Introduction: Mingming Henmang and Haoxianglai have surpassed 10,000 stores, Leerle is sprinting towards 10,000 stores with 100 billion in sales, Sam's Club is rapidly expanding and gaining popularity, Pangdonglai is helping peers across the board, and Miniso has acquired Yonghui... In the past two years, the ups and downs of the retail industry have been witnessed by all FMCG professionals and have deeply affected them. Especially the development of new channels, whether discount retail, membership clubs, or instant retail, is stirring up the old order of the retail industry. Although the penetration rate of these new formats is still low, a single spark can start a prairie fire. In terms of momentum, they have already begun to have a huge impact on traditional retail. With the accelerated growth of new retailers, in the next 3-5 years, they will inevitably have a dramatic and far-reaching impact on the market, potentially even changing the entire competitive landscape of Chinese retail. This is why traditional retailers, including some regional retail giants, are anxious and starting to transform and seek change. The anxiety stems from not fully understanding the changes in the rules of the game. The industry is undergoing consolidation and reshuffling, but they don't know how to adapt their business. Retail changes are complex and multi-dimensional. This article provides a perspective to sort out and interpret the context of the current retail transformation, aiming to better understand the trends in the retail industry. Conclusions first:

  1. Consumers care about "value for money" now and for a long time to come. Traditional retailers must adapt to consumer changes by adopting either an "efficiency-leading strategy" (selling goods cheaper) or a "differentiated assortment strategy" (selling better goods) to make a difference; otherwise, they will be gradually phased out in the increasingly shrinking market.
  2. The reshuffling of the retail competitive landscape has already begun and will only accelerate. If traditional retailers still want to stay in the game, it's a race against time. Reasons for changes in the retail industry: Root cause: customer demand Any systemic change cannot happen without reason. Toshifumi Suzuki, founder of 7-Eleven, summarized in "The Philosophy of Retail" that the essence of retail is to meet ever-changing customer needs. Changes in the retail industry mean that customer needs have changed. Everything traces back to changes in consumers. This is an absolutely correct cliché, but it is easily overlooked in practice. Simply put, in the current economic environment, consumer demand has shifted from a unilateral pursuit of a better life to a pursuit of "value for money." Value for money has become the primary factor driving consumer purchases (First Financial's "2023 Consumption Trend Observation"). In the past 30 years, market supply was scarce, and the economy grew rapidly. Good products, even if expensive, sold well as long as they reached consumers who had the willingness to buy. Over the years, especially recently (after the hot consumer market in 2020), market supply has become abundant, and consumers have seen what good products are, with too many choices. Coupled with economic deflation, the entire market has entered a shrinking state. Consumers have started to compare product attributes and prices, seeking to satisfy their needs at the lowest possible cost. This has led to an obvious result: expensive goods don't sell, and relatively inferior goods don't sell either. The circulation of goods has changed significantly. Nongfu Spring took the lead, and the main battlefield for bottled water returned to the "1 yuan" price range this year, not without reason. Many manufacturers have begun to cut prices indirectly, even rapidly iterating low-selling product lines to adapt to new challenges. This is the direct cause of changes in the retail industry. Of course, there are deeper issues behind consumers' pursuit of "value for money." Changes in the economic environment have led to declining incomes and a cliff-like drop in income expectations, undermining consumption capacity and confidence. If the economic environment continues like this, the impact on consumer spending power and confidence will be long-term. This means that the shift in consumer demand is clear and long-term, and the rules of the retail game will be completely rewritten. Meeting customer needs Adapting to the necessary changes in retail Knowing that consumers currently care about "value for money," the path for traditional retailers to adapt is clear: do business around consumer needs. Either satisfy consumers extremely well in quality, or satisfy them extremely well in price. If both, it will inevitably be an indispensable retail scenario for consumers. These are the two most effective transformation approaches with successful cases to reference: "efficiency-leading strategy" (selling cheaper) or "differentiated assortment strategy" (selling better products). The future of retail will show a spindle-shaped trend, with retailers at both ends surviving. First, let's talk about the "efficiency-leading strategy" (selling cheaper). Discount retail, whether discount snacks or discount supermarkets, contributes most to retail circulation by reducing redundant links to lower terminal prices, thereby benefiting consumers. Due to the significant price difference with surrounding traditional retailers (often 60-70% of the price for the same product), business is attracted to discount retail competitors. This is the most fatal for traditional retailers, especially for some regional KA or BC supermarkets. Fortunately, the transformation to an efficiency-leading strategy is also straightforward. Abandon the previous two-tier landlord model of shelf space, cancel fees such as display fees and barcode fees, change settlement cycles to reduce supplier costs, and in exchange for cheaper terminal prices. This narrows the price gap with discount retail, or even transforms into discount retail, to cope with competition. But transformation won't be smooth sailing. First, new store formats need testing, and just clearing historical supplier payments to change settlement methods is a significant financial pressure for many retailers. However, the effect will be obvious: meeting consumers' "value for money" needs on the price side will naturally bring back lost customers. If combined with assortment optimization and even private domain, instant retail, or local life traffic, business will naturally not be bad. Now let's talk about the "differentiated assortment strategy" (selling better products). Sam's Club products are not cheap, and there is even a consumption threshold, but its hit products keep coming and continue to gain popularity. This proves that when a retailer's entire assortment is good enough, there's no shortage of customers. Satisfying consumers' "value for money" needs on the quality side naturally leads to good business. If you dig deeper, you'll find that a good assortment means either products of the same quality are hard to find in other retail channels, or under the same price, the product quality is indeed better. Such examples abound. And with the popularity of Pangdonglai's store overhauls, the market has paid more attention to the differentiated assortment strategy. But this transformation strategy is not without difficulty compared to the efficiency-leading strategy. Traditional retailers that accepted Pangdonglai's overhauls are companies like Bubugao and Yonghui, which were at least regional retail giants. These companies are by no means weak in overall retail capabilities. Even companies as glorious as these are at a disadvantage in overall assortment competition in the current competitive environment. To some extent, this shows that the capabilities required for successful execution of the differentiated assortment strategy go beyond retail itself, requiring some additional capabilities. This capability, simply put, is what we often refer to as brand owner product capability. Because only by understanding what a good product is, how to design and produce it, can you differentiate from ordinary products and sell good products to consumers. Good products combined with extreme prices will result in extremely high consumer stickiness and loyalty. But differentiated assortment requires composite competitive capabilities, which is almost impossible for ordinary traditional retail enterprises, especially small and medium-sized retailers. Transformation of traditional retailers A race against time In today's market, even if traditional retailers have transformation ideas, they don't have much time left. In the era of shrinking markets, internal competition and consolidation are issues the entire FMCG market must face, and traditional retailers are no exception. In the current retail industry, new retailers are developing rapidly. Whether discount retail, membership clubs, or even instant retail, a group of benchmark companies has emerged. They are all excellent learning objects. Many traditional retailers have begun to try transformation, and many are already studying the market and considering transformation directions. As more practitioners join, it means that adapting to the new rules of the retail game has become a consensus. Once consensus is formed, it's about who moves fast, accurately, and decisively. In the process of competitive elimination, those who don't change or change slowly are often eliminated. China's retail development is a process of channel diversification and decentralization, with competitive elimination in the industry. Therefore, for traditional retailers, this is a race against time. But dialectically, although retailers face great pressure, this is an inevitable stage in every cycle of industry transformation, and it is also the best stage to build a moat amid fierce competition. I believe there will still be a group of traditional retailers who can stage a brilliant comeback!