China's consumer goods market is experiencing moderate inflation In January-February 2023, the national consumer price index (CPI) rose 1.5% year-on-year. By category, food, tobacco, and liquor prices rose 3.4% year-on-year, with fresh vegetable prices up 1.3% and grain prices up 2.7%. From an economic development perspective, inflation in China's consumer goods market will be a long-term process, leading to a decline in the purchasing power of Chinese residents. However, demand for food, tobacco, liquor, and other consumer goods remains relatively strong, especially for fresh vegetables and grain. Looking at total retail sales of consumer goods, they reached 7,706.7 billion yuan in January-February 2023, a year-on-year increase of 3.5%. Among them, retail sales of supermarkets, convenience stores, specialty stores, and department stores in units above the designated size increased by 2.3%, 10.0%, 3.6%, and 5.5% year-on-year, respectively. This indicates that with the rise of new shopping methods (such as e-commerce), the overall performance of traditional retail formats has declined, but some specific market segments, such as convenience stores and discount stores, still maintain good development trends. Overall, China's consumer goods market continues to grow at a relatively fast pace but faces multiple challenges. On the one hand, due to the gradual slowdown of economic growth, the improvement of residents' purchasing power will also slow down; on the other hand, as consumer demand becomes increasingly complex, enterprises need to strengthen product innovation and service innovation to meet the personalized needs of consumers. In addition, the improvement of environmental awareness will also have a positive impact on the consumer goods market, as consumers pay more attention to purchasing environmentally friendly, healthy, and safe products. What impact will inflationary pressure have on the consumer goods market? The impact of inflationary pressure will be directly transmitted to the economic market. From a consumption perspective, it is mainly reflected in the following aspects. First, the decline in purchasing power. Inflationary pressure will lead to rising prices, and consumers will need to pay higher prices to purchase the same quantity of goods and services, which will affect their purchasing power. As purchasing power declines, consumers may have to reduce or delay purchases of certain consumer goods, thus having a negative impact on demand in the consumer goods market. Second, the adjustment of consumption structure. As prices rise, consumers will become more cautious in their spending, pay more attention to cost-effectiveness, and be more willing to choose products with lower prices and higher cost performance. Therefore, consumers may adjust their consumption structure, choosing products with more reasonable prices, while demand for higher-priced products will decrease. Third, the increase in enterprise costs. The impact of inflationary pressure on the consumer side will be directly transmitted to enterprises, mainly reflected in the increase in enterprise costs, including raw material costs, labor costs, etc. In order to maintain corporate profits, enterprises may need to raise product prices or reduce production costs, which will directly affect the supply of the consumer goods market. Fourth, increased market competition. Inflation will intensify competition in the consumer goods market, and enterprises need more competitive prices and excellent products to attract consumers. Due to intensified competition, enterprises may need to increase marketing methods such as advertising and promotional activities to win consumer favor. In addition, not only inflation, but also aging is an important factor that cannot be ignored. In May 2019, Chen Liping, a professor at Capital University of Economics and Business who has studied Japan's retail industry for many years, proposed in a speech that the next 3 to 5 years will be a critical point in the development of Chinese society and will definitely have a very significant impact on the retail industry. First, China's population trend is highly similar to Japan's in terms of aging. To some extent, Japan's today may be our tomorrow. Second, in the process of population aging and low-speed economic development, Japan's economic stagnation, declining income, intensifying aging, widening gap between rich and poor, and frequent natural disasters have become the main characteristics of Japan's economic development. In the environment of declining birthrate, zero growth, and declining income, how should the retail industry develop? Which business formats are declining? Looking back at the 30 years of economic development in the Heisei era, Japan's retail industry gave a very clear answer: The first to decline was the department store industry, followed by hypermarkets, and finally supermarkets in a state of low-speed growth. In those 30 years, only two business formats grew rapidly: convenience stores and low-price retail. What retail channels will benefit from inflation and aging? Although inflation and aging will have a negative impact on the consumer goods market, they may also bring benefits to some retail channels. The following channels are worth paying attention to. E-commerce platforms: In the case of inflation, consumers pay more attention to price, and e-commerce platforms often have lower price advantages, which may prompt consumers to increase online shopping, bringing benefits to e-commerce platforms. Discount stores: Discount stores are a retail channel characterized by selling goods at low prices. As consumer demand shifts from high-end to mid-to-low-end, discount stores are often able to provide products that better fit consumers' budgets, and consumers may increase the frequency of shopping at discount stores. Supermarkets and convenience stores: Since inflation brings upward price pressure, consumers tend to buy relatively low-priced goods. Supermarkets and convenience stores usually offer low-priced daily necessities, so they can attract more consumers and make them purchase necessities through these retail channels. Brand stores: Inflation reduces consumers' purchasing power, but there are still consumer groups with strong purchasing power. For these consumers, brand stores can attract them by providing high-quality, high-value products and services, which is an opportunity for brand stores under inflationary pressure. Development prospects of China's bulk snack stores As consumers pay more attention to price and cost performance, the development prospects of bulk snack stores in the Chinese market are becoming increasingly clear. First, consumption upgrading has become a trend. With China's economic development and the improvement of people's living standards, consumers pay more attention to product quality and brand. However, consumption upgrading also means higher consumption pressure. Therefore, discount stores, as a retail channel that can provide lower prices, will meet the needs of many consumers. Second, the growth of emerging cities. The number of emerging cities in China is increasing. These cities have smaller populations and relatively less market competition. Discount stores can use their price advantages to attract more consumers and further expand market share. Third, the rise of e-commerce channels. China's e-commerce industry is developing rapidly, but there are still some limitations, such as product return and exchange issues, counterfeit goods, etc. Discount stores can make full use of the convenience of e-commerce to combine offline physical stores with online sales, providing consumers with a more reliable shopping experience. Finally, there are opportunities for cross-border cooperation. Discount stores have strong brand and procurement capabilities and can cooperate with enterprises in other industries to jointly develop new products to meet consumer needs and attract more consumers. What impact will bulk discount stores have on traditional retail? The rise of discount stores in China's retail market will bring multiple impacts on traditional retail formats, mainly including the following aspects: Price competition pressure: Discount stores take low prices as their main selling point, obtain lower purchase costs by purchasing large quantities of goods, and maintain lower selling prices through large-scale operation and cost saving. This will bring price competition pressure to traditional retail enterprises, making it difficult for them to compete with discount stores. Reduction of market share: Discount stores attract more consumers with their price advantages and wide product lines, which will reduce the market share of traditional retail enterprises to a certain extent, leading to a decline in their sales. Adjustment of consumption structure: With the rise of discount stores, consumers may re-adjust their consumption structure, preferring products with higher cost performance rather than the brand and high-end products provided by traditional retailers, which will further increase the market challenges for traditional retail enterprises. Business model innovation: The rise of discount stores will impact the business models of traditional retail enterprises, forcing them to reform. Traditional retail enterprises need to continuously innovate, find opportunities for differentiated development, and develop new business formats and categories that adapt to consumer needs to cope with the challenges from discount stores. The rise of discount stores will bring multiple impacts to traditional retail enterprises. Traditional retail enterprises need to deeply understand consumer needs and industry trends, actively transform and upgrade, improve service quality and product quality, and achieve sustainable development. Community snack discount stores are rising on a large scale According to the forecast of China Business Industry Research Institute, the scale of China's leisure snack market will exceed 1.5 trillion yuan in 2022. From the perspective of channel division, offline channels are still the main sales channels for leisure snacks in China, with snack stores, supermarkets, and convenience stores accounting for 83% of the total sales channels. In the past two years, community snack discount stores have risen on a large scale. The bulk snack chain brand "Snack Busy" (Lingshi Henmang), known for its low prices, has more than 2,000 stores in five years. In 2022, the retail turnover of its stores nationwide reached 6.445 billion yuan. The bulk snack chain brand "Snack Youming" (Lingshi Youming), which originated in Sichuan, grew rapidly in 2022 at a rate of more than 40 stores per month, and plans to have more than 3,000 stores nationwide by 2026. The huge market scale is a great opportunity for enterprises, but it also means more intense competition. How to maintain their own advantages and widen the gap with other enterprises is a question for those who are laying out their plans. Compared with mom-and-pop stores, bulk snack stores have very strong competitive advantages Let's first look at the price comparison between bulk snack stores and convenience stores: Obviously, bulk snack stores not only have rich advantages in snacks, but also have strong bargaining power in price. In summary, bulk snack stores have the following advantages. Price advantage: With leisure and low prices as the main selling points, they obtain lower purchase costs by purchasing large quantities of goods, and maintain lower selling prices through large-scale operation and cost saving. In the context of consumers paying more and more attention to cost performance, the price advantage of bulk snack stores can attract more consumers. High quality: Although bulk snack stores are positioned as discount stores, the concept of "high quality" is currently the standard for opening stores for all bulk snack stores in China. They generally choose brands and manufacturers with good reputations as representative products, and strictly control the quality of each link to ensure that consumers purchase high-quality goods. Diversified operation: In addition to food, beverages, and other goods, they also develop some special products to increase consumer choices. User private domain: The store is just a carrier; members are the core of the operation of bulk snack stores. Take Ai Snacks (Ai Lingshi), founded in 2020, as an example: Ai Snacks was founded in Changsha in 2020, with the background of the new Gaoqiao team with deep supply chain capabilities. Adhering to the business philosophy of "true bulk, true cheap, true money-saving," and with an innovative style that transcends tradition, it has created a new type of snack sales model. In this type of snack store, the prices of leisure snacks are extremely affordable. Ai Snacks entered the market with the "bulk + youth" innovative high-quality and low-price chain operation model, and has grown rapidly. As of March 2023, it has more than 3,000 stores nationwide, making it a rapidly rising snack store brand in China recently. Although it has been established for a short time, Ai Snacks currently has 5 million members across all channels. Through the Lemeng all-channel membership system, Ai Snacks connects consumer data across all channels, the entire chain, and all touchpoints, and cooperates with the Lemeng backend member tags and portraits to achieve cross-end member marketing, rights distribution, and precise matching of people and goods. Currently, Ai Snacks is recruiting franchise partners in Hubei, Sichuan, Yunnan, and Guizhou. Interested distributors should not miss this opportunity. Young user base: Looking at the current user group composition of domestic snack stores, it is roughly divided into the following proportions: under 15 years old account for 15%, 15-30 years old account for 50%, 30-45 years old account for 20%, and 45-60 years old account for 15%. The main customers are concentrated in the 15-30 age group, and the younger age of the customer base is a basic feature. Children under 15 are very active in snack stores near schools and have become powerful buyers of internet-famous and bulk new products (their allowance amount and freedom are increasing). Ai Snacks founder Tang Guangliang once told the media that because there are no entry fees, shelf fees, or promotion fees, Ai Snacks products are 25% cheaper than supermarkets. At the same time, from the product perspective, bulk snack stores highlight "many categories," with most stores having more than 1,000 SKUs. According to information disclosed by various brands, Snack Busy has 1,200+ SKUs, including many popular snacks with good reputations; Ai Snacks brings together more than 2,000 snacks in eight categories, and updates more than 30 new products every month. The dazzling array of goods can bring consumers a strong visual impact and arouse their desire to buy. Moreover, bulk snack stores enter with bulk products, fully meeting consumers' diverse selection needs. The bulk snack model caters to consumers' new pursuit of snack richness, price, and experience. At the same time, bulk snack stores are physically closer to consumers and can better meet the impulse buying of snacks. Therefore, relying on core advantages such as high cost performance and category richness, bulk snack stores have a solid foundation on the demand side. Zhang Peiyuan, managing partner of Black Ant Capital, believes: "With the change in consumer concepts, cost-effective consumption is favored, and urbanization and rural revitalization bring demographic dividends to townships. At the same time, after the improvement of logistics and infrastructure, the multi-layer distribution system is gradually being replaced by more efficient new models. Under multiple benefits, bulk snack collection stores are expected to become the infrastructure of lower-tier cities and counties." Is it a good business for distributors to open snack stores? The entry threshold for the leisure snack field is not high. Although the overall market growth rate has been considerable in the past, the supply is also very large. Across the country, almost every second- and third-tier city can find local leisure food chain brands. Every city has its own local brands, and some cities have more than one. Major supermarket retailers and convenience stores are all making private-label products such as nuts and other leisure foods. With more market supply, competition is more manifested as competition for factor resources such as traffic positions, that is, online is traffic, offline is store location. Snack chain stores tend to expand to third- and fourth-tier cities and sinking markets such as counties and townships, while first-tier cities are relatively behind in the development strategy of enterprises. For operators and entrepreneurs who are franchisees of bulk snack stores, opening a store still faces many risks, and they must make decisions carefully. According to Jiemian News, the fee details for franchising Snack Mofa include a 30,000 yuan deposit, 70,000-80,000 yuan decoration costs, about 100,000 yuan equipment costs, and 80,000-120,000 yuan for the first stocking; if calculated based on a 100-square-meter store with a monthly rent of 20,000 yuan, it takes 350,000-500,000 yuan of self-raised funds to open a franchise store. Adding store rent, labor, water and electricity, as well as product procurement, promotion and marketing costs, the overall cost of opening a bulk snack store is not low. There is also a snack distributor who gave an example: "Now a snack store of 50-60 square meters has no competitiveness; they all need to be relatively larger. These stores with some brand are generally 100 to 200 square meters. Some time ago, the franchise fee for a store was 28,800 yuan, and a simple decoration of 100 square meters also costs 100,000 yuan, plus shelves 100,000 yuan, stocking 150,000 yuan, and the first rent investment calculated at 100,000 yuan for half a year, the total investment is about 500,000 yuan." Therefore, the franchise threshold for bulk snack stores is not low. According to the franchise information released by various brands, including franchise fees, deposits, decoration, initial stocking, and various equipment costs, the investment for a store is about 500,000 yuan. This is a project with a long payback period, requiring franchisees to make careful decisions to avoid falling into a situation of rapid opening and closing. According to research data from Huachuang Food and Beverage, it is expected that by 2025, about 30,000 discount snack stores will be opened in China. The general pattern is regional coexistence, but the emergence of super giants cannot be ruled out. As early as 2017, Wang Wei proposed that discount stores are the future and will overtake hypermarkets. Under his leadership, Fresh Legend (Shengxian Chuanqi) currently has private-label products accounting for more than 50%. Wang Wei emphasized that the essence of discount stores is not cheapness, nor beauty and variety, but simplicity and scale. "Simplicity brings high efficiency, and scale under density has more advantages. In summary, it is the lowest comprehensive cost and higher efficiency." Of course, under the waves of washing sand, who can successfully transform and stay, capital and enterprises participating in the track are looking for answers.