2024 is the year of the biggest changes in China's offline sales channels in over 20 years. The snack chain represented by Snacks Busy and Zhao Yiming; the hard discount represented by Leerle; and the supermarket reform represented by Pangdonglai. These three formats have had the greatest impact. There are many specific forms of the above three formats. For example, snack chains: there are professional snack stores represented by Snacks Busy; there are store-in-store snack shops, such as Leerle and Xindong Snacks; and there are renovated grocery stores that sell cigarettes, betel nut, grain, oil, condiments, as well as beverages and snacks. There are even more forms of hard discount supermarkets. The wholesale supermarket format represented by Tiaoma has blossomed across the country, with about 800 SKUs, selecting the head brands and best-selling products of each category in consumer goods, adopting a direct-operated model, with gross margins below 18%. Some products in this format have price competitiveness superior to snack chains, but the disadvantages are large investment scale, relatively low product frequency, and no obvious price advantage compared to e-commerce and O2O. The wholesale supermarket represented by Yipin Fresh adopts a fresh + wholesale format, that is, SKU + fresh. This format includes Nanjing's Xiaohongdao, Xi'an's Jingxiaohe, etc. The supermarket format of hard discount is represented by Leerle; there are also Aotle, Duoletun, etc. Each discount chain has its own characteristics, and everyone is exploring and adjusting around product and cost optimization. Today, it is not yet possible to say which model is the best, but the practice of actively responding to the impact of e-commerce and improving the efficiency of traditional retail is commendable. The most recent hot topic is the founder of Pangdonglai renovating traditional hypermarkets across the country: Bubugao, Yonghui, Zhongbai, Heli, etc. Last time, an insider at Yonghui told me that Yonghui will reduce 5,000 SKUs in stages, optimize suppliers, lower retail prices, cancel entry fees and various promotional fees, be consumer-oriented, introduce products that consumers like, provide more promotional resources for best-selling products, and truly return to the essence of sales. As for whether Mr. Yu can successfully renovate all these companies, I will not comment, but I believe that Pangdonglai's approach is very valuable for the development of Chinese retail, and it is also conducive to brand innovation, changing the situation where traditional head brands monopolize shelf resources and new brands cannot be exposed. The positive changes in the above formats have made traditional CVS uneasy. FamilyMart, Lawson, Meiyijia, etc. are also thinking about how to adjust their business strategies to face the current market situation of consumption downgrade. Where is the future of snack chains? The rapid development of snack stores has its reasons for success: Bulk sales are their core competitiveness, which e-commerce cannot do, and consumers cannot easily compare prices for such non-standard products. In addition, beverages are also a shortcoming of e-commerce, as the proportion of delivery costs is too high, and snacks are a relatively high-frequency category. In the early stage, by breaking the traditional supermarket pricing model, using low prices to attract traffic, combined with a comfortable shopping environment to attract consumers, while optimizing the supply chain, improving operational efficiency, and reducing procurement costs through centralized procurement models. A comfortable environment means high rent and decoration costs. As offline retail awakens, all formats are reducing operating costs and retail prices, and low prices will gradually become the normal price in the industry. In this case, snack stores will face challenges in foot traffic and average transaction value. If the daily sales of a single store fall below the break-even point, it means losses. In this situation, how snack chains adjust their operational strategies to adapt to the rapidly changing market environment and improve the per-square-meter efficiency of single stores to make franchise stores sustainably profitable is the current core work. Several major shortcomings in the current development of snack chains: First, large store area and many SKUs bring high rent and labor costs. In order to enhance the image of snack stores, investment in decoration and lighting is relatively large. In a word: store operating costs have no advantage. Second, snack stores generally do not sell cigarettes, betel nut, and fresh products. These high-margin and rigid-demand products should be essential items in offline supermarkets. But in order to facilitate unified management, speed up store opening, and strengthen control over stores. In addition, these products are not suitable for centralized procurement. Based on these reasons, these advantageous products are excluded. Third, the level of economic development varies across the country, and snack consumption preferences are different. Although the national centralized procurement model is conducive to management, it does not consider consumers well. For many regional stores, products that sell well are not introduced, while products that do not sell well occupy the shelves. Fourth, national centralized procurement will reduce the efficiency of introducing new products, and snack chains mainly do business with consumers around the store. Consumers are always fond of the new and tired of the old in snacks. Without a special area for new products and introduction guidance, the attractiveness to consumers will be greatly reduced as price competitiveness gradually weakens. Fifth, the price competitiveness of snack chains is insufficient, which is determined by the franchise model adopted by snack chains. Snack chains adopt the franchise model, which is equivalent to the offline distribution model. Distributors purchase goods and then sell to supermarkets. The only difference is that snack chains are national distributors, setting up distribution warehouses nationwide to distribute goods to their franchise stores. Currently, all snack chains are essentially trading companies with centralized store procurement. Aotle, Duoletun, Tiaoma, and Jingxiaohe basically adopt a self-operated model, concentrating on opening stores in a certain region, which means eliminating the distributor link. This is their biggest advantage. To summarize the five major shortcomings of snack chains:
1. High store operating costs;
2. High-margin rigid-demand products not introduced;
3. No product adjustments based on regional characteristics;
4. Slow introduction of new products;
5. Franchise model, so prices are not competitive. In fact, the shortcomings in the development of snack chains are definitely more than the above five. I only select some that I think are more important for analysis. Based on the above five points, how should snack chains adjust their business models to turn disadvantages into advantages? Adjustment strategies for snack chains In the past few years, when consumer goods investment was hot, many internet brands were raising funds. After raising funds, they used them for seeding and traffic purchases on Tmall, Douyin, and Xiaohongshu to increase brand GMV. When GMV rapidly increased, it brought higher valuations, then continued financing, while increasing brand advertising. Whether they lost money or how much they lost was not important; what mattered was how much GMV could increase and how much valuation could increase. With the end of the epidemic, consumption began to return to rationality, and many brands could not raise funds. Everyone began to become rational, but it was too late. Many brands that had raised funds began to lay off employees or go bankrupt. Many failed founders summed up a classic sentence: Entrepreneurship must make money, and finding a sustainable way to make money is the right path. Why can't this simple truth be realized until the company can no longer operate? Today, many snack chains focus on the increase in the number of stores, just like consumer goods founders focused on GMV improvement in previous years. What is the use of burning money to grow big? Building a brand is a long-distance race. Running ahead in the short term does not necessarily mean you can sprint at the end. ALDI is a discount supermarket opened by German ALDI in China. It entered China in 2019 and has only opened dozens of stores in nearly five years. The per-square-meter efficiency of a single store is definitely excellent among domestic supermarkets, but internally it is still considered unqualified. They continue to polish the model and have made a pre-loss plan for 8 years. Enterprises that do difficult but correct things, start with the end in mind, and adhere to long-termism are building their own barriers. Today's snack chains should focus on: how to improve the per-square-meter efficiency of franchise stores, how to reduce operating costs, how to increase the repurchase rate of store consumers, etc. After all, snack chains are different from coffee and tea drinks. They sell their own products and have their own uniqueness, while snack stores sell many homogeneous products, so the competition is actually about operational efficiency. I won't talk about big principles, but let me share my personal views (just personal opinions, welcome to discuss). First, increase the categories in snack stores For example, cigarettes, betel nut, and add frozen and refrigerated categories that e-commerce has no advantage in and are high-frequency, to increase the sales and profitability of franchise stores. With the increase of discount supermarkets and snack store-in-stores, as well as the adjustment of supermarket business strategies, the price advantage of snack stores will gradually weaken, directly leading to a decrease in the number of people entering snack stores and a decline in average transaction value. Therefore, it is necessary to plan ahead and pay attention to the store closure rate rather than unilaterally considering control over franchise stores; for stores with suitable locations, expand fresh food to solve breakfast, lunch, and dinner. Today, there are too many single people, takeout takes a long time and is unhygienic, and small stores have unstable quality and high costs. This business cannot be solved by e-commerce. Appropriately reduce the current number of brands, and for a single category, only choose the best-selling items of head brands, etc. Second, customization by first-line head brands For standard products, all offline channels will be more expensive than Pinduoduo (I won't discuss why Pinduoduo sells cheaply). For county and township markets, many consumers still shop offline. But in prefecture-level cities and above, the proportion of online shopping is much higher. Many consumers like to compare prices on Pinduoduo when purchasing, and for unfamiliar products, they like to check consumer reviews on Xiaohongshu. This trend will gradually strengthen. If products are not differentiated, many consumers will feel that snack store prices are much more expensive than online. If this perception spreads, the stickiness of snack stores to consumers will decline. Many consumers will not stock up but only buy a little when needed, and both foot traffic and average transaction value will decrease. Based on this situation, customization by head brands is the only way out. Choosing head brands does not require brand education, and customization can get the best price because customized products will not affect the price system of mainstream products, and brands are willing to support it. For example, Lay's potato chips customized for HotMax. When the volume is large, the price is even cheaper. HotMax's three SKUs in hundreds of stores achieved annual sales of over 100 million yuan. Third, leverage supply chain advantages Since today's snack chains are supply chain companies, they should leverage the advantages of supply chain companies. Community small stores target immediate needs, with lower operating costs than snack and discount supermarkets. Generally, the owner is the salesperson, and the area is mainly 20-80 square meters. In the south, such stores can basically recover costs through cigarette and betel nut sales. Snacks can completely become traffic-generating products, while grain, oil, condiments, and immediate-need beverages and cold drinks can maintain prices. By introducing snacks to increase foot traffic, the store's sales and profits can be improved. It is a bit difficult to transform such stores, but it can be promoted by establishing a template and then replicating it later. This type of store has the strongest vitality. Although the output per store is less than current snack stores, it can provide sustained sales, and the closure rate will be much lower than that of snack chains. Fourth, optimize suppliers Optimize suppliers, cultivate their product R&D and innovation capabilities, and at the same time look for suppliers with product promotion capabilities on Douyin and Xiaohongshu. The price of white-label standard products in snack stores, no matter how low, will still be about 20% higher than Pinduoduo. If you blindly pursue low prices and ignore product quality, the final impression to consumers will be: the price is cheap, but it doesn't taste good, and there are too many additives. In this way, you still cannot retain consumers. Choose high-quality suppliers to co-create products. For co-created products, choose offline channels for sales, and online, the brand side only sells on its own Pinduoduo, Tmall, JD, and Douyin stores. This can ensure that the price of snack stores is lower than or equal to the price on Pinduoduo. For the product itself, you can learn from Sam's Club: control the packaging design, selling point extraction, raw materials, and processing technology to provide consumers with high-quality and low-priced goods. In store display, you can also learn from Sam's PDQ display method, or shelf card insertion, to tell consumers the advantages and price competitiveness of the product, enhance the uniqueness of the snack chain brand and consumer stickiness, and truly select products from the perspective of providing consumers with value for money. Fifth, utilize the brand's promotional resources All brand companies have offline activity promotion resources. You can work with the brand side to conduct consumer tasting promotions and promotional activities during new store openings. You can let the brand side arrange for influencers to visit the store or combine with the brand's fans to promote the store, thereby increasing store sales. Future development of snack chains With the reform of supermarket business methods, the retail prices of many supermarket products will benchmark against snack stores. In addition, the prices of discount and wholesale supermarkets will also benchmark against snack stores. In this way, the price advantage of snack stores compared to surrounding supermarkets and discount supermarkets will gradually weaken, and foot traffic will return to a relatively balanced state as before, except that many small supermarkets will be more difficult. In this case, the saddest will definitely be snack stores, with high store operating costs. According to the current mainstream snack store configuration: rent of 12,000-14,000 yuan per month, 5 store clerks. If calculated according to national standards, labor costs are about 20,000 yuan per month, utilities are 4,000 yuan per month, plus taxes, depreciation, and other expenses estimated at 4,000 yuan per month, totaling about 42,000 yuan in fixed expenses. Based on an average gross margin of 18%, monthly sales of 233,000 yuan are needed to break even, which is about 8,000 yuan per day. Below this number means losses. With the intensification of retail competition, I believe that some snack stores in good locations can still be profitable, but some snack stores, if they follow the current product selection strategy and pricing logic, will face closure or adjustment of their business scope. Today's snack chain enterprises cannot only focus on the speed of opening stores. Grabbing territory is necessary, but how to consolidate the territory is more important, and the only evaluation standard for consolidating territory is the profitability of franchise stores. However, I am glad to see that national and regional head snack chains such as Mingming Henmang Group, Wanchen Group, Snacks Youming, Snacks Cang, etc. are all exploring and optimizing product selection strategies and store type development. Snack chains have promoted offline retail towards improving operational efficiency, removing inflated prices, developing better products for consumers, and providing a fair market competition environment for new brands with R&D and marketing capabilities. There will definitely be ups and downs in future development, but I believe that some enterprises that pay attention to market changes and adjust strategies in time, avoid detours, and make fewer mistakes will truly settle down and become national or regional strong players, just like the overseas hypermarket chains and local hypermarket chains of the previous era. Due to space limitations, I cannot elaborate on all details. The author of this article is Mr. Wang Zhengqi, founder of Mo Xiaoxian, who has confirmed to attend the 6th China FMCG Conference and deliver a keynote speech titled "Changes and Opportunities in China's Offline Channels". Interested friends should not miss it! From August 20-22, 2024, the "2024 6th China FMCG Conference" with the theme "Crossing the Era of Shrinkage" and the "3rd China FMCG Hard Discount Conference" & "3rd China FMCG Distributor Conference" will be held grandly in Shanghai. At this conference, all roles in the FMCG industry chain will gather, allowing you to see industry trends at a glance, understand hot track trends, penetrate industry resources, accurately connect with first-line brand owners, head retail platforms, and excellent merchants with over 100 million in sales nationwide, providing you with precise decision-making, efficient cooperation opportunities, and on-site learning of exclusive methodologies from FMCG giants! Keynote speeches, roundtable dialogues, report interpretations, closed-door salons, and networking dinners, with rich formats, this thousand-person event must have something for you! 🔺Scan code for ticket consultation🔺 Recommended reading