Starting in 2025, after returning to 10 billion yuan in revenue, Three Squirrels quickly launched an 'all-category, all-channel' transformation strategy. The core of this strategy is to break beyond the single label of nuts and snacks in terms of categories, expanding into all high-frequency consumer goods categories, and to break free from reliance on a single online platform in terms of channels, achieving full coverage across online and offline channels. The industry has been debating the company's 'aggressive strategy.' This article neither supports nor promotes any particular strategy; all views expressed are solely my own. We aim to objectively evaluate and attempt to reconstruct Three Squirrels' strategic path, to understand what Three Squirrels wants to do, and through this case, interpret the changes currently occurring in the FMCG market. What kind of company is Three Squirrels exactly? In Zhang Liaoyuan's own words, he asked investment banks to clarify the company's story, but found that no business model like Three Squirrels exists anywhere in the world. Indeed, no company with a business model like Three Squirrels can be found globally. What kind of company is Three Squirrels? Before presenting my views, I will first distinguish between the concepts of product brands and channel brands. Most FMCG categories can be divided using this binary framework of product brands and channel brands. The biggest difference between product brands and channel brands lies in whether the brand's growth driver comes from the intrinsic power of the product (like the unique taste and flavor memory of Moutai or Laoganma that drives repurchase) or from the intrinsic power of the channel (continuously exploring new channel growth). So it can be said that Three Squirrels is a typical channel brand, meaning its growth relies more on exploring new channels rather than on repurchase and natural growth driven by product differentiation. Therefore, I believe that the expressions 'all-category' and 'all-channel' are superficial; the core is that after years of entrepreneurship, Zhang Liaoyuan seems to have understood what the positioning of the Three Squirrels brand is (a channel brand). This positioning, I think, is clearer in his latest statement: 'Squirrel is a super supply chain company.' This expression implies that Squirrel has downplayed its brand identity and positioned itself as a supply chain company. Of course, if we trace Three Squirrels' early development history, we can clearly see that it is essentially a channel brand, not a product brand. A comprehensive review of the company's history reveals five major stages:

(1) 2012-2015: Anchored to the Tmall channel, filling the online gap in the nuts and dried fruits category, achieving rapid growth.

(2) 2015-2016: Expanded categories beyond nuts and dried fruits.

(3) 2016-2019: Expanded channels, entering offline store business.

(4) 2019-2023: Reduced SKUs, repositioned from full-category snacks to nuts + dried fruits + selected snacks, compressed offline store business, launched four proprietary sub-brands (baby, pet, instant food, celebration gifts), and entered offline distribution channels.

(5) 2024: All-category/all-channel strategy. We can see that in the first stage, after Three Squirrels gained traction on the Tmall platform, 2015 was a key strategic choice point. At that time, Three Squirrels had two directions: one was to scale up through category expansion, from single nuts and dried fruits to other snack categories; the other was to choose to enter the supply chain and become a product-based company, like Qiaqia or Ganyuan. However, strategically, Three Squirrels chose category expansion, losing the opportunity to become a product brand. This led to the second and third stages, where the company relied on category and channel expansion to seek incremental growth, eventually reaching 10 billion yuan in scale by 2019. But in the fourth stage, the dividends from categories and channels completely disappeared, and Three Squirrels' own business system could no longer be self-consistent. Because the natural characteristic of a channel brand is the need to continuously capture 'new channels' to achieve 'large scale.' In the past, Zhang Liaoyuan relied on his industry experience or so-called 'luck' to quickly capture 'new channels' and 'new consumer groups.' But for a channel brand, the organization needs to develop the capability to produce multiple 'Zhang Liaoyuans' to achieve natural growth. We say that the gross/net profit margin structures of channel brand companies and product brand companies differ significantly. Channel brand companies are characterized by lower net profit margins, and they are essentially more like distribution companies. So for channel brands, the growth path is to continuously expand scale, because only scale can bring efficiency improvements, which is very similar to the retail industry. The biggest problem with the snack category in China is that it is too fragmented and extremely difficult to form product brands, so it is very easy to be white-labeled by channels, especially the nuts and dried fruits category, where the space for product differentiation is extremely small. Of course, the nut category that Three Squirrels anchored in its early days also naturally determined that the possibility of taking a product brand route was low. So before 2024, I believe Three Squirrels' predicament was:

  • It chose the channel brand path, but the single category of nuts and dried fruits has limited scale.
  • The team seemed not to fully recognize that Three Squirrels is a channel brand, or what the true growth factors for a channel brand are. But today, I believe Three Squirrels is at a clear inflection point. First, today in China, besides snacks, many categories are undergoing 'channel branding,' such as dairy, beer, water and beverages, daily necessities, etc. This gives Three Squirrels the 'timing' for its 'all-category' strategy. Second, the team not only clearly recognizes itself as a channel brand but also more 'humbly' defines itself as a 'supply chain' company. Third, it has reorganized at the organizational level, better matching the changes in 'timing' compared to before. Fourth, the current strategy specifically addresses past shortcomings and systematically considers dimensions such as channels, categories, organization, and supply chain. Deconstructing Three Squirrels' Strategy Criticism of Squirrel is endless. Why does it seem so 'unprofessional' to enter so-called all-category and all-channel? I believe the Squirrel team has conducted a comprehensive review of the company's past paths and reasons for failure, and combined with the company's endowments, has made a more appropriate 'positioning.' This positioning, in Zhang Liaoyuan's words, is 'build a super supply chain, create a closed loop from supply chain to retail terminals, and open my products to any retail terminal in society.' In my view, Squirrel's new positioning is essentially a 'production-supply-marketing integrated' private label service provider. A 'production-supply-marketing integrated' private label service provider or supply chain enterprise, in essence, I believe should be the ultimate form of a channel brand. We have said that a channel brand is essentially more like a distributor, just wearing a 'brand' coat that can be taken off at any time. Today's Three Squirrels has directly taken off this coat and restructured its organization into a private label service provider. With over 200 Mini CEOs or independent business units, in other words, over 200 independent product managers, relying on Three Squirrels' past operational accumulation in the private label field, it hopes to quickly seize the first-mover advantage in the context of the 'channel branding' era in FMCG. At the same time, to achieve optimal end-to-end channel efficiency, Three Squirrels must build a fully controllable upstream supply chain and downstream channels. So, all channels are means for Three Squirrels. If your positioning is an efficiency-driven supply chain company, then of course all channels are means, including Three Squirrels' own stores. Therefore, the number of stores Three Squirrels opens is not the most important; what matters is forming insight capabilities into terminals. Three Squirrels' channel strategy is called D+N. D uses the Douyin platform for traffic dissemination and single-product testing. N refers to entering multiple offline channels, with different positioning for each channel:
  • For offline distribution, Three Squirrels is a white-label upgrade;
  • For supermarket channels, Three Squirrels opens its supply chain and becomes a private label service provider;
  • Offline self-owned channels become controllable channel terminals, with strategic value in product channel insight. Today's Three Squirrels is actually a 'production-supply-marketing integrated' super supply chain service company. Reflections on Zhang Liaoyuan's Management Philosophy This business model poses a great test for organizational capability, and Zhang Liaoyuan's organizational transformation can be said to be a business experiment. This is highly related to Zhang Liaoyuan's rapid personal iteration in recent years. From the results, Zhang Liaoyuan has strong learning and reflection abilities. After the company fell into a trough, he did not stick to the old 'brainwashing' approach but actively sought wisdom from classic management theories. It was also at this stage that I believe he formed a 'systems theory' thinking framework.
  • Zhang Liaoyuan recognized that 'management is not a scientific issue but a philosophical one, because philosophy addresses uncertainty.' This shows his understanding of the essence of management: science emphasizes regularity and repeatable verification, but the business environment is full of uncertainty and change, and management requires making decisions in gray areas and finding balance in contradictions.
  • Zhang Liaoyuan once mentioned that he focused on studying Drucker's 'Managing for Results,' including the method of systematically analyzing business portfolios: simultaneously examining the three elements of product, market, and channel, seeking a new dynamic balance. Based on the review of the five stages of Three Squirrels, in the first stage, supply chain-product-channel-consumer-marketing could achieve a closed business loop. In the second to fourth stages, the entire system could not achieve self-consistency. That is to say, in the first four stages, Three Squirrels was always thinking from an internal perspective; entering the fifth stage, it seems to have started thinking from an external perspective. Three Squirrels' approach is to adapt to China's rapidly changing channel environment, form a capability through organizational restructuring, internalize the ability to capture new channels and categories, and rely on a certain probability to recreate another Three Squirrels. This approach seems somewhat idealistic, but it is highly related to the company's past growth path and strategic choices, thus gradually evolving into today's result. But this 'result' or strategic choice may actually be more adaptable to today's market environment. In addition to Drucker, Zhang Liaoyuan likely drew heavily from Deming's systems thinking and continuous improvement thinking. Although he rarely directly mentions Deming in his public statements, the influence of Deming's ideas is evident in his actions. For example, when reflecting on the failure during the trough, he said: 'It is impossible to change the whole by relying on a part; systematic, structural adjustments and concurrent changes are necessary to be effective.' Zhang Liaoyuan proposed building a 'networked organization with integrated marketing and sales,' making the organization revolve around the market, weakening departmental barriers and managers' administrative power. The core of a networked organization is consumer-centric, market-oriented, channel-driven, and internal-external collaboration, 'letting the organization obey the market.' Agile teams are the cellular units of such a networked organization. Zhang Liaoyuan achieved organizational flattening through small team operations. This is a typical Deming 'system-improvement' thought. At the same time, Zhang Liaoyuan has also repeatedly mentioned 'weak thinking' in public speeches. Unlike the traditional 'strong thinking' of brand owners, 'weak thinking' implies multiple philosophical thoughts. In addition to the systems theory I mentioned above, it also contains a large amount of Eastern philosophical thinking. After reflecting on the trough, Zhang Liaoyuan's view of human nature has become more 'zen' and open (possibly influenced by the 'Tao Te Ching'): he advocates 'respecting the market and people,' believing that as long as mechanisms are well-established, organizational members will naturally create miracles. Applying Eastern philosophies such as 'dependent origination and emptiness' and 'the function of weakness in the Tao' to business practice is because China's business cycles change too quickly. The business environment is different from relatively stable mature countries. In a rapidly changing and iterative industry cycle, entrepreneurs need to lower their position to 'conform' to the changes of the times. The 'New Standard Product' Strategy for Channel Brands In the current era cycle and market environment, I have systematically described in my article 'Traditional 'Big Single Products' Have Failed; Brands Need to Create 'New Standard Products''. In the current environment, for 'channel brands,' the best growth path is to create 'new standard products.' I found two quotes from Zhang Liaoyuan's public speeches that best interpret this.
  • 'In Three Squirrels, there is no such thing as a big single product. Big single products are products of the industrial era. Today's consumers have changed; they have information rights and higher shopping awareness. All consumer needs should be considered from two points: first, functional value; second, emotional value.'
  • 'Market demand is constantly evolving; I focus on two things that don't change. One is obtaining retailer data, which allows me to change the entire backend supply chain and manufacture products that meet consumer needs; the other is achieving scale to form supply chain capabilities.' For most manufacturer brands, first of all, we need to clarify that in the future, the trend of 'channel branding' will become increasingly obvious. The easiest way to test whether a brand is a 'product brand' or a 'channel brand' is to look at the penetration rate of retailer private labels. The more easily a category is private-labeled by retailers, the more it leans toward being a 'channel brand.' And 'product brands' that can build consumer mindshare through clear taste and technological differentiation are in the minority. So, Three Squirrels, defined as a 'channel brand' super supply chain, can theoretically enter all categories on the right side of the chart. In China's retail industry, 'private labeling' at this stage is not yet capable of replacing all product logos with retailer logos, but changes in consumers and channels are indeed forcing channel parties to innovate more at the product level. This gives brands and retailers opportunities for new synergy and co-creation. Three Squirrels is an excellent case in point. Qi Te, Chief Research Consultant at New Distribution Research Institute. He has worked at several listed FMCG and retail companies, responsible for strategy and investment, and has also worked at several well-known domestic and foreign funds and investment banks, responsible for consumer investment. He now focuses on strategic consulting for FMCG and retail enterprises, helping companies think deeply.