“counter cycle” in the consumption field.
Bubble water with a price of 2 yuan, Japanese biscuits with a price of 6 yuan, shampoo with a price of 10 yuan… The temporary commodities that hit the “fracture” have great appeal to consumers in today’s environment.
At a time when consumption is depressed due to the impact of the epidemic, temporary discount stores such as haospecials, heitegou and Xiaoxiang life have sprung up and expanded rapidly, becoming a rare highlight on the new consumption track.
Ruhao, a leading company in the industry, was born in April, 2020. In only one and a half years, it has built nearly 400 offline stores, with annual sales of billions of yuan. According to the report of China investment network, by the end of 2021, the valuation of Haote special sale has increased by more than 100 times, reaching US $500million.
Taoqi capital pointed out that although the financing projects of the new consumption track have decreased sharply since this year, the discount retail industry has bucked the trend. From 2021 to 2022, a number of institutions frequently sold at the discount retail circuit, and the “cost-effective business” became more and more popular with domestic consumers.
It is not difficult to understand the logic of the outbreak of temporary discount stores, which not only helps brands and dealers solve inventory problems, but also provides consumers with low-cost goods.
From a broader perspective, temporary discount stores, warehouse member stores represented by Costco, discount grocery stores represented by Aldi, community 10 yuan stores, 100 yuan stores, and even outlets and vipshop all belong to the category of discount retail, which is a trillion level market.
After studying the background of the birth of the world’s retail giants, CHONGYING capital found that in the period of economic downturn, discount retail often contains great opportunities – Wal Mart, Aldi and donquixote, Japan’s largest discount retail group, were all born and developed rapidly in the period of economic downturn. As the mother of the founder of Aldi said, “the worse people are, the better our life will be.”.
Only in China, the business model of discount stores focusing on “cost performance” is still relatively vacant.
2021 is the first year that the temporary discount stores are invested by the investment institutions, and many brands have obtained financing and expanded rapidly. But in fact, the temporary discount store is not a new business. It has just played a “new trick” in the past two years.
As early as 9 years ago, the online app Haoshiji, which deals in temporary products, was established and has received investment from Alibaba for many times, but its development has been tepid.
Similarly, before becoming the darling of capital, hotmaxx was formerly known as “push and buy”. Its business was mainly online distribution, and its operation was equally mediocre. It was not until it was transformed into hotmaxx that it was highly favored by capital and entered the fast lane of development.
Why did this track start to break out in the past two years?
According to the opinions of many investment institutions, the impact of the epidemic in the past two years and the changes in the domestic economic environment have led to earth shaking changes in the purchasing behavior and habits of consumers on the demand side, and “cost performance” has become an important consideration in consumption decision-making.
It is not difficult to find out from the history of the industry that Wal Mart, Aldi, donquixote and other discount retailers were born and developed rapidly in the period of economic downturn, which is no longer a new model in the world.
Developed countries have already experienced a period of steady and downward economic growth, and the development of the discount retail industry has also experienced a process of decades or even hundreds of years. Deloitte’s report “global retail power in 2022” points out that among the top 250 global retail stores, discount retail stores account for more than 10%, and their overall position can not be underestimated. However, the corresponding business model in China is still relatively vacant.
From the demand side, the main connotation of discount retail is not completely consumption degradation, but also the pursuit of pragmatism and cost performance.
At present, China has crossed the threshold of US $10000 per capita GDP. After the consumption upgrade, it is difficult for the mainstream population to reverse their requirements for product quality. But at the same time, the economic downturn and the instability of future expectations have prompted it to be prudent and practical.
In the domestic market, in addition to the increasingly popular temporary discount stores, more and more stores that imitate Costco’s warehouse membership stores and even several anchors who can get the lowest price of major brands are essentially discount retail. The popularity of these new formats also fully proves the “counter cyclical” growth trend of discount retail.
The several head broadcast rooms that can get the lowest price of major brands are essentially discount retail
From the supply side, with the economic development, the material production has entered the surplus stage to a certain extent, while the residents’ Consumption Willingness and ability are insufficient, the market oversupply will give rise to a large number of inventory deposits and tail goods.
Taking the most common category of imported snacks in temporary discount stores as an example, the 2020 China imported food industry report shows that in 2019, the amount of imported food in China has reached US $90.81 billion. If the inventory sedimentation is calculated at 5%, there is also $4.5 billion.
When Qicheng capital studied donquixote, the largest discount retail group in Japan, it explained:
“The more new products are introduced into the mainstream channels, the more tailstock there is in the whole society. The more tailstock there is, the more supply there is in the discount stores. Donquixote is an enterprise born based on the characteristics of Japanese retailing. It is the shadow of the Japanese retailing industry. The larger the sunny side, the larger the shady side.”
“Temporary food is more a drainage tool, and the second and third tier products with higher gross profit are its main projects.”
The birth and rise of temporary discount stores conform to the changes of the economic environment itself, and also enjoy the dividends of the epidemic. However, the players in the market are still mainly early entrepreneurs, and the business model is not yet fully mature.
Many institutional investors and prospective franchisees of temporary discount stores have a common question: the discount retail stores have a “broken price” for goods, and the overall customer unit price is not high, but they have opened stores all over the commercial complexes with high rent. Can they make profits?
In fact, before the scale capital intervention, the sale business of temporary food had already existed. In many provinces and cities across the country, there have been individual and small-scale chain temporary food discount stores that do not highlight brands for a long time. This means that if the operation is fine, it is a profitable business.
Imported goods with little popularity are one of the key categories of temporary discount stores
However, there is still a significant difference between the temporary discount store brand and the above individual stores. First, a large number of commercial complexes with high rent are settled in, and the rent and labor costs are higher; Second, the products are not mainly imported temporary food, and even most of them are not temporary food.
According to the actual visits of many media, only a small part of the goods that can really be called “on-time” account for in the good special sale and hi special purchase stores, and most snacks still have a long shelf life. The product category is mainly retail and beverage, but it also includes skin care products, daily chemicals, drinks, condiments, etc. It is not so much a temporary food store as a multi category discount collection store.
Regarding its business experience, Zhu danpeng, an analyst of China’s food industry, once said in an interview that “temporary food is more of a drainage tool, and the second and third tier products with higher gross profit are its main projects – it not only earns the promotion fees of the manufacturers, but also profits from the price difference. In addition, the income from temporary products can be described as’ one arrow, three vultures’.”
In addition, some temporary discount brands can also expand with partners’ money through cooperation and alliance.
Take the “partner” model of the good sale as an example. According to the information of phoenix.com technology, the good sale partner will invest hundreds of thousands in the early stage, including the 340000 yuan goods deposit paid to the headquarters and the 19800 yuan training fee. For stores with average daily sales of about 10000 yuan, partners can get 12% of the sales share of the store.
It is reported that the good sale has now covered Shanghai, Beijing, Guangzhou, Shenzhen and other key cities, and it is planned that the total number of stores will exceed 5000 in the next three years.
However, in the case that the business model has not fully run through, it is unknown whether the temporary discount brand can make the partners (franchisees) make money, which is a big test for the long-term operation of the brand.
Some media said that the good sale was closed after more than two months of opening in a store in Wuhan last year; Public comments show that the good special Tongtai Times Square store in Shenzhen has also been closed.
Disputes and opportunities
There are still different opinions in the industry on the way of China’s local retail discount format.
Although the price can be reduced through large-scale procurement, the profit can be increased through second and third tier products with higher gross profit, and the expansion can be carried out through cooperation and alliance, it is unknown whether the temporary discount brand at the head can make large-scale profits and run through the business model.
In this regard, there are many investors and professionals who are optimistic about the decline, and some even doubt that they are suspected of cutting the leeks of franchisees and investors.
Chinanet quoted the view of an investor who saw the discount store project but did not invest in it, saying that the commodity prices of discount stores not only have few advantages, but also have serious SKU homogenization. For example, in any discount store, you can see at least 35 self heating hot-pot/" 22375 rel="nofollow" target="_self">hot pot products of different brands. The discount is very large, but it is difficult to sell. “It’s suicide to drive in the top business district.”
Japanese discount chain giant donquixote has a revenue of nearly RMB 100billion in 2020
There are also insiders who question the instability of the supply chain of discount stores.
At present, the supply channels of temporary food commodities come from the inventory commodities and returned commodities of manufacturers, dealers and e-commerce platforms. These channels have great uncertainty, whether it is the expiration date, quantity or pricing space of commodities. As a result, the goods in the discount stores are often replaced and easily out of stock, which affects the consumer experience.
Tianyun, co-founder of temporary food supply platform and super supply warehouse, said in an interview that with more and more people working on temporary food, there is an increasing demand for supply, and the supply can not keep up with the increasing demand.
This is the inherent defect of the soft discount retail model. The discount business is divided into soft discount and hard discount. Hard discount is to build vertical supply by reducing SKU and operating costs. Typical representatives are Aldi; The soft discount is to achieve ultra-low prices through the sale of tail goods and container pressing goods, which makes it difficult to guarantee the product supply. The typical representative is Don Quixote.
Regarding the soft discount model, Japanese retail scholar womeijunyi once commented: “soft discounts are difficult to manage and operate because of the instability of the supply chain. The good ones are sold quickly, and the bad ones accumulate dust. Shops are easy to become” garbage piles “. Consumers are unfaithful. They come to collect sheep’s hair. The workload of shop employees is heavy, and the boss may make some money, but the enterprise is only tired in the end.” This is obviously not the result that domestic temporary discount brands want to see.
In response to this problem, there are still different opinions in the industry on how to go about China’s local retail discount format. Kearney director majuntao once said in an interview that whether there will be a brand turning to “hard discount” retailers in the future will be a trend worthy of attention.
Behind the controversy is the problem of the domestic temporary discount brand business model.
As a new retail channel, the emergence and rise of discount retail conforms to the changes of domestic economic environment and consumer demand, and also represents the development trend of China’s retail industry. The development of counterparts in developed countries has also fully proved that this is a long and wide super track, not a short-term tuyere.
So how should China’s local retail discount format go?
Discount mode, product categories and channel layout are all means that can be adjusted, and there may be various changes in the future. However, the underlying logic of discount retailing is the ultimate pursuit of high-quality commodity cost performance, and customer value orientation is the highest criterion for the development of the industry.
Author: Jing Yu; Source: cninfo Business Review (id:tide biz), reprint has been authorized. Reprint authorization and media business cooperation: Amy (wechat: 13701559246);
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