Click to read the original article for details Source: Lingshou (ID: lingshouke) Author: Qingshan From a long-term perspective, near-expiry food is a short-demand industry that is unsustainable, and the market is prone to rapid saturation, leading to fierce competition. In the eyes of some aspiring entrepreneurs, near-expiry food has become a "new business opportunity" amid the consumption wave. Especially in the first half of this year, multiple near-expiry food brands secured financing. In April 2021, Xiaoxiang Life completed a tens of millions yuan angel round; in March of the same year, two near-expiry food brands, Ai Zhekou (formerly Shihuibang) and Boom Boom Mart, completed angel and Pre-A rounds of tens of millions yuan respectively. In addition, the industry's veteran player, HotMaxx, secured four rounds of investment within just one year. Offline near-expiry food specialty stores represented by HotMaxx, Xiaoxiang Life, and Boom Boom Mart are accelerating expansion through franchising and joint operations; while on online shopping platforms, near-expiry food stores like Hao Shi Qi and Shuai Shuai Mai can achieve monthly sales in the tens of thousands. For a time, the near-expiry food business became a hot commodity, driven by a gradually expanding market demand. **Data from a research report shows that the near-expiry food market reached 19.4 billion yuan in 2020, and is expected to exceed 20 billion yuan in 2021. The market size is projected to accelerate growth from 2021 to 2025. However, a near-expiry food store owner said, " Many people think that near-expiry food has high gross margins and is an industry where you can make money lying down, but the real situation is not that ideal. " Currently, near-expiry food is still in the early entrepreneurial explosion phase. It still faces many challenges such as imperfect supply chains and unstable supply sources. Wang Hao (pseudonym), who established a near-expiry food warehouse in Baoding, told Lingshou that only large distributors and wholesalers can obtain goods directly from manufacturers, and they calculate quantities in tons or truckloads. Wang Hao purchases from these wholesalers, but he does not have fixed wholesalers. "I usually get a bit from this wholesaler and a bit from that one, piecing together a near-expiry food inventory." Wang Hao revealed that his supply is extremely unstable, and every time he visits a wholesaler's warehouse, he finds different products, because these large distributors also piece together goods from various wholesalers. But this "piecing together" process also creates price differences in the supply, so each middleman's price varies. "It depends on your bargaining power." Of course, compared to these, what is more concerning is why this "new business format" that appeared four or five years ago has only now become popular? This is also closely related to the pandemic. Near-expiry food has gradually become an industry, especially in the last two years, with rapid warming. In 2020, due to the pandemic's impact, the upstream supply of the near-expiry food industry surged, entering an explosive phase overall. Coupled with China's current advocacy of "supply-side reform" and "eliminating waste," the near-expiry food industry aligned with national policy direction, gaining exposure from official media and public support. Therefore, near-expiry food suddenly "went viral" in 2020. Driven by financial support, policy support, and ample upstream supply, the market size of the near-expiry food industry expanded rapidly. Additionally, some consumers' acceptance of near-expiry food has also accelerated industry development to a certain extent. Currently, the more prominent offline near-expiry food brands include HotMaxx, Xiaoxiang Life, and Boom Boom Mart. HotMaxx, founded in 2014, started its angel round in September 2019 and received tens of millions of yuan in financing from Rizhao Capital and GSR Ventures in September 2020. It mainly focuses on first- and second-tier cities like Beijing and Shanghai. According to its latest project cooperation document, HotMaxx has 170 stores, placing it in the industry's first tier. Competitor Xiaoxiang Life, founded in 2020, started its angel round in April 2021 and subsequently entered Nanjing, Yangzhou, Hefei, as well as counties like Huangmei, Liyang, and Donghai, targeting lower-tier markets. It is reported that Xiaoxiang Life has signed strategic inventory distribution cooperation agreements with 200 brand owners, over 4,000 distributors, and more than 80 importers. Boom Boom Mart was founded in August 2020 and completed a Pre-A round of tens of millions of yuan from Challenger Capital in March this year. It also focuses on first- and second-tier cities, with college students and white-collar workers as main consumers. At this stage, the business models, consumer groups, and product categories of offline near-expiry food stores are similar, and they are still in the stage of competing for expansion speed and scale effects, with no obvious differentiation. In terms of products, whether it's milk, beverages, bread, biscuits, snacks, or nuts like melon seeds and peanuts, there is almost no major difference in the most commonly eaten varieties across stores. In terms of pricing, products are sold at 1-5% of the original brand price. For example, a 9.9 yuan Want Want bear biscuit is now 3.8 yuan after discount; a 29.9 yuan Xinjiang blueberry plum fruit is only 5.9 yuan; a 35 yuan Alps cute paw candy is 10.8 yuan; a 120 yuan imported red wine is only 31.5 yuan; and a 120 yuan imported oat biscuit is only 6.8 yuan after discount. In terms of price tag presentation, without exception, the original price is crossed out, replaced by a selling price far below the original. The more well-known online near-expiry food platforms are Hao Shi Qi and Shuai Shuai Mai. The products on the two platforms are similar, but their operating methods differ. Both Hao Shi Qi and Shuai Shuai Mai have their own apps, WeChat mini-programs, and Alipay mini-programs. In terms of operating models, Hao Shi Qi mainly adopts a "merchant entry + self-operated" model, while Shuai Shuai Mai mainly sells self-operated products. On Pinduoduo, a near-expiry food store has over 90,000 followers and more than 100,000 group-buy orders. A Douban group called "I Love Near-Expiry Food," established last September, has expanded to 70,000 members. In terms of consumer demographics, domestic buyers of near-expiry food are mainly young people, including the post-90s generation, college students, and young people working and living in second- and third-tier cities. Because the prices are low and the products are still within their shelf life. According to relevant data, the total output value of the snack industry in 2020 was close to 3 trillion yuan. If we calculate based on 1% of annual inventory accumulation in the snack industry, the scale of near-expiry products in 2020 was about 30 billion yuan. This provides a large supply of near-expiry food. **The large supply of near-expiry food mainly comes from three sources: First, intense competition among food companies, leading to overcapacity under "involution"; second, consumer brands continuously launching niche-flavored new products to seize market share, which fail to achieve expected market performance, resulting in huge inventory backlogs and unsold goods; third, imported food is a major source of near-expiry products, as during the pandemic, the time from distributors to retail terminals was too long, accelerating the transition to near-expiry. In addition, domestic snack brands like Three Squirrels, Bestore, and Lai Yifen each have hundreds of SKUs, and their poorly performing single products are also major sources of near-expiry food. Since last year, the outbreak of COVID-19 has had a huge impact on physical retailers. Some physical retail stores were unable to operate normally, and supply chains were interrupted or delayed, causing a surge in near-expiry food volumes, giving the originally niche near-expiry food industry a new development opportunity. For example, HotMaxx, which existed in the market since 2014, only rapidly expanded its market in 2020 and attracted consumer attention. From a consumption perspective, Zhang Yi of iiMedia Consulting said that the main driver for Chinese consumers purchasing near-expiry food is low prices. Currently, a considerable portion of the population remains highly sensitive to product prices. Against the backdrop of the warming near-expiry food format, traditional supermarkets, fresh food supermarkets, and convenience stores are also setting up near-expiry food shelves. For example, Carrefour and Walmart have reorganized their near-expiry food shelves; fresh food platforms like JD Seven Fresh and Hema Fresh have set up dedicated near-expiry product areas; and convenience store chains like Bianlifeng have arranged near-expiry food discount counters. Some industry insiders say that near-expiry food currently attracts many consumers with low prices. However, considering that near-expiry food is prone to spoilage and flavor changes if not stored properly, to ensure a stable customer base, efforts must be made on product quality. Currently, policies on near-expiry food mainly focus on defining conditions and quality safety standards, while pricing and selling methods are relatively free, giving merchants greater pricing space. The extensive management model allows near-expiry food retailers to have larger profit margins. The warming near-expiry food market has attracted many people to test the waters. In Beijing, HotMaxx stores basically occupy prominent locations with considerable foot traffic, such as Xidan Joy City, Changying Tianjie, Jinyuan Yansha, Dazu Plaza, Sanlitun SOHO, and many other popular shopping malls and core business districts. The HotMaxx store at the basement level of Shuangjing Fuli Plaza is adjacent to the subway entrance; the HotMaxx at Galaxy SOHO is in the middle of the sunken plaza and faces the street; and a prominent location on the first floor of Chongwenmen SoShow has also introduced HotMaxx. Additionally, some locations near subway entrances have also introduced HotMaxx stores. HotMaxx expands stores through a partnership system, with stores managed by operating partners. HotMaxx is responsible for rent, supply, and logistics distribution. Operating partners need to pay a 340,000 yuan deposit and a 19,800 yuan training fee. The operating partner's income is 12% of the store's sales, and they are also responsible for staff costs and electricity expenses. Stores typically range from 80 to 120 square meters, with average monthly sales in the last quarter ranging from 250,000 to 300,000 yuan. People following the near-expiry food format say that for HotMaxx stores in Beijing, based on the above standards, a 100-square-meter store requires fixed monthly costs of about 20,000 yuan for labor and utilities. With 300,000 yuan in sales, the partner's monthly dividend is 36,000 yuan, and after deducting fixed personnel and utility expenses, not much remains. Some industry insiders say that near-expiry food seems hot, but it hides the secret of brand expansion profitability. In addition, the near-expiry food industry chain has significant drawbacks. Suppliers hold considerable bargaining power, and the industry's pain points are unstable product supply and high requirements for refined store operations. These pain points become more apparent as the supply side gradually recovers in the post-pandemic era, and the situation of "too many monks, too little porridge" will make industry competition increasingly fierce. It is worth noting that during the industry's land-grabbing phase, near-expiry food stores are rapidly expanding, and near-expiry food supply warehouses are being built in minutes. Based on industry conditions, some experts point out that the business model of near-expiry food is short-demand, which can quickly appear or disappear with market changes. Independent economist Wang Chikun also said, "From a long-term perspective, near-expiry food is a short-demand industry, unsustainable, and the market is prone to rapid saturation, leading to fierce competition." The near-expiry food industry needs rapid response capabilities, sales channels, forecasting abilities, and scale effects; otherwise, it will be difficult to obtain goods or the cost of obtaining goods will be too high, ultimately leading to losses. Moreover, the emergence of this format is fundamentally a result of redundant distribution and operation in the food production and sales supply chain, a product of industry "involution." The inventory backlog caused by the pandemic's extremely special period has been transmitted downstream, boosting near-expiry food stores. But after the pandemic subsides or capital support fades, the industry will also cool down and fizzle out. PS: The 2021 (4th) China FMCG Conference, hosted by New Distribution, is about to open in Shanghai. Focusing on industry trends + practical cases + growth through connections as the core, 3,000 FMCG practitioners will gather for the event. 10 themed forums cover new retail O2O, community group buying, short-video live e-commerce, distributor transformation, rise of new consumer brands, new alcoholic beverage interpretation, distribution B2B supply chain, omni-channel marketing, B2B2C new technology applications, etc., with operators in each segment bringing the latest case studies. Some of the confirmed heavyweight guests so far include: **1. Tao Shiquan, founder of Jiangxiaobai; **2. Yao Xuhong, general manager of Meiyijia Holdings Co., Ltd.; **3. Lu Xiuqiong, global expert partner at Bain & Company and former vice president of marketing for Coca-Cola China; **4. Chen Xiaodong, senior vice president of Nestlé Greater China; **5. Zhang Fujun, president of Lee Kum Kee Sauce Group China; **6. Bi Chaojiao, general manager of China Resources Snow Breweries (China) Marketing Center; **7. Yang Hongbin, vice president of Junlebao Dairy Group; **8. Yang Shun, COO of Lipton Greater China; 9. Zhang Yipeng, general manager of Kuaishou E-commerce SKA Brand Operations Center; 10. Li De, e-commerce general manager of Gold Hong Ye Paper Group..... A grand event for FMCG professionals, you must be there! Are you "watching" me?