---
title: "The Hard Discount Supermarket That Can't Get Hard"
description: "The boom of snack hard discount in 2023 has broadly educated the market about the hard discount concept, leading many to expect a similar explosion in hard discount supermarkets. However, as a consumer investor who entered the field in 2022, I can confidently say that hard discount supermarkets will not see significant improvement in the next two years. This article delves into the reasons, covering the global prosperity of hard discount supermarkets, the current state in China, the obstacles they face, and their future development."
author: "张振宇"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2024-02-29"
language: "en"
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# The Hard Discount Supermarket That Can't Get Hard

> The boom of snack hard discount in 2023 has broadly educated the market about the hard discount concept, leading many to expect a similar explosion in hard discount supermarkets. However, as a consumer investor who entered the field in 2022, I can confidently say that hard discount supermarkets will not see significant improvement in the next two years. This article delves into the reasons, covering the global prosperity of hard discount supermarkets, the current state in China, the obstacles they face, and their future development.

The boom of snack hard discount in 2023 has broadly educated the market about the hard discount concept.
As a result, many people have raised their expectations for hard discount supermarkets, believing that their explosion is also imminent.
Unfortunately, things are not that simple. As a consumer investor who entered the field in 2022, I can confidently say that **hard discount supermarkets will not see significant improvement in the next two years.**
Taking this opportunity, let's delve into this topic, focusing on the following questions:
> 1. How prosperous are overseas hard discount supermarkets? 2. The current state of China's hard discount supermarkets 3. What obstacles are hindering the development of hard discount supermarkets?
>
> 4. The future development of China's hard discount supermarkets
First, let me share several important viewpoints:
> **Hard discount supermarkets are a universal concept, with players in various countries and continents exceeding expectations;****Hard discount supermarkets are "outliers" in the retail industry, requiring either burning enough money or spending enough time to build sufficiently thick moats;****Creating a hard discount supermarket in China is hellishly difficult, because Chinese people have a profound understanding of "involution" and "low prices," and while improving social circulation efficiency, they also face intense competition;**
>
> **The localization of hard discount with Chinese characteristics is diverse, and the eventual strong players will definitely differ from each other.**
Note: The recent news of BIYI's closure is regrettable, but it does not mean the failure of hard discount in China. On the contrary, BIYI actually had over 50% of its stores climbing to profitability, but the major shareholder Argen Capital reached its limit of loss tolerance and withdrew midway.
The article is a bit long, so please be patient.
**Hard Discount Supermarkets**
**Global Heritage and Development**
When it comes to hard discount, we cannot avoid the originator, Germany's ALDI. There are already many articles describing it; this article will only briefly review it to introduce the lineage of development.
This small suburban store, originally named Karl Albrecht, was founded in 1913 by Anna Albrecht, the mother of ALDI founders Karl Albrecht and Theo Albrecht, and was inherited by them after World War II.
The original prototype of ALDI
Post-war Germany was in ruins, and the brothers lacked funds. **To reduce costs, they chose to streamline SKUs, focus on long-shelf-life items (such as canned goods), and make prices more competitive, thus giving birth to the initial hard discount supermarket model.**
**During economic downturns, such cheap supermarkets were exceptionally popular,** as their mother Anna Albrecht said, "The worse people's situation, the better our lives." By 1960, they already had 300 stores in West Germany.
In 1962, the brothers reorganized the company into Albrecht Discount, meaning "discount stores operated by the Albrecht family," abbreviated as ALDI. The originator of hard discount was officially born.
However, good times did not last long. In 1966, the brothers split the company into two due to differing business philosophies (such as whether to sell cigarettes), creating ALDI Sud and ALDI Nord. But they still belonged to the Albrecht family.
Note: ALDI in China belongs to ALDI Sud, but from a supermarket perspective, ALDI's positioning in China has deviated significantly; we won't expand on that here.
The split did not hinder ALDI's internationalization. Since 1968, from Europe to the Americas, Oceania, and even Asia, ALDI has maintained a pace of global expansion (as shown in the figure below).
A brief history of ALDI's development, excerpted from the official website
As a regular in the global retail top 10, if we only look at ALDI's own development, it is just an excellent retail enterprise, not enough to have such a huge impact on the world.
What has had a profound impact on many global hard discount systems is another family—the Brandes family.
Under the leadership of the patriarch Dieter Brandes, the Brandes family can be considered the evangelists of the global hard discount business model.
Let me briefly talk about the patriarch's experience. He worked at ALDI Nord from 1971 to 1985, serving as executive general manager and board member before stepping down. He was one of the core figures in ALDI's early global expansion, and he was responsible for managing the acquisition of the well-known American chain Trade Joe's.
After retiring, the patriarch did not idle. He continued to devote himself to the global hard discount wave with his eldest son Nils Brandes and second son Arne Brandes.
He not only wrote the world's only book dissecting hard discount, "The Simple Path: The Management Method of German Retail Giant ALDI," but also deeply participated in the growth of hard discount giants in many countries, such as BIM in Turkey, Biedronka in Poland, and D1 in Colombia.
After these enterprises grew into local hard discount giants, they began to export a large number of retail talents globally, including executives and investors, who participated in the construction of the hard discount wave in more countries. For example, the just-listed Mexican hard discount giant Tiendas 3B on the US stock market has the presence of BIM investors.
Because there are too many hard discount supermarket retail enterprises globally, and many are developing excellently, I will briefly list some for easy understanding.
The development and inheritance of hard discount supermarkets in some countries globally, for example only
In addition to the hard discount retail companies listed in the figure above, there are many more that have just started developing in various countries, such as bokku! in Nigeria, Mass in Peru, and Aziza in Tunisia.
Note: Although there are many giant players in global hard discount supermarkets, they are generally low-key. Currently, there are only two listed companies: BIM in Turkey (Istanbul stock) and Tiendas 3B in Mexico (US stock). Those interested in research can find materials to study.
In summary, after more than half a century of development, the hard discount format has not shown signs of being replaced by other formats; instead, it has blossomed in more countries. This level of prosperity is extremely rare globally.
As for what the penetration rate of hard discount in retail will be, and where the endgame of hard discount lies, these questions still have no clear answers, because **even ALDI is still iterating and optimizing its store model.**
As a side note, the Brandes family has also made significant contributions to this wave of hard discount retail in China.
**China's Hard Discount Supermarkets**
**The Road Ahead is Long**
Compared to the thriving overseas hard discount supermarkets, China's hard discount is far behind and still in its infancy. If we were to define the current stage of hard discount in its development cycle, it is only just starting.
The gap between China's hard discount market and mature countries
Not only did it start late, but it is also developing slowly, which is completely different from snack hard discount.
The snack discount format, because it leveraged two ends—social capital (franchisees) and financial capital (investment institutions)—has seen players with 10,000 stores in just 6-7 years, a growth rate that is rare.
But the development speed of hard discount supermarkets is far from that, possibly only 1/10 of it.
Note: This slow and steady development is not a problem in itself; hard discount supermarkets worldwide are generally like this, determined by the model.
Why is this? The fundamental reason is the huge difference in complexity. Understand from two dimensions.
**First, the product assortment of snack stores and supermarkets differs significantly in both width and depth.**
This triggers a systemic chain reaction, affecting procurement, supply chain, and operations.
Take an extreme but intuitive example: managing a 15m2 Juewei Duck Neck store with only 20-30 SKUs versus managing a 45,000m2 Walmart supermarket with 90,000 SKUs. Both are retail, but the requirements for procurement, supply chain, and store operations management are vastly different.
**The former can be managed by others through good game rules, while the latter, due to its complexity, can only be strictly controlled by its own employees after a series of trainings.**
This is also the difference between direct operation and franchising.
But whether franchising is possible determines whether social leverage can be utilized. One person working versus 100 people working together inevitably leads to different development speeds.
Unfortunately, hard discount supermarkets, due to the complexity of their model, can only be directly operated and cannot be franchised in the strict sense.
Note: For complex store formats, franchising can lead to problems such as private procurement and non-cooperation in operations management, eventually degenerating into a situation where the company only has partial supply rights to the stores. Strictly speaking, such a company is more like a supply chain company than a retail company.
**Hard discount supermarkets are destined to develop slowly due to their model.**
**Second, the basic model of hard discount supermarkets is much more complex than snack hard discount.**
Unlike the high homogeneity of current snack stores, hard discount supermarkets vary greatly between companies.
This complexity is reflected in countless details. Let me ask a few very realistic questions:
1. Should we open community stores or mall stores (and correspondingly, the product assortments will differ)?
2. Should we open stores of about 150m2, 300m2, 500m2, or larger (and correspondingly, the SKU numbers will differ)? Which store format is most efficient?
3. Should we sell fresh produce (selling fresh can attract traffic but has high loss; not selling fresh can control costs but slow growth)? If we sell, what proportion of fresh should we control?
4. Each category's SKU should be limited and streamlined. For example, for tissue paper, should we keep Vinda or C&S? How do we make trade-offs across so many categories?
5. Do we need to do PL (private label) products? When is the right time to start PL? Is the intention to improve the gross margin structure or to restrain strong brand products?
Based on different understandings of these details, a group of discount supermarket players has emerged in China (as shown below).
Incomplete map of discount stores in China, for reference only
Sam Walton once made a very insightful comment about retail: "Retail is detail." Indeed, no detail choice is right or wrong, but many differences in details come together to form the unique situation of each discount supermarket.
But precisely because discount supermarkets have enough details, it takes time to run tests, and the answers each company gives will differ somewhat.
Therefore, most discount companies are currently spending a few years to basically complete store format testing, and have not yet truly established their strong regional markets.
**Based on the above, compared with foreign countries, China's retail development started late, coupled with the model's own development laws, the future of China's hard discount supermarkets can only be described as a long road ahead.**
 **The Road is Long**
**And the Obstacles Are Not Small**
But one thing must be mentioned: although hard discount supermarkets develop slowly, once regional scale advantages are established, the situation for competitors can only be described as tragic.
This can be seen directly from the efficiency of channel circulation (using the markup rate as a measure).
**Snack hard discount has reduced the traditional retail circulation markup rate from 1.8-2x to 1.3-1.4x, which has already made many distributors miserable.**
**Discount supermarkets are even more aggressive, directly reducing it to about 1.2x or even lower, meaning they add only 20% to the cost and sell directly to consumers.**
Typical markup rates for grocery products across various channel circulation links
At a 1.2x markup rate, no one in the industrial chain except the brand/manufacturer and the channel can participate, meaning there is no room for distributors and little gross margin to share with franchisees.
It is clear that if this retail chain works, the impact on the traditional distribution system built by traditional retail will be enormous.
Of course, the greater the impact, the greater the resistance.
**There are two types of resistance: one is the survival competition pressure from peers, and the other is the system protection pressure from brand owners.**
As we all know, Hema fully transformed to hard discount in October 2023, joining the "low-price involution" team. It was not the first; the first to truly sense the crisis and start transforming was Yipin, and there are also Jiajiayue's new model Haohuixing, Yonghui's hard discount section...
The list of traditional supermarkets transforming to hard discount is slowly growing.
Of course, this transformation is more of a forced behavior in the face of competition, as retail companies seek survival and change. In the current environment, value-for-money is becoming what consumers truly favor.
Retail giants transforming into hard discount
But precisely because more channels are transforming, the price differences between channels are rapidly disappearing, making hard discount supermarkets, which already need to cultivate their internal strengths, also face competition from peers.
Note: This situation is also rare globally. The threshold for the hard discount model is high, so in the early development of foreign discount supermarket giants, there was almost no excessive peer competition.
Currently, this competitive trend among peers is gradually intensifying (especially with the addition of more discount warehouse formats).
**Similarly, because the current single discount supermarket system is relatively small in scale and has not established a truly strong regional advantage, brand owners view their low-price behavior as a disruption to the order.**
Therefore, strong brands often control prices or cut off supply to protect their local distribution networks.
Also, for hard discount supermarkets with limited shipment volumes, brand owners do not attach much importance to direct cooperation and often require cooperation with local distributors.
This results in the system lacking advantages in purchase prices, which is fatal to a business that relies on "low gross margin, high turnover."
Note: The same problem was also experienced by snack hard discount initially. However, due to its rapid franchise expansion in 22/23, the scale effect in regional markets was quickly established, forcing brand owners to modify the game rules to cooperate, transitioning to the current situation.
Of course, even though the pressure from brand owners is strong, it is not unchangeable.
To overcome this problem, there are only two paths: either burn money to open stores without cost advantages until scale effects appear; or develop over a sufficiently long time, naturally growing until scale effects appear.
From the perspective of confrontation and game theory, it is the subtle shift in the relative strength of channels and brands in regional markets.
From initial neglect, to gradual cooperation, and finally full compliance with channel game rules, there is a cycle of industrial development.
The gradual evolution of this game
Speaking of this, we must mention China's hard discount benchmark, Leerle, which is worth referencing.
Boss Chen founded Leerle in 2011, and it has been 13 years now. It still faces games with brands, but the resistance is decreasing, and the channel's scale advantage is emerging, as can be seen from its development speed in recent years.
Leerle's scale changes, data source: New Distribution**Believe in Industry Trends**
**Respect Common Sense**
Business development has its sociological laws. Even if we cannot see the industry's longer-term development trends clearly for a while, the industry trend is there, and we should respect business common sense.
> **1. For hard discount, the economic downturn cycle is there, and value-for-money consumption meets the needs of the public.**
>
> **2. The era when brands could earn unreasonable brand premiums is likely a thing of the past, and FMCG pricing is returning to rationality.**
The above two points have already been well educated by snack hard discount. I believe that with further development in 2024, more consumers will empathize.
**On this basis, hard discount supermarkets will only make more consumers understand and feel that not only snacks, but many categories have opportunities for discount transformation.**
Note: But it is worth noting that retail has never been a game of only 0 and 1. Hard discount can penetrate a considerable proportion of social retail, but it will not become everything.
But this is a process of gradual exploration in retail practice, which needs time to prove.
As mentioned earlier, due to the complexity of the hard discount supermarket model and the development obstacles it faces, its expansion speed will not be that fast. According to the current development speed, in the next two years, companies will still be cultivating their internal strengths.
At least it is not a bad thing. For brand owners and distributors, there is enough time to think about strategies to cope with channel changes.
As for when hard discount supermarkets will usher in an explosive point like snack hard discount, time has not yet given an answer.
But the industry trend is there. Whether it is 5 years or 10 years, that day will come.
As consumer industry practitioners, we should follow the trend and align with the industry trend.
**On March 15th, in Chengdu, the "2nd China FMCG Hard Discount Conference" will be held, where discount retail founders, brand executives, distributor bosses, traditional retail enterprises, and industry research experts will gather to focus on core hard discount topics and examine new directions, new thinking, and new opportunities in the discount era. We look forward to your arrival!**
On March 14th, a hard discount closed-door meeting will be held: Hard Discount Model and Operation, with one-on-one dialogues and discussions with expert teachers, sharing experiences, and discussing dividend opportunities in the hard discount era!
During the three-day conference, centered on the theme "Supply Chain Revolution," in addition to the 2nd Hard Discount Conference, there will also be a main forum, a China FMCG Distributor Conference, more than ten sub-forums and closed-door exchange meetings, and the first major debut of the [Ultimate Supply Chain] Brand Factory Direct Procurement Fair. We will meet with thousands of FMCG brand owners, distributors, retail transformers, and industry service providers from across the country in Chengdu, continuously brainstorming, and jointly discussing the challenges and opportunities, changes and ways out in the era of supply chain revolution.
In this era of supply chain revolution, a new business era will be born. I hope every participant will still have a place in this wave. I believe this will be a worthwhile meeting! For conference business cooperation, please contact:
**🔺Scan code for ticket consultation🔺**


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