---
title: "Hard Discount Transformation of Traditional Retail Is Not Simply About Selling Cheaper"
description: "Discounting is not just about selling goods cheaper. A category supply chain transformation essentially involves two points: lower prices and a richer assortment. Taking Lai Yifen as an example, in response to competition from bulk retail stores, it attempted discount transformation through price cuts. However, after the price cuts, it found that something was still missing. Where was the problem? Lai Yifen was born during a period of rapid quality upgrade in China's snack demand, but at that time production capacity had not kept up. Therefore, Lai Yifen's store format was small, with about two to three hundred SKUs, only able to support a portion of people's demand for quality snacks in the competitive environment at that time."
author: "连杰"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-12-19"
language: "en"
canonical: "https://xinjignxiao.com/en/articles/hard-discount-transformation-of-traditional-retail-is-not-simply-about-s-8904d794/"
markdown: "https://xinjignxiao.com/en/articles/hard-discount-transformation-of-traditional-retail-is-not-simply-about-s-8904d794.md"
original_source: "https://mp.weixin.qq.com/s/5SOb8gxASR3XD96W-71ZMw"
translation: "https://xinjignxiao.com/zh/articles/%E4%BC%A0%E7%BB%9F%E9%9B%B6%E5%94%AE%E7%9A%84%E7%A1%AC%E6%8A%98%E6%89%A3%E5%8C%96%E6%94%B9%E9%80%A0-%E4%B8%8D%E6%98%AF%E5%8D%95%E7%BA%AF%E6%8A%8A%E4%BB%B7%E6%A0%BC%E5%8D%96%E4%BE%BF%E5%AE%9C-8904d794.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/hard-discount-transformation-of-traditional-retail-is-not-simply-about-s-8904d794/"
usage_policy: "https://xinjignxiao.com/ai-policy.txt"
---

# Hard Discount Transformation of Traditional Retail Is Not Simply About Selling Cheaper

> Discounting is not just about selling goods cheaper. A category supply chain transformation essentially involves two points: lower prices and a richer assortment. Taking Lai Yifen as an example, in response to competition from bulk retail stores, it attempted discount transformation through price cuts. However, after the price cuts, it found that something was still missing. Where was the problem? Lai Yifen was born during a period of rapid quality upgrade in China's snack demand, but at that time production capacity had not kept up. Therefore, Lai Yifen's store format was small, with about two to three hundred SKUs, only able to support a portion of people's demand for quality snacks in the competitive environment at that time.

**Discounting is not just about selling goods cheaper**
**A category supply chain transformation essentially involves two points: lower prices and a richer assortment.**
Taking Lai Yifen as an example, in response to competition from bulk retail stores, it attempted discount transformation through price cuts. However, after the price cuts, it found that something was still missing. Where was the problem?
Lai Yifen was born during a period of rapid quality upgrade in China's snack demand, but at that time production capacity had not kept up. Therefore, Lai Yifen's store format was small, with about two to three hundred SKUs, only able to support a portion of people's demand for quality snacks in the competitive environment at that time.
Times have changed, and the competitive landscape has also changed. In this era, China has become a stage of relative overcapacity, while consumers' spending power has declined. Currently, we find that snack discount store formats, with 200 square meters and 1000 SKUs, sell through white-label affordable pricing.
Compared to the snack areas of supermarkets and mom-and-pop stores, the SKU count is two to three times larger, yet prices are 20% lower. Looking back at Lai Yifen, during the transformation process, the store format is small, insufficient to support its SKU count to match its competitors.
On the path of discount transformation, it is not simply about selling goods cheaper; the underlying logic is different.
**What is the nourishment that drives the development of hard discount?**
Players in the discount track should focus on the question: Where does the nourishment come from? What is driving the industry forward? If this question is not clear, copying foreign models like Dong Shi Xiao Pin (blindly imitating) is very dangerous in China. China's situation is different from Western countries.
Hard discount aims at the same quality and quantity, achieving lower costs, and is a supply-side reform.
So what exactly drives supply-side reform? Here we must talk about the three major dividends of the retail industry, or the circulation industry.
Goods go through three stages from production to the hands of customers: production, circulation, and sales.
**First, the production stage.**
**In this stage, China currently has two problems: generic brands have poor quality, and big brands have excessive premiums.** The concept of emphasizing quality white labels is essentially using white labels to replace brand premiums.
In the past, brand premiums mainly came from large advertising expenditures. Now, you only need to make the product quality good and hand it over to scenarios that can sell white labels. What scenarios can sell white labels today?
1. Live streaming: Streamers can replace past advertising, using five minutes to explain to ten thousand customers the advantages of a product. Therefore, live streaming is the largest sales scenario for white labels today.
2. Community group buying: China has millions of community group buying leaders who have enough time and ability to reach consumers, establish deep communication with users, and possess white-label sales capabilities.
3. Hard discount stores: Relying on customers' trust in the brand, allowing customers to stay longer to understand and purchase.
Why is white label a dividend today? The reason is that with the increasing production capacity of upstream white labels, as long as downstream, whether in circulation or retail, has the ability to sell white labels, performance will naturally grow with the increase in white-label production capacity.
**Second, the circulation stage.**
**Two major problems in China's retail industry:**
1. High store costs. China's entire store construction concept has followed the growth of consumers' wallets, so current stores are increasingly luxurious, with more promoters and more management layers, leading to very high overall store costs.
2. High inventory turnover days. Today, the average turnover days for physical retail enterprises in China exceed forty days, and in lower-tier markets, the average exceeds fifty days. Each day incurs a cost of about 0.5% of the goods' value.
**Current solutions:**
1. Cut costs: The decoration cost of hard discount stores is much lower than that of previous luxury supermarkets.
2. Pre-sale mechanism: Conducting pre-sales of FMCG products on the internet is a unique advantage in China. Pre-sales can reduce inventory turnover days from over forty days to one day, greatly saving operating costs.
Today, pre-sales are a very important means to drive down retail costs in China.
In the past year, scenarios that can do pre-sales have generally grown. Now, more and more supply chains support pre-sales. As long as your scenario can do pre-sales, your performance will naturally grow. We call this the pre-sale dividend.
**Third, the sales stage.**
Specifically for a retail enterprise, suppose it has 10,000 customers visiting the store daily. It takes another action: pulling all store customers into a WeChat group, creating a group of 50,000 people. At this point, the upper limit of its business goes from 10,000 orders per day to 60,000 orders. With 60,000 orders, many products can be purchased in full truckloads directly from the place of origin, bypassing intermediate links. We call this phenomenon the full-truckload dividend.
The supply chain supporting full-truckload delivery upstream is becoming more mature. For retailers that can sell in full truckloads downstream, as more suppliers support full-truckload delivery upstream, performance will naturally grow.
Regarding these three major dividends, all retail enterprises that have achieved growth in the past year or two have benefited from them.
**Traditional Retail**
**How to Carry Out Hard Discount Transformation**
How traditional retail carries out hard discount transformation is actually how to achieve product cost performance higher than other merchants. Here are two words: **clear accumulated problems and embrace dividends**.
China's supplier-retailer relationship has deep-rooted problems. The author casually says a number: **China's unnecessary circulation costs due to supplier-retailer game-playing are about 5 percentage points.**
For traditional retail enterprises, they generally have only two to three percentage points of profit. This means that if an enterprise has several stores in one place and the supplier-retailer relationship is smooth, even without enjoying the three major dividends of the retail industry, it can still do well.
How can retail enterprises smooth the supplier-retailer relationship? First, shorten payment terms; second, smooth the relationship in a narrow sense; third, pay special attention to the process from local to overall.
Suppose a retail enterprise cuts all entry fees and barcode fees, and tries to negotiate lower supply prices with suppliers, it still won't work. Because suppliers are constrained by the manufacturer's entire management system, and manufacturers will not give up their vested interests. How to negotiate? It requires using one's own struggle skills, introducing catfish supply chains, and having white-label sales capabilities.
For a retail enterprise, how can it realize its own white-label dividend? Walk into your own store and take a look: currently, they basically sell big brands or fresh produce that doesn't need branding, so the store doesn't make money. The core logic of transitioning from big brands to white labels is—**establishing category advantages offline.**
When competitors have 100 SKUs of liquor, but we have 300, and prices are lower than competitors, customers will deeply trust the scene and stay longer, thus generating sales.
Jin Baibai has walked a relatively mature path here. Establish category advantages offline, operate customer communities online, and achieve the ability to communicate deeply with customers online.
Pre-sale dividend: Currently, physical retail enterprises mainly rely on spot sales. How can they achieve pre-sales as the main mode?
First, learn to connect with pre-sale supply chains. The rhythm of dealing with pre-sale supply chains is completely different from that of spot sales supply chains, and the existing procurement system is difficult to integrate.
Second, learn to build user communities. The basic logic is also the ability to communicate deeply with customers online.
After doing the above actions, you will find more and more full-truckload products. You should promptly organize these products to achieve direct procurement from the place of origin, bypassing the first and second tier wholesalers. Generally speaking, full truckload is called picking fruits; it is not the cause but a result.
The core of hard discount stores is forming category advantages: SKU count is three times that of others, prices are 70% of others, and selling white labels through spot sales. For community group buying, the basic logic is pre-sales plus white labels. The transformation of traditional retail can be summarized into two actions: first, learn to sell white labels; second, learn to do pre-sales. But these two things are not recommended to learn simultaneously. It is suggested to first learn to open hard discount stores, sell white labels, and build category advantages, then learn pre-sales, and combine them.
**Path:**
**Phase 1: Introduce catfish supply chains, form strong category advantages in some stores**, drive internal team mindset changes, and drive supplier group mindset changes. Go step by step from point to surface.
**Phase 2: Strengthen category advantages, form the ability to buy and sell white labels in that category, and adjust the supplier-retailer relationship.**
Core of supplier-retailer relationship: 1. As a retail enterprise, you must control the terminal selling price to ensure prices are lower than competitors; 2. On this basis, fully and highly leverage supplier capabilities. Believe that supplier capabilities are stronger than our procurement.
First optimize one category, learn how to optimize, then optimize the second category, and transplant the optimized categories to other stores.
**Phase 3: Build user communities and connect with online white-label supply chains.** At this stage, pre-sales begin.
**Phase 4: Even if sales volume supports full-truckload products, organize and purchase in full truckloads.**
Don't spend too much energy on fresh produce; focus on categories with larger optimization space. For example, liquor and tea have extremely low costs but high premiums. Liquor is just grain mixed with water, and tea is just dehydrated leaves.
 _Lian Jie, a hard discount research consultant for New Distribution and author of "The Third Retail", attended as a guest speaker and delivered a keynote speech titled "Discount Transformation of Physical Retail" to over 1,000 industry professionals. New Distribution has compiled Lian Jie's speech into an article for readers. (Some parts have been edited.)_


---

## Copyright and AI use

This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL.

Contact: zhaobo258@gmail.com · +86 158 5481 7671