Just before the 2024 Spring Festival, the last store of Jiming Aikemart Supermarket was renamed 'Aitemai', completing the first phase of a nine-month hard discount transformation. As the leading retailer in Jiming, converting over 70 traditional supermarket stores into hard discount stores in one go is the first such case in China that the author has seen. On February 26, 2024, Fang Miao, founder of Aitemai, was jointly interviewed by Lian Jie and Ren Wenqing. Background: Aikemart Supermarket is the leading retail enterprise in Jiming, founded by Fang Miao in 2003. Fang has achieved success in multiple segments of the distribution chain, including time-honored brands, agency, retail, and supply chain, and is highly innovative. In 2019, when community group buying was emerging, Fang led his team to pioneer the community group buying business model for chain stores, causing a huge response nationwide. Lian Jie's 'The Third Retail' included this case. Now, Fang has led his team to complete the first full hard discount transformation in China, which is unexpected but reasonable. This article is compiled based on the conversation. ****Question 1: What were the considerations for starting the hard discount transformation? Fang saw hard discount store formats abroad and thought they were good, so he wanted to try. In 2021, he made an attempt, even sending a procurement team to Zhengzhou to source products. However, there was strong internal resistance, and the traditional supermarket business was still growing at the time, so he couldn't devote much energy to it and gave up midway. After the pandemic ended in 2023, the traditional supermarket business declined, and he decided to try again with the determination to find a new way out. Now it is even more certain that hard discount transformation is the only way forward for traditional supermarkets. Lian Jie's comment: The first attempt was out of curiosity and experimentation; the second was out of self-rescue and a must-succeed mentality. ****Question 2: How did the transformation process go? Did the results meet expectations? The transformation of the first store began in May 2023, and by the end of the year, all over 70 stores had been transformed, with all stores renamed 'Aitemai'. Now, the competitiveness of the transformed stores has significantly increased! In 20 years since Aikemart's founding, they had not dared to open stores outside Jiming city. Now Aitemai has opened two stores in counties and townships under Jiming, with excellent financial indicators. At the same time, the stores that completed the transformation earlier have begun to turn profitable one after another. Especially gratifying is that the number of young customers in the stores has noticeably increased. Lian Jie's comment: The increase in young customers is because the stores now carry products that young people like. Under the traditional supermarket operation model, these products were hard to get on the shelves. Question 3: What were the main difficulties encountered in the hard discount transformation? Three major difficulties: financial difficulties; human difficulties, mainly the difficulty of mindset change; and product difficulties, because the supply chain organization for hard discount is completely different from traditional retail. To carry out the hard discount transformation, the store must first clear all payments to old suppliers. All newly purchased products are paid in cash. Aikemart's advantage is its stable historical operations and some accumulated savings. Changing people's mindsets is even harder. After learning from Tianjin Jinbaibai Warehouse Discount, they turned off the air conditioning in one store, saving 300 yuan a day in electricity. But the store employees couldn't understand why. Now, customers who come to the store are wearing down jackets, so it's not actually cold. When store costs come down, product prices can be lowered, and customers like that. The work of procurement in hard discount is different from that in traditional supermarkets. Traditional supermarket procurement mainly manages suppliers, selecting products from what suppliers offer and negotiating with them. But in hard discount, procurement has much more work. They have to manage from start to finish, including searching for products across the internet, communicating with manufacturers, ordering, marketing plans, store implementation, sell-through tracking, and clearing end-of-life inventory. This requires much higher capabilities from procurement staff and changes the existing interest system. It is normal for procurement staff to resist the hard discount transformation, but it must be resolved. To push forward hard discount procurement, Fang centralized all procurement authority in himself. He personally selects, tests, finalizes, and prices products. His office is piled with samples, and his children also participate in product testing. The products needed for hard discount stores are very different from traditional supermarkets. Organizing the hard discount product assortment is the top priority. The product strategy must be redone. Question 4: What adjustments were made to the product strategy? Bringing e-commerce bestsellers offline is the most critical strategy. Many products that sell well on Tmall, JD, Douyin, etc., when placed in offline stores, can save delivery costs and offer customers better prices. Copy down the top-selling products in target categories on e-commerce platforms, directly contact the manufacturers, as long as the minimum order quantity can be met, the supply price can be about 60% of the e-commerce retail price, meaning the retail price is about 20% lower than e-commerce platforms, and the store still has about 20% gross margin. These products are seen as big brands by young customers and have many young fans. This is why Aikemart, after becoming Aitemai, has seen an increase in young customers. In terms of scale, with about 100 stores in a region, the main selling products in the main categories can reach the manufacturer's minimum order quantity. Lian Jie's note: Fang can achieve direct sourcing from manufacturers in food due to two important conditions: first, he was a food agent and is very familiar with this category; second, Aikemart's scale is sufficient. For retail enterprises with smaller scale that cannot meet the minimum order quantity, or for categories where the procurement team is not familiar, it is best to cooperate with professional category supply chains. Overall, Aitemai's product assortment is mainly fresh food + food. Aitemai retains Aikemart's fresh food operation capability. Fresh food is an important traffic guarantee for Aitemai, and its category advantage in fresh food is built from years of accumulation during the Aikemart period; the food advantage is mainly formed by the 'e-commerce bestsellers offline' strategy. 'E-commerce bestsellers offline' is an effective strategy for offline physical stores to compete with e-commerce for traffic. Lian Jie's comment: Should hard discount stores carry fresh food? The advantage of fresh food is that it brings traffic, but the disadvantage is high labor costs. If there is no prior experience in fresh food, the risk of adding it is relatively high. In the cases I have seen, Tianjin Jinbaibai has advantages in food, alcohol, and tea, which are enough to attract traffic, so they can do without fresh food. Hard discount stores in lower-tier markets, such as Wangge Discount in Shangqiu, also do not have fresh food. Because in county and township markets, fresh food has weaker appeal for traffic. Question 5: Competition with snack discount stores? Currently, Aitemai's hard discount transformation mainly covers food, which inevitably creates direct competition with snack discount stores. Aitemai has the following advantages over external snack discount brands:
As a local enterprise, Aitemai better understands local needs and has a natural scale procurement advantage in products that adapt to local needs. Snack discount stores use a nationwide common product assortment, which has low regional adaptability. Even if they discover specific regional needs, due to insufficient stores in the region, it is hard to form a scale procurement advantage.
Local enterprises have lower management costs.
Aitemai has fresh food, bringing more traffic.
Aitemai can continuously add advantageous categories, such as daily chemicals and alcohol. But for snack discount systems, a change in one part affects the whole, making it difficult to add categories. Lian Jie's comment: From the perspective of economies of scale, if you densely deploy 100 stores in a region and deeply serve 1 million people, you don't need to fear external snack discount competitors. Question 6: The role of community group buying? Aikemart's WeChat groups have nearly 300,000 followers, basically covering the main consumer population in Jiming city. The community group buying business has already cultivated online shopping habits among customers. It also plays a significant role in coordination with the hard discount business:
1. Clearing end-of-life inventory – Aitemai's products are directly sourced from manufacturers and cannot be returned. If they don't sell, they are sold at low prices in the WeChat groups. This is Aitemai's unique advantage.
2. Establishing a low-price impression – If some low-price products can be found, they are sold at low prices in the WeChat groups to reinforce the low-price impression.
3. Brand promotion – Products in the store are also sold in the WeChat groups (at the same price), using images and copy to introduce the products in more detail, helping customers recognize them.
4. Driving traffic to the stores. Lian Jie's comment: Most supermarkets do not have Aitemai's community group buying foundation. However, while opening discount stores (hard discount transformation), it is entirely possible to set up customer WeChat groups. As long as there are cheap products, keeping the customer groups active is not difficult. Question 7: What are the plans for 2024? There are mainly three things: First, 'discount flavor'. Aitemai stores are based on supermarkets. Currently, customers entering the store still feel it is a supermarket, without a strong sense of cheapness. In 2024, the store decoration and product display style will be adjusted to give customers a stronger 'discount flavor'. Second, more advantageous categories. The advantage in food has been established, and the next step is continuous upgrading. Other categories need to catch up. For example, before the Spring Festival, a batch of bottled liquor was displayed, and sell-through was good, but there is still much room for improvement. This year, the work on affordable liquor should be more detailed. Third, going down-market. Currently, Aitemai's product and store format advantages can support going down-market! The county and district markets around Jiming have great potential and are worth expanding. Expansion methods can be acquisition or direct operation; cooperation with local retail enterprises will also be considered. Organizing product assortments in third-tier markets to attack fourth-tier markets is a good strategy. Lian Jie's comment: Go to lower-tier markets and build category advantages. Question 8: Advice for peers Aikemart's community group buying business was not an immediate success. Before achieving success in 2019, Aikemart had been exploring and investing in e-commerce for 5 years. Aitemai's hard discount transformation was also not an immediate success. The 2021 trial, although it did not yield results, accumulated several important lessons: 1. It won't work if the boss doesn't lead personally; 2. It won't work without thoroughly reforming the supply chain; 3. It won't work without forming category advantages. For traditional supermarkets to successfully navigate the hard discount transformation, two points should be noted: 1. Hard discount transformation is not an option but a necessity. Without it, performance will continue to decline; 2. Hard discount transformation is not simple and cannot be achieved overnight. Sufficient resources and patience must be prepared. On March 15, in Chengdu, the 'Second China FMCG Hard Discount Conference' will be held, where discount retail founders, brand executives, distributor bosses, traditional retail enterprises, and industry research experts will gather to focus on core hard discount topics and examine new directions, new thinking, and new opportunities in the discount era. We look forward to your presence! During the three-day conference, centered on the theme 'Supply Chain Revolution', in addition to the Second Hard Discount Conference, there will 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 'Ultimate Supply Chain' Brand Factory Direct Sourcing Fair, which will meet with thousands of FMCG brand owners, distributors, retail transformers, and industry service providers from across the country in Chengdu for continuous brainstorming to discuss the challenges and opportunities, changes and ways out in the era of supply chain revolution.