In recent years, as the macro environment has changed, people's lifestyle choices have gradually shifted. At the consumption level, 'affordability' and 'being frugal' seem to be becoming a trend or fashion. In this context, along with the recovery of the offline retail world, various offline discount stores have increasingly appeared in the public eye.

Unlike traditional supermarkets, which have shown losses and weakness in the past two years, iBrandi has observed frequent expansion and financing activities among offline discount stores. In the past year alone, at least five discount store chains completed financing rounds, including lotgoo, Aotle, HitGoo, Xiaoxiang Life, and Discount Niu.

According to public data, a discount store brand established just one year ago has already opened 1,200 stores. Relevant investors have also pointed out that, given the current development pace of offline discount stores, a batch of 10,000-store companies will soon emerge.

However, what intrigues iBrandi is: what logic lies behind this counter-trend growth? And will it continue to be this good?

Down-Market Offline Discount Stores: Efficiency in Attack

While walking on the street, seeing colorful products displayed at the entrance of a store, with people coming and going carrying bags of loot, it's hard not to want to go in and take a look.

Upon entering, you'll find well-known brands such as Genki Forest and Zihaiguo on the shelves at discounts far below normal prices. As you browse further, you realize there are far more well-known low-price brands than you imagined. So you pick them up to check if they're about to expire, but surprisingly, the vast majority of products are within their normal shelf life, no different from those sold elsewhere. At this point, the discount store has essentially completed the construction of a colorful bubble. People inside begin to enthusiastically add their favorite items to their baskets.

In the post-pandemic era, as the economy recovers, the public is more inclined to rational consumption. The term 'cost-performance ratio' now carries more weight in consumption choices than ever before. This aligns perfectly with the 'low-price, good-quality' characteristic of offline discount stores.

The popularity of offline discount stores is not limited to a single store; from the perspective of the entire industry, including capital favor, store location preferences, and actual market response, this trend is evident.

1. Over 13 Financing Rounds in 2 Years: Capital Drives Discount Stores Forward

As mentioned earlier, more than five financing rounds occurred in the discount store sector last year alone. Among them, Aotle completed three financing rounds within just one year of its establishment.

According to public data, Wujie Innovation Capital, founded over two years ago, has invested in more than a dozen discount store-related brands. As its partner revealed in an interview, among the projects they invested in, some opened 1,200 stores in a year, while others achieved performance of over 6 billion yuan in the past two years.

He told TMTPost: 'When most brands are expanding and making money, it must be a dividend period.' This clearly shows the strong momentum of the discount store industry.

2. Multiple Store Formats to Meet Audience Needs

As the boom begins, more and more offline discount stores are starting to lay out near universities, business districts, or communities where crowds gather. In the past, offline discount stores were mostly located near random grocery stores, on streets, or by roadsides.

The variety of store formats is also to meet the needs of more users, with product structures tailored to local conditions and more targeted.

For example, near universities, where young people have strong spending power, the product structure mainly consists of emerging snacks, beverages, and beauty and personal care products; business districts gather a city's main consumer group, covering everything from daily necessities to trendy brands; community surroundings have more stable customer flow, with relatively balanced demand for daily necessities and snacks, and more repeat customers.

These location choices radiate to different consumer radii to some extent, which is also an important part of the 'persona' upgrade for offline discount stores. With high cost-performance and a wide variety of options, consumers also find these stores common in several frequently visited places. Gradually, among the main consumer group of discount stores, primarily aged 15-30, 'going in for a browse' becomes a trend.

Zhu Zhiyong, founder of 'Xunwushe', once told the media in an interview that the brand's stores are basically laid out based on these location types. Currently, the total number of stores in Henan and surrounding areas is close to 200, and all have achieved profitability.

3. Leveraging Cost-Performance Advantage, More Popular in Down-Market

It is worth noting that compared to the higher rent and labor costs in first-tier cities, offline discount stores have better development momentum in down-market areas, and most companies prefer to expand to third- and fourth-tier cities and surrounding counties and towns. Additionally, the cost-performance advantage of discount stores is more attractive to people in down-market areas.

Ma Xintong, founder of the offline chain discount store brand 'Discount Niu', once said in an interview that since consumption is currently a stock market with constant average transaction value, it means that consumption capacity across different city tiers is roughly the same.

Therefore, if a city has a population density similar to that of Beijing, Shanghai, Guangzhou, or Shenzhen, discount stores can instead earn the rent difference.

All these phenomena indicate that offline discount stores are experiencing unprecedented popularity, especially in the vast developed or to-be-developed down-market areas. This way of standing firm with low-priced, good-quality goods is increasingly seizing the absolute center stage from traditional supermarkets.

Two Secrets of Discount Stores

The core reason why discount stores are increasingly accepted by more people lies in low prices and quality control, but specifically, there are two major secrets behind this.

First, from the perspective of changes in user consumption habits. From various angles, the current population prefers saving over spending.

Earlier, a '2021 College Students' Rational Consumption Report' showed that 75.61% of surveyed college students had 'taken advantage of deals'. Young consumers are keen on group buying, using cashback platforms, second-hand platforms, and watching live streams for coupons to buy long-desired items at ultra-low prices. According to the '2023 China Consumption Trends Report' recently released by Zhimeng Consulting, not blindly buying discounted promotional items, controlling desires for loved products, and regularly clearing out unnecessary items have also become consumption concepts that consumers are practicing.

'Only buy the right one, not the expensive one' has become a more common mentality for most people. This gives discount stores a great opportunity. This is precisely the first secret based on the user level.

Second, it is the secret in the discount store's own product selection logic. Only with the reasonable operation of this logic can the final 'good quality and low price' advantage be achieved.

According to public data, currently, most offline discount stores have fixed product categories accounting for about 70%-80% of their inventory, with the remaining 20%-30% possibly being non-fixed near-expiry bulk goods.

Among the majority of fixed products, they usually include goods directly traded with distributors or manufacturers, plus some private-label brands.

Ma Xintong, founder of 'Discount Niu', said in an interview that the core logic of doing private labels is that existing suppliers cannot provide goods of equivalent value, so the brand has to set its own standards for production. This also reflects that product quality control is a very important part.

The rest of the goods supplied directly by distributors or manufacturers can mostly be obtained at relatively low prices, allowing them to be sold at low prices. On the one hand, the turnover efficiency is high and demand is large; on the other hand, it goes directly from production to retail, eliminating a series of intermediate costs such as channel fees and entry fees compared to traditional supermarkets.

Without these constraints, the only requirement is: give the lowest purchase price. This kind of order is very valuable for manufacturers; although the price is low, they can still make money. For manufacturers, doing business with traditional supermarkets involves long payment cycles and many settlement procedures, so they are increasingly willing to cooperate with discount stores.

Another small portion of goods comes from near-expiry surplus stock and possibly irregular bulk goods. As is well known, the near-expiry food industry has been flooded in the past two years, with more and more entrants, making it increasingly difficult to guarantee the supply and quality of near-expiry food. In this case, considering the long-term operation of a discount store, the proportion of near-expiry food sales is relatively low. However, the items sold are generally still kept at low prices, so they can be cleared quickly.

The bulk goods received from various channels are the most unpredictable part. Usually, bulk goods only flow to discount stores when original transactions are canceled or changed. According to data, sometimes foreign manufacturers pay advance payments, but for various reasons the transaction cannot proceed, so the manufacturer is eager to sell the goods and has to sell them at prices below the factory price.

These goods collected from various channels are usually displayed in large stores of 70-80 square meters or more. 'A big store does not cheat customers' is to some extent a major reason why consumers readily accept this 'deal-hunting' shopping behavior.

Many people believe that 'profiteers' would not shoot themselves in the foot, so they trust the quality of the goods they bring. To some extent, the popularity of discount stores also partly relies on such customer trust.

In summary, after understanding these two secrets, it becomes easier to understand why traditional supermarkets have gradually become weak today. On the one hand, when traditional supermarkets source goods, they do not insist on a particular low-price source; on the other hand, their layout and arrangement are still outdated, and their appeal is insufficient. Of course, there are more reasons on the operational side. And when the vast majority of traditional supermarkets are still using the original logic to purchase and sell goods, consumers already have better choices.

Finally, it is worth noting that traditional supermarkets have also begun to test the discount store model. According to public information, as early as 2021, Hema opened its first Hema Fresh Outlet store in Shanghai, focusing on discounted fresh products and frozen goods, and expanded to Nanjing, Beijing, Guangzhou, Shenzhen, and other places; Jiajiayue, Suning.com, and Wumart Supermarket have also successively launched discount supermarkets.

This shows that offline discount stores are becoming increasingly popular in the business world.

To Achieve 10,000-Store Chain

Practitioner Awareness and Macro-Control Ability Are Key

The China Puhua Research Institute stated in the '2022-2027 China Discount Store Industry Market Deep Research and Investment Strategy Forecast Report' that discount stores will be the fastest-growing format in the next 10 years, with a compound growth rate of 5.6%, higher than hypermarkets' 2.5% and convenience stores' 5.5%.

However, for offline discount stores to achieve long-term healthy development, the following two major points need attention.

First, improve the overall awareness and quality of specific franchisees regarding discount stores.

Currently, many individuals are eager to try the discount store model. Many brands have already opened franchise channels, but they are not without thresholds.

Zhu Zhiyong, founder of 'Xunwushe', once shared in an interview that his brand receives between one to two thousand franchise inquiries per month, but the approval rate is only about 5%-10%.

One reason is that discount stores have a wholesale-like nature, with fast product turnover, requiring high physical fitness and management ability for large-scale purchasing and inventory management; another is that the initial store opening cost is not low, requiring at least 70-80 square meters of space. Including franchise fees, deposits, decoration, stocking, equipment, etc., based on comprehensive public data, a one-time investment of at least 400,000-500,000 yuan is required.

After actually opening a store, it is necessary to scientifically arrange the product structure based on the consumer radius served by the store to ensure product turnover, which requires operators to establish a rational understanding of discount stores.

Besides individuals wanting to enter the industry, in the business world dominated by brands, the continuous entry of other players is also accelerating competition in the offline discount store industry.

According to incomplete statistics from iBrandi, in just over two years, HitGoo, a near-expiry discount store, has opened more than 200 physical stores nationwide; Hot Maxx has laid out stores in more than 20 cities including Beijing, Shanghai, Guangzhou, and Shenzhen, with over 500 stores; discount supermarket Xiaoxiang Life has expanded to Yangzhou, Changzhou, Lianyungang, and other places, with over 70 stores; discount chain supermarket Aotle, after entering Chengdu, opened 10 stores in less than 3 months; the newly established Discount Niu has also opened more than 70 stores...

Therefore, the second point to note is that, beyond crazy store expansion, brands cannot escape the need for capabilities in four major areas: digital inventory management, supply chain control, product selection, and market judgment.

Digital inventory management capability means making product turnover more efficient, improving operational efficiency and reducing costs, and gaining greater profit margins;

Supply chain control means being highly sensitive to various supply channels to ensure the smooth inflow of low-priced, good-quality goods;

Product selection capability seems simple but is actually complex, requiring both maintaining the freshness of store products, adjusting product structure according to different store characteristics, and ensuring products meet current consumer preferences;

Market judgment means having a macro observation of consumers, the industry, and regions...

In general, discount chain brands are not an easy business. When the 10,000-store scale truly arrives, whether the market and practitioners' awareness can keep up remains to be seen.