In 2024, amid the rise of hard discount, capital is still betting on soft discount. Recently, soft discount brand Hitgoo announced the completion of a B-round financing of 100 million yuan. The investor has not disclosed specific details but expressed confidence in Hitgoo's development prospects, and this round of financing will be used to further expand business, enhance brand influence, and strengthen team building. In fact, since its establishment on January 19, 2021, Hitgoo has gathered a number of star capital, including Xianfeng Changqing, StarVC, Juezi Investment, Gaorong Ventures, Blueprint Ventures, etc. Therefore, in the view of industry insiders, this round of financing will help Hitgoo stand out in the fierce market competition and become a leading enterprise in the discount format. Image source: Qichacha The story of "soft discount" began in the special period of 2020, when FMCG products were severely backlogged and consumers became more rational. Under the special inflection point of supply and demand, the soft discount format selling "near-expiry goods" had the opportunity to develop. Four years of favorable winds gave birth to leading brands such as HotMaxx and Hitgoo. Around 2021, capital also moved with the wind, frequently placing bets. However, it is worth noting that HotMaxx's latest financing round was in 2021, while Hitgoo received investments in 2022 and 2024. From the frequency of financing, Hitgoo is more favored by capital, but from the scale of development, HotMaxx is clearly superior to Hitgoo. It is understood that Hitgoo currently has 472 stores, while HotMaxx's offline store count has exceeded 900 (as of July 2024), nearly twice that of Hitgoo. The China Chain Store & Franchise Association (CCFA) released the "2023 China Supermarket Top 100" list, which shows Hitgoo ranked 82nd, while HotMaxx ranked 39th, far ahead of Hitgoo. Moreover, Hitgoo founder Zhang Qiang stated that the brand will shift from expansion as the core to profitability as the core. Zhang Qiang revealed, "We will continue to strengthen in northern markets such as Beijing-Tianjin-Hebei and Shandong, and gradually shrink in other places." So, with a larger HotMaxx ahead, why is capital "betting" on Hitgoo? Cross-industry background injects new momentum There is a simple logic in the investment circle - invest in people. And Hitgoo founder Zhang Qiang just fits investors' imagination of an entrepreneur. Zhang Qiang was a member of Alibaba's "China Supply Iron Army", a frontline sales team for B2B business, and later joined Meituan as the 79th employee, becoming one of the "four major district" managers, managing 2,000 employees. After that, Zhang Qiang moved to Qunar and was promoted to COO. During this period, he founded Lyu Yue and Huazhu Hotel projects internally. As a frontline operator of an internet giant, with experience in coordinating thousands of employees and pioneering entrepreneurial incubation, years of practical experience have given Zhang Qiang both systematic theoretical connotation and the foundation for external surfing. Image source: Hitgoo official website In 2021, Zhang Qiang and several partners who also achieved financial freedom established Hitgoo, officially crossing over from the internet to the retail industry. There were two factors for the cross-industry move. On one hand, Zhang Qiang had helped Bianlifeng build a system with friends, which gave him initial exposure to and interest in retail. On the other hand, in Zhang Qiang's view, as consumers gradually become more rational in daily consumption, they will pay more attention to good-quality and low-priced goods, which creates excellent soil for discount retail. "Before entering retail, we focused on studying many foreign retail formats and found that foreign countries have established very complete systems, completely different from the simple purchase-sale-inventory chain in China. The domestic model inevitably leads to low efficiency and high loss, and the most obvious reflection on the consumer side is high prices." After detailed market research, combined with his internet background, Zhang Qiang injected "special blood" into Hitgoo. First, Zhang Qiang realized that the domestic retail industry lacks a "buyer culture", "does not study consumer decision trees, and lacks systematic planning for categories." Zhang Qiang said in an interview with China Entrepreneur Magazine. In his view, grasping consumer decision preferences opens the consumer's "heart", and China needs a buyer team that understands the "buyer culture". Hitgoo Image source: Retail Business Finance Second, it is to use internet digital thinking to empower the retail industry. "In my view, investing energy in digital systems before Hitgoo has developed is a key decision." Zhang Qiang once said in a speech. Over the years, Hitgoo has successively launched the Eagle Eye system, Beidou system, Lighthouse system, and Migration system for procurement, inventory management, sales forecasting, new store site selection, stocking, distribution, transfer, price reduction, and promotion, using the widespread application of internet technology to improve efficiency. Based on digital systems and data, Hitgoo clearly knows where consumers in the mall where the store is located go within a week and their income. Through store cameras, it can also know whether customers are male or female, ultimately achieving a personalized distribution system and continuously optimizing the single-store model. The cross-industry background gave Zhang Qiang a unique perspective in the retail industry, which is also concretely reflected in Hitgoo's operations. In contrast, HotMaxx founder Zhang Ning has been involved in entrepreneurship in human resources, education investment, chain convenience stores, and even energy services, and accidentally discovered the discount industry's prospects during market fluctuations in 2020, founding HotMaxx. It is undeniable that HotMaxx's founder's resume is equally impressive. Both cross-industry entrepreneurs Zhang Ning and Gu Xiaojian also injected momentum different from traditional retail into HotMaxx. However, Hitgoo, which leans more towards digital system construction and a unique buyer team, may be more suitable for the dimensions that current investors value in the retail industry. Competitive strategies in the soft discount track Based on the "buyer culture" and digital system construction, Hitgoo has formed a "demand-driven" product and store iteration path. First, the essence of buyer culture is consumer-centric systematic planning, judging procurement types based on consumer big data models, controlling budgets from the entire "purchase-transport-sale" chain, and building an important part of store product selection. It is worth mentioning that in team training, Zhang Qiang "inherited" the employment concept most admired by Ma Yun in Alibaba's people efficiency, advocating "three people do the work of five and get the pay of four" to improve people efficiency. From the category perspective, in Zhang Qiang's view, Hitgoo should show the trait of "freshness". From the consumer's perspective, when buying daily necessities, soft discount brands like Hitgoo will not be the first choice. As a second or third choice, only enough "novelty" can drive conversion. Hitgoo Image source: Retail Business Finance Based on this, Hitgoo's buyer team began to hit "moving targets", continuously providing consumers with fresh and hard-to-buy products, such as wasabi-flavored potato chips and bullet-shaped cola. From the category perspective, Hitgoo tends to provide products that are both cost-effective and creative. While Hitgoo bets on "new", HotMaxx focuses more on "low", using extremely low prices to attract traffic and form a low-price mindset. In its early days, HotMaxx attracted traffic with popular and hot-selling products like "1.7 yuan Evian", "20% off all items", and "1% off zone". Of course, HotMaxx is not blindly low-priced, but "high quality and low price", pulling the prices of originally "high-end" brands down to the "affordable" price band. HotMaxx Image source: Retail Business Finance HotMaxx founder Zhang Ning once said that many consumers bought their first bottle of Perrier at HotMaxx. "HotMaxx's popularity is not a manifestation of consumption downgrade, but rather allowing consumers to enjoy a higher quality of life at lower prices." Zhang Ning said. In his view, HotMaxx provides consumers with the opportunity to try at extremely low prices. And the essence of this opportunity is non-essential emotional consumption, a product of "unplanned shopping". From this point, HotMaxx and Hitgoo have similar insights into consumer habits. But the characteristics of the category are only the core factor driving conversion, and the premise is to make consumers willing to enter the store. This part of the responsibility falls on digital capability building. Hitgoo initially preferred office buildings for site selection, but after actual operation, it found that office buildings had lower customer unit prices and weak repurchase willingness. So Hitgoo turned around and opened stores in shopping malls, deciding to "sell the cheapest goods in the most expensive places". In addition, mall consumers have higher unit prices when shopping, which is conducive to improving operational efficiency. When selecting store locations, relying on its self-developed Lighthouse system, Hitgoo sends employees to squat near the target location before opening, recording foot traffic and gender with mobile phones during the day, and importing the data into the system at night to count people, then combining advantages and disadvantages, after big data analysis, it calculates the probability of profitability after the store opens. If the location fails the calculation, it is abandoned. Hitgoo prefers floors in malls with supermarkets, small restaurants, or stores like Watsons and Miniso. It avoids floors with menswear stores, children's stores, or large restaurants like Haidilao. Mall site selection is also the core direction for HotMaxx. In Zhang Ning's view, only in the "box" are consumers concentrated, where it is not only safe, but also not just a shopping place, but also their "entertainment venue". In fact, the core of mall site selection is the necessary "persona building" consideration for HotMaxx and Hitgoo as "sewers". Through the image of the mall, they tear off the label of low price and low quality. With the mall as endorsement, they tell a story of high quality and low price, reducing consumers' trust cost. In addition to front-end stores and products, the more important thing is the back-end supply chain construction. Soft discount is inherently a near-expiry business, under inventory pressure, and has high requirements for price control. The format attributes force Hitgoo to build a "shortest supply chain", directly connecting with factories to get the lowest prices, and with the shortest chain to fight the "shelf life battle". Currently, Hitgoo signs contracts with brands or first-level agents. As store expansion increases purchase volume, Hitgoo's bargaining power is also increasing, further benefiting terminal prices. HotMaxx's supply chain strategy is similar but places more emphasis on early factory investigation. Through the collected data of tens of thousands of distributors, based on their category characteristics, product age, sales dynamics, and cycles, it obtains supply in a timely manner; while excess capacity mainly comes from surplus in raw material reserves and capacity at the enterprise level. From categories to site selection to supply chain construction and consumer insights, soft discount seems to have found a development path more suitable for itself and the national conditions, and has attracted capital bets, but has soft discount really ushered in good times? The "soft-hard distinction" is gradually blurring In recent years, the popularity of soft discount and hard discount has remained high. Although both are synonymous with "low price", their business models are significantly different. Hard discount achieves ultimate cost-effectiveness by selecting SKUs, increasing the proportion of private labels, and reducing operating costs, finding opportunities to compress costs in the supply chain to achieve low prices, such as Sam's Club, Costco, and ALDI. Soft discount mainly refers to selling products at a discount due to certain characteristics of the product itself, such as near-expiry, out-of-season, defective, and tail goods, in the form of discounts or special offers. From a sustainable development perspective, hard discount with continuously optimized supply chains has more imagination space, while "sewer" soft discount is difficult to grasp the initiative and is affected by multiple external factors such as brands and supply chains. But from the current situation, both Hitgoo and HotMaxx are "not soft". "The so-called soft and hard discount is just a means; the goal is to make consumers perceive cheapness." Zhang Qiang said, "To some extent, we are the same as Pinduoduo - factory goods are sold directly on Pinduoduo, and we sign a one-year framework agreement with factories, and after factory goods are shipped, they are sold directly from Hitgoo." Hitgoo will introduce some specially packaged products, such as 5-piece masks, and Hitgoo customizes 3-piece packaging with brand factories to reduce prices. In addition to the supply chain, Hitgoo is also trying private labels. According to Tianyancha, it has registered trademarks such as "Qiang Xiaolu", "Mutou Qiqi", "KASUREOO", "Yikou Le", "Chu Bensheng", and "Xiaoshi Wanxiang", and its private label SKU proportion has reached 20%-30% of sold goods, covering snacks and daily chemicals, with gross profit still reaching 42% while maintaining low prices. Hitgoo Image source: Retail Business Finance HotMaxx has also applied for trademarks such as "Xia Qu", "Xi Yuan Qian", and "Ren Huang Qi Hao", and is in the process of registering "Ye Zi Gu", mostly in the food field. It attempts to provide more profit space through the development of private labels. More importantly, both HotMaxx and Hitgoo have mentioned "channel feedback", that is, using data from the tail goods sales channel to feed back to brands, helping them re-develop and customize products, promoting the joint iteration of upstream and downstream in the industry. Zhang Ning once said that HotMaxx will strengthen its new positioning of empowering brands on the B2B side in the future. From a channel for handling near-expiry goods to feeding back brand innovation, soft discount is no longer "soft". It seems to be taking the first step to blur the boundaries of the discount format, but in fact it is full of anxiety. First, from a macro perspective, soft discount is more like a phased product of the discount industry's dividend period, emerging with the times but not continuing to develop with the times. As a frontline industry facing C-end consumers, the retail industry's market fluctuations require it to have rapid response and iteration capabilities. To have capital to cross cycles, it is necessary to create a more imaginative business model. As Professor Chen Liping of Capital University of Economics and Business said: "Retail business has a direct relationship with residents and consumers. Consumers' income and environment determine how the retail industry develops. The next 10-20 years will be an era of low-price retail. But it should be noted that 'low-price retail' is different from pure price competition. Its essence lies in the establishment of a sustainable low-cost operation system, which is the result of process optimization, cost reduction, and efficiency improvement." In short, due to unstable supply of near-expiry goods and further reduction of suppliers, soft discount is difficult to truly cross cycles, and its growth space is limited. This is also one of the reasons why Hitgoo's financing funds will be used for the supply chain. Only with a more stable back end can it be more confident. Specifically for Hitgoo, it once launched a membership model priced at 99 yuan/year, trying to follow the trend of membership supermarkets, but the response was lukewarm. In the first half of this year, Hitgoo also targeted second-hand luxury goods, adding a second-hand luxury goods section to its flagship store in Xidan Joy City. Image source: Beijing Business Today According to rough statistics from Beijing Business Today, there are about 30 luxury goods displayed on the shelves in the store, with LV accounting for the majority, priced from thousands to tens of thousands of yuan. Frequent attempts at new formats and categories are Hitgoo's determination to break out of the "soft discount" format, but the differences between formats are subtle and require different requirements. Only by finding a suitable ecological niche in these discount fields can it go far. It should be noted that currently, internet giants such as JD.com are also making efforts in discount retail, and Hema's discount format (Hema Outlets) has also officially opened franchising. Although they are hard discount brand stores different from Hitgoo and HotMaxx, the brand strength, capital strength, and technical strength of the giants allow them to quickly occupy market share through large-scale investment and efficient operations, which will inevitably bring certain pressure and challenges to small and medium-sized enterprises. "It is easy to make big, difficult to make small; easy to make comprehensive, difficult to make refined." The saying in the industry points out that discount enterprises need to continuously improve flexibility and innovation to broaden market opportunities and development space. Perhaps "soft" and "hard" will gradually evolve into a "pseudo-concept" in the future, and a combination of "soft" and "hard" can help discount brands occupy a favorable position in the zero-sum game market. Recommended Reading