Online, consumers have become accustomed to shopping on Pinduoduo and 1688. Offline, consumers have flocked to discount retail supermarkets or warehouse membership stores. In the industry, "hard discounts", "soft discounts", "low prices and high quality", etc. have long become the focus of discussion among many retail brands, channels and platforms. At the CCFA New Consumption Forum - 2024 Consumer Goods Channel Marketing Innovation Summit (hereinafter referred to as the "Summit") held this year, Zheng Ye, Chief Growth Officer of Nielsen IQ China, pointed out in his keynote speech that the growth of the domestic fast-moving consumer goods market has slowed down, with an overall growth rate of only 0.4% in 2023; compared with the 10% growth rate of fast-moving consumer goods prices in the Asia-Pacific market, China's figure is only 3%. Photo by New Retail Business Review Zheng Ye said that this is related to the change in consumption habits of Chinese consumers - when buying fast-moving consumer goods, consumers will look for cheaper channels and buy large quantities of stockpiles to lower the purchase price of individual products. Therefore, warehouse membership stores such as Sam's Club and Costco, as well as hard discount supermarkets such as Aldi and Lele, will become the choice of more and more consumers. In addition, according to Nielsen IQ monitoring data, the snack market has also begun to polarize - low-priced snacks and higher-end snacks have shown good growth. This may be closely related to the rise of soft discount retailers such as Haotemai and Hitego, as well as snack mass merchandisers such as Zhao Yiming and Snacks Are Busy. There is no doubt that 2024 will be a year of fierce competition among discount retail brands. 1. Price disruptorsDiscount retail brands have been developing in overseas markets such as Europe, the United States, and Japan for many years. The reason they have been able to develop so rapidly in China in the past year is that Chinese consumers are becoming more and more sensitive to prices and have higher and higher requirements for quality. In a sense, this is also a sign that the consumer market is maturing and consumer capacity is becoming more stratified. Previously, the mainstream discount retail form in the domestic market was still based on soft discounts. Soft discounts refer to the model of selling near-expiry goods, tail goods, defective goods, etc. at low prices. For example, domestic outlets, Haotemai, Hi-Tego, etc., all belong to the category of soft discounts. The corresponding model is the hard discount model, which is to achieve low gross profit and high turnover at the sales terminal by streamlining product selection and compressing supply links. Interestingly, regardless of whether the company adopts soft discounts or hard discounts, the key words "extreme", "minimalism" and "efficiency" are usually seen in their management creed, and they can always stand out in the fiercely competitive consumer market as price disruptors. According to the "In-depth Research on Discount Retail Framework" report by Minsheng Securities, the gross profit margin of hard discounts is usually between 15% and 16%, while the gross profit margin of soft discounts is between 25% and 35%. In his speech at the summit, Zhang Ning, co-founder of Haotemai, also mentioned the gross profit margin gap between discount retail brands and traditional retail brands: Walmart's gross profit margin is 23%, while Aldi's is 18% and Costco's is as low as 13%. Photo by New Retail Business Review Many channel parties said at the summit that due to fierce competition, the gross profit margin of hard discount retail may be getting lower and lower. Therefore, hard discount retail brands are usually strong, either taking root in China early like Walmart, or digging deeper into the Shanghai market by recruiting more local employees with resources like Aldi, or occupying a place like Lele and cultivating the local market... However, no matter what the gross profit margin is, 2023 will be a fruitful year for discount retail brands. Walmart's fiscal year 2024 and Q4 financial report released in February this year showed that Sam's Club's share of Walmart's revenue increased from 12.84% in fiscal year 2023 to 13.8% in fiscal year 2024, among which Sam's Club stores and e-commerce performance in China contributed significantly. Walmart will also focus its business on developing the Chinese market this year. As of the end of 2023, Walmart has 47 Sam's Club stores in China, and store performance continues to grow. Walmart Chief Financial Officer John David Rainey revealed that China's e-commerce business penetration rate has hit a record high of 48%, which was only 3% four years ago. As the originator of hard discount supermarkets, Aldi, which has entered China for six years, is also accelerating its expansion in Shanghai. As of December last year, the number of Aldi stores in Shanghai has exceeded 50, of which 27 stores were opened in the past three years, positioning themselves as "affordable community supermarkets." Typically, in an Aldi store of 500 to 600 square meters, the number of product SKUs is controlled within 2,000, of which about 1,500 are daily necessities, as well as a large number of fresh and baked products. Since the end of last year, as long as you open Xiaohongshu, you can basically see overwhelming Aldi marketing content: facial cleansers and shampoos at 9.9 yuan, sanitary napkins and sleeping pants at 3.9 yuan, which seems to be a "you can't lose out if you buy, and you can't be cheated if you buy." Offline, Aldi put up slogans targeting warehouse membership supermarkets such as Sam's Club and Costco in places with high traffic, such as subway stations. The slogans include "Aldi supermarket, cheap even without membership fees" and "Luckily! Aldi supermarket has small packages, so it's cheap no matter how much you buy"... Coupled with the huge cabbages, milk cartons, croissants, etc. surrounding the columns of the subway stations, it not only attracted a lot of attention, but also accurately captured the hearts of Shanghai white-collar workers. Image source: Xiaohongshu Many consumers in Shanghai said that they now buy a lot of fresh produce from Aldi, because large packages like those at Sam's Club and Costco are simply too big for singles to consume. Not only that, the trend of discount retail has also spread across the world. Aldi recently announced that it will accelerate its expansion in North America and plans to invest more than US$9 billion in the United States to open 800 new stores in the next five years. 2. Is soft discount still a good business?While hard discounts are booming, soft discount brands represented by Haotemai and HiTegou have attracted a lot of controversy in the past six months. Firstly, the impact of the epidemic has gradually faded, the inventory pressure on brands has been reduced, and soft discount retail channels have become a non-essential option for them. Secondly, soft discount retail brands are very dependent on the supply of goods, and the supply itself is extremely unstable. Therefore, for soft discount retail products, there is basically no such thing as repurchase rate, and it is therefore impossible to accurately understand consumer demand. Third, in order to attract more customers, soft discount retail brand stores are usually opened in large shopping malls, which have high store opening costs; and the purchase of goods basically adopts the buyout system with instant settlement, which also puts huge pressure on cash flow. In addition, some people believe that snack mass-market brands represented by Zhao Yiming and Xiaosuhenmang are also squeezing out the market of Haotemai and Hitego, and because of the larger purchase volume, snack brands prefer to cooperate with Zhao Yiming. Such snack mass-market brands usually open stores on the street, and the rental costs of stores are also lower. In this regard, Zhang Ning said in an interview with New Retail Business Review that snack mass-market brands are more in low-tier markets, and stores with good special sales are basically located in first- and second-tier cities, and they do not pose a threat for the time being. Moreover, the operating logic of snack mass-market stores is more of wholesale sales, which is fundamentally different from soft discount retail, and the two can develop in a differentiated manner. In response to the first three questions, Zhang Ning spoke at the summit under the topic of "New Trends in Discount Retail - Empowering Brand Innovation", and talked about Haotemai's own "solution" - driven by technology . Photo by New Retail Business Review Haotemai is certainly aware of the extremely unstable nature of its supply. Last year, Haotemai purchased more than 100,000 SKUs, many of which were nearing expiration. Zhang Ning admitted: "We don't know what goods we will get next week." Moreover, such a situation is the norm at Haotemai. For purchasing personnel in ordinary retail channels, this undoubtedly represents a nightmare-level work difficulty. In addition, with so many products, how can we strike a balance between expiration date and price? How can we quickly estimate the value of the goods and then pay the supplier? The amount of calculation involved is far beyond the capability of humans. Now let’s look at the distribution stage. Since there is almost no repurchase rate data, how can store managers determine what goods their stores should stock? The above problems can only be solved by algorithms. According to Zhang Ning, the algorithm system used by Haotemai can now replace human decision-making. For example, the AI intelligent distribution system can take into account factors such as product functions and ingredients, and then carry out blind box distribution according to the characteristics of different stores. (This system) completely simulates the purchasing logic of human buyers. "So, our real barrier is algorithmic capabilities." As the number of good special sales stores increases, the accumulated algorithm data will become increasingly abundant, and the system will be able to develop more sophisticated measurement capabilities through continuous learning. 3. The possibility of combining hard and soft skillsIn the past six months, many consumers have found that Haotemai is cooperating with some brands to launch exclusive products. Some people believe that this is Haotemai's transformation to hard discounts. In this regard, in an interview after the summit, Zhang Ning stated that Haotemai will cooperate with brand owners to develop some innovative products that are relatively new to the market, but will not directly compete with brand owners in the mature snack market. "We don't actually understand the products, but that's a good thing," Zhang Ning explained. If we "know too much about the products," we would be even more confused and unable to make decisions when faced with so many innovative and experimental new products leftover from suppliers and brands. Haotemai's shelf display method follows the principle of "equal opportunity", that is, all products are presented equally to consumers, allowing them to make their own judgments. It is worth mentioning that the lack of repurchase rate has become a major feature of Haotemai. The search logic of supermarkets and e-commerce does not exist in Haotemai: "Many consumers do not go to Haotemai to buy a specific product, so they will not search in advance whether a certain Haotemai store has a certain product... (They) come to the store to find a sense of novelty, and it is very likely that they don't know what they will buy." At this time, the instability of the supply has an unexpected effect. Since many products may not appear again after appearing once on Haotemai, it naturally triggers the effect of "hunger marketing", making consumers more willing to continue to repurchase these products on other platforms and channels. At the same time, based on the principle of consumer decision-making, Haotemai reversely deduces pricing based on sales velocity, thus ignoring many non-product influencing factors. Therefore, those innovative products that previously sold poorly have their second market test at Haotemai - after eliminating the influence of factors such as price, publicity, and shelf display, can consumers really accept such new things? Did the previous failure come from product development or market strategy? For their own innovative products, brands can often receive more realistic feedback from Haotemai. Zhang Ning said that the current domestic consumer market is too "involuted", resulting in a situation where channels are strong and brands are weak. Product strength no longer seems to be the main factor in whether a product is successful or not. In this context, white-label products have a chance to become popular, while brands have become more conservative about product innovation. " We hope to protect the brand's innovative ability, " said Zhang Ning. He also revealed that Haotemai has signed exclusive cooperation agreements with many brands to handle tail goods, becoming the "guarantor" of these innovative tail goods. At the same time, Zhang Ning also admitted that Haotemai is only a "small channel" for brands to cooperate with, at least it is definitely not the main channel. At present, the most important thing for Haotemai is to run the tail goods business through digital capabilities, and it is not considering getting involved in too many other businesses for the time being. Since last year’s Hema’s “Mountain Moving Price”, competition in the discount retail sector has become increasingly fierce. Among them, in the hard discount track, Sam's Club, Aldi and Hema will further compete for supply chain resources, and may even set off a more intense battle in the sinking market; in the soft discount track, most of the discount stores that rose at the same time as Haotemai and Hi-Tech Shopping have already stopped. It can be predicted that Haotemai, Hi-Tech Shopping and snack mass-market brands will eventually meet on a narrow road... Discount retail has entered into real deep waters. References: 1. "Has the road of discount retail come to a fork in the road?", Bohu Finance 2. "In-depth Research on Discount Retail Framework: Overseas Discount Retail Industry Crosses Cycles and Exploring the Development Space of Offline Discount Retail Channels in my country", Minsheng Securities 3. "The Good Salesmen Who Left Behind", Lingshou Media 4. "Exclusive Analysis: From the collapse of Buyid to the prospects of different hard discount models in China", New Distribution Author: Qian Luoying Source: WeChat public account "New Retail Business Review (ID: xinlingshou1001)" |
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