---
title: "“Consumers Have Matured”: Brand Disenchantment Is the Key to the Era of Hard Discounts"
description: "The boom of snack discount stores has fired the first shot in the retail industry's comprehensive move toward discounting, ushering in a supply chain revolution—a major trend that will shape China for the next decade. The emergence of discount stores can be interpreted in two ways: one focuses on low prices and discounts, resonating with the current wave of consumption downgrading, but whether this short-term factor can sustain the long-term development of hard discount models is questionable. The other interpretation sees it as a historical inevitability, emphasizing the outcome of commercial concentration. Ultimately, the hard discount era has fully arrived in China, and the supply chain revolution has begun."
author: "刘春雄"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-11-18"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/ncaitOFyZNluVw172spKzA"
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---

# “Consumers Have Matured”: Brand Disenchantment Is the Key to the Era of Hard Discounts

> The boom of snack discount stores has fired the first shot in the retail industry's comprehensive move toward discounting, ushering in a supply chain revolution—a major trend that will shape China for the next decade. The emergence of discount stores can be interpreted in two ways: one focuses on low prices and discounts, resonating with the current wave of consumption downgrading, but whether this short-term factor can sustain the long-term development of hard discount models is questionable. The other interpretation sees it as a historical inevitability, emphasizing the outcome of commercial concentration. Ultimately, the hard discount era has fully arrived in China, and the supply chain revolution has begun.

The boom of snack discount stores has fired the first shot in the retail industry's comprehensive move toward discounting, ushering in a supply chain revolution—a major trend that will shape China for the next decade. The emergence of discount stores can be interpreted in two ways:
> One interpretation focuses on low prices and discounts, resonating with the current wave of consumption downgrading. However, consumption downgrading is a short-term, incidental factor—can it support the long-term development of hard discount models? Another interpretation emphasizes historical inevitability, focusing on the outcome of discount stores: the clarion call for commercial concentration.
The internet commercial revolution has already spawned numerous platform-based new business forms, such as platform e-commerce and O2O. Because these are platform businesses, their scale is enormous. The emergence of discount stores will bring three major outcomes:
> First, retail concentration will increase; without scale, it is difficult to support private labels. Second, wholesale commerce will see concentration, with platform distributors emerging in batches. In the future, platform distributors will break through the limitations of small regional agencies and move toward cross-regional operations. Third, brand manufacturers will consolidate, and third- and fourth-tier brands will shrink significantly.
**Concentration is a neutral term. Its result is that a few oligarchs dominate the market, while a large number of small and medium-sized enterprises are eliminated.** "One general's success costs ten thousand lives" describes this phenomenon. So, is the supply chain revolution a short-term economic phenomenon triggered by incidental factors like consumption downgrading, or is it an inevitable commercial process in social development? **The Historical Turning Point of Consumption** How should we view China's current consumption phenomena? I strongly resonate with a recent remark by Zhao Bo, founder of New Distribution: **Consumers have matured.** Only a mature person could say this. But Zhao Bo is still young; it's rare for him to use a long-cycle variable word like "mature." Maturity is a historical process. There are three turning points in the historical process of Chinese consumer maturity:
> First, in 1997, after the Asian financial crisis, China transitioned from a shortage economy to a surplus economy. Shortage and surplus are completely different consumption states. In a shortage economy, consumption is about survival. In a surplus economy, consumption is about choice. Second, in 2013, the Chinese market shifted from an incremental market to a shrinking market. Over 30 years of high growth suddenly ended, and Chinese marketers took about three years to adapt and accept reality. Third, in 2023, Chinese consumers in the mass consumption sector moved from brand admiration to brand disenchantment, with private labels becoming a trend.
These three turning points represent the process of Chinese consumers moving from immaturity to maturity. Consumption maturity is a change in consumption behavior brought about by stable income growth. The opposite of maturity is immaturity, or childishness. Childishness is not about the behavior of infants, but adults behaving like infants. Over more than 40 years of reform and opening up, more than 30 years of consumption behavior now appear childish. **How to accurately define this seemingly childish consumption phenomenon among adults? I thought of a word: craving. An insatiable craving.** **Hunger, Starvation, Craving** When I first heard someone interpret the word "hunger," I resonated deeply. Starvation and hunger are different. Hunger is a physiological state: when you're hungry, you eat, and naturally you're no longer hungry. Hunger can be satisfied. Starvation is a psychological state: even after eating, you still want to eat, until you're stuffed. Starvation cannot be satisfied. **Long-term hunger creates psychological starvation.** **Psychological starvation manifests as craving.** Craving is an insatiable desire; the eyes light up at the sight of food. In the past, when food was scarce, occasionally eating to one's heart's content would lead to overeating and then "vomiting and diarrhea." The reason was that starvation made one unaware of fullness. I've experienced this many times in my life. In the early 1960s, my hometown was on the edge of the Jianghan Plain, a land of fish and rice. Although no one starved to death, some died from overeating after extreme hunger. Young people today may not have this experience, but those of a certain age are familiar with it, and even children from remote mountainous areas still exhibit this phenomenon. Hunger can be interpreted broadly—not just craving food, but craving everything. **In the consumption field, early on it was insufficient purchasing power, not enough to eat.** **Later, craving manifested as "excess demand": already full, but unable to stop.** **From Overconsumption to Reduced Consumption** Early craving was due to material scarcity in the shortage economy; later craving was due to insufficient purchasing power. I grew up in the countryside, and as a child, I craved fruit. After I got married, I ate most of the fruit in my wife's family. **When purchasing power is sufficient, craving manifests as overconsumption.** Overconsumption means exceeding normal physiological needs. For example, many people now say they're afraid to drink in Henan. This is the result of long-term craving. Because consumption levels were low, drinking always prioritized guests first, forming Henan's drinking culture. A baijiu brand faces multiple lawsuits in Henan every year because people die from drinking. Once, at a wedding banquet, someone died from drinking, and a report was filed. The baijiu was tested and found fine. When asked how much was consumed, a table of guests, from noon to evening, averaged three bottles per person. This is absolute overconsumption. Long-term overconsumption will eventually correct itself. For example, I used to crave fruit, but eating it every day, I got tired of it. Many diseases in China today are caused by overconsumption, such as hypertension, hyperglycemia, and hyperlipidemia. **When overconsumption lasts too long, it corrects, entering a normal consumption state, and the market shows reduced consumption.** **2013 was the first year of this correction. Except for a few categories like dairy, snack foods, and bottled water, most FMCG categories declined across the board.** Over 10 years, total baijiu consumption fell by 55%, and beer by 45%. The shift from volume growth to quality growth led to premiumization. China Resources Beer's CEO called it the "new world of beer." The overall decline in China's FMCG began in 2013, and the upgrade and premiumization of China's FMCG began in 2016. There is a logical relationship and sequence between the two. **Reduced volume and increased quality are simultaneous.** Reduced consumption is normal, but the marketing community, accustomed to long-term growth, considers it abnormal and seeks explanations. Is the consumption decline due to consumption downgrading or a correction of overconsumption? Both logics can explain it, but historically, correction after excess is more reasonable. Of course, no manufacturer wants to see reduced consumption, but **acknowledging reduced consumption while also acknowledging premiumization is in line with historical trends; premiumization offsets the decline.** **From Brand Admiration to Brand Disenchantment** Consumer craving manifests not only in quantity but also in quality. For example, the desire for well-known brands—craving famous brands. Let me give some old examples. In Zhang Yimou's film "Not One Less," there's a scene where a class of students shares a bottle of Coca-Cola. That scene shows extreme contrast and admiration for the Coca-Cola brand. **The greater the contrast, the greater the admiration.** **The more admiration, the more willingness to pay any price.** In the early days of reform and opening up, marriage shifted from the "four big items" (bicycle, watch, sewing machine, radio) to household appliances. Experts predicted, based on household income, that 14-inch TVs would be popular, but unexpectedly, 18-inch and 21-inch TVs became popular first. Buying one TV required the whole family to eat pickled vegetables for three or four years. I graduated with a master's degree in 1988, earning over 80 yuan a month. When I married in 1990, I bought a Panasonic 2188 color TV for 4,300 yuan, fortunately with extra income. Twenty years ago, smokers carried two packs of cigarettes: one for themselves, one for others. This was a common phenomenon. Income could only support very low consumption, but social interactions required face, and face was maintained by consuming well-known brands. I call this consumption phenomenon the "middle collapse" of consumption. Extremely low-frequency high consumption maintained face, while high-frequency normal low consumption lacked the middle consumption. Some now call this M-shaped consumption. Low-level M-shaped consumption was China's past; high-level M-shaped society is Japan's present. **The value of brands was initially safety and risk reduction; later, it was admiration—looking up at something desired but unattainable.** Because of admiration, people were willing to maintain low consumption for a long time, save up, and then splurge. For example, when traveling abroad, they'd buy excessively, making foreigners think ordinary Chinese are truly wealthy. This is the charm of well-known brands, and also a reflection of the hunger and thirst generated by long-term brand admiration. In social contexts, it meant buying well-known brands beyond one's purchasing power to save face. It wasn't until my first trip abroad in 2001 that I realized that in supermarkets in Europe, the US, Japan, and South Korea, the well-known multinational brands we admired were just everyday items for them. As consumers matured, their attitudes toward brands changed, especially toward mass-market brands. With the growth of the middle class, two major changes occurred in the brand field. **The first change is no longer admiring mass-market well-known brands, but beginning to admire high-end brands.** Mass-market well-known brands become the price floor. For example, newly launched beverages in China are now more expensive than Coca-Cola. Premiumization has two phenomena: first, the mainstream price band moves up, such as bottled water moving from the 2-yuan mainstream to 3 or 4 yuan; second, high-end prices break through the ceiling, such as Moutai raising prices again. **The second change is the rise of private labels.** Private labels are the result of "brand disenchantment." Mass-market brands no longer have social significance; they may still have loyal consumers, but their charm is gone. Private labels offer super cost-performance, and the hard discounts they bring will gradually extend from vertical categories (like snack foods) to comprehensive categories, making retail the main battlefield for hard discounts. The popularity of snack food hard discount stores is just the first shot in the hard discount revolution. **Catching Up, or Regression?** Words like reduced consumption, low prices, and hard discounts carry negative connotations, easily interpreted negatively. For example, consumption downgrading is an easy interpretation. Recently, I made some remarks on social media that drew attention.
  * **The internet commercial revolution is nearing its end, and the supply chain revolution is beginning.**
  * **Industrial-era commerce still has three lessons to catch up on: supply chain revolution, premiumization, and brand going global.**
  * **China's supply chain revolution has four highlights: private labels, hard discount stores, platform distributors, and the chain-ization of B/C-class stores.**
I prefer to see this as China's commercial development catching up on lessons. Catching up means there are signposts ahead; normal commercial development cannot be skipped. Otherwise, it's easy to interpret as commercial regression after consumption downgrading. Why catch up? Because the internet revolution cut in line before the supply chain revolution. The technological breakthrough of the internet was urgent, and China caught the wave of the internet commercial revolution, but the supply chain revolution lesson must eventually be learned. My view stems from my background teaching marketing at university, knowing the historical process of global retail. The supply chain revolution occurred in the US from 1946 to 1964 and in Japan in the 1970s and 1980s, but it hasn't happened in China yet, though it's at a critical point. These were high points for the US and Japan; the supply chain revolution didn't occur because of economic decline but because the economy had matured to a certain stage. From the history of retail in the US, Japan, and Europe, private labels and hard discounts are historical inevitabilities, even emerging during economic high points. Based on research into US and Japanese hard discount history, my conclusion is: **Private labels and hard discounts are standard for a middle-class society.** But in China, the interpretation is more negative, with consumption downgrading and M-shaped society becoming widely accepted. So I've always emphasized that private labels and hard discounts are definitely not aimed at low-income groups but at middle-class consumption, and their quality must benchmark against mass-market well-known brands. If the supply chain revolution were a product of consumption downgrading, why didn't it happen when consumption capacity was even lower? Why didn't it happen in the vast rural areas with lower income levels? Walmart's "Everyday Low Prices" occurred in small towns in the US in the 1950s, truly a high point for America. Let's also look at what an M-shaped society is. M-shaped societies typically occur in three social forms:
> First, underdeveloped societies, like China at the start of reform and opening up, mainly due to industrial underdevelopment. Second, societies trapped in the "middle-income trap," like South America, mainly due to failed transitions from labor-intensive to technology-intensive industries. Third, societies with industrial hollowing-out, where a large number of industrial industries have moved abroad and new high-tech industries haven't caught up with global trends, like Japan.
China has just crossed the threshold of middle income, and new high-tech industries are emerging in batches. Although there is some migration of labor-intensive industries, these were the earliest to enter China, and they alone cannot support China's entry into a middle-class society. Admittedly, China's middle class has instability tendencies, but it's definitely not an M-shaped society. If China entered an M-shaped society without passing through a middle-class stage, it would mean China's development trend has been interrupted. It's fine to have a sense of urgency, but no need to be so pessimistic. If it's a short-term variable, then it's a temporary phenomenon; if it's a long-term trend, then it's a long-term business model. I prefer this interpretation: **China's commercial history, coinciding with the three-year pandemic and drastic international changes, leads to the same conclusion from both positive and negative interpretations—China's hard discount era has fully arrived, and the supply chain revolution has begun.** Some might say, "It's just cheap; why bother about why it's cheap?" Here's a crucial question: Is the supply chain revolution about selecting products for the middle class or for low-income groups? Is it about low prices that benchmark against well-known brand quality, or low prices without regard for quality?
**From December 5-7, 2023, New Distribution will host the First China FMCG Hard Discount Conference in Zhengzhou.**
At that time, hard discount chain brand entrepreneurs, FMCG head brand executives, outstanding national FMCG distributors, traditional retail enterprises, as well as service providers and research experts, will gather in Zhengzhou to discuss the supply chain revolution brought by hard discounts, as well as long-term development trends and opportunities.
If you are also interested in hard discounts, you can scan the QR code to add our customer service WeChat, inquire about the conference details, and join the [Hard Discount] themed community to discuss the development trends and opportunities of hard discounts.


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