The industry has recently seen a new wave of discount stores. On June 1, 2024, Zhongshang Supermarket's discount brand 'Baokou Zhexuan' opened in Wuhan's Optics Valley, covering about 1,000 square meters, offering authentic discounted products across snacks, daily chemicals, beauty, beverages, toys, and fruits. On May 21, 2024, Lotus's opened its first discount store in Chaoyang District, Shantou. On April 2, 2024, Tianfu Convenience Store opened two discount stores in Dongguan, each about 80 square meters, focusing on major-brand snacks, beverages, and daily necessities. Earlier, Dingdong Maicai opened its first 'Dingdong Outlets' in Shanghai, and Qingmei opened a membership store in Shanghai. Jiajiayue, Renrenle, Hema, and Wumart have all entered this track. It seems that department stores doing outlets and supermarkets doing discount stores are becoming standard formats for retail enterprises. An Inevitable Choice for Development No matter how difficult, development remains an inevitable choice for enterprises. After three years of the pandemic, physical retail seems to have suffered widespread difficulties. According to the National Bureau of Statistics, in 2023, among retail units above the designated size, retail sales of department stores, convenience stores, specialty stores, and brand stores increased by 8.8%, 7.5%, 4.9%, and 4.5% year-on-year, respectively, while supermarkets decreased by 0.4%. Existing formats seem to have lost vitality overall, and the industry seems to urgently need 'freshness'. With declining traffic, both online and offline, everyone must compete fiercely on low prices. JD.com, Alibaba, and Douyin have all announced low-price strategies, with subsidies, service upgrades, and discounts across the board. Offline, while many existing stores close, newly opened discount stores have become the top trend. Public opinion also likes to chase hot topics. As more discount brands step into the spotlight, the industry keeps promoting that 'discount stores will become the main format in the future.' More evidence is reinforcing that traditional formats are failing. Numerous consumer industry research reports also show that consumers increasingly seek value for money, and brands that don't adapt to this trend can only wait to die. As new discount stores spring up like mushrooms, traditional merchants' market share is gradually eroded. Facing empty stores while competitors are bustling, even if they pressure employees and adjust management teams, the problem seems unsolvable. In such situations, traditional brands have to seek self-rescue, and imitation and following trends seem to be the most direct choices. In difficult times, the environment and atmosphere do not tolerate refined operations much. Currently, learning from Pangdonglai, doing membership stores, or doing discount stores are among the few choices. Learning from Pangdonglai requires bosses' awakening and willingness to give, while membership stores have high barriers. Thus, discount stores become the first choice for enterprises to decide on their own, especially hard discount stores of a few hundred square meters. This is very similar to the crazy expansion in retail history. Let Imitation Return to Essence Following trends, copying, and imitating are not wrong from the perspective of seeking development, but enterprises must move toward health! In the past, there have been many failure cases in retail formats worth analyzing, such as the industry's massive push into online during the new retail era, like RT-Mart's Feiniu.com, Bubugao's Yunhou, and Yonghui's Bantianxia. When small formats were crazy, RT-Mart opened Xiaorunfa, Yonghui opened mini stores, and Hema tried F2 and Hema mini. The history of Chinese retail development is also accompanied by a history of failed format innovations by existing enterprises, which is extremely unhealthy. These detour cases are worth picking up and analyzing now that the trend is rising again. Although enterprises always have problems of one kind or another, there is a big difference between problems arising from clear direction and those from groping forward without clear thinking. One shows stability and growth, the other is chaos. So, at any time, enterprises need to answer a puzzle based on their own resource endowments: What is the value logic of my discount format? From a specific enterprise perspective, we should ask several questions: (1) What are the advantages of foreign companies like Sam's Club, Costco, and ALDI? What capabilities are behind those advantages? What mechanisms are behind those capabilities? What culture is behind those mechanisms? What thoughts are behind that culture? (2) What different logic do domestic discount stores of a certain scale, such as Leerle, HotMaxx, Aotle, Zhekouniu, Tiaoma, and Xiaohongdao, have? What difficulties are they facing at the current stage? Has their business model been verified? What core capabilities have they acquired so far? What is their future potential? (3) Do newly entering enterprises have late-mover advantages? Are there any new breakthroughs in their value networks? Look at the format echelon and development stages, and the industry will reveal its essential outline. Discount Stores Have Their Own Value Network In today's discount wave, there are many smart people, and everyone thinks they see the essence. But we cannot regard the success of other enterprises as the current choice. Just because ALDI and Pangdonglai's private brands are successful, we should do private brands; because Sam's, Costco, and Snacks are busy with big packaging, we should do big packaging; because Don Quijote has many items, we should learn to integrate. Among various industry solutions, what others do is only a reference. The most important thing for an enterprise is to have its own value network. Perhaps many format innovations fail because they use the value system of the original format and simply transform it into the logic of the new format. Reality has proven countless times that this doesn't work. For example, a supermarket is not a simple union of department stores; online is not simply moving offline to online; small formats are not reduced versions of hypermarkets; then discount stores are not just special offers in supermarket operations. In the discount industry, there are sayings like low price, ultimate cost-performance, lower overall cost, and ultimate efficiency. These descriptions of format advantages are all correct, but the core may be that discount stores have their own growth stages and their own aspects; they are a new value network. This value network should be quite different from the original: First, metacognition, that is, what value logic the enterprise chooses In the current mess of the retail industry, we increasingly advocate long-termism for enterprises, like Pangdonglai, Sam's, Costco, and Leerle. Their progress and iteration are always on one main line. For most enterprises, it is not easy to determine the 'one' that generates 'two, three, and all things' in various operational scenarios. For example, Pangdonglai talks about life awakening, which can deduce freedom and love, showing great love to employees, suppliers, customers, and peers. ALDI's minimalist concept of 'only one sheep'—doing subtraction and cutting long tails—is reflected in store decoration, item settings, and employee behavior. Unlike the past incremental era when extensive management could succeed, discount stores today have low price as the foundation. Behind the low-price mindset, add cost-performance, quality-price ratio, or heart-price ratio. Whether it's user value or ultimate efficiency, enterprises more urgently need to answer the 'one' question. Second, cognitive serialization, that is, using the enterprise's metacognition to connect all aspects and ensure deep practice of the concept We agree with the concepts of 'ultimate efficiency' and 'lower overall cost' in discount stores. But it's easy to advocate; it's hard to break them down and integrate them into all aspects of the enterprise. For example, for ultimate cost, will the enterprise remove the office desks and chairs in the headquarters, eliminate many ineffective meetings and controls in operations, refuse a small group purchase because it wastes efficiency, and invest energy in researching and improving employee and service efficiency? If not, over time, the team will have many cognitive conflicts. 'You say to be good to employees, but then scold them to death for small failures; you say to be efficient, but cadres are in meetings all day; you say to lower overall costs, but a supplier introduced by a leader must be taken care of...' Third, reduction of chain levels and improvement of quality and efficiency at each level The core of retail is always product strength, and behind product strength is the supply chain. In the past, retail relied on brand suppliers building brand power through industry-wide marketing, then reaching users through layers of distribution channels. Today, all enterprises know to compress middlemen and hope to achieve channel efficiency through private brands, but they often easily ignore the service benefits that channel brands have, such as brand influence, customer structure combination, and terminal dispatch. We have seen many examples where products are sourced directly from manufacturers, compressing levels, but supporting logistics timeliness, minimum order quantities, store terminal guidance, and brand promotion all lag behind, making single-item efficiency lower. More seriously, due to excessively low price requirements, quality control can also have problems. Fourth, operational efficiency achieves scale logic After having a certain number of stores, chain headquarters all pursue economies of scale, which is common to both new and old enterprises. But discount stores especially need to emphasize low operating costs and ultimate efficiency. Traditional retail relies heavily on middle-level organizational monitoring to achieve management, while discount stores need to obtain management benefits through rules, technology, and compensation systems. We always discuss actual management costs, but in fact, the most terrible thing in enterprise operations is many hidden costs. Many small enterprises have big enterprise diseases, and big enterprises are even sicker. In the discount system, this is a problem that must be solved. In addition, another core of retail operations is the inventory chain. Some enterprises' newly opened discount stores use the existing system and capacity of the central warehouse for distribution, but according to current freight allocation and timeliness logic, efficiency and benefits will be lower. Even some discount stores are very close to the central warehouse, but due to system management needs such as order cycles, full load rates, and timeliness, they often run out of stock. So, whether hard discount or soft discount, the most important thing for enterprises is to adapt to the new discount operation logic, understand and reshape the value network system. Competitiveness in the Second Phase of Discount Stores Currently, the discount trend has reached a second phase where necessity is no longer discussed, but success rates are exchanged. The core is the true realization of the ultimate value network. (1) Truly solve organizational problems Whether discount stores or membership stores, the organization is always the engine. Because efficiency must be ultimate, the requirements for the organization will also be more ultimate. In the latest discount store logic, organizational success is the first priority. Bosses have three choices: either personally get involved, spend a considerable amount of time finding true entrepreneurial talent and ensure their true entrepreneurial nature through share cooperation and investment, or truly establish a deep team cultural awareness. Otherwise, there is a high probability that newly opened stores will become a burden. Those organizational systems lacking vitality, with oppressive atmospheres, infighting, and strict hierarchies, will largely waste resources when opening discount stores. Rather than entering new markets, it might be better to carry out efficiency revolutions within the organization. (2) Solve the trust chain logic for new brands Newly opened discount stores may need to be very clear from the start: how can the enterprise make users believe that the products we provide offer ultimate cost-performance? ALDI is very worth learning from in this regard. ALDI starts with product selection based on deep local user insights. After determining products, it inherits German-style self-torturing quality control, ensuring quality across the entire chain from factory selection, product determination, distribution, receiving, and transportation. On the other hand, it has continuously strengthened publicity for ALDI and its private brands in subway stations and buses, from vegetables, meat to milk, all operated by professional advertising agencies, making great efforts. The core is to make users trust ALDI as an 'enterprise brand,' and then continuously add content to this brand container. But many of our enterprises have poor goodwill themselves, so newly opened discount formats naturally encounter trust issues, and private brands in stores are more likely to fall into 'self-congratulation.' At the current stage, it's not just about opening discount stores under a new guise, but about subsequent operations, steadily returning to the essence of the enterprise, managing the enterprise's brand goodwill, and truly building a customer trust chain. Only then can the enterprise's discount stores have a more successful and healthy logic. (3) Product strength has milestone indicators Retail's most essential aspect is to speak through products. Supply chain and products are a continuous topic, and this is a capability that enterprises need to improve forever. The products of discount stores are not just about finding a manufacturer to cooperate with directly, nor is it enough that sales are good in the first phase. Continuous development and dynamic operation are needed. The product update rate, the branding rate of private brands, and the customer repurchase rate—after a certain stage of accumulation, enterprises also need to find solid elements and upgrade elements in products. In the second phase of discounting, when more and more discount stores appear in the market and private brands become a basic configuration among enterprises, products need new cost-performance and brand power. The effectiveness of enterprise products needs a new milestone indicator. (4) Streamline your own operating system In the early stage of opening stores, operations can rely on the large store system. But in the second phase, an independent system is needed. You cannot always be a swaddled baby of the existing system. From the perspective of the business being able to grow on its own, continuous streamlining and adaptation are needed, which may be more conducive to improving efficiency. In specific practice, quality control, display, pricing, marketing, inventory management, and data analysis all have a deep professionalism issue. The best management is to eliminate management; the most efficient situation is self-management. (5) Truly run through the financial model Perhaps currently, most enterprises cannot guarantee model success with only a 15% gross margin. It is more realistic to leave 1% to 2% of flexible space, and then gradually move toward the extreme. These data should more corely be about progress as mentioned earlier. On the basis of stable performance and reputation, the gross margin can go from 12%-13% to 16%-17%, with a trajectory of progress, thus forming a healthy profit zone with the fee rate. Some enterprises have chosen to open franchising, but whether self-operated or franchised, the business logic itself is more important than the operational form. Without internal strength, they will eventually fail. The above is a conceptual discussion. Regardless of the industry, each enterprise faces its own reality. Discount stores have crossed from nothing to existence and truly welcomed the second phase from existence to strength. Truly establishing an adapted value network system is the current core. From August 20 to 22, 2024, the '2024 6th China FMCG Conference' with the theme 'Crossing the Shrinking Era' and the '3rd China FMCG Hard Discount Conference' & '3rd China FMCG Distributor Conference' will be held grandly in Shanghai. At this conference, we will focus on the top guest matrix of China's leading FMCG brands, authoritatively interpret market trends, professionally analyze industry status, provide precise business docking and cooperation opportunities, help enterprises accurately grasp market pulse, formulate effective response strategies, and achieve resource sharing and collaborative development. At the same time, we will invite national leading retail platforms to thoroughly explain the hard discount retail competition model from multiple perspectives, interpret long-term trends and opportunities through practical cases, help enterprises find key opportunities, and achieve hard growth across cycles. Gathering 500+ excellent distributors from across the country, from enterprise growth paths, challenges and opportunities, operational practices, etc., comprehensively interpret distributor business, help distributors break through survival radius, and solidify business inventory! 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