Old Crab: "Since when did HotMaxx start selling fruit???" A Xiaohongshu user raised this soul-searching question after seeing HotMaxx's new 19.9 yuan red strawberry. Of course, he wasn't the only one with such doubts. Amid the confusion, interest in HotMaxx has also grown. Although I didn't buy my first bottle of Perrier at HotMaxx, I got hooked because of this 19.9 yuan box of red strawberries. Many consumers are even more curious about HotMaxx: now that they have fruit, will they add more categories in the future? Currently, HotMaxx covers food and beverages, beauty and skincare, fruit, toys, and pet food and supplies. Since 2021, HotMaxx has been continuously expanding into new categories, and such changes have delighted consumers. HotMaxx is meeting more of consumers' needs beyond just eating. Corresponding to the category expansion, HotMaxx's performance has also been climbing. From 1,000 stores in 4 years, from near bankruptcy to nearly 5 billion GMV, HotMaxx is already the top player in the soft discount retail track. However, there are many discount retailers; why do consumers prefer HotMaxx specifically?

Near-expiry food is just a traffic driver; HotMaxx's essence is selling a sense of surprise

"Last time I went to HotMaxx, I bought a big bag of stuff for 70 yuan, and the official said I saved over 30 yuan," a consumer marveled. HotMaxx has a group of loyal users who visit every week. Although they have no clear purchase purpose, they always want to check the store to see if they can find some "surprises." Or, in other words, see if there really is a "pie falling from the sky." Big brands plus ultra-low floor prices make it hard not to secrete happy dopamine. This kind of behavior aligns with human nature and is key to why HotMaxx is so fascinating. Especially in the current environment, this "sense of surprise" makes consumers even more addicted. A Nielsen report shows that this year, Chinese consumers put thriftiness first in consumption, and the vast majority believe they should control spending in daily consumption. Meanwhile, among the many spending-control strategies, visiting discount stores ranks high. When FMCG enters the "value-for-money" era, consumption downgrading is an indisputable fact. However, after consumers have experienced the satisfaction of consumption upgrading, only "quality-price ratio" can move them now. Everyone wants to catch the "pie falling from the sky," but not all consumers are particularly fond of HotMaxx. In the early days of discount stores, many consumers said they felt a sense of shame shopping at HotMaxx. The argument at the time was that white-label products accounted for a large proportion, and buying near-expiry food was not actually cost-effective. It wasn't until HotMaxx gradually reduced the proportion of white-label products and began to continuously introduce big brands that "quality-price ratio" became one of its labels. So, who is actually buying HotMaxx now? A fact that subverts everyone's perception is that high-income families prefer visiting near-expiry discount stores, even accounting for more than half. Data shows that discount stores are more popular in upper-tier cities (generally referring to first- and second-tier cities), and the consumer groups are roughly divided into three categories: high-income families account for 57%; young families with children account for 32%; young families without children account for 23%. HotMaxx's important consumer groups are concentrated in the 20-35 age range, especially white-collar workers and mothers. They have spending power, pay attention to cost-effectiveness, can accept novelty, and can also distinguish which products are truly worth the money. This means that as long as HotMaxx firmly grasps the hearts of these people, it also grasps the lifeline of its business.

In fact, not all products in HotMaxx stores are cheap. The reason HotMaxx can make consumers prefer it is because it creates a cheap atmosphere. Near-expiry food, as the sales ace of HotMaxx stores, often serves as a traffic driver to attract consumers to the store. In HotMaxx stores, single-digit products like 1.9 yuan and 3.9 yuan give consumers the impression that HotMaxx has brought down product prices. In addition, HotMaxx also finds well-known brands in different major categories, introduces classic near-expiry single items, and pairs them with rock-bottom pricing, invisibly immersing consumers in this cheap atmosphere. In terms of store design, HotMaxx uses a red visual, paired with slogans like "Saving money is as easy as breathing," "Lots of big brands," and "Quality goods at low prices, just go for it," echoing the floor-price products. Moreover, HotMaxx does not leave enough space between shelves, making the dazzling array of products closer to consumers both physically and psychologically. It is worth mentioning that in HotMaxx stores, there are not only customers busy selecting products, but also staff busy restocking shelves. HotMaxx also sets some small details on the receipt. After consumers check out, the receipt not only lists the shopping list but also summarizes how much money the consumer is expected to save from this purchase. This Pinduoduo-style operational detail is integrated into the shopping experience by HotMaxx, once again reinforcing the brand's mindset: saving money is as simple as breathing. These subtle store experience details collectively create a cheap atmosphere, making consumers feel what it means to have a "pie falling from the sky" from the moment they enter the store.

Buyer + algorithm as a safety net, then what?

Doing a great job on the shopping experience certainly surprises consumers, but a good store experience alone cannot completely capture consumers' hearts; the most fundamental thing is still the product. As mentioned at the beginning, HotMaxx continuously expands categories, evoking more consumer desires. So, how does HotMaxx continuously provide a sense of surprise in products? Dao Fa summarizes HotMaxx's approach to category expansion, roughly divided into two steps: The first way is to expand new major categories, gradually meeting consumers' needs for supermarkets. In major categories, HotMaxx covers food and beverages, beauty and skincare, daily cleaning, medicine and health, toys, and pet food and supplies. It mostly covers consumers' daily consumables needs. When consumers realize that the categories in HotMaxx can partially replace the functions of traditional supermarkets, they will naturally go to HotMaxx first to buy. The second is to find fresh small categories under major categories. For example, in the food and beverage sector, HotMaxx will introduce coconut water, ice cream, pre-made dishes, etc., based on the latest consumer trends. Under major categories with important sales proportions, finding more small categories can meet the standard of surprise. Continuously expanding categories, for HotMaxx, the most important issue to solve is cost. How to quickly turn over to avoid backlog while meeting the demand for new products on shelves every week? HotMaxx's solution is to use a buyer mechanism + algorithm empowerment to provide a safety net for the sense of surprise. HotMaxx has more than 100 buyers, accounting for over 40% of the team. Zhang Ning believes that buyers don't need to be very professional, but they need to understand young people well, know the latest consumption trends, and what "internet-famous products" can trigger consumers' freshness. For example, after HotMaxx began to continuously introduce blind boxes, many players on Xiaohongshu experienced the joy of "boxing" at HotMaxx. Even if it's not the core hit product of Pop Mart or other brands, it can always hit HotMaxx consumers, and some netizens even hope someone can help with purchasing on their behalf. Picking treasure single items is important, but buyers also need to consider purchase inventory and product prices. It is understood that HotMaxx screens about 100,000 SKUs into the warehouse each year, but the actual carrying capacity of stores is only more than 1,000 SKUs. Under such a huge number of SKUs, HotMaxx cannot rely solely on manpower such as buyers and store managers to efficiently select products for storage. Product, price, and inventory are the three key elements for HotMaxx to successfully run a healthy business model while selling a sense of surprise. Based on this, Zhang Ning began to expand the internal algorithm team, combining AI algorithms with buyers. The algorithm calculates the target product's indicators based on multiple dimensions such as influence, price, shelf life, and the company's similar product inventory level, and gives a price that HotMaxx can accept. If it exceeds the price range provided by the algorithm, even if the single item is attractive, buyers cannot let it enter the store shelves. In addition, because HotMaxx adopts a "small batch, fast run" purchasing model, the turnover rate of a product is controlled to be digested within 2-3 weeks, but the consumption speed of different single items in different stores is not consistent. That is to say, the product operation capability between stores is more complex. To ensure rapid product turnover, HotMaxx uses algorithms to achieve "thousand stores, thousand faces." Based on the selling price and expected sales speed of different products, products are allocated to different stores, keeping the product unsold rate as low as possible, below 1%.

However, algorithm + buyer empowerment is not unique to HotMaxx. There is another strong competitor in the discount store track—Hi-Tech Go. From its inception, it regarded itself as an internet company, also using big data to help stores analyze site selection and product selection. It also cultivated a strong buyer team to pick desired products for consumers globally. It can be said that the business models of discount stores are almost the same. As Hi-Tech Go founder Zhang Qiang once said: "I don't think there is an absolute brand moat, because anything a brand can do today, other brands may be able to do tomorrow."

The question left for HotMaxx is: if it cannot build its core competitiveness on algorithm + buyers, then how can HotMaxx become a brand that transcends cycles? It is undeniable that HotMaxx, which has opened a thousand stores, has become the king of the discount retail track. As its brand effect becomes stronger, more and more consumers gradually recognize HotMaxx and pay for the sense of surprise. In the future, what else can HotMaxx do to provide consumers with a sense of surprise?

Analyst Comment

While other discount stores are still focusing on expanding stores, HotMaxx hopes to find new business models. Not long ago, HotMaxx officially launched its outlet business, opening a 10,000-square-meter warehouse-style discount warehouse in Nanjing. In addition to covering daily food, alcoholic beverages, home furnishings, shoes and clothing, it even sells luxury goods in the store. On the first day of opening, the gimmick-filled HotMaxx Super Warehouse attracted a large number of consumers who wanted to squeeze in and experience a different kind of "value for money." Bolder business, fresher models. HotMaxx's speed is like the employees in the store, always busy restocking, afraid of seeing empty shelves. HotMaxx has been running fast, and the track never lacks competitors.

[New Order · Symbiosis]

The 10th China FMCG Innovation Conference

Time: March 17-19, 2025

Location: Chengdu, China