In 2023, discount stores were extremely popular. But this is truly not an easy business. You can earn a 30% gross margin, but I only want 20%, and still hope to make money through it. There's no choice: consumption growth is gone, supply is oversupplied, so we have to do harder business. 2023 was already an extremely competitive year; what will 2024 be like? Recently, I have been visiting the market. Will snack discount stores continue to grow? How will discount supermarkets develop? Who will join the hard discount track? And what does all this mean for FMCG brands? Today, I plan to share my observations and thoughts with you in one article.

Snack Discount Stores Will Continue to Grow

Will snack discount stores continue to thrive in 2024? Many people have always been pessimistic about snack stores, believing they cannot last, so in 2023, "we saw them rise," and in 2024, they might "see them fall." The farther away from this business model, the easier it is to have such thoughts. In the past month, I visited many cities, and I saw snack stores everywhere. I made a special observation: snack discount stores are basically the stores with the most foot traffic on their streets. I also communicated with many manufacturers and distributors cooperating with snack stores, and they still have a positive outlook on this channel—goods are genuinely sold through this channel, and you can feel the power of this channel. Today, the impact of snack discount stores is significant, but relative to the overall market, it is still small. In a 1.2 trillion market, it only holds a 6-7% market share. In 2024, snack discount stores will continue to grow, but at a slower pace. In 2023, there were about 25,000 snack discount stores, and next year it may double. But there are several points worth noting. First, the overall industry environment: the real economy itself is very difficult. This time, when I visited lower-tier markets, whether in shopping malls or wholesale markets, business was sluggish. Second, the competitive environment is more severe. One is competition among peers: with high store density, business is inevitably hard to maintain, which has already appeared in some regions in 2023. Another is cross-industry competition: in 2023, traditional supermarkets were somewhat stunned by discounts, and in 2024, they will fight back—the effect remains to be seen, but it is indeed a factor. In 2023, the industry expanded rapidly, relaxed franchise controls, and added many franchisees who have problems in operational capability and business expectations. The payback period for snack stores continues to lengthen, and many who cannot hold on will close. Therefore, in 2024, more franchisees will close down than in 2023, but it will not be a systemic phenomenon—though the media may make a big fuss. Additionally, in 2024, the concentration of the snack discount store industry will continue to increase. With the duopoly pattern set, there will still be sporadic mergers. Increased industry concentration will bring significant economies of scale: upstream manufacturers will give top-tier systems the best cost and R&D support, and the generational gap in products between snack stores of different sizes will be obvious. Therefore, regional snack stores with smaller scale will face greater pressure, and they will choose to band together, using joint procurement to gain cost advantages.

More Players Enter the Discount Track

In 2023, there was another important participant in the hard discount track: multi-category discount supermarkets/warehouse stores. We previously conducted statistics: except for Le'erle, which has 3,800 stores, other brands basically have around 200 stores. This is related to the category. Community discount supermarkets/warehouse stores need to optimize multiple categories simultaneously, making breakthroughs in the supply chain more difficult, which is an important reason why they are generally smaller in scale compared to snack discount stores. In this list, we can also glimpse the current development context of hard discount in China. Le'erle is a hard discount model born in China, a product of the unique market environment combined with the founder's characteristics and style. It has significant implications for the development of hard discount in China. This is reflected in two points. First, its impact on snack discount stores. In 2017, Snacks Are Busy was established, shaping the later hot snack hard discount track. Many people trace the origin of bulk snack stores back to Laoban Daren, established in 2010. In terms of form, that's not wrong, but in terms of hard discount business logic, it should be traced back to Le'erle. There are articles that show the connection between the founder of Snacks Are Busy and Le'erle. Second, the future integration of regional market supply chains. We have previously mentioned that the underlying logic of hard discount is low gross margin, high turnover, and large scale. Among these, large scale is the real barrier. Currently, apart from snack discount stores, only Le'erle among local hard discount players has achieved large scale. Starting in 2023, Le'erle has been strengthening its supply chain capabilities through partnerships and franchising, which will promote the development of hard discount in China. Other discount retail players can be roughly divided into two categories:

One is entrepreneurs entering the track with hard discount concepts and capital;

The other is local entrepreneurs who entered from soft discount of near-expiry products and gradually transformed into hard discount, or a combination of soft and hard. Among the entrepreneurs entering with hard discount concepts, there is a type I call fundamentalists, who operate according to the classic ALDI hard discount model, replicating the German model without scale, such as pure direct operation and private labels, which requires long-term, sustained capital investment. The development of this type of model in the Chinese market in the coming year is worth watching. In 2024, discount supermarkets will continue to develop, but they will not experience the same rapid growth as vertical category snack discount stores. Moreover, it will become a hot spot for entrepreneurship. In addition to the brands on the list, several other forces will join. One is the experimenters, mainly snack discount stores, who will shift from vertical category hard discount to attempts at multi-category discount supermarkets. Another is the transformers, including regional traditional retailers and distributors. They flood into the discount retail track not because it is a good business, but as a necessary response under intense competition. At the beginning, they cannot gain cost advantages through supply chain integration; they can only provide low prices by reducing gross margins. Whether the experimenters and transformers can succeed is uncertain, but one thing is certain: price competition in regional markets will further intensify!

Behind the Price Competition

But price competition is still only what we can see. What is invisible? It is that the traditional channel distribution system led by manufacturers can no longer adapt to the current industry development and must be adjusted. Many people believe that the current hard discount is like previous B2b and community group buying: after the capital frenzy, I will continue to do what I did before. I think this is the biggest misunderstanding. Discount stores are the manifestation, hard discount is the description of the phenomenon; we need to see what's behind them: the commodity circulation system led by brand owners, colluding with distributors and traditional retailers, has been broken. Such a system helped them cover millions of terminals and achieve market success. But from the consumer's perspective, manufacturers locked down shelves through fees and sales teams, binding consumers. More high-quality, low-priced products were isolated by such a system. In 2023, we saw the stark contrast in retail. On one hand, traditional supermarkets and hypermarkets saw declining foot traffic and constant store closure news; on the other hand, Sam's Club, Costco, and snack discount stores continued to expand and saw hot consumption. Many people think this is just a retail-level matter; traditional retail needs to change. This is a misjudgment. The truth is: the order in which brand owners pushed their products to consumers through distribution systems is collapsing. The order that organizes and mobilizes consumers to find good products for their needs is being established. In the past, there were many high-quality, low-priced products, but they could not appear on the shelves of traditional supermarkets because they didn't understand marketing, didn't have sales teams of thousands, and couldn't afford various fees. In 2023, products from source factories with ultra-high cost-performance appeared on discount store shelves, and in 2024, more such products will appear. In 2023, we saw traditional supermarkets seeking change, such as Hema, Yonghui, and recent adjustments in some Walmart stores. In the brand's channel distribution system, traditional supermarkets are colluders. They are forced to change under the pressure of membership stores and discount stores. So, should FMCG brands change? How should they change? 2023 was a year of severe divergence: some brands followed new channels and saw continuous growth, some were hit hard by new channels and declined sharply, and some adjusted strategies in time to lay the foundation for future growth. For FMCG manufacturers, 2024 is an important node. 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 Anneng 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. At this conference, a sharing session on "Hard Discount and FMCG Channel Distribution System" will be held, hoping to bring deeper inspiration to the attending guests. On March 16, a closed-door meeting on hard discount will be held: Hard Discount Models and Operations, with one-on-one dialogue and discussion with expert teachers, sharing experiences, and discussing dividend opportunities in the hard discount era! At the same time, the 2nd Hard Discount Conference will also use a full day to bring together discount retail industry experts, brand executives, etc., to re-examine the new channels, new directions, new thinking, and new opportunities in the discount era! Under this supply chain revolution, a new business era will be born. I hope every participant will still have a place in this wave, and I believe this will be a worthwhile meeting! For business cooperation, please contact: 🔺Scan code for ticket consultation🔺