The poor want to take advantage of others, but some people want to take advantage of the poor.

This article deeply analyzes the development status, opportunities and difficulties of China's near-expiry food industry. The scale of the near-expiry food industry is steadily expanding, but the industry development faces many difficulties, such as product quality issues, resource scarcity, and insufficient consumer awareness. It is recommended for readers who are interested in the development of China's retail industry and the near-expiry food industry.

Yuanqi Forest for 3.5 yuan, French Perrier water for 4.9 yuan, bottled Starbucks for 5 yuan, a large box of Nabati wafer biscuits for 4.9 yuan, U-Tianlan jelly mask for 21 yuan, Freeplus facial cleanser for 79 yuan... In the Hi-Tech store, everything looks so beautiful.

As my country's consumption structure continues to upgrade, the stratification of consumption is also intensifying. Naturally, people's demand for near-expiry foods continues to expand. The emergence of near-expiry food discount stores is like a ray of light for stingy people, and it is a good place for them to achieve snack freedom.

Nowadays, buying near-expiry food is no longer a one-man show where stingy people go to supermarket shelves to buy near-expiry items. Many hunters who have targeted business opportunities are striving to turn near-expiry food into an industrial operation.

The industrialization of near-expiry food has also been recognized by capital. Xiaoxiang Life received a 10 million yuan round of A financing in June 2022; Hi-Taigou also completed its Pre-A round of financing during the same period; and Haoshiqi, a branded food special sale e-commerce platform established in 2016, received three consecutive rounds of investment from Alibaba, with the last round of investment amounting to 110 million yuan.

The poor want to take advantage of the merchants, but the merchants want to make money from the poor. The expiring food industry is really an interesting existence.

01 Reduce losses by 100 million per day

iMedia Consulting released the "2021-2022 China Near-Expiry Food Industry Development and Case Study Report", pointing out that the near-expiry food industry accelerated its development in 2021, with a market size of 31.8 billion yuan. It is estimated that the scale of China's near-expiry food market will reach 40.1 billion yuan in 2025.

Young people who call themselves "poor ghosts" have been keen on getting free stuff for a long time. Take Haoshiqi as an example. Currently, the number of users on the platform has reached more than 100 million, and it is still growing.

Innova Market Insights' 2023 Global Trend Survey shows that more than 60% of respondents said they had felt the prices of food and beverages rise in the past year, and even one in two people have spent more on food and beverages since the epidemic lockdown.

The increase in the Engel coefficient has forced the poor to rack their brains to find ways to save money. Although the emergence of near-expiry foods is not the best option, it does play a certain role.

At the same time, unlike other regular commodities, the development demands for near-expiry foods come not only from consumers, but also from merchants.

Lei Yong, the founder of Haoshiqi, once explained this problem in detail: "Food is not like clothing, home furnishings and other commodities. Once it cannot be sold within the shelf life, it will not become zero assets, but negative assets. Merchants will have to pay to destroy it. Why can't food be sold? There are issues of price and brand recognition, as well as factors such as the efficiency of goods circulation. The loss rate of excellent food manufacturers can be controlled within 1%. This number seems low, but it is not simple to add up. If the scale of all food companies in China is added together, it means that hundreds of billions of food will be destroyed every year."

Lei Yong also said that the company now has a mission called "reducing losses for China's food industry by 100 million yuan every day." It is not to cater to the trend, nor to build an ordinary e-commerce company, but through the innovation of business models, the empowerment of Internet technology, and the efforts of the entire team, it will ultimately solve the "high loss" problem of the entire industry. This is the original intention of Haoshiqi.

From a superficial perspective, it is important to industrialize near-expiry food and make money. But this does not conflict with the original intention of corporate culture. On a deeper level, the commercial operation of near-expiry food can not only achieve a win-win situation for consumers and food brands, but also enable society to avoid resource waste.

How profitable is the near-expiry food industry? The answer may be beyond most people’s imagination.

According to the "2021 China Near-Expiry Food Industry: Analysis of the Logic of Near-Expiry Food Going Out of the Circle" released by TouBao Research Institute in 2021, near-expiry food collection stores and collection platforms are the links with the highest gross profit margin in the supply chain. Large collection stores such as Haotemai and Haoshiqi can bypass middlemen and purchase goods directly from the source, with a gross profit margin of 30% to 50%.

There is a certain profit in near-expiry food because its purchase price is extremely low. For example, near-expiry food is mostly purchased at a 10% discount, and even if it is sold to consumers at a price ranging from 20% to 50% off, a certain profit can still be made.

02 It’s a technical job

At first glance, the business of near-expiry food seems to be good. However, things are not as simple as imagined.

First of all, compared with ordinary food, near-expiry food is more likely to be questioned by consumers.

The Black Cat Complaint Platform shows that there are consumer complaints about near-expiry foods sold on multiple platforms including Pinduoduo, JD.com, Douyin, and Tmall.

When buying food that is about to expire, it is indeed easier to buy inferior products. It is not uncommon to see bulging packaging bags, lumps in freeze-dried coffee powder, and sour milk before the expiration date. This makes it difficult for consumers to fully believe that the quality of goods in stores near the expiration date can be fully guaranteed.

Secondly, although most consumers understand that they are buying low-price products when they choose near-expiry foods, they are generally unwilling to accept that they are buying defective products as a result.

Some consumers even look at near-expiry foods with tinted glasses, which makes it easier to magnify product problems.

At present, there is no unified standard for defining near-expiry foods in my country. The rules generally followed by the industry come from the "Special Zone System for the Sale of Near-Expiry Foods" issued by the former Beijing Municipal Administration for Industry and Commerce in 2012.

The system stipulates that, depending on the shelf life of the food, the food included in the category of near-expiry food is 45 days to 1 day before the expiration date of its shelf life. If more sound laws and regulations can be introduced in the future, it will be a good thing for businesses and consumers to have laws to rely on, and it will also greatly promote the development of the entire near-expiry food track.

Having said that, whether from the perspective of consumer mentality or establishing brand value, product selection is the most critical step for near-expiry food platforms.

The reality is that selecting near-expiry foods is extremely difficult.

First, consumers are generally willing to try familiar brands. These brands have been proven in the market, and it is difficult for unpalatable food to remain in the market for a long time, so the near-expiry food of the leading brands is the most valuable.

Then a paradox arises. Big-name food brands are like the emperor's daughter, and they will never have trouble finding a husband. Whenever there is any expiring stock, it will inevitably attract a scramble by all kinds of buyers, which leads to the instability of high-quality supply.

This also means that brands cannot make too much profit and will only sell to higher-priced buyers, while customers who come to the expiring food platform to get the bargains will not buy goods at a price that is not cost-effective. In this way, even if the upstream big-name resources are obtained, the profit of the expiring food platform will shrink.

Second, although unknown brands may have higher gross profit margins, there are only a few customers willing to try them out, and the product repurchase rate is significantly low. If the products cannot be sold out before the expiration date, it will directly damage the store's profits.

Third, as for the categories of near-expiry foods, they also need to be carefully selected, as some categories are very easy to "step on landmines".

For example, Pinduoduo once took the lead in trying to sell milk powder that was about to expire, which caused an uproar. In the opinion of some experts, Chinese parents' rejection of milk powder that was about to expire was mainly due to their mentality. Would they let their children eat a can of milk powder that had a shelf life of four years and was about to expire in half a year? Would the quality be lower than that of milk powder with a fresh date? These concerns are everywhere.

Overall, if a platform only deals with near-expiry foods, it will be difficult to achieve large-scale development.

03 Expiry stores are not expiry

With the pros and cons intertwined, we can still hear different opinions on the industrialization of near-expiry food

Lai Yang, executive vice president of the Beijing Society of Business Economics, is not optimistic about the development prospects of the near-expiry food industry. The resources of near-expiry food are limited, and consumer demand is also limited, so it is impossible to maintain a large market scale in the long run.

Have foreign expiring stores ever faced the same dilemma? How did they resolve the problem? Let’s refer to the case of Don Quijote, a famous expiring store in Japan.

In terms of retail sales, Don Quijote has become the fourth largest retail entity in Japan, and the current product structure of the store is 30% low-priced leftover goods to attract customers, and 70% mixed sales of regular-priced products at a discount.

At the same time, Don Quijote’s pricing strategy is somewhat different from that of domestic near-expiry stores, and has a bit of the flavor of Tian Ji’s horse racing.

According to Don Quijote’s employees, “We buy cheap products (foods that are close to expiration) and sell them at high prices. We buy expensive products (conventional products) and sell them at low prices.” On this basis, Don Quijote has also developed its own products. Public data shows that Don Quijote’s own products account for 10% of its total revenue, but contribute nearly 20% of its overall gross profit.

Compared with the near-expiry foods, self-operated products obviously have higher thresholds and competitiveness. In this way, different products in Don Quijote stores can obtain certain market price advantages while also ensuring gross profit margins.

The development history of Don Quijote has undoubtedly inspired domestic expiring stores, and some of them have begun to follow suit.

At the Hi-Go flagship store in Beijing Xidan Joy City, an employee said: "We have transformed. In fact, there are some products that are about to expire in the store, but they are only a small part. These products are just for attracting customers. Generally, products with a 10% or 80% discount may be about to expire."

Brands such as Haotemai have also proposed not to use near-expiry products as a single product, and try to diversify their product structure. Fan Zhifeng, the founder of Fanrong Market, once pointed out that near-expiry products are just products that provide the ultimate cost-effectiveness, which is the feature of the store, but it cannot be the only feature. In addition to the tail goods, the store also needs new products.

Other industry insiders have expressed the same view that using near-expiry food as a traffic-generating tool can resolve the traffic dilemma. After obtaining a stable customer base, stores can extend the model of selling regular-duration goods, which is conducive to increasing revenue and profits and solving the problem of unstable supply of goods. It also provides a distribution channel for new brands, making the industry further sustainable.

But at this stage, consumers generally do not approve of the practice of "near-expiry stores not accepting expiring products", and doubts are also rising online.

"This year I started to try to buy things in expiring stores, also with the purpose of getting a bargain, but I ended up making mistakes several times. The one that left a deep impression on me was a type of chicken feet called 'Qiang Xiaolu' that I bought from Hi-Tech. The packaging was too similar to Wang Xiaolu's, it was definitely a scam, and I bought the wrong one accidentally. I only realized it after I checked the receipt after paying the bill." Speaking of her "Taobao" experience in expiring stores, Yuki frankly said that the price-performance ratio was not as high as she had imagined.

"There are some brands I have never heard of, such as Mrs. Fei, Dongling... I don't know what tier of brands they are, but they are all sold in the store. There are some imported foods that are also unknown, and some brands cannot even be found online, so it is even more confusing when buying. These products should be cheap, otherwise no one would buy them at full price, so there is no so-called wool grabbing."

For stores nearing expiring dates, whether it is getting consumers to accept the fact that they have to tear off the "near-expiring date store" label, or getting consumers to accept emerging brands in the store, the long consumer education process will take a long time to gradually digest.

As a developing country, my country's current population and food demand base are quite large, and near-expiry food will continue to expand for a long time to come.

As Zhang Yi, CEO of iMedia Consulting, said, as the country gradually tightens its supervision of the food market and near-expiry food platforms further occupy the minds of consumers, consumers' confidence in the safety of near-expiry food is bound to increase in the future. This is a great benefit for practitioners.

Although it is difficult to diversify the business model of expiring stores, China's vast commercial soil will surely produce one or two leading brands like Japan's Don Quijote.

The door to the future of expiring stores has just slowly opened.

Author: Koala is a Deer

Source: WeChat public account "New Retail Business Review (ID: xinlingshou1001)"