"Foot traffic at supermarkets is clearly not what it used to be. Many snack stores are located right at the mall entrance. Shoppers see pastries priced at 32.8 yuan per jin inside the supermarket, but when they walk out, the snack store at the entrance sells the same product for only 13.8 yuan per jin. The price difference is stark. If you were a consumer, where would you choose to buy?" said Lin, an executive at a bulk snack brand, discussing the current state of traditional supermarkets. In the past, supermarkets were a key channel for Lin's company, with sales consistently growing. However, orders have declined significantly since the beginning of this year. To understand the market situation, Lin visited retail outlets in multiple cities and noticed a clear shift: the foot traffic gap between traditional supermarkets and snack discount stores is substantial. To maintain sales, Lin's company has begun actively embracing snack discount stores.

Snack Discount Stores Intensify Traditional Supermarkets' Anxiety

In fact, the plight of traditional supermarkets is nothing new. Even before snack stores emerged, overall supermarket business was already declining. The rise of snack stores has only added to the survival pressure on traditional supermarkets. Recently, listed retail companies released their third-quarter reports. Despite the gradual economic recovery, the overall situation for traditional retail enterprises remains grim: among 30 listed companies, more than half saw revenue declines, and some even reported losses.

Image source: Compiled by Longshang.com Supermarket Weekly based on financial data. The lackluster performance is partly attributed to snack discount stores. A survey conducted by an institution earlier this year found that consumers perceive the biggest weakness of traditional large supermarkets as their disappearing affordability and convenience. Nearly 70% of respondents believed these supermarkets no longer offer significant price advantages, with fewer discounts. The "price advantage" that traditional supermarkets are losing is precisely one of the biggest strengths of snack discount stores. In this conflict, traditional supermarkets naturally see their foot traffic eroded.

However, snack discount stores are not a new phenomenon; they have been around for 13 years since their inception in 2010. Why has their impact suddenly grown? There are three main reasons:

First, in the early stages, the expansion of snack stores could not keep pace with consumption growth. They did not impact traditional channels but instead stimulated consumer demand and expanded market capacity. Now, snack discount stores are expanding aggressively, competing for existing market share rather than creating new markets, intensifying competition for traditional channels.

Second, early snack stores had price points similar to traditional supermarkets, so consumers did not perceive a significant price difference.

Third, initially, snack discount stores inherited many of the "bad habits" of traditional channels, such as charging fees to manufacturers and settling payments on credit, making them little different from traditional retail terminals, with no reduction in transaction costs. As the industry evolved, the hard discount logic of snack discount stores became evident, lowering transaction costs and highlighting product price advantages, gradually increasing their impact on traditional supermarkets. More and more supermarket chains are exploring new models to transform and seek self-rescue.

New Model Challenges: How Can Supermarkets Transform?

How are traditional supermarkets responding to the rapid expansion of snack discount stores? I have compiled the timing and specific measures of some traditional supermarkets' discount-oriented transformations. In summary, most transformations have occurred in the last one to two years, with measures falling into three categories:

1. Opening Discount Stores

As the snack discount format gains popularity, many supermarkets have entered the fray by opening discount stores, either full-category discount stores or snack-specific discount stores. For example, Jiajiayue has tried both formats: a snack collection store brand "Yueji Haosnacks" and a discount store brand "Haohuixing." To date, "Yueji Haosnacks" has opened 8 standalone stores, and "Haohuixing" has opened 2. Although traditional supermarkets are entering the snack discount track somewhat late, some still have foundational advantages. For instance, Jiajiayue leverages its supply chain strengths, bulk purchasing to reduce costs, and direct partnerships with well-known brands, giving it a competitive edge.

2. Creating "Store-in-Store" Concepts

Traditional supermarkets have long offered discounts on certain products, mostly near-expiry items, without optimizing the supply side—essentially soft discounting. A store-in-store differs from a regular "promotional discount zone" by optimizing product assortment and supply chain and improving efficiency to ensure products are not near-expiry and prices are low, following hard discount logic. For example, Xinhua Du is currently piloting a store-in-store model: removing the original bulk snack section and designating a separate area as a small snack store selling low-priced bulk snacks. By optimizing the supply chain and partnering with distributors/snack stores, they secure low-cost sourcing.

A store-in-store transformed by Chan Zui Zui for Xinhua Du on Changsheng Street, Fuzhou.

The cost of a store-in-store is much lower than opening a standalone snack discount store, while leveraging the supermarket's existing advantages to attract dual traffic.

3. Full-Store Discounting

Most supermarkets undertaking discount reforms lack the courage to go all-in, often adopting a "trial" mindset. Whether opening discount stores or store-in-stores, the premise is not to shake the company's fundamental foundation. In October, Hema announced a 20% price cut on selected products in offline stores, becoming the first and only supermarket to fully enter the hard discount arena. From my in-store observations, Hema's reform has brought considerable foot traffic.

In addition to directly engaging in price wars, some supermarkets choose to avoid their weaknesses and play to their strengths, such as removing bulk sections and expanding fresh produce categories to attract customers. These attempts are still too recent to have sufficient data to prove their effectiveness, but clearly, the wave of discount-oriented reform has begun. Can traditional supermarkets successfully rescue themselves through this path?

Is Discounting the "Antidote" for Traditional Supermarkets?

Traditional supermarkets, after years of development and evolution, have relatively rigid operating systems, making successful reform difficult. Many regional single-store operators lack the awareness to know how to reform, or even the consciousness that reform is needed. Unless upstream distributors and manufacturers guide change, they will continue to stagnate or regress in the face of snack discount stores.

For very large supermarkets, with years of entrenched systems, the probability of successful reform is low. For example, Yonghui has tried various emerging channels but has yet to find a fully successful model. Some have even remained indifferent to the impact of snack stores, with almost no countermeasures.

For traditional supermarkets, discount reform is like turning an elephant around. While low prices cater to customers' desire to save money in a downturn, they place extremely high demands on supply chain efficiency. Hard discounting is not just a change in sales format but an optimization of the supply chain. Snack discount stores, as a form of hard discounting, are essentially a business model pursuing ultimate efficiency. Many entrants fail to understand this essence. For instance, Jinbaibai Warehouse Discount, which now has over 200 stores, was initially popular in Tianjin, and nearly a hundred imitators sprang up nearby. Those stores only saw the low prices of Jinbaibai's products but did not understand how it improved supply chain efficiency and achieved minimalism, ultimately failing one by one.

Selling cheap products and selling products cheaply are two different things. Many supermarket reforms make the same mistake. However, compared to entrants without industry resources, traditional supermarkets have certain inherent advantages and the ability to leverage external resources. For example, the store-in-store reform mentioned above is based on the supermarket's existing strengths, supplemented by external resources like snack stores and distributors. Another example: a store under the Supply and Marketing Cooperative, with the help of Teacher Lian Jie's team in October, transformed into a hard discount store. After reopening, its labor productivity indicator became the highest in the entire system.

Hard discounting is merely an upgrade and optimization of traditional retail, not a complete departure from it. Whether traditional retail business owners can shift their mindset, find the right external resources, and resolve to reform is crucial. Teacher Lian Jie mentioned in a special livestream on New Distribution, "The outcome is completely different depending on whether a retail enterprise is determined to transform." Whether discount reform will become the "antidote" for traditional supermarkets remains to be seen. But one thing is certain: if they have foundational supply chain capabilities, can leverage external resources, and are determined to transform, their chances of success will greatly increase.

From December 5-7, 2023, New Distribution will host the First China FMCG Hard Discount Conference in Zhengzhou.

At that time, entrepreneurs of hard discount chain brands, executives of leading FMCG brands, top national FMCG distributors, traditional retail enterprises, as well as service providers and research experts, will gather in Zhengzhou to discuss the supply chain revolution brought by hard discounting, as well as long-term development trends and opportunities.

If you are also interested in hard discounting, you can scan the QR code to add our customer service WeChat, inquire about the conference details, and join the [Hard Discount] themed community to discuss development trends and opportunities together.