The growth of “nut business” of three squirrels, Qiacha and Wolong is sluggish. What’s wrong with “net red nut”?

A nut practitioner asked a former Sequoia Capital China Fund partner and Tiantu Capital partner. Wang Cen: “Why is the net interest rate of three squirrels only 3% – 4%? Is it because of advertising expenses?”
Wang Cen replied, “It has nothing to do with advertising fees. If you don’t add value to nuts, there will never be any profit margin.”
In a word, he explained the reasons why the three squirrels and Walloons of “Old Brand Nut Net Red” were “in a dilemma”.
Recently, it has been discovered that mixed nuts such as “Daily Nuts”, which were popular in previous years, are disappearing from white-collar workers’ desks. After studying several leisure snack brands that consider nuts as an important business, including Three Squirrels, Wallon Foods, and Qiacha Foods, the New Consumer Think Tank found that the growth of nuts has been sluggish.
From everyone’s pursuit to the current situation, what has happened to the category of nuts?
1、 The proportion of nuts in the rest of the diet has decreased, and the nut leaders collectively “stall”
Nuts are being “rejected” by consumers, and the data also seems to confirm the process of rejecting nuts.
According to the Prospective Industry Research Institute, the market size of China’s mixed nut industry gradually decreased from rapid growth in 2015-2021, and the annual growth rate gradually decreased from 2019 to 2021, respectively 27%, 21%, and 16%.
A nut industry brand insider said that in the total market size of leisure snacks, the proportion of nut categories has indeed decreased. The market share of the Top5 brand in the mixed nut industry has dropped from 44.2% in 2019 to 36.9% in 2021, with further dispersion of market concentration.
Specifically speaking, the current situation of the nut business in Three Squirrels, Cha Cha Foods, and Wallon Foods can be summarized as follows: Three Squirrels have voluntarily abandoned their status as a major single product of nuts, while Wallon Foods, which pioneered the daily nut category, has continued to decline in annual revenue and market share. They have actively taken nuts as the second growth curve of Cha Cha Foods, and the growth of the nut business has been slow.
（1） Three Squirrels: Nut business accounts for only half of revenue
Three Squirrels was the first brand to build nuts into a popular online snack category, and became popular in 2012. However, by 2014, Three Squirrels had started to become a full-range snack brand.
Although the three squirrels have started shouting “Focus on nut products” in the past two years, from the perspective of data, from 2019 to 2021, nut products accounted for 53.5%, 49.5%, and 51.78% of the three squirrels’ revenue. It was said to focus, but the revenue share of the nut business remained around 50%.
Moreover, since the three squirrels went public in 2019, their revenue exceeded 10 billion yuan in the same year. After that, their revenue and net profit continued to decline for the next two years. In the first three quarters of 2022, their revenue was 5.333 billion yuan, a year-on-year decrease of 24.57%; The net profit was 93.4996 million yuan, a year-on-year decrease of 78.86%. The three squirrels were even underweight by today’s capital.
（2） Cha Cha Food: The market share of melon seeds has decreased, and the growth of nut business is slow
In fact, the company has always occupied the category mentality of melon seeds. In 2019, Qiacha cooperated with China and began to develop nuts into a second curve.
Thanks to the Qiaqa Yellow Bag Packaging and Qiaqa’s efforts to expand channels designed by China and China, nuts have become the second largest category with annual sales of over 1 billion yuan, accounting for 25% of total revenue. The revenue of Qiaqa has also increased from 4.8 billion yuan in 2019 to 5.3 billion yuan in 2020. Nuts have indeed brought growth to Qiaqa, and it seems more “reliable” than the jelly, seasoning, and other categories Qiaqa has previously tried to enter.
However, from 2020 to 2021, the revenue of melon seeds increased from 3.7 billion to 3.9 billion, and the revenue of nuts increased from 1 billion to 1.3 billion. At the same time, the market share of Qiacha nuts in the mixed nut industry increased from 9.2% to 9.7% in 2021, with relatively slow growth.
What few people have noticed is that the market share of negotiated large single melon seeds in the entire melon seed market is declining. In 2020, the market share of Qiacha melon seeds in China reached as high as 70%, and in 2021, the market share of Qiacha melon seeds was about 54%.
That is to say, in order to develop the second curve of nuts, Qiaqia sacrificed its main business melon seeds, and the growth of the second curve was not very awesome.
（3） Wallon Foods: The market share of mixed nuts has been directly halved
The market share of Wallon Foods’ mixed nuts fell from 13% in 2019 to 7.2% in 2021, equivalent to a direct halving of the market share.
According to data, from 2019 to 2021 and in the first half of 2022, the revenue of Wolong Food was 1.165 billion yuan, 889 million yuan, 1.108 billion yuan, and 436 million yuan, respectively; The net profit attributable to the parent company was 131 million yuan, 90 million yuan, 120 million yuan, and 26 million yuan, respectively.
In other words, not only is Wallon Food’s market share decreasing, but its own revenue and net profit are also decreasing.
2、 “Inadequate in nature”, and the rising star is threatening again
The rise of the nut category is in part led by the three squirrels and Wallon Foods, which have stepped on the dividends of online channels and have made prepackaged nut categories popular through such explosive products as Bigen Fruit and IP operations.
In 2015, Wallon Nuts shelled the nuts, mixed them with other dried fruits such as cranberries, and launched the “Daily Nuts” category of mixed nuts, which not only balanced costs but also conformed to the concept of dietary balance, making it popular.
The business world often undergoes a major change in five years. When the old network’s top three squirrels decline, there are naturally “rookies” rising.
For the category of nuts, on the one hand, when nuts have become “daily” from being popular online, and when people’s wallets have tightened, large quantities of affordable, simple packaged nut snacks have become a new choice for people; On the other hand, chain nut brands that advocate fresh, handmade, and short term preservation have brought nuts to the 3.0 stage, making more flavor innovations in addition to the original flavor types such as original flavor, five flavors, and milk flavor, and expanding through offline stores.
For example, last year, Xueji Fried Nuts, a chain brand funded by Meituan Longzhu and Qicheng Capital, completed a financing of 600 million yuan, and opened thousands of offline stores, launching salted cashew nuts and yogurt padan wood; Panda Momo has also obtained tens of millions of yuan of financing, adding new flavors of nuts such as peach oolong, cherry blossom peach, jasmine, mustard, and yogurt.
When the dividend fades, when we look at the nut categories of the three squirrels and Wolong Foods, we will find their “congenital deficiency” side.
（1） Low gross profit margin
The annual gross profit margin of three squirrels is below 30%, and since Wallon Foods is a self built factory, the gross profit margin of nuts is slightly higher, ranging from 30% to 40%.
This relatively low gross profit margin is due to the fact that the nuts of the three squirrels belong to a relatively low threshold primary agricultural product. After purchasing raw materials, they are processed simply and then sold to consumers, resulting in little product differentiation and serious homogenization.
Nuts are divided into seed nuts represented by melon seeds and peanuts, and tree nuts represented by blueberry and cashew nuts.
From the perspective of production, the yield of seed nuts is sufficient, while the yield of tree nuts is limited, and it is highly dependent on imports. Among the seed nuts, in 2021, the domestic consumption of sunflowers was about 900000 tons, and the consumption of peanuts was about 7.5 million tons. Among the tree nuts, in 2021, except for the relatively sufficient production of walnuts, the production of almond, hazelnut, magnolia, and jasmine was only 42000 tons, 35000 tons, 32000 tons, and 4000 tons. “The comparison between the output of hundreds of thousands, millions, and tens of thousands of nuts is too” tragic “, which may also be an important reason for the low gross profit margin of nuts. In the short term, it is also difficult to achieve fundamental changes.”.
As some nut practitioners have said, low gross profit margin is a fatal flaw in the nut category.
（2） Low repeat purchase and no habit of consuming nuts
When the heat fades, do people really form the habit of eating nuts? I’m afraid there’s a question mark to make.
From the perspective of consumption, according to the data provided by Intelligent Research Consulting, seed nuts account for more than 50% of nut intake. In other words, people may still be accustomed to consuming seeds and nuts such as melon seeds.
First, the price of nuts is higher and consumer enthusiasm is limited; Secondly, nuts have a stronger sense of fullness and are easy to get greasy. Eating a few nuts may reach the peak, making them less addictive and less likely to form repeat purchases.
The simple formula for making profits from consumer goods is to subtract the cost price from the selling price, and then multiply it by the quantity and consumption frequency.
The direction to improve profitability is to either increase premium capacity, increase quantity, or increase consumption frequency. “But the three squirrels’ nut premiums are limited and their consumption frequency is limited, so the nut business is struggling.”.
3、 The Future of Nut Brands
Let’s take a look at the methods used by three squirrel companies, Wallon Foods, and Qiacha Foods in the category of nuts, and try to provide some solutions.
Three Squirrels: Defend the Main Position
Three Squirrels was actually the first enterprise to transform from nuts to a full range of snacks, with as many as 1000 SKUs at one time. Even if some of them were cut, there would still be 7800 SKUs. In 2019, three squirrels rang the bell and went public, becoming the first national snack stock.
Over the years, three squirrels have gone from nuts to whole category snacks to external claims to focus on nut categories. However, the proportion of nuts in total revenue is still half, and the proportion has not increased much.
According to public information, the responsible person for the three squirrels said that in 2023, the company will continue to focus on the nut industry, and has planned nearly 20 new nut products. However, the large difference in the number of 20 SKUs and 7800 SKUs makes it difficult to believe that the three squirrels are truly “focusing”.
Due to the dividends from early e-commerce, the three squirrels have a significant online advantage, and their nut category also has a place in the minds of users. It is understood that in 2020, three squirrels joined up with as many as 54 upstream suppliers, and the three squirrels’ limited management of the OEM factory led to product quality issues. In addition, the cost of online and offline channels has increased, and the three squirrels that have transformed into offline channels have frequently closed their stores. As a result, their energy has been constantly scattered, reflected in revenue and net profit, which is constantly declining.
For the three squirrels, either we need to find ways to increase the added value of the product, or we need to ensure the quality of the product, and maintain a relatively cost-effective advantage through scale effects.
Harmonious melon seeds: innovation should be made in the category of melon seeds
In fact, compared to three squirrels, the market value of Cha Cha Food, which focuses on melon seeds, is higher, and its net profit is 3-4 times that of three squirrels.
The product line under negotiation is relatively simple, with large single product melon seeds accounting for more than 70% of the revenue, and another product is nuts.
From the previous analysis, it can be seen that the cost of negotiating is to trade the market share of the main business melon seeds for a second curve that does not show significant growth.
In the main business of melon seeds, there have also been new entrants. The high-end melon seed brand Sanpandan, established in 2010, has introduced bigger, fuller, and less bad seeds through supply chain reform, achieving innovation in the product side. In addition, we have reached a cooperation with Xiaoma Song on the marketing side. In 2021, we also completed a round A financing with an exclusive investment of over 100 million yuan by Fengtu Capital.
In my opinion, the basic foundation of Qiacha melon seeds is actually relatively stable, and the mind in this category of melon seeds is also very solid. Moreover, compared to nuts, melon seeds are a better category, and their consumption habits are more mature. melon seeds have the attribute of social currency, and are important props in chat scenes. People are chatting and drinking melon seeds, without psychological pressure on each other, and are prone to addiction and repurchase. They can also naturally link people’s emotions.
In fact, I think that rather than developing the second curve, it is better to consolidate the basic foundation of the melon seed category itself.
Wolong Food: “Old Ben” Not Enough to Eat
Wallon Foods is the pioneer of Daily Nuts, but now its market share in the mixed nut industry continues to decline, and it has been surpassed by three squirrels and Qiaoqi. As a pioneer, why hasn’t Wallon been able to form a user mentality and sufficient moat in this category?
The founder of Wallon Foods, Yang Guoqing, is a food professional. His research and development of mixed small packaged daily nuts has pushed the nut industry to a climax, but there are not too many barriers in itself. Daily nuts account for more than 75% of the main business revenue, and have always been a big single item for Wolong.
In terms of marketing, Wallon Foods did not seem to leave a deep impression by advertising on popular dramas such as “Everything’s Great” and “Little Joy.”.
In terms of channels, three squirrels have online advantages, while Liangpin stores have offline advantages of over 3000 stores, while Wolong Foods mainly relies on offline distributors, with the distributor channel accounting for about half of its main business.
For Wolong Food, there is micro innovation in the product, and the marketing and brand advantages behind it are not enough, which form a chain reaction and continue to decline. Having been eating “old fashioned” Voron food, the comfort zone is no longer comfortable, and it is time to break through.
For these nut brands, the future is not without a path, the key is to see how you go.
（1） Strengthen supervision of factories/sub factories to ensure product quality
In terms of food safety, problems such as excessive carcinogens in the food of three squirrels and “fried geckos” in their products have been repeatedly exposed. Other nut brands also have quality issues.
These nut brands have a certain amount of user intelligence, which is originally a brand asset, but the lack of solid basic skills such as food safety will only slightly erode this brand asset. Therefore, strengthening supervision and ensuring product quality is the first priority to maintain the basic market.
（2） For those with brand advantages, based on gift giving scenarios
According to data from CBNData (First Financial Business Data Center), the overall sales performance of online nut (fried) gift boxes has increased in the past five years, with gift boxes contributing up to 80% of the annual sales during the 2022 New Year Festival.
According to estimates by industry investment research institutions, the total amount of nut classified POS in the online and offline supermarket channels of the Three Squirrels New Year Festival reached 616 million, accounting for 16.5% of the market, with a year-on-year growth rate of 339%.
Like Three Squirrels and Liangpin Shop, there are some brand advantages. We also see that Three Squirrels vigorously promote gift box marketing during the Spring Festival. Liangpin Shop also often seizes the holiday consumption of the Mid Autumn Festival and introduces gift box moon cakes.
（3） Focus on developing some core items to improve efficiency
For brand snack stores, you are a brand store, not a snack collection store. The real competition is not necessarily many, but the differentiation of brand products.
When the category dividend disappears and the industry foundation of the category is not solid enough, nut brands need to stabilize the basic market while engaging in refined operations and innovation to make it possible to break through the current situation.