Click to read the original text for details "Wang Xiao'er celebrates the New Year—each year worse than the last." After Beijing's new economic data was released, many people expressed such sentiments. In May of this year, due to the impact of the COVID-19 pandemic, the capital's economy also suffered a huge shock. According to data from the Beijing Municipal Bureau of Statistics, local retail sales in May fell by about 26% year-on-year. Among the provincial-level administrative regions in China that have published monthly data, this is only better than Shanghai, where retail sales fell by 37%. The global economic environment remains sluggish, and domestic outbreaks show a trend of sporadic local spread. The uncertainty of the future has led most people to tighten their wallets, considering necessity and cost-effectiveness. Against this backdrop, the discount store format continues to expand, widely entering various scenarios such as communities, shopping malls, office buildings, and street shops. Among them, snack discount stores like Hi-Tech Go and HotMax are continuously expanding into high-traffic commercial areas; lifestyle discount supermarkets like Little Elephant Life and Love Discount, which focus on family customers, are penetrating communities. In addition to these new brands entering the fray, large retail supermarkets are not to be outdone and have already laid out plans in the discount direction. Traditional supermarket brands such as Hema, Yonghui Superstores, Suning, Renrenle, Huaguan, and Jiajiayue have all entered the discount store arena. Among them, Suning plans to open 100 discount stores this year, mainly selling internet-famous products, discounted goods, and imported snacks, integrated with daily necessities. In addition to physical stores, at the end of 2020, many discount stores for near-expiry food appeared on e-commerce platforms such as Pinduoduo, Tmall, and Taobao. The popularity of discount supermarkets continues to rise. 1 Snack Discount Stores Expand into High-Traffic Commercial Areas According to industry research data monitoring, the supporting retail in the life services sector had a store opening-to-closing ratio of 1.69 in 2021, with new store openings mainly driven by food and snacks. Among them, HotMax added over 100 new stores, and another, Hi-Tech Go, added over 40 new stores. In April 2020, due to the pandemic, the sale of near-expiry food was exceptionally hot, triggering the rapid expansion of a brand-new business model. HotMax also became the fastest company in the retail industry in recent years to become a unicorn with a valuation of $1 billion. Its initial business model relied on the sale of discounted near-expiry food, but with the continuous enrichment of its own products and the rapid growth in the number of stores, industry insiders believe the brand is expected to find a balance between soft discounts and hard discounts. Inside a Beijing HotMax store As a first-tier player in the near-expiry discount store sector, Hi-Tech Go has attempted to create a new large-scale warehouse-style discount store brand—Lost Treasure. Through stores of over 2,000 square meters, it aims to provide a one-stop solution for consumers' demand for near-expiry discounted goods, which has attracted the attention of young consumers. Specifically, the leading players in these snack discount stores have all entered first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen. According to statistics, over 60% of the offline commercial district stores of HotMax and Hi-Tech Go are distributed in first-tier cities. Of course, the rapid layout and market capture of these brands cannot be separated from the support of capital. For example, since its establishment at the end of 2019, HotMax has disclosed five rounds of financing, with the latest Series B round in mid-August 2021, which was a month when the number of financings in the new consumer industry plummeted; Hi-Tech Go received its latest round of strategic financing in January this year, having attracted the attention of well-known investment institutions such as Star VC and Sinovation Ventures over the past year. The business models of Hi-Tech Go and HotMax, which entered the discount store track with near-expiry food, have long been interpreted. The "rock-bottom prices" contrast sharply with the high rents and high labor costs in first-tier cities, and how they operate and circulate is no longer an industry secret. Under the surface of "near-expiry," merchants rely on strong supply chain management and inventory turnover capabilities to continuously iterate product selection to achieve a balance between "low-cost purchasing and low-cost selling": by purchasing from near-expiry warehouses at 20-30% of the original price, the cost is low. Even if downstream merchants sell at 50% off externally, the gross profit is still considerable, and consumers also feel it is a good deal. Based on this, although the products in the store look very cost-effective, because the procurement cost is low, the gross profit margin is not low. HotMax's business development personnel once said that the gross profit can reach 35%, which is about 15% higher than that of traditional supermarkets. In addition to ultra-low procurement costs, the product mix also has new highlights in daily operations. Among them, the in-store products are mainly a dazzling array of food, with a small range of daily chemical products piled at the entrance to attract customers. On the food shelves, common brands such as Haidilao and Genki Forest account for a relatively small proportion, but they always have price advantages over traditional supermarkets, convenience stores, and other channels. For example, a boxed JDB herbal tea costs 1.3 yuan in the store, Pepsi 2.3 yuan, Genki Forest 2.8 yuan, and Evian water, which sells for about 20 yuan at Starbucks, is only 1.8 yuan per 300ml bottle and 2.8 yuan per 500ml bottle here. Faced with such incredibly low prices, discount stores are frantically harvesting young people's wallets. After visiting the Beijing Xihongmen stores of HotMax and Hi-Tech Go, "Lingshou" found that only a small portion of the products in the store could truly be called near-expiry; most products had relatively fresh dates, with an average shelf life of about one year. Some food and beverage brands from Thailand, Malaysia, and other countries also occupied many shelves, and most of these products also enjoy zero tariffs. Therefore, even under the slogan of "global sourcing," the costs are very low when calculated. At this point, the "Hi-Tech Gos" have evolved from the initial near-expiry food stores into snack discount collection stores. Consumers shopping at a Beijing Hi-Tech Go store In terms of site selection, HotMax and Hi-Tech Go have a clear preference for shopping malls. Survey data shows that as leading players, their first choice is youth-oriented, mainstream fashion commercial areas, accounting for over 80% and 72% respectively. In this regard, industry insiders believe that this type of discount store in China is still in the early stages of development. Brands are eager to increase their momentum through scale exposure, seize user mindshare, and establish cognitive barriers. The site selection strategy of the "HotMaxes" is not only highly replicable but also easy to amplify brand momentum and is more communicative. 2 Lifestyle Discount Supermarkets Focus on Community Families Unlike the "HotMaxes" based in major commercial areas of first-tier cities, lifestyle discount supermarkets that focus on families have also attracted capital pursuit in the past two years. For example, Little Elephant Life and Love Discount, which entered the market in 2020, received tens of millions of yuan in financing in 2021 and rapidly expanded, occupying various community stores. Taking Little Elephant Life as an example, it chooses to focus on second-tier and below markets, centering on community-based consumption, and opening discount stores at the entrances of residential communities. Consumers shopping at a Little Elephant Life store "Lingshou" learned that as of now, Little Elephant Life has more than 140 stores, including over 100 franchise stores, covering multiple prefecture-level cities such as Nanjing, Hefei, and Yangzhou, and also has a presence in districts and counties such as Huangmei, Liyang, and Donghai. This year, it completed a Series A financing of tens of millions of yuan. It is understood that Little Elephant Life initially expanded with "discount supermarkets" of 80-100 square meters, offering fewer than 1,000 SKUs. In addition to "affordable" prices, in the standard categories of food, beverages, and daily groceries, it also specially supplemented "daily necessities" such as table seasonings, grains, oils, and rice, and landed more than 60 stores in the Jiangsu region in the form of fully managed joint operations. It also provides supply chain services to nearly 200 supermarkets. In terms of regional expansion, Little Elephant Life founder Su Haihui has also publicly stated that Little Elephant Life will not open in first-tier cities and will use Nanjing as the origin to sink into surrounding cities and counties. From the supply chain perspective, Little Elephant Life not only reduces costs as much as possible but also adopts a "low rent" site selection strategy. For lifestyle discount supermarkets, the first choice for site selection is "at the doorstep," not only because the product categories are mainly aimed at family customers but also because of the consideration of low rent. In terms of store format, discount lifestyle supermarkets are mostly small stores of one to two hundred square meters, with several shelves piled with near-expiry food, beverages, and daily necessities. Due to low prices, they attract many customers. In terms of city expansion path, Love Discount and Little Elephant Life are quite similar, both starting from their home base and then radiating to surrounding cities, especially the sinking market. Little Elephant Life founder Su Haihui stated that they will carry out the "sinking business" to the end. Compared with other supermarkets, Little Elephant Life has obvious differentiation in store decoration and product operation. In terms of store decoration, it mainly combines the styles of a hypermarket and a clearance sale; in terms of hard decoration materials, it chooses a simple and quality-oriented route, saving as much decoration budget as possible. In addition, "Lingshou" learned that the community near-expiry discounted goods that Little Elephant Life focuses on are mainly purchased from original manufacturers, various local supermarket and convenience store systems, Tmall self-operated warehouses, JD self-operated warehouses, and FMCG importers in a "multi-point, bulk" manner. As of now, more than 4,000 suppliers regularly clear tail-end inventory to Little Elephant Life, and the number of directly cooperating factories has reached dozens. The prices of the products it sells are basically 30% to 50% of market prices, with an overall gross profit margin maintained at 35%-40%. After nearly two years of operation and development, Little Elephant Life has gradually positioned itself as a "discount supermarket for basic household consumer goods." Little Elephant Life founder Su Haihui once said in a media interview, "The increase in products and tail-end inventory is due to the explosive rise of new brands. In response to the challenges of new brands, old brands are also continuously launching new brands and products, such as Nongfu Spring launching multiple sparkling water or soda water brands, which has brought prosperity to the consumer goods market and inventory dividends." In this regard, industry insiders believe that for community discount store types like the "Little Elephant Lifes," with the support of capital, occupying the market is not a difficult task; the difficulty lies in how to better refine the store format and continuously provide consumers with cost-effective products. 3 Large Retail Supermarkets Also Laying Out in the Track At the beginning of this year, more and more participants poured into the discount store track. In mid-January, retail e-commerce giant Suning officially entered the discount store arena. Its first discount supermarket debuted in Ma'anshan, with 150,000 yuan worth of goods, and on the opening day, the 150-square-meter store's sales exceeded 50,000 yuan. Suning Xiaodian · Discount Store "Lingshou" learned that according to the plan, in 2022 Suning will take Ma'anshan as the main battlefield, simultaneously develop Jiangsu, Zhejiang, and Shanghai, and plans to open 100 stores in 2022. In October 2021, Jiajiayue opened its first discount store in the country. It is understood that the store has a total operating area of over 6,000 square meters, with more than 5,000 SKUs, and the overall product prices are 10%-15% lower than the retail prices of Jiajiayue standard supermarket stores. Not only Jiajiayue, but in October last year, Hema opened its first fresh food outlet store, mainly selling discounted and special-priced vegetables, and adopted a 30%-50% discount on fresh products in price management. Hema President Hou Yi once said that the emergence of fresh food outlet stores is mainly to help Hema reduce losses in stores and processing centers. The prices are very competitive, basically less than half of the surrounding fresh food supermarkets. From the supply side, the rise of the discount format is related to the inventory turnover and tail-end inventory disposal of FMCG. Industry insiders say that from the demand side, young people's consumption concepts have changed, and paying attention to cost-effectiveness has become the norm for some of the younger generation, which provides a prerequisite for the development of the near-expiry food and discount industry. In recent years, chain stores positioned as hard discounts, such as Aotele, have begun to appear, which can be seen as another attempt at the "discount grocery store" model. Industry observers told "Lingshou" that although the discount format is developing rapidly and capital market investment still has "residual warmth," compared with traditional chain supermarkets, the discount format is still relatively small in scale, and the coverage of stores and consumers is still limited. But with further capital push, the pace of industry reshuffling will also accelerate, and many small players will be eliminated one after another. Although the discount store format is a big market, it is essentially still a retail business. All the tuition fees that physical retail stores have paid will not be avoided by discount stores, and the challenges may even be more diverse and complex. Whether this model can truly create larger market players depends on whether the model can develop sustainably. In the long run, the discount store is a trillion-yuan level market, but it still needs time to grow. Source: Lingshou (ID: lingshouke) Author: Qingshan