---
title: "Ren Wenqing of New Distribution: Retailers Fight for Pricing Power, FMCG Brand Channel Systems and Organizations Face Adjustments"
description: "This year, we co-authored the 'China Hard Discount Development Report (FMCG Industry Insights 2024)' with Lemeng Software. Last October, we released the 'China Snack Hard Discount White Paper (FMCG Industry Insights 2023)' at our conference in Shenzhen. In nearly a year, the shift from snack hard discount to hard discount has dropped two characters, but the essence remains unchanged while its impact on the industry chain has grown. This year, I summarize hard discount in three phrases: wider distribution, more categories, and less resistance."
author: "任文青Andy"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2024-08-21"
language: "en"
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# Ren Wenqing of New Distribution: Retailers Fight for Pricing Power, FMCG Brand Channel Systems and Organizations Face Adjustments

> This year, we co-authored the 'China Hard Discount Development Report (FMCG Industry Insights 2024)' with Lemeng Software. Last October, we released the 'China Snack Hard Discount White Paper (FMCG Industry Insights 2023)' at our conference in Shenzhen. In nearly a year, the shift from snack hard discount to hard discount has dropped two characters, but the essence remains unchanged while its impact on the industry chain has grown. This year, I summarize hard discount in three phrases: wider distribution, more categories, and less resistance.

This year, we co-authored the 'China Hard Discount Development Report (FMCG Industry Insights 2024)' with Lemeng Software. Last October, we released the 'China Snack Hard Discount White Paper (FMCG Industry Insights 2023)' at our conference in Shenzhen. In nearly a year, the shift from snack hard discount to hard discount has dropped two characters, but the essence remains unchanged while its impact on the industry chain has grown. This year, I summarize hard discount in three phrases: **wider distribution, more categories, and less resistance**.

**First, wider distribution.** When we released the snack hard discount white paper last year, snack stores were just beginning to enter the northern market, and nationwide they were mostly concentrated in prefecture-level cities and county towns. But this year, snack stores are everywhere in northern and township markets. Besides snack stores, various discount supermarkets and discount warehouses have emerged in lower-tier markets and first- and second-tier cities.

**Second, more categories.** In the first half of this year, multi-category discount supermarkets became a hot topic in the industry. When we held the hard discount conference last year, discount supermarkets were still sporadic. This year is different; many people are doing this. Some were previously snack store operators, some are traditional supermarkets transforming, and some are distributors entering the game. When we talk about hard discount, it includes snack stores and discount supermarkets. Snack hard discount concerns the snack category, but discount supermarkets involve many categories: daily chemicals, personal care, beverages, condiments, etc.

**Third, less resistance.** I clearly remember that last year, many people, when talking about snack stores, said they were engaging in low prices, wouldn't last long, and were very resistant. Brands were unwilling to cooperate, and distributors and supermarkets complained. But this year, everyone realizes that the discount store format will persist, and cooperation should be sought. Facing the industry changes behind hard discount, everyone is actively researching and responding rather than resisting blindly.

In last year's white paper, we extracted the underlying hard discount logic of snack stores to show everyone what lies behind the industry surface. Then we held two hard discount conferences, published a series of articles, and organized a series of live streams. I have always said that New Distribution studies current industry changes from the perspective of the industry chain, and today's report is no different.

When it comes to hard discount, many people think of discount stores, which is very one-sided. **Hard discount is not equal to discount stores; it is the result of systemic changes. Discount stores are just the manifestation of hard discount at the retail end.** But discount stores are indeed the entry point for us to deeply understand hard discount. So in this report, New Distribution, together with Lemeng, conducted a survey, collecting nearly 200 questionnaires, including snack discount stores, multi-category discount supermarkets, and traditional community retail stores. In this survey, we have some findings that I'd like to share with you.

**Acceleration of Community Retail Discounting**

**1. Snack Discount Stores**

First, look at snack discount stores. Brands with 10,000 stores have already emerged and continue to expand. In the past two months, I've been to many townships and seen snack stores everywhere. Business is very good, and they clearly have a devastating impact on neighboring formats. The snack discount store format has a profound impact on the food industry. An important point is that it establishes a high-speed channel connecting upstream white-label and bulk food factories with consumer demand. It can be seen that 35% of snack store systems have over half of their sales from white-label products; 67% of snack store systems have bulk food sales accounting for over 50%, with 10-15 yuan/500g being the best-selling price range. In the first half of the year, bulk food remained a rapidly growing category, followed by beverages and dairy. Most snack store systems have an average transaction value of 20-40 yuan, and over half of the systems introduce new products weekly. Low prices, variety, and fast updates are important reasons snack stores attract consumers. In this regard, other retail formats find it hard to compete in efficiency. Last year, everyone talked about bulk snack stores; we didn't say that. We talked about snack hard discount, which fired the first shot in the reform of FMCG distribution order. After that shot, we saw the rise of discount supermarkets and changes in traditional retail.

**2. Multi-category Discount Supermarkets**

At the December conference last year, we counted only one or two dozen discount supermarkets. In the past six months, discount supermarkets and wholesale supermarkets have emerged in various regions across the country. Compared to snack stores, discount supermarkets are generally smaller in scale. In our survey sample, 66% of discount supermarkets have fewer than 100 stores, and store sizes are mostly below 200 square meters. However, discount supermarkets have more SKUs than snack stores, with nearly half having over 2,000 SKUs. Only 22% of discount supermarkets have over half of their sales from white-label products. This shows that discount supermarkets lag far behind snack stores in supply chain integration and product optimization. This is understandable, as discount supermarkets are still in their early stages. The average transaction value is 30-40 yuan, slightly higher than snack stores, and daily sales per store mainly range from 10,000 to 15,000 yuan. In terms of categories, 37% of discount supermarkets have non-snack and beverage sales accounting for over 50%. Main categories include daily chemicals, personal care, beverages, condiments, etc. In the past few years, the rapid development of snack discount stores has greatly improved the efficiency of snack category distribution. Next, everyone needs to focus on daily chemicals, personal care, and beverages. Manufacturers and distributors must study and understand these deeply and not be as slow as they were when snack stores appeared. Compared to snack stores, product management in discount supermarkets is much more complex. Current common problems are concentrated in the following areas:

> 1. Severe product homogenization with other brand stores;
> 2. Too many products, mixed varieties, and untimely replacement;
> 3. Inability to find suppliers for specific categories.

Supply chain optimization and product differentiation will be discussed in today's agenda, and they will certainly be important industry topics in the next two years.

**3. Traditional Community Retail Chains**

This time, we mainly surveyed community chains. 91% of chains have fewer than 100 stores, mostly operating within their city, fitting the typical community chain profile. Half of the retail systems have an operating area of 50-120 square meters, followed by 120-200 square meters. We see that because business has indeed been impacted, and after the initial resistance phase, everyone is willing to understand deeply and see the trend of change, 36% of community retailers say they are planning to transform. With the snack discount store landscape basically set, the transformation intention is mainly towards multi-category discount supermarkets. But transformation is not easy. The top three obstacles are:

> 1. Difficulty in determining and optimizing product mix;
> 2. Lack of talent to operate;
> 3. Inability to find suitable supply chain resources.

The discounting process in community retail is accelerating, with products and supply chain as core issues. This is closely related to upstream manufacturers and distributors. Our salon yesterday and today's agenda revolve around this topic.

These are just some of the survey data in the report. For the full content, please refer to the report. Of course, the report is not just a survey; it also includes a systematic analysis and interpretation of hard discount. I'll use the remaining time to share some insights.

**Behind Discount Stores**

**It's Actually About Pricing Power**

Last month, I exchanged views with the owner of a certain brand. He asked me, "What do you think of discount stores?" I knew he was asking whether I am optimistic or pessimistic about this format. I said I don't really care how a specific format develops; what I truly care about is what it means for the FMCG industry chain and what impact it has. I said at the Chengdu conference in March: **Hard discount is a manifestation of systemic changes; it is the result, not the cause. Through it, we should see the reform of FMCG distribution order.** For this, I drew a diagram, and today I bring it out again. The discount stores at the retail level are what we easily see; they are the manifestation. Behind them is the product distribution chain, which is the line; the FMCG industry is the surface; and looking bigger, it's the Chinese economy as the volume. **"Point, line, surface, volume"** — using this framework to view hard discount gives you a deeper understanding of current industry changes. To put it vividly, the "line, surface, volume" layers are the soil, and the "point" layer is the plants that grow. In fact, live-stream e-commerce, warehouse membership stores, and even the recent adjustments of traditional supermarkets following Pangdonglai are all manifestations. Through them, we see the same soil changes. From the perspective of the FMCG industry, this soil change is one sentence: **the reform of FMCG distribution order.**

Have you ever wondered why discount stores are called "discount" stores? Discount, as the name implies, means a price reduction. Then the question arises: a discount implies a base price, or standard price; otherwise, how can you call it a discount? So what is this base price? This base price is the manufacturer's pricing. For example, a bottle of mineral water sells for 1.2 yuan in a snack store, which is the discount store price, while its base price is 2 yuan, which is the price in other retail stores. In fact, the origin of discount stores is similar. It started with the "five-and-dime" stores in the late 19th century in the United States, a retail format that sold at a discount from the supplier's suggested price. This is very important; it tells us: **Behind discount stores is actually the issue of pricing power and the price system.** We must penetrate this layer to see the essence of the problem. In today's China, the rise of discount stores is essentially a reform of the product distribution system. In the past, manufacturers led pricing; now retailers, with discount retail as the vanguard, are vying for this dominance.

This is the important timeline I've compiled for the development of hard discount retail in the Chinese market. There were discount stores early on, but they struggled to gain traction and were seen as sporadic, non-mainstream formats because they lacked the soil below and the support of the order layer. The old order is hard to maintain, which is why discount stores are rising today. Many people think discount stores are disruptors, using low prices to break market order, and are the target of criticism from upstream and downstream in FMCG. Actually, that's not the case. The market is like a lake. In the incremental stage, the water surface expands, and large ships, small boats, and sampans enter, all able to navigate relatively orderly. Although there was competition in the past, overall, manufacturers, distributors, and retailers each did their own jobs, and the order could be maintained. But when the market enters a stock or even shrinking stage, the water level drops, and the market surface cannot accommodate so many vessels. They will inevitably collide, and the original order becomes unsustainable. The collisions are mainly in two aspects: peers colliding with each other, and upstream and downstream colliding. Hard discount is a phenomenon, a result of oversupply and changing demand. The essence is that the product distribution order is unsustainable. The so-called unsustainable order, simply put, is that in the past, distributors were responsible for product distribution, and retailers were responsible for selling. Each did their own job. But now, retailers want to do the distributors' work. Retailers doing distributors' work did not start with discount stores; it started with e-commerce. "Low prices" and "direct sourcing from upstream" have always been labels accompanying internet commerce, supported by the removal of distributors. E-commerce platforms present themselves as retailers but also take on the role of distributors. For FMCG, due to low prices and immediate demand, although e-commerce has taken some business from physical stores, the big picture is still offline. The traditional distributor group, which has been repeatedly claimed to be "doomed," is still alive and well. But with the arrival of discount stores, the industry truly feels the pain. The labels accompanying them are almost identical to e-commerce: "low prices," "direct sourcing from upstream," and "removal of distributors." Some criticize that low prices are bad, low prices are wrong, and low prices will lead to no one making money. Of course, that's right! But who doesn't want to make more money? The problem is that if prices are high, goods won't sell. There are many sellers and few buyers, resulting in low prices. What problems do low prices bring? Profits are insufficient to share, so we see two phenomena:

> First, the product distribution chain is compressed, from long to short, manifested in the removal of distributors after various retail formats appear.
> Second, using scale to hedge high delivery costs, manifested in the consolidation of distributors and the chainization of retail.

These two trends have always existed, but after hard discount formed a certain market force, we see them more clearly. In a sense, discount stores are a signal that makes us realize the industry is undergoing change!

Noise attracts our attention, but it is short-term fluctuation and superficial information.
Signals are not easy to identify; they are the underlying logic seen through the surface, concerning long-term trends.
Low prices are noise. If you care about low prices, you can only see the surface.
**Hard discount is a signal. If you truly understand hard discount, you will see the trend of industry change.**

**Brand Channel Systems and Organizations Face Adjustments**

After the Chengdu conference in March, for nearly half a year, I have been on the front lines of the market, communicating with brand executives, distributor owners, discount retail founders, and traditional retail experts. In the first half of the year, everyone felt that the market was tough, manufacturers found it hard to sell, distributors had overstocked warehouses, and retail was in a low-price involution. In fact, I was quite pessimistic, but recently I have had a different feeling. Two words seem increasingly clear in my mind — **opportunity**. Why is that? I have thought about this carefully. I think it's because I have come into contact with many people who are striving forward during this period of industry change. Who are they? Distributors who resolutely gave up agency for big brands and deeply cultivate regional hard discount retail; retailers who bravely let go of traditional retail and transform into discount supermarkets; factories that, leveraging the dividend of discount channels, start making private label products from OEM; and first-line brands that deeply insight into industry changes, adjust in time, and walk out of the darkest moment. And so on. Is the current market difficult? Yes! But from these people, I see more opportunities and hope. The existing order is unsustainable, and the new order has not yet been established. During the transition, everyone is struggling. Most people are anxious and panicked, but a small number see opportunities. Such opportunities, if acted on early, become dividends.

B2b expert Teacher Yunchuan shared two sets of numbers with me:

> First, in China, the number of suppliers serving one small store is 45-55, while in Japan it is 3-5.
> Second, the warehouse area needed for 100 million yuan of terminal business in China is 17 times that of Japan.

China's chainization and scaling are just beginning. In this process, large national retail enterprises and large supply chain companies will definitely emerge, and there will also be opportunities for factories to build sales and brands with the rise of new channels.

I believe there are two major topics in the future industry: **high distribution efficiency and product differentiation.** Specifically, I have several viewpoints and judgments.

**1. Discount supermarkets will have a longer vitality than snack stores.** Since last year, many people have been talking about "snack plus." From a category perspective, discount supermarkets are "snack plus," but at the operational level, discount supermarkets are not equal to "snack plus." They are supermarkets, not snack stores. In the next few years, discount supermarkets will definitely be a booming format, and their vitality will be longer than snack stores. Why? Discount supermarkets are part of the chainization trend. Their value and significance should be seen from two perspectives:

> First, how to upgrade and transform community stores and mom-and-pop shops in the vast lower-tier markets?
> Second, how can offline physical stores gain competitiveness against the invasion of online retail?

**2. The vitality of discount supermarkets will be longer than that of snack stores.** (Note: This appears to be a repetition in the original; I'll keep it as is.)

**3. Distributors face transformation.** The distributor system is under pressure. In the future, a large number of distributors will exit the market. The transformation directions are:

* Distributors transforming into B2b supply chains is not the endgame; the endgame is the integration of distribution and retail, with strong binding to the retail end.
* Distributors with advantages in a certain category, such as snacks, daily chemicals, or condiments, can strengthen their advantages and export supply chains to more regions.
* Distributors with capability, resources, and cognition can directly enter retail.

At tomorrow's distributor conference, we will present richer and more exciting content.

**4. Brand channel systems and organizations face adjustments.** I stated this viewpoint at the first hard discount conference last year. At that time, few agreed. But recently, when communicating with some brand parties, they have begun to realize this issue.

The past model was: brands do marketing and promotion, deliver through the distributor system, brands gain premium, and the premium supports marketing and channel organization costs, plus considerable profits.

In the future, except for a few truly strong brands, this cycle will be hard to sustain. The effective points of sale supplied by distributors are already decreasing. Under the dual squeeze of the market and upstream, a large number of distributors will exit the market in the future. In the past, manufacturers decided how many distributors and how many stores to cover. In the future, it will be the reverse: how many stores support how many distributors, and how many distributors support how many regional sales personnel. One important point is that **manufacturers should establish close cooperative relationships with retail channels.** The retail era of opening stores and placing shelves, where whoever can pay the fees gets the products on the shelves and makes money, is over. Finding target customer groups, doing category planning well, cooperating deeply with upstream, and meeting consumer needs — as long as this is achieved, different retail models have room to survive. For brand owners, which category do I belong to? How to expand and deepen supply chain resources and capabilities? Which channel to sell in, which price band to target, and what consumption scenarios? These all require establishing truly close cooperative relationships with retail channels.

Time is limited, so I'll end today's sharing here. For more complete content, please refer to our hard discount development report.

PS: Friends interested in the on-site speech content can follow the recent posts on the WeChat official account of New Distribution. We will compile and publish all guests' speeches for readers.

Click "Read Original" to view more about the 6th China FMCG Conference and the 3rd China FMCG Hard Discount Conference & the 3rd China FMCG Distributor Conference...


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