Freshippo is about to enter its harvest period, but founder and CEO Hou Yi is still constantly tinkering and thinking. Recently, a report from foreign media once again brought Freshippo into the spotlight. The report stated: "In an internal speech by Walmart China executives, 'Freshippo is the only competitor mentioned in Sam's Club's competitive landscape in China.'" In response, Hou Yi said that Freshippo has been working hard, continuously innovating and changing, and humbly learning from international retail predecessors. "Because of our business philosophy, rapid learning and adaptability, Freshippo has also gained recognition from international peers. Perhaps we are still small now, but there will definitely be opportunities to catch up in the future." Over the past few months, Hou Yi has been conducting business inspections overseas. After visiting retail giants in Europe and the United States, he felt that China's retail market still has many shortcomings. For example, most of the world's top ten retail giants are adopting more advanced retail business models, through the integration of global supply chains, eliminating all intermediate links, thereby making product procurement sufficiently competitive and product prices extremely cost-effective. In his view, the business model of Chinese retail enterprises is still stuck in the traditional KA model, with extremely high various fees, causing the prices of goods reaching consumers to be far from market competition. What should Chinese retail enterprises learn? Hou Yi believes they need to learn the differentiated product competitiveness of global supply chain integration, creating differentiated viral products; they need to build extreme product price competitiveness centered on consumer demand, develop products based on consumer needs, including factory customization and development, eliminating all intermediate links, and truly provide high-quality products with excellent value for money. In fact, this also continues Hou Yi's long-standing strategic judgment: product power is Freshippo's only core competitiveness. Among Freshippo's "three carriages," the Freshippo X Membership Store layout is orderly, the main format Freshippo Freshippo has embarked on a path of scale development, and the Outlet business targeting lower-tier markets is still very popular. As a "breaker of the old and establisher of the new" in China's retail industry, Hou Yi has been constantly learning and catching up. He firmly believes that Freshippo can surpass the giants in some aspects or even all aspects. Because Freshippo is a local enterprise, it understands Chinese consumers better and knows China better. However, he also frankly admitted: "Compared with them, we are still at the 'elementary school student' stage." In previous interviews, Hou Yi also said that he is "not afraid" of challenges from foreign retail giants, but he has always maintained an attitude of learning and "making up lessons." For example, Freshippo has begun to continuously reform the zero-supply relationship, establish global procurement centers, and deepen the construction of global supply chains. Hou Yi has boasted a lot in the past, but it is undeniable that most of them have been realized. As an innovator in new retail, one of Hou Yi's traits is daring to walk paths no one has walked before, say things no one has said before, and even make seemingly "contradictory" statements. Some praise him, saying that Chinese retail is crossing the river by feeling the stones of Freshippo. In fact, those seemingly "contradictory" statements also reflect that China's retail industry is still in the midst of intense transformation, and the trends of consumption and technological change have not changed. Talking about this year's retail market, Hou Yi believes that consumption trends are not solely pointing to consumption downgrading: this year is a "big year" for membership store openings. Sam's Club is expanding at a rate of about 6 new stores per year, Costco's fifth store is about to open in Hangzhou, and Freshippo is also accelerating store expansion, ushering in the fastest expansion in recent years. This actually reflects the underlying trends: First, consumers' aspiration for a better life has not changed, and the consumption upgrade trend of the middle class has not changed. Everyone is talking about consumption downgrading now, but consumption upgrading also exists. Second, foreign investors continue to be optimistic about China's future economy, so they are accelerating store openings. In addition, there is still a large demand offline. The offline traffic of Sam's Club, Costco, and Freshippo stores has not decreased. It's not that once the internet comes, offline business disappears and everything goes online. Freshippo Freshippo Outlet stores also have huge traffic. Hou Yi holds a very optimistic attitude towards China's retail market. For example, Sam's Club has made a lot of innovations based on internet advantages in China, and the store + front warehouse model has driven business growth exponentially. Online share has exceeded offline, and Costco is also stepping up its online layout recently. China's internet has good traffic, various platforms, and relatively low logistics and distribution costs. Costco tests home delivery and instant retail e-commerce business These retail giants, innovating against the backdrop of China's internet, also reflect from the side that China's retail development conditions and foundations have already taken the lead in the world. Recently, Freshippo CEO Hou Yi accepted an exclusive interview with "Lianshang.com," for the first time publicly interpreting market competition with Sam's Club and Costco, and systematically interpreting and thinking about the endgame of retail development, product power, format competition, and Freshippo's development methodology. Chinese retailers must build procurement capabilities Q: Recently, there were reports that in an internal speech by Walmart China executives, "Freshippo is the only competitor mentioned in Sam's Club's competitive landscape in China." What do you think about this? Hou Yi: Freshippo has been working hard, continuously innovating and changing. We humbly learn from international retail giants. Because of our business philosophy, rapid learning and adaptability, Freshippo has also gained recognition from international peers. I believe that Freshippo will definitely surpass the giants in some aspects or even all aspects in the future. Because we are a local enterprise, we understand Chinese consumers better and know our country better. For us, the future opportunities are enormous. In the near future, Freshippo will definitely be Sam's Club's biggest market competitor. Q: Why are Sam's Club, Costco, and Freshippo all accelerating store openings? Hou Yi: Recently, everyone has been opening stores relatively quickly. Sam's Club is expanding at a rate of about 6 new stores per year, Costco's fifth store is about to open in Hangzhou, and Freshippo itself is also accelerating store expansion. This year is a "big year" for store openings. This actually reflects the underlying trends: First, people's aspiration for a better life has not changed, and the consumption upgrade trend of the middle class has not changed. Everyone is talking about consumption downgrading now, but consumption upgrading also exists. Second, foreign investors continue to be optimistic about China's future economy, so they are accelerating store openings. In addition, there is still demand offline. The offline traffic of Sam's Club, Costco, and Freshippo stores has not decreased. It's not that once the internet comes, offline business disappears and everything goes online. Freshippo Freshippo Outlet stores have huge traffic, and we see this clearly now. Q: Besides these reasons, are there other factors? Hou Yi: Sam's Club has made a lot of innovations based on internet advantages in China, and the store + front warehouse model has driven business growth exponentially. Online share has exceeded offline, and Costco is also stepping up its online layout recently. China's internet has good traffic, various platforms, and relatively low logistics and distribution costs. Their innovation against the backdrop of China's internet also reflects from the side that China's retail development conditions and foundations have already taken the lead in the world. Q: What should Freshippo learn from Sam's Club? Hou Yi: Sam's Club took more than twenty years to open more than twenty stores, creating a new retail model centered on product competitiveness. Before Costco entered, it had gained full recognition from Chinese consumers. Retail requires long-term persistence. For Chinese retail, 20 years is basically an era of improvement. China's retail industry needs to learn, persist for the long term, be patient and meticulous, and continuously change. For example, in terms of team, Sam's Club cultivates a large number of management trainees every year, and they have become the core strength of Sam's Club's various business lines. Overall, we need to learn their differentiated product competitiveness of global supply chain integration, create differentiated viral products, and also the extreme product price competitiveness centered on consumer demand. Develop products based on consumer needs, including factory customization and development, eliminating all intermediate links. Truly provide high-quality products with excellent value for money. This is also what China's retail industry currently lacks. Q: Are these the key to their success in China? Hou Yi: Sam's Club and Costco have brought the world's most advanced and successful management systems and concepts, which are also commonly adopted by successful global retail industries. Through global supply chain integration, eliminating all intermediate links, product procurement becomes competitive, and products have extreme cost-effectiveness. Today's international retail industry is basically like this. This year, I went to France, Germany, the UK, Japan, the US, Australia, and other countries for business inspections, and saw that the world's top ten retail industries basically all use this model, but China still uses the traditional KA model, with extremely high various fees, causing the prices of goods reaching consumers to be far from market competition. Q: What should China's retail industry do? Hou Yi: If China's retail industry wants to compete comprehensively with Sam's Club and Costco, we need to understand: First, build differentiated competitiveness centered on categories and driven by consumer insights; second, with supply chain integration, eliminate all intermediate links to enhance product price competitiveness; third, have global procurement capabilities. The products Sam's Club and Costco procure based on global supply chains far exceed peers in quality. If we want to enter the global advanced ranks, we must achieve these three goals. China's retail industry is generally small in scale, and we all use the original KA procurement model, basically not importing directly from abroad, but through agents, and raising prices is enough. If these problems are solved, we will also give birth to local Sam's Clubs and Costcos. This is both a challenge and a huge opportunity for us, and even a super blue ocean market. Q: Foreign media reported that Walmart China executives believed in an internal speech that "Freshippo is unique in food innovation." What actions has Freshippo taken? Hou Yi: This year, we are comprehensively building a global supply chain system, and for the first time, under global competition, we have formed a global procurement team. We have established procurement teams in France and Japan, and will go to the US and South America in the future. To compete with global giants, if we don't compete from a global perspective, many things will be hard to catch up on, so we need to establish a global procurement system. Q: What are Freshippo's competitive advantages and disadvantages? Hou Yi: Sam's Club and Costco have 50-60 years of history. Compared with them, we are still at the "elementary school student" stage. Regarding the three goals just mentioned, we still have a big gap compared with them. But Freshippo's current procurement scale is enough for us to do these things. China has such a large market, and global supply chains are optimistic about China. When we went to Australia, high-level officials received us, hoping their products would enter the Chinese market. After we went to Europe, we found that those big brand suppliers and large retail enterprises all hope their products can enter China. Freshippo now also has advantages. We can fully cooperate with global giants to make up for the shortcomings in our competition with Sam's Club and Costco. Q: How do you view the overall development of domestic warehouse membership stores? Hou Yi: Including ourselves, I don't think we immediately have strong competitive capabilities to compete with Sam's Club and Costco. Currently, the development capability of domestic private brands, the speed of new product launches, and the entire system are not perfect, including our supply chain system. We need to cultivate supply chain capabilities and a procurement system with extremely competitive prices. Currently, these are also lacking domestically, and these are shortcomings. For us, we need to continuously learn and make up for shortcomings. However, we have significant advantages in the research and development of fresh food and other categories. For example, we have more high-quality production areas, better understanding of consumers, and more suitable prepared dishes for the Chinese market. But having only these advantages is far from enough. Because in the category structure of membership stores, fresh products account for a relatively low proportion. If we want comprehensive competition, categories such as standard products and daily necessities must be improved in all aspects, and we need a long time to make up for this shortcoming. This year is a "big year" for membership store openings Not membership store competition But all-format competition Q: Next, will Freshippo X Membership Store compete comprehensively with Sam's Club and Costco? Hou Yi: Our competition with Sam's Club and Costco is not between membership stores, but between Freshippo's all formats and their competition. Because we face the same customer group—the middle class and above. These people either buy at Freshippo or at Sam's Club, which is the challenge we face today. For example, how can Freshippo Freshippo further strengthen product differentiation capabilities and further lower prices. Q: If a retail enterprise's target is the middle class, must it face all-format competition with giants? Hou Yi: If you don't achieve the above three goals, competition will definitely be at a disadvantage. Consumers are very realistic; they choose whoever has better product quality and prices. Consumers will definitely vote with their feet. Q: The middle-class group in a city is limited. If there are already strong competitors in the market, how will Freshippo consider store expansion? Hou Yi: We will still expand membership stores by city. Sam's Club's current format is already a typical new retail model. Offline, there are membership stores; online, there are front warehouses, apps, flagship stores, etc., completely a multi-channel sales model based on the Sam's Club brand. If you only compete at one point, it will be difficult. Today's competition is comprehensive, on platforms, front warehouses, and stores. If there are only a few stores, it is far from enough. Q: What aspects will Freshippo consider in the future? Hou Yi: For Freshippo membership stores, we will make up for shortcomings, leverage strengths, and compete comprehensively with Sam's Club. Freshippo Freshippo is an online-offline integrated format, and we will respond to the challenges brought by front warehouses. We are also laying out on all platforms. So today's competition is in the sky, on the ground, underwater—all-round, not just competition in store strategies. Q: So, will Freshippo X Membership Store emphasize scale advantages? Hou Yi: Scale advantages are not important; what matters is our business philosophy, methods, and strategies. China's market is particularly large, and global resources are optimistic about the Chinese market and the trend of consumption upgrading. When we go global, many large international suppliers are willing to offer the best prices to match with Freshippo. So there is no situation where Sam's Club has scale advantages and our competition in the global market becomes difficult. But for retail enterprises, they need to completely abandon the original KA retail system, move towards global supply chains, and move towards private brands. Today, in Sam's Club, we can see that so-called strong brands do not exist. Today's business market has changed; consumers must have multiple choices. So Chinese retail has such an opportunity: as long as you make certain things the best in the industry, business will not be bad. Q: Will you still emphasize competition in segmented categories? Hou Yi: In all-round competition, the gap will be large, but you can choose heavy categories to compete comprehensively with Sam's Club, leveraging the advantages of local enterprises. So for us, in any segmented category, can we surpass Sam's Club? Even if we can't surpass it now, based on the product itself, even a single product, we need to make the product extreme. Does our product have advantages? For example, private brands are all factory-customized; it's not enough to just take goods from KA suppliers. Q: Will there be boundaries in the development of private products? Hou Yi: I have been to Costco in the US for research. Costco's private brand share exceeds 30%. But all suppliers' goods are tailored for it, with long-term cooperation, dedicated teams, and customized products. When private brands rise, the business model of monopolizing the market through brands will gradually exit the market. I recently made up my mind to remove some strong brands. Q: What brands will replace these? Hou Yi: For example, if retailers' private brand products can be cheap and high-quality, these can completely replace them. Q: How do you view the discount retail format? Hou Yi: Discount retail stores are already quite common worldwide. In China, Decathlon and IKEA are discount stores. Germany's Rossmann is a drugstore discount store, and supermarkets in Western European countries basically use discount formats. So discount stores are a business form, not a format. Discount retail stores still reflect product differentiation, achieving the lowest procurement prices through high-quality supply chains. This is extremely lacking in China's retail market. In the past two decades, Chinese retail has been lying on the product channel, but ultimately it must emerge with a business model that has Chinese characteristics and also international advanced retail experience. I predict that more global discount stores will enter the Chinese market in the future. If one day it breaks through the critical point, it will definitely develop rapidly. If the time is ripe, it will also replace hypermarkets. Discount stores are a complete transformation of all supermarkets and hypermarkets. This is also a huge opportunity for Chinese retail enterprises to change themselves. Freshippo has already seen this clearly.