(Yicai Global) April 25 –Anhui Three Squirrels Electronic Commerce Co., China's largest food e-commerce company by sales size, has recently submitted an official application for listing on the ChiNext board, estimating that the number of shares to be issued will be no less than 40 million.
Three Squirrels posted operating revenues of CNY924 million (USD134 million) in 2014, and CNY2 billion and CNY4.4 billion in 2015 and 2016, with an annual revenue growth of over 100 percent, according to the company statements. It turned around in 2015, earning CNY8.9 million in net profit, with much increased net profit of CNY237 million in 2016.
Proceeds from the initial public offering (IPO) will mainly be used for the marketing network construction, the supply chain system upgrade, as well as the logistics and packaging system upgrade which require a total investment of CNY1.4 billion. However, Three Squirrels' plans show its business will not be limited to food e-commerce. "Three Squirrels will continue to take the e-commerce model as the core and adopt a full-channel marketing model by gradually expanding to the field of wireless self-service App, offline experience store and city warehousing. Meanwhile, we will continue to strengthen the integration and entertainment of the brand and extend the product coverage," said Zhang Liaoyuan, CEO of Three Squirrels.
The brand in e-commerce established in 2012 has targeted for IPO after it turned losses into profits. Nuts represent a point of penetration into the market and are also the currently biggest contributor to the total operating revenue of Three Squirrels. For three consecutive years, the sales of nuts have become the main source of revenue. Due to the decreasing gross margin of nuts business, which is caused by low-prices offered by competitors, Three Squirrels has now started to achieve outreach to the leisure food mix composed of dried fruits, tea and snacks to shore up its gross margin. Although the revenue from nuts sales has continued to decline, nuts business remained the main source of revenue in 2016, contributing 69.8 percent of the revenue.
E-commerce platforms such as Tmall and JD.com are still the main sales channels of Three Squirrels. The prospectus indicates that Three Squirrels generated 78.5 percent, 75.7 percent and 63.6 percent of its revenues from the Tmall only over the past three years. At the same time, Three Squirrels has actively deployed its offline stores, opening its first offline store in Wuhu in late September 2016. The offline store does not focus on the sale function but experience and interaction to enhance the user retention of Three Squirrels.
Three Squirrels has spotted the opportunities in the huge offline traffic. "Many people believe that we move into the offline market as we have encountered a bottleneck online, which is actually not true. Our purpose is to lead offline customers to the online platform," Zhang Liaoyuan told the CBN Weekly in a previous interview.
However, how to ensure quality after getting known, how to form a differentiated strategy to meet the challenges from imported snack food, and how to effectively enhance the gross margin while reducing reliance on the e-commerce platform are all problems Three Squirrels ponders over for future direction.
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