In the retail industry over the past two years, if you had to pick a keyword, it would be low prices. And if you had to pick the best expression of low prices, it would be discounts. From the initial soft discount stores that sold surplus and clearance goods at ultra-low prices, to today's hard discount stores that achieve lower prices through supply chain and product development capabilities. Retailers are trying different ways to achieve low prices, especially supermarkets and related e-commerce companies, which have responded more actively. According to incomplete statistics, as of now, supermarkets like Yonghui, Wumart, Hema, and Jiajiayue have all made moves, with community outlet stores being one of the main formats they are exploring. Recently, Dingdong Maicai also entered this track. On November 28, Dingdong Maicai opened its first "Dingdong Outlet" store in Songjiang, Shanghai. Located at No. 495 Jiudu Road, Jiuliting Street, Songjiang District, the store is surrounded by more than ten residential communities including Jiuliting, Lvting Shangcheng, Laiyin, Tinghui, Wuzhou, and Beishangwan, with a dense population and significant demand for fresh produce. The store covers an area of about 500 square meters, offering not only discounted fresh products but also categories like prepared dishes, freshly baked goods, snacks and beverages, and aquatic products, with around 1,000 SKUs. Clearly, from an operational logic perspective, this store is a typical hard discount store that leverages supply chain and product development capabilities to lower prices. So, why has low price become the keyword in the retail industry, and why are discount stores the relatively better solution under this low-price trend? Answering these two questions might reveal why companies like Dingdong Maicai are continuously exploring the discount field. In my view, this is likely related to the shift in the current consumption landscape. Discount: An Inevitability Under the M-Shaped Consumption Trend In economics, there is a term called "M-shaped society," a concept proposed by Japanese trend researcher Kenichi Ohmae. Simply put, it refers to the collapse of the middle class: after economic growth slows from high speed, the return on capital grows much faster than the return on labor, with fewer people concentrating more wealth, while the middle class splits—only a small portion can rise from the middle to the affluent class, while the majority fall into the lower-middle income class. The middle group shrinks, and the income distribution moves toward the lower and upper poles, forming an "M-shaped society" with peaks at both ends and a valley in the middle. This trend became particularly pronounced in the United States after the "Reagan Revolution," and Japan followed suit in the 1990s, 20 years later. Changes in income bring changes in consumption. The middle-class transformation brought by the M-shaped society is affecting the consumption concepts and levels of the entire society. On one hand, middle-class consumers with changed incomes seek cheaper goods and are no longer willing to pay extra premiums. However, due to the developed consumer market, they are unwilling to lower their living standards, so compared to low-end and low-price goods, they crave high-quality products at reasonable prices. On the other hand, the upper class in the "M-shaped society" has increased income, and their demand for luxury goods is rising. This change can be called M-shaped consumption, where consumers diverge toward high cost-performance and luxury. Taking Japan as an example, since the 1990s, Japan's "M-shaped society" has formed. The total consumption demand in Japanese society has undergone significant changes. According to data provided by Kenichi Ohmae in his book: the sales of all department stores in Japan were 9.4 trillion yen in 1991, but by 2004, they had declined to 7.4 trillion yen. From 1992 to 2017, among the top 20 companies in Japan's stock price gains, 8 were from the consumer industry, half focusing on "cost-performance" and half on luxury. From the perspective of economic cycles, in the current global economic downturn, M-shaped consumption caused by middle-class collapse has become a common phenomenon. As Zhang Yibo, Managing Director of Boston Consulting Group, said at an event, globally, the current middle class's reduced expectations for future income have made their consumption more rational, and they are no longer willing to pay "IQ tax." Taking the European market as an example, in Spain, there is a retailer called Mercadona that focuses on private-label, high-quality, low-price goods. Since the 2008 financial crisis, it has seized the consumption needs of the "squeezed middle class" and achieved sustained high growth, now holding over 22% of the Spanish retail market. Germany's discount supermarkets LIDL and ALDI have also seen rapid growth in recent years. European consumers' pursuit of quality-price ratio and the middle class's demand for discounts are very strong. Looking back at China, since joining the WTO and integrating into the global economic chain, China's economy has entered the fast lane, starting 20 years of rapid growth. But in recent years, China's economy has also come under pressure, with issues like the pandemic and population aging, making today's Chinese middle class more conservative in consumption, making the Chinese-style "M-shaped" consumption trend more apparent. On one hand, Luckin Coffee and Cudi are constantly setting new low-price records for coffee, new tea brands like Heytea have lowered drink prices, Haidilao has launched a sub-brand "Hi Lao Hot Pot" with lower per-capita consumption, and recently, Pinduoduo, an e-commerce company known for low prices, surpassed Alibaba in market value. On the other hand, according to data from the National Bureau of Statistics, China's total retail sales of consumer goods in 2022 were 43.9733 trillion yuan, a decrease of 0.2% from the previous year. At the same time, in 2022, domestic "outlets" focusing on discount retail grew against the trend, with a year-on-year increase of 12%. Data shows that China's middle-income population exceeds 400 million, making it the world's largest middle-class group. And whether it's supermarkets, snack stores, or e-commerce, their main customer base is these people. To serve them well, you have to follow their pulse. Under the M-shaped consumption trend, consumers prefer cost-performance, so it's not surprising that discount formats focusing on cost-performance are beginning to rise. Discount: The Test is Sustainability Clearly, China's consumption is showing some typical characteristics of an M-shaped society. It can be imagined that for a considerable period in the future, discounting will be a major topic in China's retail market. But China's consumer market is very different from Japan's, so the transition to an M-shaped society also has Chinese characteristics. On one hand, China has a larger population, greater market depth, and a wider industry base. Behind global geopolitical instability, China's environment is extremely stable, providing the most basic guarantee for economic development. Confidence in China's economic progress remains. On the other hand, although an M-shaped society may see wealth polarization, China, based on the communist goal of common prosperity, is unlikely to see severe, large-scale polarization. The middle class may expand, but the demand for cost-performance may be higher. Currently, discount formats are mainly divided into soft discount and hard discount stores. Soft discount mainly follows the model of Japan's "Don Quijote," cutting prices on near-expiry surplus products, represented by brands like HotMaxx and HiBuy. Hard discount mainly follows models like Mercadona, LIDL, and ALDI, focusing on supply chain and products, cutting prices based on reduced operating costs, represented by newly opened Dingdong Outlets, Hema Fresh, and Snack Work. Soft discount is easier for retail companies to enter and develops faster, but it heavily relies on supplier resources. Once supply is unstable, it suffers heavy losses. Moreover, Chinese people's acceptance of near-expiry food is limited, so the market space is limited. For example, although HiBuy and HotMaxx achieved national chain operations from regional operations in a very short time, and emerging brands like Prosperity Market and Bengong Snack Research Institute also had their highs, they soon shrank or even exited the market due to unstable supply and online channel impact. In contrast, hard discount is not simply about lowering prices or selling cheap goods, but selling good goods cheaply. Behind the price reduction is a transformation of procurement models and corporate organization. Companies improve efficiency by optimizing supply chains and organizational structures, thereby reducing costs and sales prices, achieving the ability to provide high-cost-performance products sustainably in the long term. Clearly, hard discount is the retail format that better fits the Chinese-style M-shaped society. Returning to Dingdong Maicai, as a fresh e-commerce company, starting a physical outlet format with a hard discount model might make many people question the company's future. Dingdong Outlets is, on one hand, Dingdong's exploration in response to consumption trends, and on the other hand, an extension of Dingdong's product strength and supply chain capabilities. First, regarding Dingdong Maicai as a company, it has achieved stable Non-GAAP profitability for four consecutive quarters. This shows that Dingdong Maicai's financial situation is optimistic and its business is stable, which is a basic guarantee for exploring new businesses. Second, in terms of supply chain and product strength, since 2021, Dingdong Maicai has upgraded its original purchasing and sales center to a product development center, and its product procurement model has changed from purchasing based on sales to sales-based purchasing, completing a timely transformation on the product side and improving supply chain capabilities. Finally, Dingdong Outlets is entering the high-frequency, rigid-demand fresh produce category, which is Dingdong's strength and also a niche in hard discount. Currently, Dingdong Maicai's fresh produce base direct supply accounts for over 80%, which can ensure that the outlet stores maintain low prices without compromising quality, meeting the middle class's demand for high cost-performance, and allowing Dingdong's supply chain advantages to create greater value. Additionally, according to media reports on the first Dingdong Outlet store, besides hardware investments like low-temperature cabinets, upright freezers, island freezers, and checkout machines, the outlet store has made great efforts to save costs elsewhere. This is clearly a low-cost attempt by Dingdong Maicai that does not affect the overall business layout. The Discount Era is Not All Bad In the past two years, after communicating with dozens of industry insiders, I found that the general sentiment about consumption in the next five years is anxiety, confusion, and pessimism. Actually, there's no need to be so. Retail and consumption still have opportunities. The world trend is mighty; those who follow it prosper, those who go against it perish. Find the trend and you can find the key to explosive and exponential growth. As mentioned above, for a considerable period in the future, Chinese retail will enter an era of comprehensive discounting. Comprehensive discounting means involution, but it also contains opportunities. The consumer retail sector is one of the more open and well-developed industries in China's market economy, and it is also a super-large mature market. Over the past few decades, numerous segmented retail scenarios have emerged for segmented populations and needs. In the discount era, these segmented scenarios will not disappear; just find your position and explore. For example, various membership stores like Sam's Club provide hard discounts to their members through product strength and supply chain capabilities. Another example is Dingdong Maicai's Dingdong Outlets, which is an exploration of hard discount in the fresh produce field. From the current perspective, this exploration is an attempt at multi-channel parallel growth, meaning Dingdong can not only serve young consumers online but also expand the age range of target users offline. It is worth noting that hard discount, especially in the fresh produce track, requires stronger supply chain and product strength. Exploring here can also force Dingdong Maicai to continue improving its supply chain capabilities. This is a complementary matter and holds great imagination for Dingdong Maicai's future. Of course, for the entire fresh produce industry, this is also a process of crossing the river by feeling the stones. Many people think that fresh produce cannot do hard discount. I believe nothing is impossible. If it doesn't work now, it must be that the method is wrong. Dingdong Maicai, which has a certain moat, doing this is worth encouraging. Dingdong Maicai is a startup that has been continuously transforming its products and persisting in deepening its supply chain. Startups also need to break original boundaries and keep growing. If it succeeds, it will find a new growth track for the entire fresh retail industry; if it fails, it won't harm the basic business. There are many such segmented scenarios, some with successful cases, some still needing Chinese companies to explore, but they are all opportunities. Japan was able to produce excellent companies like Uniqlo and Don Quijote in the discount era, and China's vast retail market has even more promising prospects. But I believe that every company that wants to make a big move in the discount retail era should ask itself before acting: Can you tolerate low gross margins? Do you have extremely high supply chain capabilities? Do you have digital and refined operational capabilities? Dare you continuously iterate and innovate? If you fall short, then cultivate your internal strength first.