, Three Squirrels announced that its major shareholder NICE GROWTH LIMITED and its concert party GAO ZHENG CAPITAL LIMITED would reduce their holdings by up to 24.06 million shares, about 6% of total shares, due to their own capital needs. In fact, these major shareholders had already reduced their holdings several times before, cashing out about 1.1 billion yuan. After the announcement, the company's stock price fell 20% in two days. In previous articles, we discussed that Three Squirrels would find it hard to survive long-term if it only relied on internet thinking. Today, we compare Three Squirrels with the established nut company Qiaqia Foods to review this snack and nut war. -01- The Nut War Is Over Let's look at the results first. In the capital market, Three Squirrels quickly gained favor after its IPO in mid-2019, with its stock price rising and market value peaking near 40 billion yuan, surpassing Qiaqia, which had been in the melon seed business for 20 years. However, a year later, Three Squirrels, which had "one breath" of momentum, "lost steam" and its total market value shrank rapidly, eventually falling back to 15 billion yuan. Qiaqia, on the other hand, steadily followed a white horse trend, overtaking the once-prominent Squirrels without haste. Now let's look at the product market: how are the two companies' nuts selling? Since 2017, Qiaqia Foods' net profit has grown at a stable year-on-year rate of over 30%, while Three Squirrels has been getting worse each year. The company's revenue increases but profits do not, and net profit is about to see negative growth for two consecutive years. Comparing performance, Three Squirrels' annual revenue reaches 10 billion yuan, but net profit is only 200-300 million yuan. Qiaqia Foods' annual revenue is less than 5 billion yuan, but net profit is 600 million yuan. In terms of profitability, Qiaqia has already won completely. Overall, Three Squirrels has lost favor in the capital market, its performance growth is declining, and its profitability is not improving. This former nut leader has failed to beat Qiaqia, a persistent and strong player. -02- The Key to Victory Is Sustainability In my view, Three Squirrels and Qiaqia are two opponents of similar strength but completely different in many aspects. The key factor determining the outcome of this nut war is simple: "sustainability." Investors prefer companies with strong sustainability. Let's compare the most obvious differences between the two companies. 1. Differences in Sales Channels Qiaqia's offline sales contribute about 90% of revenue, while Three Squirrels' online revenue accounts for over 90%. One is a representative of offline channel sales, the other of online channel sales; they seem to be opposites. Three Squirrels rose rapidly back then mainly by riding the fast development of internet e-commerce and enjoying industry dividends. Its strategy was: enter internet e-commerce platforms to seize first-mover advantage, package itself with heavy advertising to break into the top tier of internet snacks, and then use the Matthew effect of leading companies to fully enjoy platform dividends and achieve rapid development. We can see that Three Squirrels' sales expense ratio first declined and then rose. The later rising phase fully demonstrates the gradual disappearance of internet dividends, declining customer acquisition efficiency, and the need to increase advertising investment to maintain performance. But obviously, this approach is not sustainable. Dividends cannot last forever, and Three Squirrels' online development quickly hit a bottleneck. In contrast, Qiaqia's offline sales method, though slower to expand, is very stable. Qiaqia's products are mainly sold in supermarkets, saving high rent and labor costs, and making products more down-to-earth, covering a broader consumer base. Currently, it is easier for Qiaqia to expand online, but it is somewhat difficult for Squirrels to move from online to offline. Squirrels chose to open specialty stores, but the company lacks rich offline management experience and faces soaring costs. In this light, Qiaqia, which expands step by step offline without relying on dividends, can go further. This is a form of sustainability. 2. Differences in Production Models Another significant difference between Qiaqia and Three Squirrels is in production models: Three Squirrels mainly uses OEM (original equipment manufacturer) model, while Qiaqia chooses self-manufacturing. From an industry perspective, a company that continues to develop will inevitably extend its business scope upstream and downstream. Companies that initially focus only on product R&D will eventually interfere in upstream production and downstream sales. To achieve more sustainable development, it is best to hold the entire industry chain in your hands. Qiaqia, selling melon seeds, built its own factories for production, playing a long-term strategic game. Three Squirrels, on the other hand, chose OEM. Although this allows the company to operate with light assets, it not only increases production costs and lowers gross margins but, more critically, fails to ensure food safety. We have previously discussed the frequent food safety incidents at Three Squirrels. How can a food company that cannot effectively guarantee product quality talk about sustainability? -03- Finally For many food and beverage companies, the best product layout now is diversified product categories plus a few core big single products. Use those big single products to support brand value, and use other products to attract more consumers, enrich revenue sources, and diversify single-product risks. Qiaqia does this well. Of course, the future competition in the nut market is a protracted war, and short-term wins or losses may not tell the whole story. Xiaomi, a mobile phone maker, built its empire with flexible internet thinking. Three Squirrels might not be incapable; perhaps Squirrel Dad Zhang Liaoyuan could become the Zhang Bosi of the snack world~ Source: Xiaobei Reading Financial Reports (ID: jiemi1001) Author: Cui Dabai