Soft discount stores losing customers "I used to drop by HotMaxx or Hi Discount while shopping, but now I go less and less. I used to spend nearly a hundred yuan on snacks, but now I don't. Not only have the discounts decreased, but there are also frequent stockouts, so I no longer make special trips to these stores," said Beijing consumer Chang Tian. This is not an isolated case; social platform Xiaohongshu is also filled with complaints about "HotMaxx discount stores." These discount stores initially attracted a large number of young consumers seeking "value for money" by selling near-expiry products, clearance items, out-of-season goods, and defective products. This "discount trend" also caused quite a stir in the capital market. The appeal of soft discount stores mainly comes from their low-price strategy, which is also their core competitiveness different from traditional supermarkets. As we all know, traditional supermarkets usually bundle near-expiry products with bestsellers, while discount stores tend to cooperate directly with manufacturers, eliminating intermediate channels, thus having a clear price advantage. Therefore, it is common to find 30% off face masks and shampoo, 2.8-yuan Genki Forest drinks, and 5.9-yuan self-heating hot pots in soft discount stores. Consumers are also keen to snap up products from different brands at "dirt-cheap prices." This low-price supply mainly comes from two sources: first, channel inventory, including products about to expire or already near expiry; second, surplus production capacity due to over-reserving of raw materials and over-planning of production capacity by enterprises. HotMaxx even claims to have over 100 professional buyers nationwide who lock in supply in a timely manner. However, as the pandemic gradually came under control, the discount store model began to show its limitations in supply and operations. "Actually, the discounts now are not as attractive as before, and I feel uncomfortable being pushed to sign up for membership cards every time I check out," Chang Tian further explained. In soft discount stores that advocate discounts and value for money, phrases like "apply for a membership card" and "join as a member" are frequently seen. Take Hi Discount as an example. Its membership card displayed in stores shows that users who purchase a 99-yuan membership card can enjoy four benefits: a 50-yuan discount on purchases over 100 yuan on the same day, a 30-yuan discount on purchases over 100 yuan the next day, and a 10-yuan discount on purchases over 50 yuan every week. During store visits, I noticed that in past near-expiry food stores, most products were marked with member prices, accounting for 70%. The intention is clear: to maintain the existing customer base and encourage repeat purchases. However, this business model does not seem to have achieved the expected results in discount stores like Hi Discount. The main problem is unstable supply, which leads to fluctuations in product assortment, thereby affecting consumers' willingness to repurchase and brand loyalty. Although in the contemporary retail environment, paid membership is widely considered an effective way to lock in users and increase customer stickiness, in such discount stores, this strategy has triggered resentment among some users. It can be seen that due to a series of measures such as stockouts, price increases, and the introduction of paid membership, the operation of soft discount stores seems to run counter to their original principle of "discounts and low prices," thus inadvertently leading to customer loss. Near-expiry food "falling behind" "Nowadays, most of the hot-selling clearance stock in warehouses does not go to discount stores. Because the emerging snack bulk stores have greater demand, they are mainly supplied to them," said an insider from a beverage distributor. Near-expiry discount stores can only choose off-season and slow-moving products. During visits to some near-expiry food stores in Beijing, I found that star products that once served as store traffic drivers, such as Genki Forest, imported potato chips, Zihaiguo, and Evian mineral water, are gradually disappearing from shelves. These products played a key role in "escorting" the stores in the past. With the "supply cutoff" of traffic-driving products, "Hi Discount" and "HotMaxx" are not having an easy time either. It is understood that the "Hi Discount" stores at Beijing World Trade Center and Chaoyang Joy City have closed. According to data from Zhaomen Canyan, as of now, there are 136 "Hi Discount" stores still operating and 9 temporarily closed; while "HotMaxx" has 499 operating stores and 9 temporarily closed. At the same time, "Prosperity Market," which was once as famous as "HotMaxx," has fallen into business stagnation and cash flow disruption due to its parent company's bankruptcy. In fact, more lesser-known near-expiry food stores and individual franchisees have quietly closed, and even the remaining players are seeking "business transformation." "In the early days, the company did try to cast a wide net and pilot stores in multiple shopping malls," revealed a discount store franchise recruiter. "However, during the pandemic, stores were able to survive because of rent concessions. When the pandemic passed, stores could not cover costs and were closed without hesitation." Near-expiry food discount stores were direct beneficiaries of market dividends, especially after the pandemic outbreak, when goods circulation was blocked and physical stores had difficulties, a large amount of goods accumulated in warehouses and stores, providing room for the near-expiry business. But with the drawbacks of the business model and market competition, the near-expiry food model is being squeezed. In contrast, hard discount snack bulk stores in the same snack track are accelerating their expansion across regions, making the "originators" of soft discount snacks increasingly passive. I communicated with brand representatives about the franchise methods of near-expiry discount stores and obtained some "conclusions." First, unlike the rapidly expanding snack bulk stores, the discount store "HotMaxx" only accepts 1-2 franchisees per region. These franchisees must open at least three stores within six months; otherwise, the brand will recruit new franchisees in that region. In terms of cost composition, franchisees need to pay an annual brand usage fee of 20,000 yuan, a deposit of 50,000 yuan, and a training fee of 9,800 yuan. In addition, water, electricity, rent, and labor costs must be considered. Taking a 200-square-meter store as an example, product procurement requires 400,000 yuan, while store decoration is handled by the company, with soft decoration costs at 800 yuan per square meter. In total, the initial investment for a store is about 850,000 yuan, with an expected payback period of one and a half years and a profit margin of about 30%. Further analyzing from a financial perspective, if rent is 200 yuan per square meter, monthly rent is 40,000 yuan. Adding the total wages of 5 employees (20,000 yuan) and monthly utility costs (3,000 yuan), the monthly operating cost is 210,000 yuan [(40,000+20,000+3,000)/0.3]. To break even, the total monthly revenue needs to be 360,000 yuan [800,000 franchise fee/18/0.3+210,000], averaging about 12,000 yuan per day. Second, in terms of location, discount stores are significantly different from snack bulk stores. Discount stores rely more on foot traffic, so they are mainly located in shopping malls, which also means higher capital investment. Thus, the franchise system for near-expiry food discount stores is strict. Since they mainly operate near-expiry products and prices are affected by city factors, the franchise threshold is set relatively high. Although this threshold effectively filters out franchisees with sufficient resources and investment strength, calculating it, opening just three stores requires an initial investment of at least 3 million yuan. But at the same time, such capital requirements also limit the participation of small franchisees, causing some franchisees with market potential to gradually lose competitive advantage. Therefore, I believe that the strict franchise system and high investment threshold of near-expiry discount stores are one of the important factors leading to their gradual marginalization in the current market environment. Soft discount market: "wolves in front, tigers behind" Due to the special nature of the soft discount model, it relies heavily on supply. Whether the supply is stable is the key to whether HotMaxx and similar stores can survive. With the gradual slowdown of the pandemic, improved logistics efficiency, and faster inventory turnover, the number of clearance products is gradually decreasing. If regular-priced goods sell well, the available clearance stock for discounts will correspondingly decrease, further compressing the supply for soft discount stores. Therefore, in the past year, some brands that mainly dealt in near-expiry products, such as Prosperity Market and Bengong Snack Research Institute, have successively exited the market. The main reason is that under China's complex distribution system and scattered near-expiry supply characteristics, soft discount store brands find it difficult to monopolize supply to reduce procurement costs like foreign counterparts. Additionally, the entry threshold for such discount stores is relatively low, leading to a situation where supply falls short of demand. Moreover, stores like Hi Discount and HotMaxx are mainly located in shopping centers in first- and second-tier cities, attracting many users seeking novel experiences. However, apart from near-expiry products, if there are no hit products that attract repeat purchases, the user repurchase rate will be difficult to maintain at a high level. This also explains why no domestic soft discount store brand has yet reached a scale of 800 stores, nor has an effective single-store operating model been formed. In addition to the drawbacks of the model itself, the market position of soft discount is also precarious. On the one hand, hard discount stores are experiencing a boom. Brands represented by Aotle, Snack Youming, and Zhao Yiming Snacks are focusing on lower-tier markets, rapidly expanding, making franchisees flock to them. Some brands even open over a thousand stores in a year, continuously gaining capital favor. Compared with soft discount stores, hard discount stores have a more stable supply chain. Their core strategy is to cooperate closely with factories to find and launch traffic-driving products. Their operations rely on low costs, refined management, and an efficient supply chain. On the other hand, the discount retail track is being eyed by more and more giants. Hema NB recently announced a shift from self-pickup store model to discount small stores, covering categories such as beverages, snacks, and beauty. Its developers also revealed on social media that the brand is continuously iterating products and services to provide more cost-effective goods, declaring war on HotMaxx and planning to enter shopping malls. Secondly, Yonghui has also begun to venture into discount retail, not only adding discount areas in physical stores but also launching discount zones on its online platform. A relevant person in charge of Yonghui said that discounting is a major trend in the retail industry now. This move can help Yonghui sell more products, provide consumers with more cost-effective goods, and reduce price differences caused by online and offline marketing activities. It can be seen that the rise of discount stores has a significant impact on the traditional retail system. Otherwise, supermarket giants like Yonghui would not choose to join this battlefield. But it must be noted that successfully operating a discount store not only requires leveraging the existing retail system but, more importantly, improving the efficiency of the entire chain and product strength. As a saying in the industry goes: "It's easy to get big but hard to get small; easy to get comprehensive but hard to get refined." Yonghui and Hema have both tried various business formats in the past, but with mixed results. There are multiple reasons behind this, including limitations of the corporate system and the difficulty of quickly adjusting strategies due to their large scale. Additionally, Jiajiayue's recently launched Yueji Haosnacks has also performed mediocrely, further verifying that entering the discount retail market is not easy. The originators of soft discount are facing a situation of "wolves in front, tigers behind." Although with the construction of private brands, HotMaxx and Hi Discount are considered a combination of "soft discount + hard discount" and are continuously transforming. In various stores, you can see added products like headbands, earrings, and necklaces to increase female user stickiness and gross profit, but the effects on traffic and repurchase remain to be seen. After all, from the perspective of the entire industry, operating near-expiry food is not an easy business. It inherently forms a zero-sum game, making it face huge risks whether in single-store operation or chain development.