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Hunan's Pinduoduo A friend I hadn't seen for a long time, Wang Hua (pseudonym), came to my place for tea and chat, telling me he had already opened seven 'Pinduoduo-style' stores in Y province. He then showed me their opening videos, bustling with people coming and going. I was taken aback. In this era disrupted by new retail, large and small supermarkets are either closing down or joining chains. To have a store that is a hit from the opening, and to open seven in a row, is a 'small miracle'. This reminded me of a local Hunan supermarket, Leerle, which Wang Hua took me to see four years ago. When I worked at Yili, I organized the Changsha business team to collect goods from their stores. The normal retail price for Yili milk was 68 yuan per case, but Leerle sold it directly at 52 yuan per case. Because of the price, they almost got into a fight with nearby store owners! Director Yi from the retail industry association told me that because Leerle was constantly complained about by retail member units for disrupting the market with low prices, it was called a 'cancer' by other stores! Although criticized, from a practical business perspective, the store was bustling with customers. Before leaving, Wang Hua and I visited several other stores, all located in university towns or high-traffic areas, with strong foot traffic. Leerle's business characteristic is that all products are low-priced, whether well-known or not. The retail prices are basically at wholesale levels.

Dimensional Reduction Attack: Snacks Busy Are there other success stories that win by price? In 2019, more than 140 snack specialty stores 'Snacks Busy' suddenly appeared on the streets of Changsha. This is a chain brand different from local retail specialty stores like Liangpin Shop, Snacks Full House, and Small Mouth Snacks. Store features: Minimalist signage and decoration, with a distinctive slogan: Low prices all year round, no discounts, no promotions, no membership. According to Wang Hua, Snacks Busy started preparation in April 2016, began franchising in 2017, and achieved 300 million yuan in GMV by 2018. The founder was a former franchisee of Leerle. I also experienced it on-site and unknowingly bought over 200 yuan worth of goods. Indeed, the prices were rock-bottom. What is this model? Simply put, it's like Germany's Aldi or America's Costco. More colloquially, it's very much like a physical store version of Pinduoduo, a physical store for leisure snacks. After analysis, from Leerle to Snacks Busy, and then to Wang Hua's entrepreneurial brand, there is a common logic behind them:

1. Store location: University towns, large communities, urban-rural junctions. The core of location logic: high foot traffic.

2. Target group: The 'bottom' of the pyramid, with a large population base, price-sensitive first, but also considering quality requirements.

3. Word-of-mouth fission: Mainly relies on low prices, but low price does not mean low quality, nor does it mean low gross margin. In an era of information equality, consumers are immune to discounts, promotions, and gifts. The best way is through price, which then triggers word-of-mouth fission. The price compared to conventional retail prices exceeds expectations.

4. Community operations: Cooperate with major community group buying companies to supplement fresh produce categories. Observations show that such stores, when acting as group leaders, also have the highest turnover among all community group buying companies.

5. Product structure: 20% high-end products at low prices, using low prices to bring ultra-high frequency and increase incremental volume; 50% mid-range products at low prices, bringing high frequency and continuing to grow existing volume; 30% low-end products at low prices, bringing medium frequency and clearing out competitors. Essentially, it's about seizing existing volume, making incremental volume, and launching a dimensional reduction attack. Generally, within 3 months, they force surrounding stores to close, then adjust the product structure to increase profits.

6. Backend supply: Rely on wholesale markets and agents, not cooperating directly with manufacturers, and not accepting fees or buyout agreements. Purchase with cash, using the wholesale market as a forward warehouse model.

7. Store brand: Emphasize store brand over product brand, and maximize OEM production.

8. Gross margin structure: 5%-8%

9. Product selection logic: Benchmark against first-tier brands and category brands, and recruit high-quality, low-price benchmark brands to cooperate. For example, internet-famous brands.

The sinking market has been a hot topic recently. The above brands are actually a microcosm of the sinking market, after all, the Chinese market has a depth of five or six tiers (900 million people in China have never flown). China has so many brand factories and sales channels, yet many consumers still cannot buy the products they want, or the prices are not so 'fair and reasonable'. Frankly speaking, the diversification of consumer demand not only requires diversification of products themselves, but also diversification of consumer groups, with the typical feature being group stratification. This includes stratification by geographic attributes, market stratification by consumption capacity, stratification by different consumption circles/communities, and even stratification by different scenarios. My understanding of Teacher Bao Zheng's 'community business' concept is: Around a certain consumption circle, starting from the demand chain, push the supply chain to achieve integration of supply and demand, and integration of production and sales. With this logic as a starting point, community e-commerce in the community group buying model focuses on leveraging social traffic and using community forms to achieve supply-demand integration. Leerle's model uses low prices and stores, focusing on leveraging location-based traffic, using low prices to directly hit consumer psychology, exceeding price expectations, and then triggering word-of-mouth effects. Of course, in the later stage, even without location traffic, as the backend supply chain matures and scales, location becomes less important; what matters is stable low prices. China has 6 million small stores that need transformation and need new supply chain systems to match. But whether it's B2B or franchise stores, few are profitable. I'll make a blunt criticism: if you're thinking about transforming every day, shouldn't you first think about the demand side, think about the end consumer?

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