"The brand we OEM for sells at 10 yuan, but we can sell the identical product at 6 yuan." A factory manager told me. They are a food company that has been OEM for major brands. After the rise of snack discount stores, they saw an opportunity. Various snack store systems have been gradually listing their products. "In the past, we wouldn't have dared to think about it. The times have given us a chance," he said with emotion. Many people share his feelings. In the past, they could only do OEM for others. In 2023, with the rapid development of snack discount stores, many such factories have come to the forefront. And this is just the beginning. These factories have R&D capabilities, strict quality standards, and cost advantages. Adding only 10 points or even lower gross margin, their prices are extremely competitive. Such factories are very welcome in snack store systems. A friend said that recently they drove thousands of kilometers and basically visited all the major snack discount store systems. Now, the purchasing staff at snack store systems might be the busiest people, receiving 50-60 people a day. Those who come to talk are basically company bosses, and for big brands, they must be decision-makers. He was describing the current situation. Now, top snack discount stores select products either from brand names that bring traffic or from source factories with extremely high cost-performance ratio. For big brands, it's often a last resort, but for factories, this is an opportunity they must seize. Factories are at the upstream of the industry chain, including brand-owned factories and many that rely on OEM or exports. But in 2023, with both domestic demand and exports weak, businesses are struggling to survive. A local friend revealed that among nearly 1,000 food factories in Zhangzhou, business was generally sluggish in 2023. In October, many leading companies even operated only 5-6 days. In the past two months, more than 60 factories have closed, and many companies' goals have shifted from "growth" to "survival." Snack discount stores, as one of the few growing channels in 2023, everyone hopes to catch this fast train. But this is not an opportunity for everyone. Snack stores carry 1,600-1,800 SKUs, and they select the best in each category. They value factories with manufacturing capabilities, not just processing. If you are just a processing factory making homogeneous products, your chances are slim. Manufacturing requires four capabilities: R&D capability, product realization capability, product assurance capability, and product service capability. Factories that do OEM for big brands, especially those supplying channels like Sam's Club, are very competitive. In 2023, the concentration of hard discount snack stores increased. The top systems have 6,000-7,000 stores, and their influence on upstream is growing. A batch of high-quality factories is doing customization for them, presenting their own brands directly to consumers, while mid-tier and regional small snack store systems will follow the leaders. In 2024, as the penetration of snack discount stores further increases and retail moves toward full discounting, factory-owned brands with manufacturing capabilities will see even greater opportunities. And the reason for all this is simple: consumers truly have the power of decision. "Selection, trial sales, full listing, but it's not a one-time deal. They look at PSD (per store daily sales) and regularly eliminate products based on profit contribution." The product iteration speed in snack discount stores is very fast. Now, when you visit snack stores and nearby traditional supermarkets, you can clearly feel the generational gap in their products. Regarding snack discount stores, initially people wondered: Why are they cheap? Is cheap stuff bad? Then we found that their quality is not bad. Later, we found that not only is it not bad, but it's even better than in supermarkets. In 2023, physical retail was a tale of two extremes: on one hand, snack discount stores and warehouse membership stores were booming; on the other, traditional supermarkets were seeing few customers and closing down. Why? From a pure consumer perspective, it's simple: today, when you walk into any traditional supermarket, the displays and products are all the same, failing to stimulate your desire to buy. Most importantly, after discount stores and warehouse membership stores developed, consumers suddenly realized: It turns out that the market doesn't only have the things on supermarket shelves, and prices don't have to be that high! This is in stark contrast to mature Western markets. In developed countries, we imagine prices to be very high. But when we enter their supermarkets, we are shocked: things are not expensive at all, and the quality is excellent. You don't have to worry about quality when shopping in any supermarket. A friend recently returned from a study trip to Japan. He told me that a product that would sell for at least 100-200 yuan in China actually costs only a few dozen yuan when converted. When I worked for a German company, I would bring back many things from Germany as gifts, all bought at supermarkets—good quality and cheap. Are our supermarket products good and cheap? Hard to say, because the public has no comparison. But after snack discount stores became popular, we gained a sense of comparison. Why must bottled water sell for 2 yuan, not 1.2 yuan? Why must Red Bull sell for 6 yuan, not 4.5 yuan? Why can't 30 yuan buy a big bag of bulk snacks? In the past, we asked: Why can snack stores be cheap? Actually, we asked the wrong question. We should ask: Why are supermarkets so expensive? The reason is that under the old order, they had to sell at such high prices. What is the logic behind brand product pricing in offline channels? For example: The brand sells to the distributor at 10 yuan. The distributor takes a 40-point margin, selling to the supermarket at 16.6 yuan. The supermarket wants to earn 30 points, so the final price is set at 23.9 yuan. But in reality, this product cannot sell at 23.9 yuan because eventually, various promotions will bring the price down. Nowadays, consumers won't buy without promotions. The brand promises the distributor a 15-point rebate for market development, which can be used for end-cap displays, shelf placement, or direct price reductions. But most of the time, the distributor also sacrifices part of their profit for promotions, especially for "shocking prices," and the supermarket also contributes some profit. The reality is: a product priced at 23.9 yuan can sell for as low as 13.3 yuan during the cheapest promotions, and most of the time it sells between 15-16 yuan. Consumers won't buy without discounts because they know the price is inflated. The brand must set a high price because it needs to leave margins for middlemen, pay fees to supermarkets, and run various promotional activities. It must maintain a large marketing team to work with distributors to cover retail outlets, negotiate activities, and fight for shelf space. It also needs personnel for process checks, system development, and to maintain the operation of this system. Distributors don't earn that much profit because they have to subsidize it. Supermarkets operate shelves. Brands that can afford slotting fees, listing fees, and display fees get to sell. Why are brands willing to pay various backend fees? Because in the process of market penetration, they must seize retail terminals and intercept consumers. Because brands must ensure consumers see them, not competitors. This only covers offline channel costs, not including the huge advertising expenses brands invest year-round. We often discuss manufacturer-distributor conflicts and supplier-retailer contradictions. These are real, but from an industry perspective, they "colluded" to establish a commodity circulation system. Why do we see similar products in different supermarkets? Because they all appear before us through the same circulation system. Without marketing promotion and offline teams, no matter how good the product or how low the price, it cannot appear on shelves. It's not that consumers don't want to buy; they simply can't buy. "Snack stores don't charge slotting fees or listing fees, and we don't need to hire people for promotions. Payment is very straightforward. For manufacturers, it's a very friendly channel." Factories that previously could only do OEM for brands can now come directly to the forefront. The products you buy at high prices might very well be produced by them. Of course, in the past, you didn't think they were "high-priced" because you were used to it and had no comparison—until hard discount appeared. What is hard discount? Hard discount is not equal to discount stores. Discount stores are the retail manifestation of hard discount. For a company or retail system, it's a business philosophy; for the industry, it's a circulation model. The core of this philosophy or model is: 1) Reduce intermediate costs; 2) Reduce brand premium; 3) Increase inventory turnover. Based on this logic, we can classify hard discount in a narrow and broad sense. Snack stores, discount supermarkets, etc., are narrow-sense hard discount. Warehouse membership stores, live streaming, community group buying, and even Pinduoduo, which fit this model, are broad-sense hard discount. They are actually doing the same thing: organizing and mobilizing consumers to find good products for their needs. This is a new order. If live streaming and Pinduoduo are still online consumption, and warehouse membership stores affect the middle class in first- and second-tier cities, then snack discount stores are truly attacking the heartland of the existing system. After them, discount supermarkets are emerging everywhere, and traditional supermarkets have to respond. Chinese retail will enter a comprehensive discounting era. In the "China Snack Hard Discount White Paper (FMCG Industry Insights 2023)," I proposed a thesis: The discourse system of the era will shift from brand-led channel reform to consumer-led supply chain revolution. That's what I mean. Based on the broad concept of hard discount, looking at snack hard discount, discount supermarkets, live streaming, community group buying, Pinduoduo, and more in the future, we see: China's commodity circulation system is undergoing transformation. This is systematic, not determined by any single party. Many people don't understand: "How can low prices be sustainable?" "If you disrupt my price system, I'll resist." "If you don't sell high, how can you afford promotion?" "Market promotion must be done this way!" We've always done it this way. Why is it different now? Don't forget, from wholesale to market penetration to deep distribution: The existing order is also a product of changing times. There has never been an "always this way"! When the market environment undergoes huge changes, a new order will inevitably replace the old one. The transition from old to new order is not overnight; it's a process, but the trend is irreversible. Regardless of your role—factory, brand, distributor, retailer—different understandings lead to different actions, and thus different futures. The trend is irreversible. What actions will you take? On March 15, in Chengdu, the "2nd China FMCG Hard Discount Conference" will bring together discount retail founders, brand executives, distributor owners, traditional retail enterprises, and industry research experts to focus on core hard discount topics and examine new directions, new thinking, and new opportunities in the discounting era. We look forward to your arrival! On March 16, a closed-door meeting on hard discount will be held: Hard Discount Models and Operations, with one-on-one dialogues and discussions with expert teachers, sharing experiences and discussing dividend opportunities in the hard discount era! During the three-day conference, centered on the theme "Supply Chain Revolution," in addition to the 2nd Hard Discount Conference, there will be a main forum, a China FMCG Distributor Conference, over ten sub-forums and closed-door exchange meetings, and the first major debut of the [Ultimate Supply Chain] Brand Factory Direct Sourcing Fair. Together with thousands of FMCG brand owners, distributors, retail transformers, and industry service providers from across the country, we will meet in Chengdu for continuous brainstorming to discuss 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. We believe this will be a worthwhile conference! For business cooperation, please contact: 🔺Scan code for ticket consultation🔺