"Why have discount stores become popular? Where is the future channel dividend?" Zhu Zhiyong, founder of Xunwushe, vice president of Henan Supermarket Supply Chain Chamber of Commerce, vice president of the Vending Machine Branch of China General Chamber of Commerce, and vice president of Henan Property Chamber of Commerce, deeply analyzed the past, present, and future of discount stores from a retailer's perspective, using his own practical cases as examples at the snack and discount store themed forum of the Fifth China FMCG Conference. New Distribution has compiled Mr. Zhu's excellent speech into an article for readers (with some deletions). Entering the Discount Industry Amid Channel Changes I have been deeply involved in FMCG retail for over a decade, during which I have witnessed the changes in offline retail channels and have developed my own thoughts on the entire retail industry. Looking back at my career, I have been engaged in entrepreneurial work in the FMCG industry since my university days. During that time, I collaborated with various brands, mainly responsible for promoting their marketing activities on campus. After graduating in 2010, I began cooperating with suppliers such as Yonghui and Walmart, and gradually developed my own stores. In 2016, I founded a brand called "Meike Convenience" (美刻便利), focusing on the unmanned retail sector, hoping to seize this trend opportunity. By the end of 2020, I decided to enter the discount store retail industry and founded Xunwushe. To date, Xunwushe has opened two to three hundred co-branded stores, and including supply chain stores, there are about 500 stores in total. Xunwushe is one of the pioneers in the early discount retail industry. During its development, we have continuously reflected on the changes in the retail industry and sought opportunities to leverage. When deciding to enter the discount store retail industry, I observed a sudden emergence of various brands in the market, such as hot and sour noodles, chicken feet, rice noodles, and other new brands that rapidly rose and occupied various sales channels, especially in 2020 when large capital began to chase different brands. Regardless of how channels and business models change, the core logic behind this still revolves around consumer demand, which is the only way to grasp the true future trends and development directions. Therefore, Xunwushe has always pursued improving efficiency, reducing intermediate costs, and passing these cost savings on to consumers, making quality goods more affordable. Its discount retail model and product structure differ from bulk retail; they focus more on private-label retail business. The leisure foods sold are pre-packaged branded products, such as Qiaqia, Weilong, Want Want, etc. In addition, the stores feature many trendy toys, blind boxes, figurines popular among young people, as well as beauty and skincare, household cleaning and daily chemical products, such as Estée Lauder, SK-II, etc. Why Have Discount Stores Emerged at This Time? We can already see a significant phenomenon: discount stores are showing a large-scale emergence trend, including snack discount stores, brand discount stores, and membership discount stores. Why are these discount stores so prevalent at this time? Is it due to capital intervention? Why is capital not promoting discount stores earlier or later, but now? With these questions in mind, let's first look at the reasons for the rise of discount stores from a global macro perspective. Domestic offline retail channels can be roughly divided into several categories: mom-and-pop stores, chain convenience stores, and large KA hypermarkets. In addition to the above three core channels, there is also a discount store operating model that has been validated abroad, such as LIDL, ALDI, Don Quijote, and other brands, which have achieved great success in the US, Germany, and Japan markets respectively. These discount brands have formed their own complete systems and have continued to operate through multiple economic cycles, growing against the trend. Looking back at the outbreak time points of these brands, it can be found that they are closely related to local economic conditions, population needs, information flow, and brand building. Whether it is soft discount brands like Japan's Don Quijote supermarket or Germany's ALDI, they all achieved success in specific periods and economic cycles. Japan was during the bubble economy period, when changes in channel information led to a surge of new products, and discount convenience stores developed rapidly. The US was in the 1970s when economic downturn led to the oil crisis and stagflation, and discount stores began to sprout. EU discount stores also developed early. Back to the domestic perspective, discount stores also rose during a special economic cycle, achieving counter-trend growth amid the impact of e-commerce and the pandemic, contrasting with the downturn in various industries. In addition to the macro environment, consumer growth is also crucial. When talking about consumer groups, we must pay attention to the future main force of Chinese consumption - young people, especially the post-95s and post-00s. They often visit discount stores. These young people are characterized by distinct personalities, authenticity, unconventionality, and a pursuit of refined living. In terms of consumption, they focus on cost-effectiveness, prioritize entertainment, pay attention to circle culture and appearance, and show strong patriotic sentiments. The root of this phenomenon is that the post-95s and post-00s were born in the internet age, bombarded with a large amount of information from birth. Compared with the era in which older retail practitioners grew up, they have more opinions and independent thinking abilities because they have access to a wider range of information channels. As long as the product tastes good, they are more willing to accept new brands and packaging. At the same time, they are unwilling to be exploited by merchants to cater to the market; instead, they are better at taking advantage of discounts. This generation is more rational, focuses on cost-effectiveness, and holds an independent thinking attitude towards the consumption process. The foundation of the new generation of consumers is also one of the reasons driving the development of discount stores. Domestic Discount Retail Models Have Greater Opportunities in Lower-Tier Markets There is a viewpoint in the industry: China's retail industry, discount stores, and other retail forms have better opportunities in lower-tier markets. Data shows that in China, whether it is Yonghui or other brand retail enterprises, it is difficult to achieve development above 100 billion yuan in scale. Because most of them are concentrated in first-tier, second-tier, or third- and fourth-tier cities, rarely sinking to county and township markets, where local small-scale enterprises, such as mom-and-pop stores, dominate. In China, if a company can replicate its business model and sink to township markets, its market value will definitely increase significantly, which is one of the reasons why the lower-tier market is generally considered promising. To seek greater business opportunities, Xunwushe's core positioning is the lower-tier market. Currently, it has opened stores in Henan, Shanxi, Hebei, Anhui, and other regions, mainly in cities that are more down-market than provincial capitals, such as Luohe, Jincheng, Fuyang, etc. These cities have good business opportunities and relatively low operating costs, allowing for cost compression and passing benefits to consumers, rather than profiting by squeezing upstream suppliers, brands, or purchasers. For example, in some counties, a rent of 100,000 yuan per year can secure a good store location. In some townships, rent can be as low as 30,000 yuan per year, while daily sales can reach 8,000 to 10,000 yuan. After deducting all costs, one can still earn a profit of 200,000 to 300,000 yuan, which is considerable. Some may ask: Do consumers in lower-tier markets have the ability to buy big brands? If products sold in stores, such as Coca-Cola, Nongfu Spring, etc., can be sold at 50% to 70% of the original price in lower-tier markets, the acceptance of consumers in lower-tier markets will greatly increase. In fact, whoever can truly bring standardized business models to lower-tier markets and make locals like them, winning the mind share of users, will win the market. The lower-tier market is full of infinite possibilities. However, many discount stores currently choose to crowd into first-tier cities, engaging in fierce competition. It might be a good direction to broaden your thinking and turn to lower-tier markets. PS: At this forum, New Distribution exclusively released the "China Snack Hard Discount White Paper (FMCG Industry Insights 2023)". The full version of the white paper is nearly 80 pages. Through detailed data, rich charts, and concise text, it allows you to understand the past, present, and future of snack hard discount in the shortest time. From the perspective of the industry chain and long cycle, re-examine current and future development. In the complex appearance, clarify the context, see the essence, insight into trends, seize the opportunity. Welcome to add WeChat to contact. Add WeChat to get the white paper. Attachment: Outline of the full version of "China Snack Hard Discount White Paper (FMCG Industry Insights 2023)" PS: Friends interested in the on-site speech content can follow the recent push of the "New Distribution" WeChat official account. We will compile and publish all guests' speeches for readers. Click Read the original text to see more of the Fifth China FMCG Conference and the First China FMCG Distributor Conference...