No brand can ignore the rise of discount retailing unless it turns a blind eye to huge sales volumes. But the problem now is not ignoring it, but not knowing how to take it seriously. Through frequent market visits, New Distribution has found that brands are highly concerned about discount retailing. Within just six months, New Distribution organized two China FMCG Hard Discount Conferences, each with packed forums and matchmaking sessions. How much traditional sales will discount retailing replace? What strategies and tactics should be used to face the fierce development of discount retailing? Can discounts build or harm brands? How should conflicts and contradictions between other channels and discount retailing be handled? We hope this article can partially answer the above questions. Discovering Three Laws of Discount Retailing From the perspective of Europe and the United States, discount retailing sprouted during World War I and gradually matured after World War II. Since 1970, discount retailing has traversed several major economic crises and undergone multiple reshuffles. China's discount retailing has also experienced a similar process. Dollar stores and ten-yuan stores sprouted early, but were on the fringes when the economy was good. However, when the economy weakened, consumption slumped, and overcapacity was superimposed, the primitive dollar stores quickly evolved into various forms of discount retailing: brand discount stores, near-expiry product stores, snack discount stores, and eventually hard discount stores. Huge traffic and steep growth curves attracted capital into discount retailing, especially hard discount retailing. The past two years have been the golden period for hard discount development. With the integration of leading discount retailers, the era of hard discount land-grabbing has basically ended. The development process of discount retailing at home and abroad reveals the first law: Discount retailing has the vitality to cross cycles, but its prosperity is often inversely proportional to economic heat. China's discount retailing has clearly not yet formed a mature pattern. So, how much share of traditional retail can discount retailing replace? Taking 2023 as an example, retailer Walmart had sales of $585.2 billion, while the largest discount retailer Target had $107.59 billion, only 18.39% of the former. Directly comparing the leaders of the two retail models is obviously not scientific, but we also cannot find detailed and credible statistical data on the discount retail format to verify it. However, this unscientific comparison at least reveals the second possible law: Even in mature discount retail markets, the market share of discount retailing may only be 20%. A 20% share is not low, and naturally deserves high attention from brands, especially against the backdrop of declining sales in other channels. But at least we don't need to panic, nor do we need to have a mentality of "losing discounts means losing everything." There is another important law that concerns the fundamentals of brands. That is, it may be impossible to find a product brand that has succeeded by relying on discount retailing anywhere in the world. This is the relationship between brands and discount retailing: Discount retailing can provide sales for brands, but it can never support a product brand. This is the biggest difference between discount retailing and traditional stores. On the contrary, what discount retailing likes most is to discount "brand value" into cash, which is the most efficient and effective way. Therefore, brands, especially those with dreams, must "carefully" protect their brand value in cooperation with discount retailing. Discount Retailing Is Just a Ticket for Brands to Their Dreams For brands, without a brand, there is no future; but without sales, they can't even get through today. If life and death are at stake, this is a difficult choice. From the perspective of brands, how should they position discount retailing and what cooperation strategies should they adopt? We summarize it in one sentence: "Discount retailing is just a ticket for brands to their dreams." A ticket is not the destination, but it is a necessity to reach the destination. How to understand this sentence? Brands at different stages should have different understandings. If you are an enterprise in the early stage of development, your brand is nothing but a name, so don't talk about dreams, because dreams cannot be eaten. At this stage, enterprises must seize the "ticket" of discount retailing. Don't worry about tomorrow, don't ask about dreams. Only with sales can you have food to eat and survive. Only by surviving can everything become possible. As long as you can make money, or even just break even, do it, at least to meet the urgent need to release production capacity. Only after surviving the life-and-death crisis are you qualified to talk about dreams and build a brand. If you are an enterprise in the middle stage of development, and your brand already has a certain reputation, then you must pay attention to cooperation strategies. Although we need continuous sales growth, we must not become "nutrients" for discount retailing driven by the desire for growth. Therefore, in cooperation, we must use various methods and strategies to protect the brand value we have worked hard to build. Facing the temptation of large-scale orders, this negotiation will be very difficult. But the brand should be our bottom line. We cannot board the wrong train just because we want a "ticket" too much. If you are already a leading enterprise in the industry with very high brand awareness, you must maintain sufficient clarity and focus. We are already very close to the destination. How much value does this "ticket" still have, and what is it worth exchanging for? Leading enterprises in the industry have sufficient bargaining power in the face of any channel. Set a red line for the brand, and if it is touched, it will be killed. While ensuring that brand value is prioritized without wavering, it is entirely possible to use fair cooperation to obtain sales and maintain market advantages. The Basic Policy of "Can Shake Hands, Never Embrace" Facing the rapid rise of discount retailing, what should be the basic policy for brands? Mr. Liu Xinhua, CEO of Unilever China, once said a "sixteen-character policy" for dealing with new retail, which is a classic: "Harmony without sameness, fight without breaking; focus on ourselves, each takes what they need." This sixteen-character policy can still serve as the basic policy for dealing with the rise of discount retailing. I use the eight characters "Can shake hands, never embrace" as an annotation to the sixteen-character policy. Both "shaking hands" and "embracing" represent contact, but what is the difference? "Shaking hands" represents an independent stance, a cooperation with caution, a posture that can attack or defend. Cooperation in a handshake state can be completed with minimal harm when separating from the other party. "Embracing" represents being defenseless, opening the chest, a vital point, to the other party without any guard. It represents full commitment and also handing over life and death completely to the other party. We agree to cooperate with emerging channels in an independent and autonomous manner. Of course, this will be very difficult, especially in the current era of shrinking volume. But we still believe that "always shake hands, never embrace" is still the strategic focus that every dream brand should maintain. So how exactly can we achieve a friendly "handshake" with discount retailing? In exploration and practice, there are actually many methods and successful experiences. For example, small brands should prioritize survival, deeply study the needs of discount retailing, co-create products with them, and even co-brand. When there is nothing to lose, survival is the first priority, and you can even use the power of discount retailing to complete primitive accumulation. Enterprises with a certain brand reputation can cooperate with discount retailing using sub-brands or differentiated products. But discount retailing often focuses on their best-selling product and demands low prices. This negotiation is extremely difficult, and the trade-offs between gains and losses are the biggest test. For leading enterprises, they should set red lines for discount retail channels, and the price line of big single products is the lifeline. Differentiated products can be deeply cooperated with, while big single products should be supplied intermittently. This negotiation is not particularly difficult, but it often requires brand marketing managers to stick to the bottom line under monthly sales pressure. In addition to the above, we have also found in the market many excellent cases where companies used discount retailing to complete their first step of accumulation, and some discount retailers are also cooperating with brands in innovative win-win ways with a more open mindset. Only when brands "respect themselves" can they gain "respect" from retail partners. Only by maintaining sufficient strategic focus can brands with dreams have the opportunity to realize their dreams. If you are also a brand with dreams, want to "shake hands" with many discount retail channels, and want to learn more about excellent cases of successful innovative cooperation with discount retailing, don't miss the 6th China FMCG Conference held in Shanghai from August 20-22. During this FMCG Conference, the 3rd China FMCG Hard Discount Conference will be held. Hundreds of domestic discount retail chain brands will gather in Shanghai to discuss how to create win-win cooperation with brands during the end of the discount retail bubble. Concurrently, the 3rd China FMCG Distributor Conference will also be held, where the "Guidance Report on B2B Platformization Strategy for FMCG Distributors" and the "2024 Survey Report on FMCG Distributor Operating Conditions" will be released. Interested friends are welcome to scan the QR code to inquire about the details of this conference!