Starting a nationwide layout: the core competitiveness and membership store trend of fresh food supply chain company Fudi

Against the backdrop of increasingly fierce competition in the retail industry, Fudi membership stores have quickly emerged in the Beijing market with their unique business model and supply chain advantages. This article will explore in depth how Fudi builds its core competitiveness in the field of warehouse membership stores through refined merchandise operations, differentiated product selection strategies, and innovative membership benefits.

Fudi breaks the survival strategy of traditional membership stores that mainly rely on large spaces and simplicity, puts user experience at the top of its store creation, and uses its differentiated advantages such as aesthetic structure, a full range of fresh fruits and vegetables, and product selections that fully satisfy the "Chinese stomach" to become a trendy "fresh food supermarket" in the hearts of young people.

Fudi was founded by Beijing Yaodi Agricultural Technology Development Co., Ltd. (hereinafter referred to as "Yaodi Agriculture") and opened its first store around Yaowa Lake on the East Fourth Ring Road in May 2021. So far, Fudi has opened 4 warehouse membership stores and 2 Fudi+ boutique supermarkets in Beijing.

Fudi's local supply chain capabilities, product differentiation, and product selection model are the confidence and reliance it relies on to enter the warehouse store industry, especially in the fresh food sector, which gives it a competitive advantage over other warehouse membership stores.

01 The core competitiveness of fudi membership store business model

1. Long-term local supply chain capabilities

Fudi is a newcomer in the membership supermarket industry, but its supply chain resources are not built from scratch. The founder of Fudi has more than 20 years of experience in the fresh food industry.

Yaodi Agriculture was established in 2014. It is an agricultural company with fresh food retail, smart agriculture, warehousing and logistics. It officially entered the supermarket business and opened the first community boutique supermarket with fresh vegetables and fruits.

Fudi was born in 2021, when the domestic retail landscape was undergoing major changes, and it also extended the original supply chain.

Over the years, Yaodi Agriculture has actively laid out its supply chain and channels. In addition to the fresh food base model, it has also accumulated rich experience in fresh food transportation and loss control, and has developed a set of effective practices. The local supply chain capability is the confidence and reliance of Fudi's entry into the warehouse store format, especially in the fresh food sector, which has formed a competitive advantage.

Direct sourcing from production areas and agricultural product bases

At present, Fudi has established more than 100 direct purchase bases for agricultural products in many places in China, and has its own agricultural product bases in the Philippines, Vietnam, Thailand and other places, with a total planting area of ​​269,000 acres.

Under the direct purchase model, Fudi not only eliminates the lengthy circulation links in the traditional fresh food supply chain, effectively reducing product costs, but also deeply controls product quality from the source to ensure high quality and quantity of products.

For example, fudi black pork tenderloin and fudi rice are all from the parent company's own supply chain. Taking cherry tomatoes as an example, the Wukesong store offers rare cherry tomatoes such as double-color honey eggplant, royal eggplant, candy eggplant, strawberry persimmon, cherry tomatoes, and grape tomatoes. The price ranges from 14 yuan to 40 yuan, which is only slightly more expensive than ordinary cherry tomatoes. This variety is a specialty product in Yunnan. It is shaped like cherries and grapes, and tastes sweeter and more delicate than ordinary tomatoes.

Cooperation with overseas companies

In order to expand the richness of the supply chain, Fudi is committed to forming close strategic partnerships with overseas companies. Fudi's procurement team collects high-quality "landmark products" around the world, including French Bordeaux red wine, Danish blue cheese, Sicily blood orange, Norwegian salmon, Russian king crab, etc.

For example, Coles, Australia's largest retail group, is one of fudi's partners. It has provided fudi with 18 high-quality products from around the world, including Manuka honey originating from New Zealand and MGO50+, Rainforest Alliance certified dark roasted coffee beans, and salted smooth peanut butter.

In the baking category, Fudi has a baking team from Taiwan, and its baking products are 100% self-developed and nearly 90% self-produced. For example, the popular products Fudi once launched, such as cheese cinnamon rolls and German lye water bread, were developed by the self-operated team based on the preferences of the younger generation.

Supply chain integration and procurement capabilities

Fudi has strong supply chain integration and purchasing capabilities. The purchasing team consists of buyers with more than 20 years of experience. In addition, the upstream resources of its parent company Beijing Yaodi Agriculture, the various standards it has established, and the scale of the entire retail sector (including Vegetable Fresh Fruit Beauty) help Fudi to obtain unique, high-quality, and price-competitive products.

The key to whether fresh products can be sold well and profitable lies in controlling losses. Currently, the loss rate of Fudi fresh products is 1.5%-3%, which is much lower than the average level of 8%-12% in the fresh food industry.

2. Product refinement and differentiated operations

Create refined fresh food categories

Among the 4,600-4,800 SKUs, the biggest feature of Fudi is the creation of fresh products. The dietary structure in China is different from that in the United States. People usually eat fruits and vegetables. To make a dish, they may use 10 kinds of ingredients, including seasonings. The requirements for fresh products are higher and richer than those abroad.

Fudi has nearly 500 fresh products. In terms of packaging, it is made smaller to better suit the needs of a family of three; in terms of categories, it is made richer to meet the eating and living habits of Chinese people. On the Fudi applet, "safe vegetables" has a total of 9 categories and 18 subcategories, providing a total of 251 types of vegetables. In the "mushroom" category alone, Fudi provides 33 types of mushrooms to choose from.

In the seafood area, frozen goods are more popular in foreign warehouse membership stores. In addition to frozen seafood, there are also many live seafood because domestic consumers prefer fresh seafood.

Common fruit and vegetable items are concentrated in the same walk-in cold storage room as Sam's, but the area is much smaller than Sam's. This reflects Fudi's principle of more refined and segmented fresh food category management.

Fresh products are selected from unpolluted waters, some of which are sold as regular products, and the other part is customized and reserved for members. If members with an annual fee of 680 yuan have special product needs, such as seafood that is difficult to buy during festivals, Fudi will make special products for this member to meet their needs.

For example, the emphasis on pork categories and segmented operations. Fudi Wukesong store focuses on selling black pork, which is currently popular among domestic consumers, and displays it in a prominent position in the aisle where consumers must pass. At the same time, pork is further segmented. In addition to the mainstream pork belly, front tip, back tip, etc., even pure fat meat is packaged separately and sold as a single product.

Fudi's insight into and satisfaction with this consumer psychology reflects the product operation capabilities of its team. As a local brand, Fudi understands the needs and preferences of local consumers better, so when selecting products, it focuses on products that are more in line with Chinese people's eating habits. For example, Fudi will set up an independent cooked food area, and compared to Sam's Club, Costco and other stores that sell frozen seafood, Fudi's seafood is mostly fresh.

Create product differentiation

Different from the mainstream model of warehouse membership stores and traditional boutique supermarkets that mainly sell quality goods, Fudi's product differentiation capabilities are obvious enough.

Fudi weakens the fresh food function positioning of the "vegetable market" and pays more attention to the product positioning of "health", "Internet celebrity" and "trendy". It is mainly a "shopping and knowing" store for young shoppers, who constantly discover new things and new knowledge in the process of shopping, and thereby demonstrate the quality and taste of life.

As the entire consumption structure and living habits are constantly changing, all product development will be adjusted and changed in accordance with festivals, seasons, and the lifestyles of urban residents. People are currently pursuing health, such as light meals, and innovation will be made based on everyone's needs.

In addition to fresh food, the selection of standard products also follows this principle. For example, in the prominent position of the dry seasoning area is Sichuan Bobo Chicken Seasoning, which is obviously an Internet celebrity product derived from a popular Internet meme, and its target is young people who are most sensitive to Internet memes, especially college students.

The core capability of fudi membership store lies in the ability to select products based on the precise positioning of target customers and the understanding of their needs. It uses the deep foundation of the supply chain to screen and cultivate personalized and trendy product supply, thereby forming differentiated product competitiveness, thereby forming customer word-of-mouth recognition and reputation. "If I can't buy it anywhere else, I can pay for it" - this is the consumption logic of young people, and it is also the key to fudi's ability to charge membership fees.

The customer flow structure of Fudi Wukesong store also fully reflects the differentiation of the shopping population structure brought about by the product positioning: more than 60% of the shoppers are young people, and about 30% are family shoppers, that is, a typical warehouse membership store family demand scenario where middle-aged couples bring their children shopping. In addition, only a few elderly people in the surrounding communities carry shopping carts to buy groceries.

3. Product selection mode

All of Fudi's products are strictly screened, and the standards are overcome one by one.

Custom planting

For example, many products such as custom-grown strawberries and vegetables for Hong Kong are strictly managed in accordance with GAP standards, including land soil management, fertilizer management, irrigation and fertilization, harvesting and processing, and pesticide residue testing to ensure traceability and safety. "

Grafting landmark products

From a global perspective, "landmark products" are symbols of high quality, such as French Bordeaux red wine, Danish blue cheese, Sicily blood orange, Norwegian salmon, Russian king crab, Japanese Koshihikari rice, Spanish Iberian ham, etc.

With the formal signing of the China-EU Geographical Indications Agreement by Chinese and European leaders in 2020, the quality of China's landmark products has begun to be recognized by the world, thus having the potential to become world-renowned brands.

A high-quality source supply chain determines the high quality, localization, and differentiation of channel categories, which ultimately constitutes the exclusive advantage of the channel and makes it a real channel brand. For example, for hairtail, go to Zhoushan to find the best brands, and for seafood in Dalian and Yantai, go to the best crayfish brands.

4. Innovation of member benefits

Fudi has made innovations in member rights. The principle of Fudi members is to experience first and then pay, and if you are not satisfied, you can get a full refund. As consumer demand changes, Fudi continues to adjust its service content.

Initially, Fudi’s membership cards only had two types: Fudi membership at RMB 365 per year and Fuxing membership at RMB 680 per year.

In August 2023, fudi launched a membership with an annual fee of 188 yuan. The membership system has gradually matured, and car washing and dental services have been added to the stores.

• Trial membership: The price is 0 yuan/week, providing the rights of omni-channel shopping, return and exchange.
• Ordinary members: The price is 188 yuan/year. It is aimed at some consumers whose consumption habits tend to be light and have rigid demands, and mainly meets the needs of online and offline omni-channel purchases.
• Fu Member: The price is 365 yuan/year, for family users. In addition to omni-channel shopping and returns and exchanges, it also includes basic family dental services, parking discounts, 38% off birthday gifts, 6 freight coupons/year, and 6 free car washes/year.
• Fuxing Membership: The price is 680 yuan/year. In addition to omni-channel shopping and returns and exchanges, it also includes upgraded family dental services, parking discounts, 50% off birthday gifts, 12 freight coupons/year, and 12 free car washes/year.

Fudi has increased its focus on instant retail, improving the quality of home delivery services through full cold chain distribution by refrigerated trucks and improving the timeliness of fulfillment. SF Express cooperates with Fudi's online business, giving Fudi a strong fulfillment capability. Online capabilities are rapidly becoming Fudi's development advantage.

Thanks to its layout in the city center, fudi's location is closer to the community, which makes it more people-friendly, convenient and beneficial. Based on this, fudi's online fulfillment capabilities have an inherent advantage. Through online mini-programs, it provides door-to-door delivery services, which are in line with the current changing trends in consumption habits.

02 Fudi store expansion planning and advantages

Fudi is currently planning to expand beyond Beijing and into other cities. Its stores in other cities are planned to be located in multiple regions such as East China and Southwest China, and preparations for new stores are currently underway.

If Fudi can successfully expand from Beijing to the whole country, the domestic warehouse membership store market structure will undergo new changes. Because the reason behind its expansion from deep roots in Beijing to a nationwide layout is not only the consideration of development strategy, but the deepest driving force comes from Fudi's confidence in its own business model and its ability to replicate. It also represents the gradual rise of local warehouse membership store brands.

1. Store expansion planning

Fudi plans to start national expansion. In 2024, Fudi will open more warehouse membership stores in Beijing, and is expected to move out of Beijing in 2025. Currently, it is selecting locations for stores in other regions such as East China and Southwest China, and the next step will be to prepare for new stores.

The consumption in East China and Southwest China is quite different from that in Beijing, and their eating habits are also different. For example, some cities emphasize the freshness of goods, and different cities have their own specialty foods. This requires Fudi to make adjustments based on local food culture when expanding to other places, and to differentiate its own brands.

Competition outside the membership store format is inevitable. It is foreseeable that when Fudi enters a new market, it will not only compete with existing membership store brands, but also with local retail companies.

2. Advantages of expanding stores

The entry threshold is low, and the location is generally in the city center.

Fudi's annual membership fees are mainly divided into three tiers: 188 yuan/year, 365 yuan/year, and 680 yuan/year. Compared with Sam's Club's lowest annual fee of 260 yuan/year, Costco's lowest annual fee of 299 yuan/year, and Hema's lowest annual fee of 258 yuan/year, it has a greater advantage in the entry threshold, which can help it attract more people in the sinking market and expand the customer market size.

From the perspective of specific benefits, Fudi's competitive advantage is not significant. Fudi's ordinary membership (188 yuan/year) benefits include omni-channel shopping, unsatisfactory returns, high-quality and low-priced global products, and free membership upgrades. Other services such as free parking, car washing, oral care, birthday gifts, etc. require a Fudi membership of 365 yuan/year. At Sam's Club, Costco, and Hema, you can enjoy additional benefits with the lowest annual membership fee.

In general, if Fudi wants to go deeper into the hinterland and compete with giants, it needs to make structural optimizations in its membership system.

Fudi membership stores are usually located in the city center, which means that Fudi membership cards are more cost-effective. The annual price of Fudi's ordinary membership card is 188 yuan, and the annual price of Fudi membership card is 365 yuan, which is more expensive than Sam's Club's ordinary membership of 260 yuan/year. However, thanks to the location in the city center, Fudi members visit the store more frequently and consume more frequently, which makes consumers feel that it is more "cost-effective" - ​​it is more cost-effective to open a membership supermarket near their homes.

From Fudi's regional selection, we can see that its potential preferred cities should be first-tier or new first-tier cities such as Shanghai and Chengdu. Only these cities have enough target customers to support the normal operation of the store.

The closer you get to a first-tier city, the more intense the market competition. In these cities, not only do you have to face direct competition from companies in the same industry and targeting the same demographics, but more importantly, online competition. Consumers in first-tier cities have stronger online shopping habits and more shopping channels to choose from, so the profit cycle of physical retail will be longer.

The products have obvious local characteristics and can be differentiated by using Chinese characteristics

Although warehouse membership stores are very popular, as a business model copied from abroad, they are still insufficient in adapting to localization.

For example, the large packages and large quantities of Sam's Club and Costco may be more suitable for foreign families who are accustomed to making one-time purchases every week, but for Chinese families who are accustomed to making purchases on the same day, overly large packaging categories may affect the impulse to place an order.

Moreover, the supply chains of foreign membership stores mostly come from overseas, and they cannot fully grasp the purchasing needs of Chinese consumers in terms of products. Therefore, members of Sam's Club and Costco are more keen to buy imported luxury goods, daily necessities and other commodities.

In this regard, Fudi's advantage is that it has distinct local characteristics. For example, the Chinese side dishes, snacks, dim sum and various types of fresh fruits and vegetables sold in the store can fully meet the "Chinese stomach" needs of Chinese consumers.

Fudi's gross profit margin is controlled very low, maintained at around 10%. Compared with other membership supermarkets with gross profit margins of around 13% or even higher, Fudi is more willing to give consumers benefits.

This is a double-edged sword for development. For mature markets with a foundation, it can effectively increase market share and customer stickiness, but for new markets, it means a longer profit cycle and higher initial cost pressure.

03 Membership Store Trends

Consumption upgrades have lifted the seal on membership stores' insufficient market carrying capacity for many years. The change in people's consumption habits during the epidemic is also further fueling the trend - the trend of offline stockpiling has allowed more users to see the value of membership stores, and Fudi happened to enter the market at this stage.

1. From the perspective of space creation

The ideal standard store of Fudi membership store covers an area of ​​15,000 square meters, with a floor height of 9 meters and 1,000 parking spaces. In comparison, Costco's store in Minhang District, Shanghai covers an area of ​​20,000 square meters and a shopping area of ​​14,000 square meters.

The huge store is the standard for warehouse membership stores. The space experience is open and spacious, but it also restricts the expansion speed of membership stores to a certain extent. Fudi membership stores have relatively high requirements for properties. Unlike boutique stores that can open hundreds of stores across the country, they are satisfied with opening five or six stores in a big city.

2. From the product perspective

Selected products + great value experience are the foundation of membership stores. Selected categories bring high-quality quality control and effectively shorten the purchase decision-making process.

The SKUs of fudi member stores are around 4,000, similar to Costco and Sam's Club, while the SKUs of hypermarkets usually start at 10,000. For example, bottled water does not actually need that much, just select a few good brands, and at most two hits. The price also benefits from the selected categories, with A-level products and C-level prices.

Selected SKUs enable member stores to skip the middleman and attract members with commodity prices close to cost. Fudi directly and publicly promised that the comprehensive gross profit margin is "no higher than 10%."

Fudi is committed to selling A-grade products at C-grade prices. The C-grade here does not mean low prices in a narrow sense, but reasonable prices based on ensuring quality for consumers. High quality and low prices hit the consumption psychology of the new middle class: "You can buy expensive things, but you can't buy more expensive things."

As a result, Fudi has achieved a high-quality profit model with high customer unit price, high repurchase rate and high turnover rate. Fudi's current customer unit price is more than 400 yuan, and the annual sales of the single-store model will reach more than 1 billion in the future.

With sufficient funds, we can continuously invest in upgrading the production chain, pushing operations into a positive cycle of continuously optimizing the "quality-price ratio", continuously attracting traffic, and continuously reducing gross profit margins.

When resources enter the source of the supply chain, the probability of big single products also increases. For example, Sam's Club China has the super single product Swiss roll, Costco has the popular bagels that are marketed all year round, and Fudi has also broken the circle on social media with cheese cinnamon rolls and nut cheese buns.

3. Establish your own brand

Consumers can enjoy both the highest quality products available on the market and the best private brands developed through innovation. Enjoying the best in all categories while providing consumers with comparability is the significance of Fudi's participation in private brand development.

Fudi plans to give its own brand a separate brand name, and the volume of this part of the brand will account for 35%-40% of the total SKU in the future, close to the proportion of Costco's own brand Kirkland Signature. Whether it is selected or owned, it will eventually be pushed back to the supply chain capacity, which is precisely the factor that determines the success or failure of the membership store model.

4. Forward warehouse

Many new and old retail companies have been trying to build forward warehouses for many years but have not been able to do so. However, a successful one has emerged in the warehouse membership store market: Sam's Club. Data shows that Sam's online sales now account for 55%, and its "one-hour express delivery" orders based on cloud warehouses account for nearly 70% of Sam's e-commerce orders, becoming a major driving force for Sam's growth.

For Fudi, the most important role of the forward warehouse is to achieve collaboration with stores and respond to member needs better and faster. The forward warehouse is an extension and supplement to offline business, which can achieve collaboration with offline stores, achieve online and offline integration, and provide members with a full range of service experience.

In terms of geographical location selection, it is generally within 5-10 kilometers from the store, so as to ensure timely shipment from the forward warehouse; in terms of operating costs, the forward warehouse does not require a very good location and the cost is controllable.

The forward warehouse includes demand forecasting, inventory management, location selection, etc. Fudi is now planning to expand stores nationwide. After going nationwide, it may face many problems in supply chain, logistics, and warehouses, so the development and innovation of the forward warehouse is an important strategy for the next step.

Conclusion

Just three years after the launch of its first warehouse membership store, Fudi has begun to open stores in other places. The key is to build confidence in the product power of the supply chain. In the membership store track, how to do a good job in this kind of membership store targeting the masses is a new topic. With the fresh food category as the entry point and the product ability to better understand local consumers as the core, Fudi has initially built its own "moat" and has the confidence to expand overseas.