The topic of snack discount stores is hotly debated. On one side, leading platforms are "going all out," while on the other, county-town stores are "born fast and die fast." On one side, capital is fueling the fire; on the other, small shops are suffering. Euphoria and anxiety are mixed in the air, rising and falling. New Distribution has conducted extensive research and predicts that by the end of 2023, the number of snack discount stores nationwide will grow to 22,000-25,000, with sales reaching 70-80 billion yuan, a more than tenfold increase in three years compared to 2020. Capital injection has been surging since 2021. According to AiQicha data, in May 2021, Snack Busy (Lingshi Henmang) received 240 million yuan in Series A funding; from April 2021 to May 2023, Snack Youming (Lingshi Youming) received multiple rounds of funding; in November 2022, Linshi Mofa received tens of millions of yuan in Pre-A funding; in February 2023, Zhao Yiming Snacks received 150 million yuan in Series A funding... Clearly, compared to the decline of traditional supermarkets and hypermarkets, snack discount stores, despite controversy, are accelerating their expansion, and this trend is spreading from snack discount stores to the entire retail industry. Alongside the acceleration, controversy is also heating up.
Controversy 1: Discount stores sell cheap products, selling the same products at below-market prices, but the quality and supply sources are not guaranteed. This is selling products at low prices. Controversy 2: The essence of discount stores is to sell cheaply, but with stable product sources and stable quality, by compressing supply chain costs to lower prices, that is, selling good products at low prices. This is product-led low pricing.
Which logic is it? Let's sort it out.
Discount Retail Logic 1: Selling Products at Low Prices Recently, when communicating with brand owners, we often ask their views on discount retail. Food brand owners say: Discount stores are just clearance stores, selling near-expiry and overstocked products, some with unclear channels and no quality guarantee. A well-known beverage brand says: We never do discounts; it's too low-end. An Italian imported food brand representative says: We are a premium snack brand; we don't do low-end channels. The reactions are surprisingly consistent: not interested; no discounts; too low-end!
In a county town's mom-and-pop store, I went to buy a bag of snacks I often eat. It used to cost 3.5 yuan, but one time I found it for 3 yuan, a 50-cent price cut. Although not much, for a mom-and-pop store, reducing profit by 50 cents is already tough. When I checked out, I joked with the owner: "You've also cut prices; are you becoming a snack discount store?" The owner smiled bitterly and said helplessly: "Competition is too fierce. If we don't cut prices, who will buy? The county is small, and customers are limited. What can we do? My fate is in heaven's hands, not mine." "My fate is in heaven's hands, not mine" reveals the owner's helplessness and the chill behind traditional retail. The owner revealed that small shops adjacent to bulk snack stores and hard discount supermarket chains are hit hardest, with sales declining continuously, some even halved. Many small shops struggle to survive and eventually face closure; even those still operating are barely hanging on.
When visiting a community retail boss, Mr. Li, he raised a question: "With so many snack discount stores dying now, why are people still entering?" Indeed, despite rapid birth and death, people continue to rush in. Some describe today's snack discount stores as being like community group buying three years ago: after the glory, it's a mess.
With capital support, companies are expanding rapidly, cutting franchisees' profits; competition among stores is intensifying, leading to "price wars," resulting in thin or even negative profits, prompting some to source from non-official channels, compromising product quality. Additionally, some store owners use inferior raw materials to produce snacks to cut costs, worsening quality issues.
These actions to compress product quality ultimately aim to obtain low-cost products for low-price sales. In essence, it's a pure "price war." This explains why many brand owners still view discount stores as "low-end and low-price." This logic follows selling products at low prices, selling cheap products at cheap costs, where low price is the biggest advantage and the only advantage, with no stability guarantee. Chen Liping, a professor at Capital University of Economics and Business, believes that discount stores are not cheap stores. Some domestic retail stores targeting lower-tier markets, which are cheap for the sake of being cheap, belong to cheap stores, not discount stores. Whether cheap stores or discount stores, low price is the main competitive means, but when low price hits the bottom line of production and circulation costs, it's necessary to consider the business model: is it to sell low-priced products, or to sell products at low prices? These are two completely different thinking logics, ultimately determining whether it can develop sustainably and healthily.
Discount Retail Logic 2: Selling Products at Low Prices (Product-Led Low Pricing) In consumers' eyes, discount stores are "cheap." But how do discount stores achieve low prices? From the operator's perspective, there are many ways to achieve low prices.
The first is clearance of near-expiry and overstocked goods, commonly known as soft discount. Supply sources are unstable, and consumers are mainly looking for "bargains," or it's a temporary promotion by retailers, like e-commerce's "billions of subsidies." In fact, soft discounts have appeared in traditional supermarkets years ago. For example, Carrefour would occasionally place a few discount shelves at the checkout, a path customers must pass before paying. There were no discount ads on the shelves; only the price tags indicated near-expiry, with prices at 50% or even 30% of the original. Customers selected items themselves, with no salespeople or ads, yet many customers stopped and bought. Although the discount was due to near-expiry, this model clearly clears inventory pressure and reduces loss costs at the fastest speed, which is the biggest purpose of soft discount.
The second is based on a new operating mechanism: restructuring the supply chain, reducing logistics and warehousing losses, improving labor efficiency, and developing private labels to lower costs, thereby creating room for price reductions. A true "discount" store must have both low prices and quality. In essence, it's about retailers continuously evolving their supply chain and operations to provide higher-quality, lower-priced goods. This is the logic of product-led low pricing, i.e., "selling good products at low prices." Examples include Japanese business supermarkets and German ALDI, as well as membership discount stores like Costco and Sam's Club. In essence, they win hearts with high-quality, low-priced goods, and the core implementation path is deep participation in the entire industry chain with strong control.
So, true discount retail is a business model derived from the consumer desire to "have both fish and bear's paw," satisfying the psychology of "wanting it all." The main consumer group it serves is the affluent middle class and above, because meeting high-quality needs is the basic premise. Giles Hurley, CEO of ALDI UK, said: "A new generation of savvy shoppers no longer goes to traditional full-price supermarkets." Continuously growing data has been validating this statement. Kantar data for the second quarter of this year shows ALDI UK grew 24.6% year-on-year, making it the best-performing retailer in the UK, adding 1 million new customers in the past year, and after reaching 1,000 stores in September, it's targeting the next 1,500 stores. Clearly, product-led low pricing is the truly sustainable development logic for discount stores. Low price is an advantage, but stability is the second major advantage, i.e., supply chain and quality stability.
Discount Retail Models Are Taking Shape So, is discount retail a good business? In the supermarket sector, traditional giant Yonghui Superstores has initiated gradual reforms by adding "authentic discount stores" in its outlets. It has also added discount sections on its online APP/mini-program, offering discounted food and daily necessities. Yonghui's operating logic focuses on improving product efficiency, using its own supplier system, YHDOS digital system, and other digital means to scientifically evaluate product performance. Its product selection logic is to sell the same quality at reduced prices by moving upstream in the industry, binding upstream suppliers through equity participation, joint ventures, or strategic cooperation to gain more bargaining power. On the procurement side, Yonghui chooses direct sourcing from origins or private labels to reduce procurement costs.
Similarly, Hema is making bold moves, comprehensively reforming its procurement and sales system, launching a deep "discountization" reform, with 5,000+ products in stores at a regular 20% discount, covering major categories such as dairy, biscuits, instant food, beverages, personal care, and frozen meat, poultry, and aquatic products.
Jiajiayue followed suit, launching two discount formats: the snack collection store brand "Yueji·Haolingshi" and the good-goods discount store brand "Haohuixing." The former is positioned as a one-stop, cost-effective snack collection store, while the latter focuses on Jiajiayue's private labels, with integrated full-process self-owned factories, and other products sourced from over 2,000 suppliers nationwide, with bulk centralized procurement effectively reducing costs. Overall, Jiajiayue's discount formats leverage its supply chain advantages to target different consumer needs.
Online discount models have also existed for a while. Some say Pinduoduo can also be seen as a representative of online retail, a product of offline discount retail. This year's Double 11 has concluded, with Pinduoduo seeing record numbers of brands, merchants, and products participating in the platform's promotions, with over 40 sub-categories, including agricultural products, domestic brands, and global goods, achieving double-digit growth. Notably, the "billions of subsidies" order volume increased 107% year-on-year, and the flash sale channel provided an incremental engine for over 100,000 small and medium merchants. Merchants selling more and users saving more became the big "true fragrance" scene of Pinduoduo's 11.11. It can be said that after running through the low-price model, Pinduoduo quickly upgraded and optimized its supply chain, completing the transformation from speed to quality, from fast to stable.
Looking at online and offline discount retail models, they are all taking shape. Whenever the economy is down, the consumption trend is "buy the best things with the least spending," and this mindset shift also reflects the lifecycle of the discount retail industry.
Recently, while visiting a snack discount store in Shijiazhuang, I chatted with the cashier, who had just started working there after previously working at a large supermarket. When asked why she switched to a discount store, she replied: "Supermarkets are not doing well now; they're idle every day. I'm afraid of losing my job. Discount stores have more foot traffic than supermarkets, so the job is more secure." It's evident that this mindset shift is becoming visible among both consumers and practitioners.
In the story of Yu the Great taming the floods, there's a saying: "Yu tamed the floods by dredging, not blocking, hence great order." Blocking leads to overflow; dredging leads to smooth flow. Rather than blocking and suppressing, it's better to dredge and guide. So, block or dredge? What's your view? Feel free to leave a comment.
Additionally, from December 5-7, the First China FMCG Hard Discount Conference, hosted by [New Distribution], will be held in Zhengzhou. At that time, hard discount chain brand entrepreneurs, FMCG head brand executives, excellent distributors, traditional retail enterprises, as well as service providers and research experts, will gather at the conference to discuss the underlying logic, practical cases, long-term trends, and opportunities of hard discount. If you still have doubts and questions, welcome to this conference to discuss together!
Friends interested in learning and exchanging ideas can scan the QR code to add customer service WeChat, inquire about the hard discount conference details, and join the [Hard Discount] themed community to discuss the development trends and opportunities of hard discount.