---
title: "Ren Wenqing: Hard Discount - Reshaping Future Supply Chain Landscape and Growth Models"
description: "On December 6, the first China FMCG Hard Discount Conference opened grandly in Zhengzhou. At the main forum on the morning of December 6, Ren Wenqing, COO of New Distribution and chief editor of the 'China Snack Hard Discount White Paper', shared insights on 'Hard Discount - Reshaping Future Supply Chain Landscape and Growth Models'. The following are key points from the speech."
author: "任文青Andy"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-12-06"
language: "en"
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# Ren Wenqing: Hard Discount - Reshaping Future Supply Chain Landscape and Growth Models

> On December 6, the first China FMCG Hard Discount Conference opened grandly in Zhengzhou. At the main forum on the morning of December 6, Ren Wenqing, COO of New Distribution and chief editor of the 'China Snack Hard Discount White Paper', shared insights on 'Hard Discount - Reshaping Future Supply Chain Landscape and Growth Models'. The following are key points from the speech.

On December 6, the first China FMCG Hard Discount Conference opened grandly in Zhengzhou.
At the main forum on the morning of December 6, Ren Wenqing, COO of New Distribution and chief editor of the 'China Snack Hard Discount White Paper (FMCG Industry Insights 2023)', shared insights on 'Hard Discount - Reshaping Future Supply Chain Landscape and Growth Models'.
The following are key points from the speech:
New Distribution holds two major conferences every year: the China FMCG Innovation Conference in the first half and the China FMCG Conference in the second half. Why did we organize a conference themed on hard discount this year? Let's go back to **October 10** this year. At the FMCG conference in Shenzhen, **we released the 'China Snack Hard Discount White Paper (FMCG Industry Insights 2023)'**, which many friends at the scene should have read. While everyone was talking about bulk snack retail, we used the term 'snack hard discount' to analyze this booming format this year. **We emphasize hard discount because we want everyone to see the core of the matter, not just the surface.** What is the surface? It's low-priced goods and street-side stores. What is the core? It's product selection, operations, and supply chain. Of course, the theme of this conference is hard discount, covering not only snack discount stores, **but also various types of discount supermarkets, warehouse stores, and traditional retail enterprises seeking discount transformation.** This is the list we recently released. Everyone is talking about low prices and discounts. What do you think? Some say, 'Low price means no good goods!' Retail must make money; if it doesn't, it can't last! Some say, 'This is consumption downgrade!' All these have merit, but we are more concerned about the underlying logic and long-term impact behind things. The development of anything can be divided into two parts: **the easily visible** and **the not easily visible**. What does that mean? I once gave an example. In the early 20th century, Ford introduced the Model T and achieved great success. Many people know that the Model T was significant for Ford, but you may not know where its real impact lies. Ford's special place in history is not because it introduced an affordable car for ordinary people, **but because it revolutionized large-scale, high-efficiency automobile production through the assembly line.** The Model T and bustling traffic are easily visible, but the assembly line behind it and its long-term impact are not easily visible. Low-priced goods, street-side stores, and chain brands are easily visible, but their business models, supply chains, and long-term impacts are not easily visible. As a deep industry observer, New Distribution aims to show everyone those things that are not easily seen. In the past month, we have intensively published a large number of articles, including live streams, explaining hard discount and its impact from multiple dimensions. The discounting of Chinese retail has begun, and it's not just about the retail level. **It involves factories, brands, distributors, and a series of roles in the FMCG industry chain. This is also why New Distribution, as a media platform focused on the FMCG industry, is holding the Hard Discount Conference.** Behind retail discounting is the supply chain transformation of the FMCG industry. This is important! It deserves a conference for thorough discussion. Today's sharing will answer three questions:
> **1. Why did hard discount explode?**
>
> **2. Is it a long-term trend?**
>
> **3. What is the real impact?**
**Why did hard discount explode?** To explain this clearly, we cannot stay at the retail level; we must start from the FMCG industry chain. The FMCG industry chain connects supply and demand. Products are produced and ultimately sold to consumers. In between, there are roughly two segments. Factories and brands are the value creation segment; they need to think about how to make good products and build brand premium. Distribution and wholesale, to terminal retail, are the value delivery segment; they need to think about how to provide consumers with low-priced products and a good consumption experience through extreme efficiency. The hard discount we talk about mainly concerns the value delivery segment:
> 1. Supply chain: compress circulation links, reduce product transfer times
>
> 2. Product selection: brand products + white-label products without brand premium
>
> 3. Operations: minimize costs as much as possible, increase product turnover rate
In one sentence, the purpose of these actions is **to sell products cheaply.** Many people are dismissive of discount retail and don't think highly of it! Because when we hear the word 'discount', we naturally think of 'low price', 'sale', 'promotion', 'near expiry', 'surplus stock'. The confusion caused by these terms has led to a lack of understanding of 'hard discount', which is the current situation. But we must say that selling cheap products and selling products cheaply are two different things. The hard discount curtain has been raised, and snack discount stores are just the vanguard. This is not just a judgment based on phenomena, but an analysis based on the underlying logic of supply and demand. When analyzing an industry, you must find its core internal contradiction. The core contradiction of the FMCG/food industry is: **The uncertainty of agriculture, which depends on the weather upstream, is sold to industry. Industry buys this uncertainty, absorbs agricultural fluctuations through large-scale production, spreads unit manufacturing costs, and then matches it through a channel system to sell to all regions and all people. The instinct of industry is to produce inventory.** It is a cost; only when someone sells it does it become a commodity—so there must be a sufficient number of channel providers to offer such certainty. From the supply-demand logic, China's FMCG industry has roughly gone through stages of **supply shortage and oversupply, and now has entered a stage of overcapacity.** After decades of development, China, as the world's factory, has been shaped by both foreign and domestic markets. There are many factories capable of producing good products, many of which exist as OEMs. With overcapacity, many first-tier brand factories have also begun to provide customized products for channel demand. Behind this are changes on the demand side.
**1. Overall, consumption has entered a stage of stock or even shrinkage** In 2022, China's birth population fell below 10 million, and the population saw negative growth. This means that China's total population entered a downward inflection point in 2022. Consumer goods are premised on population base, and consumption has entered a stage of stock or even shrinkage.
**2. In terms of consumer psychology, consumers have become more rational and mature** In July this year, I conducted market research and saw the real situation: snack discount stores maintained a customer flow of about 15-20 people during peak hours, while a Liangpin Shop less than 10 meters away occasionally had only 1 person enter. Requirements for food safety and quality have allowed snack specialty stores positioned as high-end in the past to gain brand premium. But when the upstream supply chain is mature enough to provide the same quality products to both brand owners and channel providers, consumer psychology quietly changes. In the past, they were willing to pay a premium for quality; now they care more about value for money.
**3. Under the macroeconomic cycle, consumption power has structurally differentiated** This is a set of data released by Nielsen, which divided consumers into 5 categories, with significant changes over the past six months. The proportion of price-insensitive consumers dropped from 29% to 15%. Meanwhile, the proportion of consumers seeking affordable alternatives and focusing on necessities for low prices rose from 20% to 36%. The current consumption tendency can be summarized in four characteristics: personalization, diversification, living within means, and focusing on value for money. The public's demand for more cost-effective goods is growing, and new channels will inevitably emerge to meet new demand. In the past few years, the rise of community group buying, live streaming, and other channels **has actually been about aggregating downstream demand and centrally procuring high-quality, low-priced products upstream.** Although the rise of these channels has impacted the FMCG industry chain, because they still operate on an online logic, they have not fundamentally impacted the traditional offline market. Discount stores have offline stores, and through direct upstream procurement and integration of distribution and retail, they further squeeze the share of traditional offline channels.
**Is it a long-term trend?** The second question: Is it a long-term trend? The answer is yes. First, from the internal logic of business evolution. Going back to the FMCG industry chain mentioned earlier. The key word for the value delivery segment is efficiency, **that is, whether you can connect upstream quality products with downstream consumer demand at a lower cost.** In recent years, we have been talking about channel fragmentation. In fact, channel fragmentation is a result; its essence is the continuous squeezing of inefficient models by efficient models. **The direction of business evolution is the replacement of inefficiency with efficiency.** Hard discount improves efficiency through supply chain optimization, extreme product selection, and efficient operations, reflecting two trends at the industry level.
**1. Quality white-label products remove premium and deliver value** What is a brand? 'Pin' (品) means quality products. 'Pai' (牌) means self-generated traffic and mind share. From 'pin' to 'pai' implies marketing investment, bringing brand premium. So in reality, consumers pay a lot for marketing and promotion. There are many factories in China that can produce quality products, but they have 'pin' without 'pai'. The rise of quality white-label products **is essentially hard discount connecting upstream quality products with downstream consumer demand.**
**2. Integration of distribution and retail improves efficiency** Hard discount chains directly source upstream and inherently assume the role of distributors. This is bottom-up integration of distribution and retail. Regional large distributors, especially B2b platforms with supply chain advantages, infinitely integrate into retail by opening their own stores and converting small shops, which is top-down integration of distribution and retail. The essence of distribution-retail integration **is to use scale cost and efficiency advantages to hedge against rising delivery and fulfillment costs under the dual pressure of oversupply and stock competition.** Of course, this is a gradual process, but moving from inefficiency to efficiency is irreversible.
**On the other hand, from the perspective of format changes under economic cycles.** Over the past few decades, China has developed rapidly and has not experienced the cycles that developed markets have gone through, but the laws of cycles always exist. We should study foreign discount formats to reflect on our current situation. I have listed some discount stores in major foreign countries. Germany's ALDI is a classic hard discount model, taking off in the economically depressed German market after World War II. In the 1970s, the United States entered a stagflation phase, and large discount supermarkets represented by Walmart developed rapidly. Japan's Don Quijote is not pure hard discount but belongs to the pan-discount format, developing rapidly after the bursting of Japan's economic bubble. The rise of foreign discount stores has a common background: **economic downturn, with greater public demand for more cost-effective goods.** Discount retail is not new to China; it is a format validated over long cycles. **From a long-term perspective, its development in China is just beginning.** We just gave examples of foreign discount stores, which also raises the question: What exactly is hard discount in today's China? Hard discount is a business model. China's market is vast and complex, with different category combinations, consumer segments, and regional markets. Retail based on hard discount logic will evolve into diverse forms as it grows. Hard discount in China is still in its early stages, and it is too early to make any definitive characterizations or divisions. But to better understand the industry's development, we have made a simple division based on category logic.
**1. Vertical categories** Snack discount stores belong to vertical category hard discount. **Vertical categories are the easiest to break through in the supply chain and are easier to replicate at scale, which is an important reason for the rapid explosion of snack discount stores.** Vertical categories enter fastest but are not a final format; they will evolve towards composite category advantages.
**2. Composite categories** Community discount supermarkets/warehouse stores need to optimize several categories simultaneously, making supply chain breakthroughs more difficult. This is also an important reason why they are generally smaller in scale compared to snack discount stores. But once composite category advantages are formed, they tend to create targeted customer flow and better profit structures.
**3. Comprehensive categories** Select single items with high customer demand across many categories, optimize the supply chain to improve quality and lower prices. Sam's Club and Costco follow this route, and there are many followers in China, such as Hema Outlets.
**What is the real impact?** We talk about the impact of discount stores, but many FMCG manufacturers don't feel much! This involves the difference between macro trends and micro perceptions. There are two dimensions. One is space. China's market has great depth; first- and second-tier markets differ from third- and fourth-tier markets, northern and southern markets have differences, and the trade structures and retail competition patterns vary by region. One is time. Discount retail develops differently in different regions. Taking snack discount stores as an example, they first developed in southern markets and have been expanding to northern markets this year. In addition to space and time, it is also closely related to the manufacturer's category. For example, snack discount stores, as the vanguard of the discount retail trend, first affected manufacturers of leisure snacks and beverages.
**In our in-depth industry research, we found brands that actively embrace discount channels, brands that dismiss and firmly resist, distributors whose business halved by 50%, and distributors who doubled against the trend.** Specific to individuals, perceptions vary. How to discern industry trends from individuals? We conducted a questionnaire survey of over 100 brands. Among them, 82% have established cooperation with snack stores, of which 41% are direct supply, 34% through distributors, and 25% use both methods. We collected over 100 distributor questionnaires. 52% of distributors said snack stores caused their business to decline. From the perspective of agency brands, distributors representing first-tier brands were more affected, with 72% experiencing business decline. In addition, according to retail enterprise financial reports, of 30 listed retail companies, 14 saw net profit declines in the first three quarters of 2023, and generally by very large margins. Although the sample size is limited, combined with the current state of industry development, it is sufficient to gain trend insights: from channel transformation to supply chain revolution.
1. The instinct of industry is to produce inventory; it is a cost, and only when sold does it become a commodity. There must be a sufficient number of channel providers to offer such certainty.
2. Hard discount chains buy inventory and provide sufficient certainty upstream through distribution-retail integration. This is why they take the initiative in multi-party games, but this is not the end; they will continue upstream towards production-sales integration.
3. Channels are from the brand/factory perspective; supply chains are from the terminal/consumer perspective. The discourse of the era will gradually shift from channel transformation under brand sovereignty to supply chain revolution under consumer sovereignty.
4. It is not a complete replacement of the traditional supply chain; for a period, it is a coexistence of squeezing, which will scatter the existing system. Specifically for different roles in the industry chain, we have four judgments:
**I. Severe upstream overcapacity; factories OEM for channel brands**
1. Traditional offline sales points lose volume to hard discount; factories without product value-for-money advantages find it hard to survive.
2. High-quality factories, including some major brands' own factories, become OEMs for channel products/brands.
**II. Hard discount becomes a strong channel; brand premium effects weaken**
1. Sales volume determines discourse power; leading brands must cooperate with channel adjustments and lower brand premiums.
2. Some small and medium brands/quality white-label products rely on mainstream hard discount channels to rise.
3. Offline retail has limited shelf space; more small and medium brands/white-label products will form symbiotic relationships with regional hard discount.
**III. Distributors accelerate reshuffling; local supply chains become more efficient**
1. Hard discount impacts local trade systems; distributors have fewer terminals to supply, and those whose break-even points are breached exit the market.
2. Regional retail terminals still exist, but price levels are pulled down, requiring efficient local supply chain platforms to match.
**IV. Terminal prices are pulled down; Chinese retail enters the discount era**
1. Snack discount stores will continue to exist but will evolve.
2. Community discount supermarkets and warehouse discount stores become entrepreneurial hotspots.
3. Traditional retail must self-transform, shifting from managing shelves to managing products.
Of course, the development of hard discount in China is just beginning, and there will be various problems: capital, price wars, store closures, and a mix of true and false hard discount. But overall, this is a process of deconstructing traditional links and nurturing a new ecosystem, a long-cycle matter. Recently, I chatted with friends attending the Hard Discount Conference. Why did everyone come? **Brand owners want to know how discount store channels will evolve and how to balance their relationship with traditional channels; distributors want to know how discount retail development will affect their business and what to do next; traditional retailers are concerned about how to transform and whether there are reference paths.** This is also an important reason for us to hold this conference. To provide practitioners' experience sharing for different roles in the industry, face-to-face collisions between different roles, and in-depth analysis from researchers with different perspectives. Our agenda for these two days is full, and there will be exchanges and discussions on these issues. Finally, I want to tell everyone that **we have established the 'New Distribution · Hard Discount Research Institute'**. What New Distribution wants to do is simple:
> **1. Content output**
>
> **2. Industry exchange**
>
> **3. Resource connection**
We will help different roles in the industry chain better understand the present, meet challenges, and seize future opportunities through articles, live streams, industry white papers, as well as study tours, training, and consulting. I want to emphasize one point: this conference has brought many hard discount practitioners, including entrepreneurs and transformers, who are exploring independently. We have also established a communication community for hard discount practitioners, hoping to bring everyone together, form an atmosphere of exchange, help everyone avoid detours, and share resources. This is a long-term endeavor, and New Distribution will always be here. Thank you!
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