---
title: "Hard Discounts Are Coming on Strong, and Walmart Finally Can't Hold Out"
description: "On January 17, Walmart China announced that the first batch of 29 hypermarket stores in 8 cities nationwide had completed upgrades. This news has been reported by several industry media outlets, highlighting customer-centric changes such as reducing SKUs by 50%, cutting ineffective promotions, improving cost-effectiveness, and enhancing product differentiation. Walmart officially defines this as 'leapfrog' cost-effectiveness, meaning enjoying quality products at low prices that exceed your price expectations. In recent years, the retail industry has been impacted by discount stores, making cost-effectiveness the industry's main theme."
author: "赵胜男"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2024-02-24"
language: "en"
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# Hard Discounts Are Coming on Strong, and Walmart Finally Can't Hold Out

> On January 17, Walmart China announced that the first batch of 29 hypermarket stores in 8 cities nationwide had completed upgrades. This news has been reported by several industry media outlets, highlighting customer-centric changes such as reducing SKUs by 50%, cutting ineffective promotions, improving cost-effectiveness, and enhancing product differentiation. Walmart officially defines this as 'leapfrog' cost-effectiveness, meaning enjoying quality products at low prices that exceed your price expectations. In recent years, the retail industry has been impacted by discount stores, making cost-effectiveness the industry's main theme.

On January 17, Walmart China announced that the first batch of 29 hypermarket stores in 8 cities nationwide had completed upgrades.
This news has been reported by several industry media outlets: customer-centric, reducing SKUs by 50%, cutting ineffective promotions; improving product cost-effectiveness, lowering prices for daily necessities and quality products; enhancing product differentiation...
Walmart officially defines this as 'leapfrog' cost-effectiveness, meaning **enjoying quality products that exceed your price expectations at low prices.**
In recent years, the retail industry has been impacted by discount stores, making cost-effectiveness the industry's main theme.
Yonghui, Hema, and the established Bubugao supermarket are all making price strategy adjustments. For example, Yonghui has opened discount sections in its stores, Bubugao is implementing a low-price discount strategy overall, and Hema has announced a general 20% price reduction on selected offline products.
Walmart, as the world's largest retailer, ranking first on Fortune's Global 500 for 10 consecutive years, also cannot withstand the price turmoil.
**Walmart closes 100 stores in 4 years**
**Are supermarkets nearing their end?**
In recent years, Walmart's offline hypermarket segment in China has not been operating smoothly.
As early as 2021, the hashtag #Walmart China closes stores again# trended on social media, with everyone discussing whether Walmart China was on the verge of collapse.
Recently, the news of Walmart's store upgrades has sparked my thoughts again: **Even Walmart, a top Global 500 company, has to compromise in the price war in China. Are supermarkets really nearing their end?**
Looking back at Walmart's glory days, after officially entering the Chinese market in 1996, it once became a model for Chinese retail enterprises to learn from.
By 2001, five years after entering China, Walmart had opened a total of 18 stores. In 2007, Walmart opened its 100th store in China—the Changsha store. After entering the Chinese market, Walmart had a record of adding over 40 stores annually.
However, the good times didn't last long. In the following years, Walmart began to slowly close stores. From 2020 to this year, in less than 4 years, the number of store closures reached a peak, with over 100 stores closed.
In fact, **the acceleration of store closures is not Walmart's problem but an industry-wide issue.**
**The shift in landscape brought about by channel changes is irreversible.**
From 2010 to 2018, e-commerce developed rapidly, with traffic dividends and price advantages having a huge impact on physical stores. Retail outlets, department stores, chain supermarkets, and community convenience stores frequently suffered losses or closures, becoming the norm.
Despite the strong momentum of online e-commerce, offline channels still dominate. Offline channels hold over 80% of the overall market share, so e-commerce has impacted physical stores but not posed a fatal threat.
Fast forward to 2018, the traffic dividend of traditional e-commerce disappeared, and the hard discount model for snacks began to emerge.
Until last year, snack discount stores exploded, and the offline market began to show a stark contrast.
**On one hand, snack discount stores are expanding and consumer spending is booming.** According to the 'China Snack Hard Discount White Paper', the number of snack hard discount stores grew from 1,250 in 2017 to over 20,000 by 2023.
**On the other hand, traditional supermarkets and hypermarkets are seeing declining foot traffic and constant news of store closures.** According to data from the National Bureau of Statistics, since 2017, the number of domestic supermarket stores has been continuously declining, from a peak of 38,554 to 24,082, a drop of 37.5%.
The share of hypermarkets and supermarkets fell from 55.4% in 2018 to 49.6% in 2022.
Several distributors have told me, 'Snack stores sell too cheaply; many products are priced close to our purchase cost, seriously affecting the business of supermarkets and convenience stores, and supermarket consumers are dwindling.'
**Competing on price, low prices, and extreme cost-effectiveness have become industry consensus.**
In this context, Walmart has gradually compromised towards low prices.
**Why can snack discount stores**
**deal a fatal blow to supermarkets?**
**Before the rapid rise of snack stores, other vertical category supermarkets had already emerged, carving up the market share of traditional supermarkets.**
Frozen food supermarkets represented by Guoquan Shihui took away the frozen food category, nut stores represented by Xueji Chaohuo took away the nut category, fruit stores represented by Pagoda took away the fruit category...
The inherent traffic pool of traditional supermarkets is shrinking, and the rise of snack stores dealt a fatal blow by stripping away the high-profit snack category.
Why can snack discount stores deal a fatal blow to supermarkets?
**First, snack discount stores have a price advantage that crushes supermarkets.**
A survey conducted by an institution earlier this year found that, in the eyes of respondents, the biggest weakness of traditional large supermarkets is their disappearing affordability and convenience. Nearly 70% of consumers believe these supermarkets don't have much price advantage, and discounts are becoming fewer.
The 'price advantage' that traditional supermarkets are losing is one of the biggest advantages of snack discount stores. Snack stores have moved the bulk bins and snack sections of hypermarkets into communities, and their price system is based on online pricing.
Under this conflict, the foot traffic of traditional supermarkets is naturally eroded.
**Second, consumers no longer believe that white-label products are low quality and branded products are high quality.**
In the early stages when market supply was relatively insufficient and product quality was uneven, supermarkets equaled high quality.
As market supply and demand relationships changed and the quality of white-label products improved, the role of supermarkets as a symbol of quality assurance gradually weakened. White-label products in snack stores are equally good.
**Additionally, the traditional supermarket practices of payment terms and manufacturer fees are completely absent in snack discount stores, significantly reducing transaction costs.**
In the golden age of traditional supermarkets, these stores had overwhelming market influence. Brands gaining shelf space in supermarkets meant entering the consumer traffic pool.
The mainstream business model has always been to charge various channel fees and promotional fees to brands/suppliers, recorded as backend income, and deliberately extend payment terms. Operating profit = purchase-sale price difference + backend income - operating costs, with backend income as the main source. On the product side, the Hi-Low pricing strategy is used, with high initial prices and promotions as the main way to boost sales.
**These various fees have made brands miserable. In 2008, Carrefour's 'festival fee' alone was as high as 300,000 yuan.**
As supermarket traffic declines, the ratio of brand/supplier investment to returns is too low, and complaints are increasing.
Many brands describe their cooperation with supermarkets as 'tasteless to eat, but a pity to discard'—an awkward situation.
In contrast, snack discount stores have no fee deductions, lower transaction costs, further highlighting product price advantages, attracting a large number of consumers, and brand cooperation willingness is shifting towards snack discount stores.
Looking at the advantages of snack discount stores, it becomes clear that supermarkets became the main form of traditional retail because they met the needs of consumers of that era.
**The underlying reason for current losses is not channel differentiation or insufficient consumption capacity, but the failure to adapt to the ever-changing new demands of consumers.**
The rise of snack stores precisely captures these emerging demands.
As mentioned in 'The Philosophy of Retail', 'In the retail industry, an enterprise's enemy is never its peers, but its failure to meet customer needs.'
**The life and death of retail enterprises are always decided by consumers.**
**Choose to dabble or go all in?**
This is an era of extreme cost-effectiveness.
In this situation, supermarkets urgently need to reform, breaking the old and establishing the new to survive.
Major supermarkets are seeking reform paths, and in recent years, discount elements have become a common focus.
Expanding new business formats and opening discount-style stores are among the more common reform directions for traditional supermarkets. Jiajiayue and Yonghui are both trying to open discount stores.
Some supermarkets have also begun to flexibly and specifically handle fee settlements.
**For example, adjusting cooperation with distributors to a purchase-sale + commission model.**
Distributors who solely do supermarket package deals are finding it increasingly difficult. An industry insider revealed: Previously, distributors had a package rate of 30-35% and a return rate of 1%. Now the return rate can be 1-2 percentage points higher, so many distributors dare not engage in joint operations or fixed fees.
To alleviate this problem, supermarkets have begun to flexibly settle fees, using purchase-sale + commission with distributors, meaning they pay for the goods they stock, settle the amount, and deduct based on sales.
**Another example is canceling entry fees for popular manufacturers.**
A popular manufacturer once told me, 'A customer left a message at the supermarket wanting to buy our products. To attract traffic, the supermarket contacted us to meet the customer's demand. I negotiated with an attitude of 'cooperate or not, it's fine.' In the end, we reached an agreement without paying any barcode fees or entry fees, and we settled in cash on delivery.'
This form is not common; it's just an occasional stopgap measure taken by individual supermarkets to temporarily alleviate current difficulties. Large chain supermarkets have developed to a point where operating costs are fixed, and completely canceling entry fees is unrealistic.
**Reviewing the reform directions of supermarkets in recent years, most reforms are either done with a 'trial' mindset or lack long-term planning, with few having the courage to make a clean break.**
They repair on the basis of existing business without shaking the foundation, striving to find new expansion directions.
**In contrast, Walmart's implementation of 'leapfrog' cost-effectiveness, although not officially declared as a discount transformation, is in fact a disguised discount reform, and the goal is full promotion.**
According to Zhu Jun, Chief Procurement Officer of Walmart Hypermarkets, Walmart will continue to upgrade 40-50 stores in 2024.
**Compared to other supermarkets, Walmart's reform is more resolute, not with a trial-and-error attitude, but making bold adjustments on the basis of existing business.**
A Walmart executive said in an interview with relevant media that after the renovation, the hypermarket stores saw double-digit growth in foot traffic.
Whether a retail enterprise can make up its mind to transform leads to completely different results. Walmart's reform is likely to have a demonstration effect, prompting other supermarkets to follow suit in this reform attitude.
**On March 15, in Chengdu, the '2nd China FMCG Hard Discount Conference' will be held. At that time, founders of discount retail, senior executives of brand companies, distributor bosses, traditional retail enterprises, and industry research experts will gather to focus on core hard discount topics, examining new directions, new thinking, and new opportunities in the discount era. We look forward to your arrival!**
On March 14, a hard discount closed-door meeting will be held: Hard Discount Models and Operations, with one-on-one dialogue and discussion with expert teachers, sharing experiences, and discussing dividend opportunities in the hard discount era!
During the three-day conference, centered on the theme 'Supply Chain Revolution', in addition to the 2nd Hard Discount Conference, there will also be a main forum, a China FMCG Distributor Conference, over ten sub-forums and closed-door exchange meetings, and the first major debut of the 'Extreme Supply Chain' Brand Factory Direct Procurement Fair. We will meet with thousands of FMCG brand owners, distributors, retail transformers, and industry service providers from across the country in Chengdu, continuously brainstorming, and jointly discussing the challenges and opportunities, changes and ways out in the era of supply chain revolution.
In this era of supply chain revolution, a new business era will be born. We hope every participant will still have a place in this wave, and we believe this will be a conference worth attending! For business cooperation, please contact:
**🔺Scan code for ticket consultation🔺**


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