The Chinese New Year (CNY) sales season is crucial for achieving annual targets in 2024! Sales teams feel that snack discount stores are progressing better than general hypermarkets and supermarkets because the same products are sold at lower retail prices in snack discount stores, leading to faster sales. Not only discount stores, but customers are directly demanding low prices without any pretense. Consumers have become very smart; they compare prices across different channels, whether online or offline, and buy wherever it's cheaper. These phenomena are closely related to the hard discount topic that has been hot since the second half of 2023. Brands have noticed that in the snack track, chain customers like Snacks Are Busy, Haoxianglai, and Zhao Yiming are emerging with increasing influence. Also, representatives of discount supermarkets and warehouse-store chains like Le Er Le and HotMaxx are very active. Even traditional supermarkets such as Yonghui, Hema, RT-Mart, Wumart, and Jiajiayue have started experimenting; for example, Hema claims to adopt a full hard discount model, or they start testing discount sections or establish discount stores. Brands need to respond to two possible development trends.

  • Trend 1: Hard discount only appears in a few markets, becomes a passing fad, brands gain a wave of sales, and then it's over.
  • Trend 2: If hard discount spreads nationwide and the wind blows stronger, early preparation is needed! Facing hard discount, whether it's capturing a wave of sales or adapting to its development into a mature business format, brands can turn challenges into opportunities. How should brands correctly view hard discount chains?1. Changes in retail formats have always existed; brands need not worry too much. Looking abroad, ALDI has been around for over a hundred years, and other discount brands have decades of history; international big brands with vitality still exist. Domestically, the retail industry has undergone multiple transformations in the past 30 years, starting with hypermarkets and supermarkets, followed by convenience stores, specialty stores, online e-commerce, B2B e-commerce, community group buying, hard discount chains, and so on. One fact has never changed! Regardless of the business model retailers adopt, demanding low prices and discounts from brands has never changed in the past 30 years! Ultimately, in a new format, brands and retailers will achieve a balance through磨合 (running-in). One rule has never changed! From the overall market perspective, brands and retailers have specific roles in jointly serving consumers: one supplies products, the other sells them; they cannot replace each other. This characteristic has never changed. Therefore, brands make corresponding adjustments in each change, cooperating with retailers to meet consumer needs.2. Brands' concerns about hard discount indicate that the cooperation model needs further磨合 between both parties. Low prices have always been a sensitive topic for brands, mainly focusing on the following three points:
  1. Low prices will break the brand's price system, affecting fairness and justice for different channel customers. 2) If brands give low prices, the ultimate goal is to benefit consumers; can retailers control low-priced goods to not disrupt the brand's price system? 3) Will low prices become the only sales method? Can this ensure both sales volume and profit for brands? Brands' concerns are not for selfish interests. From the perspective of the division of roles between retailers and brands in serving consumers, if discount stores cannot find a long-term stable cooperation model with brands, the hard discount model cannot be sustained. This is the key issue!3. Brands should turn the challenge of hard discount into an opportunity. Many brands adopt omnichannel or multi-channel strategies. With more channels, brand resources are dispersed; existing markets need maintenance, and incremental markets need increased investment. But brand resources are limited, requiring constant review of whether investment allocation across channels is reasonable. Focus on consumer behavior changes, reduce ineffective investment, and determine which resources need adjustment and how. Hard discount is both a challenge and an opportunity for brands to break old models and establish new ones.4. The stable development of new formats requires retailers and brands to find new cooperation models. Experience from the past 30 years tells us that whether a new format model is sustainable depends on retailers initially needing extra investment or capital support, but ultimately stabilizing in a mutually beneficial cooperation model established between retailers and brands. For example, the hypermarket format emerged when foreign retailers responded to economic downturns; its heyday was due to finding an effective cooperation model with brands, despite many complaints from brands. Convenience stores emerged after per capita GDP reached $10,000, focusing on front-end gross margin, franchising, selected SKUs, and private label products; after their appearance, they gradually formed long-term stable cooperation models with brands. Conversely, those formats once favored by venture capital have disappeared because retailers did not "磨合" a mature cooperation model acceptable to both parties. Although hard discount adopts a low-price form, simple and direct, research on consumer purchasing behavior and cooperation models also requires appropriate "磨合" between brands and retailers. When hard discount sales still account for a small proportion for brands, brands have the opportunity to explore a mutually beneficial cooperation model with retailers. How should brands respond to hard discount? Based on the above analysis, hard discount is rising, but retailers' own systems are still under construction, including cooperation models with brands, which are in a trial and preparation stage.1. Judge the trend, keep up with new formats, and pay attention to old formats.
  1. Keep up with new formats: As a new format, snack discount stores require brands to monitor their share and growth rate. After the CNY peak season, the development trend of snack stores can be seen from data. 2) Pay attention to old formats: Modern channels are changing; customers like Yonghui, RT-Mart, Wumart, and Jiajiayue have already started experimenting with hard discount. If you look at the channel share of the snack category, you'll see that offline channels dominate, with hypermarkets, supermarkets, and convenience stores accounting for 56.4% of snack sales. This proportion is significant, especially supermarkets accounting for 36.9% of total snacks. If the hard discount model expands and develops, hypermarkets, supermarkets, and convenience stores will inevitably change accordingly.2. First, manage discount customers to avoid internal price conflicts. For sales teams, when customers demand low prices, everyone rushes to get the sales, so discount stores should be managed by the company. This is because:
  1. If left unmanaged, customers will also buy from whoever offers the lowest price, causing internal competition and disrupting the brand's price system. 2) Chain discount stores are highly professional and have high service requirements, needing professional personnel for dedicated management; general sales departments lack resources to connect with them, so they should be handed over to professional teams. 3) For large discount chains with over 1,000 stores, consider whether the company should manage them directly, as mentioned in the next resource adjustment. 3. Review channel strategies and investments, and evaluate customers. 1) Brands with multi-channel or omnichannel strategies need to regularly review and summarize strategies and investments for each channel, evaluate the effectiveness and efficiency of each channel, and know which channels are converting sales or generating pure increment. 2) If discount stores bring increment, take them seriously; if it's channel stock conversion, adjust investments appropriately. 3) Evaluate customers and adjust in a timely manner.

a. Customer evaluation is an important method in key account management; evaluating retail discount stores is the foundation of all work. The discount customer group is numerous with varying quality; the purpose of evaluation is to find customers truly valuable to the brand. b. Change packaging structure, provide brands, packaging, and prices suitable for snack channels, achieve channel differentiation, and maintain market price system. c. There are two ways to reduce costs: one is internal cost reduction, the other is reducing distribution costs. If prices cannot be lowered further, for large chain customers, consider directly cooperating with retailers instead of relying on distributors. 4. Project testing to explore cooperation methods. As mentioned earlier, the cooperation model between retailers and brands is crucial; project testing is an effective method, mainly targeting two types of customers: one is the new format of snack discount, and the other is the transformation of modern channels.

  1. For snack discount customers, as mentioned earlier, brands worry: can brands achieve sales and profit growth by only providing low prices? Besides price, from the perspective of serving consumers, what else can be done in stores? Only when both parties benefit is it a good model. 2) For modern channel transformation, beyond existing cooperation models, new discount sections or discount stores have many issues to solve, such as how to calculate sales for products at different prices and how to settle fees? In short, operationally, how to ensure both retailer gross margin and brand profitability. Many execution details need improvement. 3) How do brands and retailers control products to prevent them from flowing into the market, affecting the brand's market price system, and ensuring that low prices truly benefit consumers. From past experience, a professional retailer proactively cooperating with multiple brands increases the success rate of establishing a model. Cooperation between brands and retailers is always an unchanging theme; although their roles differ, their goal of serving consumers is the same—everything for consumers! It is important for both parties to expand common interests, narrow differences, and gradually explore a cooperation model that each considers appropriate!**** **From March 14-16, 2024, the 9th China FMCG Innovation Conference & the 2nd China FMCG Hard Discount Conference & the 2nd China FMCG Distributor Conference, hosted by New Distribution and co-hosted by AnDe ZhiLian, will be grandly held in Chengdu!****The 2nd China FMCG Distributor Conference will be hosted by New Distribution and co-hosted by Zhoupu Data.*************This conference will focus on the theme of 「Supply Chain Revolution」, spanning 3 days, with one main forum, one China FMCG Hard Discount Conference, one China FMCG Distributor Conference, over ten sub-forums and closed-door exchange sessions, and the first major debut of the 【Ultimate Supply Chain】Brand Factory Direct Procurement Fair. It will gather thousands of FMCG brands, distributors, retail transformers, and industry service providers from across the country in Chengdu for continuous brainstorming, jointly exploring the challenges and opportunities, changes, and solutions 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 worthwhile conference! For conference business cooperation, please contact: 🔺Scan code for ticket consultation🔺***