In the last week of 2023, the “offline Pinduoduo” kicked off the knockout round

"Price power" is undoubtedly a keyword in 2023. With economic growth slowing down and the consumption environment becoming more rational, consumers are seeking "value for money" and the consumer market is entering the "discount era". However, the rapidly growing offline discount retail stores are facing the severe problems of fierce competition and elimination. How can offline discount retailers maintain their competitiveness? Let's take a look at the author's analysis.

"The Happy House for the Poor in Shanghai has closed down. My happy hometown is gone."

The hard-discount supermarket chain "Byyide" suddenly collapsed in the winter of 2023.

This supermarket, which opened in Shanghai in 2016, has little influence on social media, but has captured many users with its various low-priced goods. It is known as the "king of cost-effectiveness". Some people even joke that Buyide is the "worry-relieving grocery store" for Shanghai uncles and aunts.

The sudden fall of the "king of cost-effectiveness" caused quite a stir: the official WeChat public account was still promoting promotional activities, but the next day, all stores posted "closure notices", and the shelves were full of goods without being processed. On Xiaohongshu, Weibo and Douyin, many Shanghai residents posted their shopping lists, shouting "Come back soon".

On social media platforms, countless people expressed regret over Biyi De’s closure.

"Price power" is undoubtedly a keyword in 2023. Taobao, Pinduoduo, JD.com and other platforms have begun to compete in price power, and Hema and Sam's Club have also been "competing" overtly and covertly. All kinds of players online and offline have begun to do "cost-effective" business. The capital market has also become enthusiastic about the discount industry: last year, brands such as Hi-Special, Xiaoxiang Life and Discount Cow, which focus on discounted goods, all received financing. This year, Zhao Yiming received 150 million yuan in financing from Black Ant Capital in February. Discount snack stores such as Zhao Yiming, Snacks Youming and Snacks Henmang have added more than 1,000 stores.

The discount business seems to have a bright future, but the sudden closure of Buyide Supermarket has obviously sounded the alarm for a number of players immersed in the bright prospects: the elimination round of "offline Pinduoduo" has begun.

1. The earliest players fall first

Biyide can be regarded as the veteran of hard discount in China.

The discount industry is mainly divided into "soft discounts" and "hard discounts". The former sells expiring goods, while the latter achieves high cost performance by shortening the supply chain and reducing operating costs. In October 2016, when the whole network was calling for consumption upgrades, German Philipp Spangenberg quietly opened the first Bid supermarket in Shanghai, imitating the German hard discount giant Aldi, using high cost performance products to attract users.

At its peak, Buyide had more than 200 stores, but its popularity was not high. The reason was that Buyide had never left Shanghai, and its store opening strategy was to layout "urban peripheral areas" and "community stores". Most of its stores were concentrated in Shanghai's Jiading, Minhang, Putuo, Baoshan and other areas, located in residential areas, serving residents within a radius of 1.5 kilometers.

Products in Buyid Supermarket

Compared with various supermarkets, the store area of ​​Biyide is not large, basically around 200-300 square meters, mainly selling fresh food, frozen food, daily necessities and fast-moving consumer goods. There are not many SKUs in each category, usually only 1-3, and the SKUs of the whole store are around 500-600, many of which are Biyide's own brand products. The shelves in the store are also very simple, following the warehouse style route, with a big hole dug in the corrugated paper packaging box and placed on the shelf, which is convenient for users to take and convenient for the clerk to sort the goods.

In the store, the Southern Black Sesame Paste at RMB 25.9 is cheaper than on e-commerce platforms, the corn oil at RMB 24.9 is also a favorite of many elderly people, and the ice cream at RMB 0.8 in the freezer has dealt a heavy blow to the "ice cream assassin". On social platforms, Biyide is often associated with names such as "a must-visit for workers", "the king of cost-effectiveness", and "a paradise for the poor".

With the title of "King of Cost-Effectiveness", Biyide has attracted countless workers and elderly people. The official public account still had promotional information from December 22, but on December 23, all stores suddenly announced their closure.

Biyide did not give the specific reason for the closure, but on social platforms such as Weibo and Xiaohongshu, many users claiming to be Biyide's suppliers said that Biyide was in arrears with payments. Some suppliers also posted notices mentioning the reason for Biyide's closure: "The retail environment continues to deteriorate, long-term losses, and a broken capital chain have made it difficult to continue operating activities."

The broken capital chain may be the most obvious reason, but the closure of Biyide is also closely related to the rapid development of community group buying and various discount stores.

As a hard discount supermarket, the most obvious advantages of Biyi De are low prices and proximity to the community. On social platforms, many users buy something after get off work or take a look when passing by, and most of the products they buy are daily necessities, fresh food, snacks and other commodities.

However, in the past three years, community group purchasing has developed rapidly, and all kinds of low-priced fresh food and daily necessities are delivered directly to stores near the community or even delivered to door-to-door stores. The low-price attractiveness of BiYide has gradually decreased.

At the same time, the consumption upgrade trend has passed, and consumption downgrade has become the mainstream, and Buyide has ushered in many competitors. Various hard discount players began to seize the market, and opened stores all over the commercial complexes and streets. Shanghai has even become a testing ground for hard discount retail stores: German hard discount player Aldi opened 47 stores in Shanghai. It used to focus on the sale of near-expiry food, but gradually added "hard discount" products and added fast-moving consumer goods brands. Dingdong Maicai and Hema also opened outlet stores in Shanghai, focusing on low-priced fresh food. Hard discount players such as Zhao Yiming and Snacks Youming entered from the vertical track and focused on discounted snacks... Under various pressures, Buyide, which does not have a rich SKU and is mostly deployed in communities, began to retreat.

Bid, which copied the German model, got up early but arrived late in China.

2. Discount retail industry: learning from overseas examples

The closure of Buyide has sounded the alarm for domestic discount players, but from the perspective of overseas markets, the discount industry is still a long-term sustainable and successful business model.

On social platforms, Aldi and Don Quijote are both hot topics

Aldi, the pioneer of hard discounts in Germany, is the model for BID. It has opened more than 10,000 stores in 19 countries and regions around the world and is often compared with Sam's Club: the former is a representative of community retail, while the latter is a representative of membership retail. Don Quijote in Japan, which has opened more than 400 discount stores, is also regarded as a model of discount retail and has been listed in many travel guides, becoming a classic "must-visit for Japanese tourists".

The birth of Aldi and Don Quijote are both related to changes in social and economic forms.

Theo and Karl Albrecht, the early owners of Aldi, took over the family grocery store in 1946. At that time, Germany was in the post-war period, the economic situation was not good, and the residents pursued pragmatism - they did not care about brands and packaging, but only cared about cost performance. Growing up in this environment, Aldi gradually developed its own business strategy: creating its own products, streamlining SKUs, and highly standardizing.

Data shows that nearly 90% of Aldi's products are self-owned. At the same time, they have deeply cultivated the supply chain and channels and have also controlled a lot of stable sources of goods. Aldi's goods come from all over the world: they buy from wherever the price is low. There are not many SKUs for a brand, but the store has a full range of categories, which reduces the cost of comparison for consumers and the cost of sorting for salesmen. At the same time, Aldi's global stores almost all maintain the same model: warehouse-style layout, almost no change in categories and SKUs, which can quickly achieve high replication.

In contrast, Don Quijote, a Japanese brand that grew up after the bursting of the bubble economy, has a different strategy.

Takao Yasuda, the founder of Don Quijote, ran a store called "Thieves Market" in his early years, selling leftover goods and slightly defective products. As there was not much storage space, he could only pile all the goods in the store. With more things, customers instead shopped more carefully in the store, looking for the products they wanted.

Don Quijote stores in Japan

Walking into Don Quijote, which is listed as a "must-visit place in Japan" by various travel guides, you can also experience the feeling of "Taobao". There are rich categories of goods and more SKUs. There are 50,000 SKUs squeezed into a 1,000-square-meter store. Many products are piled together, socks, bicycles, posters, snacks and even second-hand luxury goods are available in this store. "Drug cosmetics are more complete than drugstores."

Don Quijote, which uses the "Taobao" model, has become one of the few survivors among soft discount players. It has also established deep ties with many factories and supply chains to help sell tail goods. In an interview in 2003, founder Takao Yasuda mentioned that the weakness of soft discounts is that the supply is unstable and it is not easy to attract consumers with certain needs, but they can solve this problem by targeting night economy consumers. "Their needs are not purposeful repurchases, but to find excitement and freshness through treasure hunting experiences." It can be said that Don Quijote combines the lipstick effect with emotional consumption.

Until now, 30%-40% of Don Quijote’s products are leftover goods or slightly defective products, and 11%-14% of its products are its own brands.

Aldi in Shanghai

According to the "2023 Global Power of Retail" report released by Deloitte, Aldi ranks ninth in the world with revenue of US$120.947 billion (about RMB 876.8 billion). Don Quijote has grown for 33 consecutive years and achieved revenue of 183.13 billion yen (about RMB 93.6 billion) in 2022, making it the fourth largest retail company in Japan. The two have different models, but both are leaders in discount retail, and have also confirmed one thing for China's retail industry: discount retail is a long-term viable business model.

3. What stories should we tell in the era of discounting?

As economic growth slows down and the consumption environment becomes more rational, consumers are starting to compare prices and seek "value for money". From the "price power" discussed all over the Internet to the rise of Pinduoduo, discount retail stores are developing rapidly in various channels, and the consumer market is entering the "discount era".

Players from all walks of life tried their best, some learned from Aldi, some imitated Don Quixote, and told different stories one after another.

Some players have begun to enter the vertical track, streamlining while ensuring a rich SKU; some players have rapidly expanded stores, staked out territory and established themselves in the minds of consumers; and some players have combined shopping and entertainment to create the fun of offline "Taobao".

Hema, which focuses on fresh food, daily necessities and fast-moving consumer goods, has begun to "improve itself", aiming to gradually streamline more than 5,000 SKUs to 3,000, while improving supply chain production efficiency, reducing costs, and creating cost-effective products. Hema, Dingdong Maicai and Shanghai-based Qingmei Supermarket have also begun to build "outlet" stores, gradually transforming from handling unsold goods to selling high-cost-effective goods.

Zhao Yiming, who drove to third- and fourth-tier cities

Zhao Yiming, who focuses on the snack vertical track, will open more than 1,000 new stores in 2023 using the franchise model. In November, he also announced a merger with another snack discount giant, Snacks Is Very Busy, expanding the scale to 6,500 stores, seizing the market size and consumer minds.

Haotemai and Hi-Techgou also opened for franchising this year, and opened their own supply chains for merchants of near-expiry food, opened stores in commercial complexes, created their own brands, enriched SKUs, and operated online, using Don Quixote's model to create the fun of "Taobao". Zhang Ning, co-founder of Haotemai, said, "A discount store is not a street store, it's more like an entertainment store that can meet users' emotional values ​​and entertainment needs."

Good deals start to be launched online

But no matter what model is used or what story is told, the problem that all players will face in the end is the supply chain, and what needs to be told well in the end is still the supply chain story.

Hema, Dingdong Maicai and Qingmei Supermarket already have the supply chain advantages of supermarkets, and have also been deeply involved in the fresh food supply chain. They have long been deeply bound to the supply chain and can differentiate themselves with their own brands. Haotemai, Hi-Tego, Zhao Yiming and Xiaoshihenmang, which are open to franchising and even open their supply chains to other merchants, want to reduce the pressure on the supply chain through franchising, and at the same time use scale to achieve the Matthew effect, strive for bargaining power on the supply chain side, and gain favor from the supply chain side.

Compared with Aldi or Don Quijote, China has not yet produced a discount retail giant, and there are still many opportunities for many players in the market. However, the closure of Buyide has obviously poured cold water on the hot market: discount retail is a long-term sustainable business, but it is not an easy business to do. Who will win in the end may depend on who tells the best supply chain story.

Author: Wang Zhan, Editor: Si Wen

Source: WeChat public account "E-commerce Online"