Source | Retail Circle In recent years, a wave of discounting has swept through almost all physical supermarket operators, with some wanting to join discount brands and others wanting to renovate their old stores. The most frequently asked question is: Is discounting a business format or a model? Can it go further? What preparations should be made if one wants to open a discount store? Here, after communicating with dozens of friends from various fields, the author can responsibly say: Discounting is neither a business format nor a model; it is a business philosophy. Selling the same products at low prices is its manifestation. To achieve low prices while maintaining high operational efficiency is the only way for physical supermarkets to reconstruct their value. When supermarkets operate according to discount standards, the term 'discount' will naturally disappear. A One-Person Battle How to implement discounting? What preparations should be made? In fact, the vast majority of traditional supermarket systems are like a human body with inflammation. Should we use antibiotics to reduce inflammation and quickly restore vitality, or not use medication, hoping that one day the body's own resistance will recover? After all, every drug has side effects. The decision is made by the brain, which evaluates: if antibiotics are used, they kill harmful bacteria but also beneficial ones, and it takes time and money. If we delay, the virus may spread and eventually become incurable. This is a question that the company's brain—the top leader—must think through. It is a one-person battle. The concept of discounting is that antibiotic. If you choose to use it, use the full dose to quickly cure the disease. If you do it half-heartedly, it may consume time and effort, the disease may linger, and the body may develop drug resistance, making it harder to cure. Zhu Zhiyong, CEO of Xunwushe, said: "To implement discounting, you must be determined and reach a consensus throughout the company. If you are hesitant and wavering, no one can succeed." The determination and actions of the top leader are the core factors in the success or failure of discount transformation. Four Levels of Discounting More and more supermarkets on the street are using "discount" as their storefront sign, as if not using these two words is insufficient to show the owner's fashion and the cheapness of the products. Does discount equal cheap? The answer is yes. Because discount is an implicit expression of cheapness by operators. All customers' first reaction to discount is cheap. So the question arises: How can discount stores be cheaper than competitors? Let's deduce from the result to the appearance: (1) Improved Capital Utilization Efficiency If you want to carry out discount transformation, you need relatively ample self-owned funds, and the utilization rate of self-owned funds must be increased. There is basically no situation where suppliers advance funds. As a boss, profit margins can be reduced, but capital utilization must be improved. The number of capital turnovers per year determines whether the boss makes a profit or loss. Without rapid capital turnover, this business cannot be profitable. (2) Improved Operational Efficiency The necessary condition for rapid capital turnover is that the operational efficiency of all departments is fast and efficient. The on-shelf turnover rate and inventory turnover rate need to be managed by the product management and store operations departments themselves. There are no more manufacturer promoters. Things that were previously done by supplier salespeople, such as taking goods from the warehouse and putting them on shelves, must now be done by the store itself. If the work standards and staffing configuration cannot bear the increased responsibility and workload, and if these configurations and standards are not established, a hasty transformation will reduce customer experience and overall operational effectiveness, and may even lead to personnel instability. Discount transformation is like the college entrance exam; it tests not just one subject but comprehensive quality. (3) Improved Product Procurement Level Perhaps everyone focuses more on this aspect, thinking that if product procurement prices are reduced, profits will increase. That's not wrong, but what customers want, how much to purchase, how to market the purchased products, and how to handle competing products in the same category—these are issues that may receive less attention. If these problems are not solved well, even if product costs are reduced, there may not be good turnover. Which categories should we expand? Which categories should we reduce? Which single items in the category can be purchased on the spot? How to purchase in batches? If there is no complete plan, many purchased items will become burdens, and there are countless examples where discounted disposal cannot even recover costs. A Mr. Yang, who runs an OEM factory for beer covering most channels nationwide, told the author: "This year, I refused more retailers than I cooperated with. Beer, a small (sub)category, accounts for only 5% of sales in traditional retail supermarkets, at most 8%. Some supermarkets, to follow the trend of private labels, set order quantities arbitrarily without careful calculation. We do not cooperate with such supermarkets." Knowing your real needs is more important than where to purchase. Increase decision costs and reduce execution costs. Procurement must do the basic work well. (4) Lower Selling Prices If the previous steps are done well enough, the final step is what we show customers in the store. It also requires firm belief. As a discount store, the pricing principle is different from traditional supermarkets: basic goods are priced at cost plus 15%, with the aim of breaking through competitors' purchase costs. This breaks the regional supplier price system. Taking breaking the price system as a bottom line, giving customers unexpected surprise prices, and directly leaving competitors no chance to fight back—then your transformation has no reason not to succeed. Deducing from the result to the front end is not because the author's thinking is chaotic, but because to transform, we must know what we ultimately want. Starting with the end in mind is the correct logic. Many peers start by lowering selling prices and find it difficult. When a large number of spot-purchased products enter the warehouse and the shelf effect is not as expected, the retail price is lowered, but overall efficiency remains the same as before, resulting in a pot of undercooked fake discount rice. When transformation hits a bottleneck, think about whether your transformation steps are wrong. Correct processes lead to correct results. Price discounts, purchase price discounts, efficiency improvements, and capital turnover—these four levels of discount ultimately fall on capital utilization efficiency. A boss who does not consider capital turnover rate is irresponsible to himself. An operator who does not consider improving capital utilization is an unqualified number one. Because a large amount of unplanned and purposeless spot purchasing will, after a brief boom, drag you into a deeper abyss. Fake Direct Procurement, Real Squeeze Direct procurement (裸采) was originally a good method to reduce costs and increase efficiency, but now it has gradually become a derogatory term. The reason is that a large number of supermarkets, under the pretext of adjustment, upgrade, or discount transformation, are doing old things in new shoes, increasing the squeeze and exploitation of suppliers. There are many tricks, too many to list, but the purpose is one: I want low prices, I also want deductions, and I want to be able to return goods. In addition to the long-standing buyer's market mentality, there is a deep-rooted belief that suppliers are everywhere; if I cheat one, there will be another. But they do not realize that there are not many category suppliers that can match the scale of supermarkets. The idea of removing intermediaries for most supermarkets has been proven to be a false proposition. For most, the choice is to spot-purchase big single items and have basic product suppliers supply. When scale is insufficient, unable to fully support store operations, warehousing, and logistics, and when the improvement of employee self-operation capabilities still needs time, using multiple channels, multiple suppliers, and scattered spot purchasing for one category is a path to self-destruction. On the premise of clarifying your own product configuration, find a product service provider that can support category operations and cooperate with procurement to develop products. Such service providers are scarce resources. Driving them away is a greater loss for supermarkets than for suppliers. As Mr. Yang mentioned earlier said: "Now I look at the monthly report, not only accounts receivable but also accounts payable. Our products have absolute cost-performance advantages. Once we cooperate, we follow the contract. As for financial requirements, others should not owe me, and I will not owe upstream raw material suppliers. As a person, keep promises; as an enterprise, have a spirit of contract. This is the most basic value for a good enterprise." Targets Are for Reference Only The essence of a discount store is to break customers' price perception, use rapid product and capital turnover, and compensate for the low gross margin with high sales frequency. At the same time, it is necessary to control the sales proportion of category products, and cost control must be more meticulous than traditional stores. Below are some data for your reference. (1) 1 The total monthly salary of store employees should not exceed 1 day's sales. If a store has 40 employees with an average salary of 3,500 yuan, then the store's average daily sales must be over 140,000 yuan. (2) 12% The total expense rate of the store should not exceed 12% of sales, including rent, wages, financial expenses, product loss, and headquarters expense allocation, covering both fixed and variable costs. (3) 15% All store products are operated without fees and with cash settlement, and the comprehensive gross margin should not exceed 15%. Fresh products (fresh meat, aquatic products, etc.) have lower gross margins. To form an absolute price competitive advantage, the store's overall gross margin should be controlled within 15%. (4) 40% The sales proportion of fresh products (excluding processing) should not exceed 40%. Because competitors in the same region have basically the same procurement channels for fresh products, prices are relatively low and gross margins are thin. To ensure the profitability of the entire store, it is necessary to strengthen the sales proportion of standard products. Only when the sales proportion of standard products increases can the store's overall gross margin be guaranteed. Some readers may say that this standard is impossible. The author has also tested some systems and stores with this standard, and very few meet all of them. But those that do are definitely stores with substantial profits. The target is high, but having a target gives a direction for progress. Conclusion In the era of stock, competition among peers is not a gentle glance across the street but a close-quarters, zero-sum game. The end of competition is the competition of efficiency. Some say that discount transformation is a gamble. While you still have capital, you can still sit at the table. When the water temperature gets higher and higher, those who cannot jump out of the pool will only become someone else's dish. 🔺Scan for ticket consultation🔺