It's already the twelfth lunar month, and although it's the cold winter, the Chinese retail industry is bustling with activity. On November 29, Pinduoduo's market value briefly surpassed Alibaba's. First, Jack Ma made a rare internal statement, expressing his belief that Alibaba will change and reform. Recently, Liu Qiangdong also left a message internally, saying he feels remorse but will not lie flat, and hopes his brothers won't either. It seems that in 2024, a major transformation in the Chinese retail industry is truly about to begin. As the saying goes, 'When gods fight, mortals suffer.' After Ma and Dong's statements, Three Squirrels founder Zhang Liaoyuan again spoke out remotely:
In front of Alibaba and JD.com, we are just small figures; our growth has accompanied yours. But this time, one thing is important: some have direction, and with direction comes people. Let's work together; we have long been prepared... The 'Squirrel Dad' who calls himself a 'small figure' is not a small figure at all. The Three Squirrels he founded once drove the prosperity of the online nuts and snacks category. So what exactly does he mean by 'prepared'? It is actually the 'high-end cost performance' strategy that Three Squirrels implemented a year ago. Adhering to this strategy, Three Squirrels has deepened supply chain construction, accelerated the launch of new products across all categories, continuously expanded all channels, and created a 'full category + full channel' business model. The launch of the 'high-end cost performance' strategy shows that Three Squirrels is providing a good transformation example for the industry. What is 'high-end cost performance'? Not long ago, Liangpin Puzi announced its first largest price reduction, mainly focusing on snacks that optimize costs without affecting quality and have high repurchase rates. The founder of Three Squirrels responded and interpreted the 'high-end cost performance' strategy. From a business model perspective: It is to achieve high quality and differentiated products under the premise of total cost leadership, and the best path to achieve this is through private brands, because only private brands can solve product customization and full-chain optimization. This is not just cost optimization in intermediate links, but more importantly, optimization of raw materials and formulas. This is the biggest difference between the private brand model and the procurement-sales retail model. Of course, the flexibility of the procurement-sales model is one of its core advantages; From a consumer perspective: It is 'distinctive and richly optional' snacks under the premise of low prices. Low price is a common basic need for consumers, but the first characteristic of people's demand for snacks is deliciousness. To solve deliciousness from the retailer's supply perspective, it is necessary to achieve 'high quality, differentiation, and richness'. This is people's underlying need. People do not need one snack to solve deliciousness, but need various carriers, different tastes, and constantly replaced snack solutions; From a strategic perspective: You can also imagine it is somewhat similar to 'Sam's Club and Costco', whose essence is high-end cost performance. So what is the business strategy? Based on our mission to make good snacks accessible to the public, we open up all internal and external cooperation around the mission. We implement a 'full category, full channel' business strategy. Whether you are online or offline, whether in supermarkets or bulk snack channels, you will see Three Squirrels products. Even in our private brand community snack stores, you will see various domestic and international big-brand snacks. We believe that competition in this world is not about life-and-death, but about achieving self-fulfillment in mutual competition and cooperation. For example, in nuts, we have the most high-end cost performance, so if you need us, we can cooperate with you. For big brands like Mondelez and Mars, if consumers have demand, we can introduce them. Everything consumer-oriented is the way to respond to all changes with constancy! From Zhang Liaoyuan's interpretation, it can be seen that the 'high-end cost performance' strategy is to remove brand premium through supply chain upgrades under the premise of high product quality, and then give consumers the most practical price while ensuring genuine ingredients. Therefore, the essence of the 'high-end cost performance' strategy is to provide consumers with higher quality, better price, and more choices of all-category snacks. The improvement of product cost performance is not a single price concession, but through the optimization of the entire supply chain to ensure product quality while achieving profit overflow, and then transferring this part of profit to consumers, thereby achieving high quality and cost performance simultaneously. Andy Grove, former CEO of Intel, said: As a leader, the most important thing is to discover strategic inflection points. Just like when you drive on the highway, you need to know where the exit is. Since the e-commerce dividend passed in 2016, Zhang Liaoyuan has once again seized the window dividend under the economic cycle, made bold decisions, and Three Squirrels began to climb upward. Why propose 'high-end cost performance'? So, why did Three Squirrels propose 'high-end cost performance'? Changes in consumption structure First, many people think that consumers pursuing cost performance is a sign of consumption downgrade, but more precisely, consumers have matured. If it is consumption downgrade, it is selecting products for low-income groups, and the demand is cheap; if consumers have matured, it is selecting products for the middle class and above, and the demand is cost performance. Cheap is quality based on low price; cost performance is low price based on quality. Second, the reduction in total consumption caused by the decrease in population means that the market no longer has growth in consumption quantity. With economic development, income increase, information transparency, and shorter and faster transaction paths, good and cheap has become a widespread demand. Therefore, whether it is changes in consumer psychology or changes in consumption stock, the entire consumption structure is changing. Just like the rise of foreign discount stores such as ALDI in Germany and Don Quijote in Japan, there is a common background: under the economic downturn cycle, consumers will have greater demand for cost-effective products. According to the '2023 McKinsey China Consumer Report', although Chinese consumers' overall spending tends to be conservative, they still maintain their quality of life through strict trade-offs. Specifically, current Chinese consumers are not compromising when choosing brands and products, but are looking for more price-competitive channels to buy the brands they want, making more cautious trade-offs. Indeed, taking Germany's ALDI as an example, its data shows that in 2023, its performance in the UK grew, with the number of stores exceeding 1,000 and accelerating towards 1,500. The supply chain revolution begins A relevant person in charge of Three Squirrels shared at the China FMCG Hard Discount Conference: The underlying logic of retail is more, faster, better, and cheaper. In the past, in the era of brand premium, a brand sold for 9.9 yuan, and a white-label product sold for 5.9 yuan, but most consumers were still willing to pay 9.9 yuan for the brand. But today, consumer choices are changing, and brand premium ability is rapidly weakening. So looking at the entire foreign market, we will find that hard discount started in the economic development period, and the foreign retail market with 80 years of history has verified its long-term nature. Therefore, the hard discount model can cross economic cycles. The appearance of snack discount stores is low price, bringing the entire retail discounting, but behind this is a supply chain revolution. It is just that snack discount stores have opened the prelude to this change, and the transformation of the retail supply chain will force the entire industry's supply chain to change. This is also why Three Squirrels executives mentioned that they hope to become a supply chain enterprise. Under this trend, hard discount will become a strong channel, and brand premium effects will gradually weaken. Three Squirrels emphasizes that we are not a big brand; we are a private brand. 'Private brand' practices high-end cost performance Why emphasize private brand? As Three Squirrels founder Zhang Liaoyuan said: The best path to achieve 'high-end cost performance' is through private brands, because only private brands can solve product customization and full-chain optimization. This is not just cost optimization in intermediate links, but more importantly, optimization of raw materials and formulas. This is the biggest difference between the private brand model and the procurement-sales retail model. A relevant person in charge of Three Squirrels gave a specific interpretation at the China Hard Discount Conference: First, try to remove brand premium; Second, the purpose of branding is to establish consumer emotional value and cognition, not commercial premium. The business model we choose must be based on the concept of scale and total cost leadership, because without scale behind the supply chain, enterprise efficiency cannot be improved. Through the private brand model, we achieve full-chain control of the entire supply chain, with the ultimate goal of improving efficiency; Third, consumer demand is differentiation and rich options under the premise of low prices, and low price is our ticket to enter the future snack landscape. Through the private brand model, we will develop Three Squirrels into a supply chain enterprise. Indeed, supply chain capability is the core competitiveness of an enterprise. In the food industry, whether what you sell is good or not does not depend on your sales, but on whether you have control over the core links in the production field. If you lack control over the core links of upstream production, you are likely to lack control over product quality and cost. It is understood that Three Squirrels has shifted from past OEM to self-built factories. On the manufacturing side, Three Squirrels has independently invested in and built demonstration factories for daily nuts, macadamia nuts, pecans, almonds, etc. Driven by scale advantages, output has gradually increased, production costs have gradually optimized, and finished product yield has gradually improved; On the procurement side, the company directly cooperates with world-renowned enterprises or farms, actively leveraging the effect of scale centralized procurement; On the delivery side, the company has comprehensively upgraded the logistics delivery model based on channel strategy adjustments. On the basis of its own warehousing business, it actively explores origin warehouses and cloud warehouse models, and cooperates with multiple upstream suppliers to promote direct factory shipment, further reducing costs and increasing efficiency. All these adjustments have directly led to cost reductions. Last year, the bulk large-bag macadamia nuts (500g) sold online by Three Squirrels were priced at about 30 yuan per bag; now the bulk large-bag macadamia nuts (500g) are priced at 22.9 yuan per bag on the Tmall flagship store. During this year's Double 11, this product achieved a year-on-year sales increase of over 50%. For quail eggs, by upgrading automated packaging machines and first applying color sorters for selection; optimizing packaging adjustments, upgrading from water-drop shape to three-side sealed pre-made bags, reducing packaging costs and improving user experience; choosing the optimal cloud warehouse for direct delivery to C-end, reducing logistics costs from 3.5 yuan to 2.04 yuan, ensuring '7-day freshness' from production date to consumer; cooperating with production and sales R&D teams to research and upgrade marinating and baking processes, formulate core flavor materials, and technically improve shelling and shaping rate, aiming to increase yield by 3% and other supply chain optimization methods, achieving product cost optimization of 10%-15%, ultimately benefiting consumers. Online performance: During this year's Double 11, Tmall main store visitors and orders ranked first in the large food category, Tmall buyer count increased by 30%, and Taobao Live sales increased by 40%. Douyin channel Double 11 sales exceeded 100 million yuan, maintaining first place in four Douyin rankings including the nuts snack industry and nuts snack short video transaction list. In addition, Tmall store groups, Duoduo, private domain, and online distribution sectors continued to maintain high growth. Offline, private brand community snack stores opened 17 stores simultaneously in Zhejiang and Jiangsu, with the total number of stores nationwide exceeding 150. This is the achievement since Three Squirrels launched its offline community store layout in June this year, and is also regarded as a visible result under the implementation of the 'high-end cost performance' strategy. The financial report is also very impressive. In the third quarter, Three Squirrels' revenue was 1.689 billion yuan, a year-on-year increase of 38.56%; net profit was 16.0094 million yuan, a year-on-year increase of 40.86%; net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses was 12.2901 million yuan, a year-on-year increase of 175.39%. Driven by the upward trend in third-quarter performance, the brand also achieved a high growth of 81.42% in net profit for the first three quarters. Obviously, Three Squirrels is gradually moving from an entrepreneurial era centered on e-commerce to a mature era centered on the nut supply chain. Final Thoughts Looking at the retail industry, the typical example of private brand endorsement + efficient supply chain is Sam's Club, where 40% of products are private brands, almost all of which are bestsellers, because they have more comprehensive consumer research, more unified full-chain standards, lower prices, and stronger brand trust endorsement. Consumers say they can 'buy with eyes closed'. This is the advantage of private brands, and it is also the direction Three Squirrels is transforming towards, from 'high quality under high cost' to 'high quality under low cost'. This also verifies that what remains unchanged in the consumer market is that consumers' demand for low prices will exist forever, and what changes is the shift from low-priced generic brands to low-priced branded products. As Michael Porter proposed in his three generic strategy models: overall cost leadership, differentiation, and focus. In the saturated snack market, overall cost leadership is clearly the top priority at present, and will be a long-term strategy for the industry in the future. Undoubtedly, on the table of China's leisure snacks, a new pattern is emerging.