---
title: "How Deep Is the Discount Store Water?"
description: "Discount MAMA's store in Beijing's Yizhuang area has recently seen a surge of check-in posts, many saying, 'I came because of Teacher Liu Run.' Before the annual speech by renowned business consultant Liu Run on October 28, few had heard of the discount retail brand Discount MAMA. In Liu Run's presentation, the figures of 2,500 stores, 1.7 billion yuan in revenue, and 32% gross margin drew external attention. Among them, peers in discount retail questioned: 'Why can only 4 stores be found on the map?' and 'Calculated, each store sells 680,000 yuan a year, with daily turnover of over 1,800 yuan and gross profit of over 600 yuan. After deducting employee wages of 200 yuan and rent of 200 yuan, can it make money?'"
author: "定焦团队"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-11-12"
language: "en"
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# How Deep Is the Discount Store Water?

> Discount MAMA's store in Beijing's Yizhuang area has recently seen a surge of check-in posts, many saying, 'I came because of Teacher Liu Run.' Before the annual speech by renowned business consultant Liu Run on October 28, few had heard of the discount retail brand Discount MAMA. In Liu Run's presentation, the figures of 2,500 stores, 1.7 billion yuan in revenue, and 32% gross margin drew external attention. Among them, peers in discount retail questioned: 'Why can only 4 stores be found on the map?' and 'Calculated, each store sells 680,000 yuan a year, with daily turnover of over 1,800 yuan and gross profit of over 600 yuan. After deducting employee wages of 200 yuan and rent of 200 yuan, can it make money?'

Discount MAMA's store in Beijing's Yizhuang area has recently seen a surge of check-in posts, many saying, 'I came because of Teacher Liu Run.'
Before the annual speech 'The Power of Evolution' by renowned business consultant Liu Run on October 28, few had heard of the discount retail brand Discount MAMA. In Liu Run's presentation slides, the figures of 2,500 stores, 1.7 billion yuan in revenue, and 32% gross margin drew external attention.
Among them, peers in discount retail raised doubts: 'Why can only 4 stores be found on the map?' and 'Calculated, each store sells 680,000 yuan a year, with daily turnover of over 1,800 yuan and gross profit of over 600 yuan. After deducting employee wages of 200 yuan and rent of 200 yuan, can it make money?'
Subsequently, Discount MAMA founder Xing Yunfei and Liu Run responded separately. Liu Run stated on November 1 that the data had been confirmed with Discount MAMA founder Xing Yunfei; the 2,500 stores include self-operated stores, co-branded stores, and stores supported by the supply chain; the 1.7 billion yuan revenue is the total income from all three types of Discount MAMA stores.
However, the related discussion did not stop. It also brought more attention to the discount retail business model, which has exploded in popularity in recent years.
In fact, this is a business model that has long been validated. It originated in Germany in 1945, giving birth to the famous German discount supermarket ALDI. In Japan, the discount chain king Don Quijote was born in 1989. These two companies have thrived to this day, and data shows that as of 2022, discount retail stores account for more than 10% of the global top 250 retailers.
In the past two years, a batch of discount chain stores such as HotMaxx, Hi-Tech Go, and Snacks Busy have emerged domestically, expanding from regional operations to nationwide.
Beyond the controversy, this article attempts to dissect what kind of business discount stores really are. What role does Discount MAMA play in the track? Has the discount store model been continuously favored this year, and what is the competitive landscape?
**What exactly does Discount MAMA do?**
If one sentence were to summarize the recent controversy surrounding Discount MAMA, it would be: **The three data points on the PPT refer to different entities and calculation calibers, but placed on one chart, they are easily misunderstood.**
According to Xing Yunfei's responses across various channels, the 2,500 stores include Discount MAMA's self-operated stores and the stores it supplies; the 32% is the gross margin of terminal retail stores; and the 1.7 billion yuan is Discount MAMA's supply revenue to third-party channels plus its own stores.
On November 2, Liu Run responded again, posting to corroborate the above view, stating that Discount MAMA serves a total of 2,500 stores, of which the 1.7 billion yuan revenue includes income from self-operated stores plus supply chain service income, and the 32% gross margin applies to the stores it supplies.
After several rounds of debate, the outside world began to wonder about Discount MAMA's business and founder Xing Yunfei himself. Xing Yunfei has also repeatedly stated that it is wrong to understand Discount MAMA as a C-end retail store brand.
**So what model is Discount MAMA?**
According to Xing Yunfei's introduction in an external interview in September this year, he previously worked in the European investment department of Blackstone Group and served as the national strategic operations director for Meituan's community group buying. He is a serial entrepreneur in retail and fresh food. He founded Discount MAMA in 2021, and as of September, it had more than 20 stores in Beijing, with a store gross margin of 36%.
In various interviews, Discount MAMA is described as a company that has both self-operated discount stores for near-expiry products and TO B business, including co-branded stores, co-branded channels, and wholesale business. The key co-branded channels are gas stations and highway service areas. Discount MAMA also supplies urban supermarket chains, convenience stores, community group buying, campus channels, and some Southeast Asian export channels. Xing Yunfei also claims that Discount MAMA's overall business has always been profitable.
However, currently, the map shows only three Discount MAMA stores in Beijing, and stores in other cities are not yet displayed on the map. That is to say, **currently, Discount MAMA plays more of a supplier role, purchasing near-expiry products at low prices from brand owners and supplying them to its own direct-operated stores and third-party channels.**
Xing Yunfei has repeatedly emphasized supply capabilities in interviews, stating that the company has no procurement personnel; all products are directly purchased with cash from brand owners, providing brands with a solution based on annual contracts, forming a monopoly on brand supply. He cited Procter & Gamble as an example: 'After obtaining P&G's authorization, P&G synchronizes its inventory table to us every quarter.'
According to industry insiders, discount retail enterprises that open their own stores, control their own channels, and cooperate directly with brand manufacturers with point-to-point delivery represent a healthy and efficient model. However, it is puzzling why Discount MAMA would close many self-operated stores this year, shift to the upstream with thinner margins, and currently promote franchising.
In a podcast program, Xing Yunfei revealed that the company currently adheres to two franchise models: one is city partners (fee of 2 million yuan), who can replicate Discount MAMA's supply chain resources and attract local mom-and-pop stores to join; the other is city franchise stores (fee of 200,000-250,000 yuan), recruiting franchisees in lower-tier markets and regions.
Generally speaking, the capabilities required for self-operated stores, supply, and franchising are different. Na Mingyuan, co-founder of Dolphin Society, said that different models correspond to different business capabilities and requirements. Opening stores requires expertise in site selection, rent negotiation, and daily operations; supply requires stable sources, delivery capabilities, and the ability to expand terminal customers; franchising requires strong SOP capabilities, profit-sharing capabilities, and brand marketing capabilities.
**Hard Discount vs. Soft Discount: Who Wins?**
The discount retail format has developed to have three ultimate forms.
Wei Fan, a senior practitioner in the discount retail industry, summarized that one is the membership-based warehouse club like Costco and Sam's Club, with gross margins controlled at around 14%, profiting from membership fees, but this type is not within the consideration of investment institutions.
**Currently, the two forms of discount stores that domestic investors are most active in are:** one is **hard discount**, benchmarked against ALDI, selling regular products at low prices through centralized procurement and reduced operational efficiency. The other is **soft discount**, benchmarked against Don Quijote, entering with near-expiry surplus products and selling at discounts off the original price.
With the rise of the discount retail industry in China, the **'hard vs. soft discount' model debate** has never stopped. Which model is better?
Soft discount attracts customers with near-expiry products, but because users do not have clear consumption purposes before entering, it requires creating an immersive shopping experience. Therefore, a store has 3,000-4,000 SKUs, serving mostly young white-collar workers or students.
This also leads to a fatal weakness of soft discount: dependence on suppliers. The supply of near-expiry surplus products is unstable, leading to unstable average transaction values. Therefore, stores need to be located in areas with high foot traffic, such as shopping malls, parks, and office buildings, to increase customer visits.
Hard discount stores, on the other hand, are located near communities, serving families, with only about 800 SKUs, all regular products covering daily necessities, with most categories offering only 2-3 brands to achieve large-scale procurement and lower prices. Users typically enter with a specific purpose and leave after purchasing.
Ren Yu, an investor who has long focused on the discount retail track, said, **'Soft discount stores have gross margins of 30%-40%; hard discount stores have relatively more stable income but lower gross margins, generally 15%-20%.'**
In the hard discount track, this year, a snack discount format has also emerged. Its model uses big brands to anchor consumers' low-price mindset and then earns money from high-margin bulk snacks. According to Ren Yu, franchisee store gross margins are 18%-20%. This track is expanding rapidly in lower-tier markets, with multiple brands receiving financing in 2023.
In summary, most of these discount retail enterprises were established during the pandemic, concentrated financing in 2021 and 2022, and based on the number of stores and regional layout, a clear track pattern has now formed.
Wei Fan mentioned that one of the difficulties in the later stages of discount store operations is scattered supply sources. On one hand, the number of players entering increases, competition is fierce, and upstream supply chain integration is difficult; on the other hand, there are more channels for surplus goods, and many people with goods choose to sell directly through live streaming. Several near-expiry sellers have already built IP on Douyin.
In this situation, **many soft discount enterprises that entered with near-expiry products, after anchoring consumers' low-price mindset, begin to dynamically adjust to hard discount or hybrid models.** One manifestation is gradually reducing near-expiry products and starting to establish their own OEM brands, with some own-brand products accounting for over 65%. Among them, HotMaxx has applied for the 'Xiaqu' trademark, and Hi-Tech Go has registered several trademarks such as 'Qiang Xiaolu' and 'Mutou Qiqi'.
Another major challenge for discount retail is scale. Without sufficient scale, relying solely on one's own cash flow makes it difficult to replicate and expand. Therefore, most soft discount brands choose to open franchising to accelerate expansion, helping solve funding and site selection issues.
From public information, HotMaxx has opened a co-branded model: paying a 340,000 yuan deposit plus a 19,800 yuan training fee makes one a 'partner,' with a payback period of about 10 months. Hi-Tech Go currently has three cooperation models: brand authorization, store-with-franchise, and independent operation. According to the simulated calculation data in its franchise recruitment manual, for a 300-square-meter store with a 3-year lease, with monthly average revenue of 500,000 yuan and annual revenue of 6 million yuan, the franchisee can earn 1.68 million yuan per year, and it takes 17 months to recoup the investment. Discount MAMA's franchise model is similar to the above two companies.
**However, many industry insiders are not optimistic about hard discount brands opening franchising.** 'We believe that the franchise model is inherently contradictory to hard discount retail. Hard discount itself has very thin profits, leaving no extra money to give discounts to franchisees, and franchisees do not have a good price advantage either,' Ren Yu said.
**The Discount Store Industry: Bubbles and Opportunities Coexist**
Why has the discount retail format exploded in recent years?
'Consumption is divided into premium consumption and value-seeking consumption. Brand and price are equated. If you can buy old models of brands at a relatively cheap price, it offers better value for money and meets current market demand,' Na Mingyuan said.
From the supply side, the development of new consumption in the past few years has created bubbles in the primary market. Consumer brands have accelerated new product launches, entering a stage of overcapacity to some extent. Now that the market has cooled, a large amount of inventory and surplus goods have piled up.
According to Wei Fan, some emerging domestic brands have long had 8%-12% inventory, and some may be higher. **Such surplus products have long existed, but previously they were sold in gray areas; now there are legitimate channels.**
During the 2008 U.S. financial crisis, Vipshop seized the opportunity of online discounts. In 2018, amid the Sino-U.S. trade friction, Na Mingyuan and his team predicted that the opportunity for offline discounts had arrived, so they participated in Bigoffs warehouse retail discount stores. He believes that brands need to continuously launch new products to lead market trends and capture consumers, and the inventory pressure of old models needs channels to release. As long as the balance of quantity is well managed, it will not affect the prices of new products.
Additionally, Wei Fan mentioned that in the past three years, commercial real estate has faced issues such as store closures and vacancies, which also provided opportunities for discount stores to enter shopping malls and shopping centers.
Therefore, many industry insiders have stated that in just a few years, with the catalysis of capital, a leading echelon has formed. **Discount stores are a business that can develop long-term, and the business model has been proven in many countries. In the coming years, it will be a stage for leading players to expand their territory.**
However, since last year, some startups such as Prosperity Market and Bengong Snack Innovation Research have exited the market for various reasons, and multiple brands' near-expiry discount stores, such as Hi-Tech Go and HotMaxx, have also experienced store closure waves in some cities.
**Bubbles and opportunities coexist; this is the consensus of many industry insiders on the current state of the discount store industry.** Foreign discount stores have been operating for decades and have reached a scale of ten thousand stores. China's discount store industry is still in its infancy. Ren Yu said that ideally, there would be a very cheap discount store near every community.
Between ideal and reality, the discount store industry still has hurdles to overcome.
The most critical is how to balance single-store profitability and overall expansion. Ren Yu said that facing shareholder pressure or peer competition, companies need to expand, but the single-store model needs refinement and cannot be quickly replicated.
Second is how to solve product issues during expansion. During the pandemic years, new channels such as community group buying and live-stream e-commerce developed. How discount stores negotiate with brands is also a major challenge.
How long will the industry need to achieve a larger scale? Is there a possibility for players to go public? **Whether it is possible to develop a national, publicly listed discount chain brand in China remains a question mark.**
Currently, practitioners see only regional brands, which is related to the characteristics of China's retail industry. 'Everyone has some localized supply and store acquisition capabilities in their respective regions. The higher the store density, the lower the fulfillment and promotion costs. But whether they can cross provinces to become a national brand tests whether the team is excellent enough, whether they can find categories with national brand concentration and control goods from headquarters, and whether they can solve the high costs of cross-regional transportation and warehouse system management,' Ren Yu said.
Looking back, compared to the controversy of one company, the discount retail industry's representation of 'low price as core competitiveness' and the business logic and thinking behind it are what truly deserve our exploration.
*Cover image sourced from Unsplash. At the request of the interviewees, Wei Fan and Ren Yu are pseudonyms in this article.
_New Distribution has established a community themed around **'Hard Discount'**, sharing the latest information on the format and discussing development trends and responses. Add WeChat to apply for entry into the community._


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