Recent Q3 2024 reports from major listed companies show traditional retailers in distress, but Wanchen Group, a leading snack discount retailer, has performed impressively. Wanchen's Q1-Q3 revenue reached 20.613 billion yuan, up 320.63% year-on-year; net profit attributable to parent was 84 million yuan, up 248.64%. Similarly, hard discount retail is thriving, with strong momentum. For example, Fujian's 'Guanpake' has expanded rapidly with its 'big brand hard discount' concept. In Fuzhou, a single store with 5-6 staff can achieve monthly sales exceeding 1.2 million yuan, with per-capita efficiency over 200,000 yuan per month. Stores are bustling, and franchisees are lining up! In contrast, traditional supermarkets are deserted, with few sales, plummeting profits, and mounting anxiety! Both are retail enterprises, why the stark difference? Who is to blame? The 'double shrink' pressure is the realistic cause. With low economic growth, weak consumption, and increasingly rational and price-sensitive consumers, supply-demand imbalance and severe oversupply have led to significantly reduced supply chain profits. The 'double shrink' situation of shrinking sales volume and shrinking profits is the harsh reality facing the retail industry. Some call it a cycle, while others bluntly say it's the end of the old and the beginning of the new?! What should traditional retail do? Survive or perish? It's a mandatory question! In 2024, the retail industry is collectively in a tense atmosphere of anxiety, learning, exploration, adjustment, and innovation. How to break through the 'double shrink' and achieve survival and growth? Only by actively facing and quickly adjusting can traditional retail find a way out. In the past two years, there has been a 'Pangdonglai fever' nationwide, with retailers going to learn from Pangdonglai. Even industry giants like Yonghui have invited Pangdonglai to help and adjust. What to change? What brings immediate results? Product adjustment and value recreation! The core value of a retail enterprise is to provide competitive products; product adjustment is the most urgent, fastest, and most effective. However, products are passive. Products are introduced by procurement. To adjust products well, procurement must first be adjusted. Comparing old and new retail formats, traditional procurement cannot adapt to new competition in terms of process, role, capability, and responsibility. Only by eliminating traditional procurement can retail have a way out! Traditional procurement has many sins, but the traditional procurement process is the 'chief culprit.' The traditional procurement process is lengthy, from procurement assistant to buyer, then supervisor, section chief, department head, and finally decided by the procurement director or vice president. On the surface, there is process review and supervision, but in reality, it's inefficient and overstaffed! The lengthy procurement process is not only inefficient and long, forming a situation of 'everyone is an official, no one takes responsibility.' An excellent product wanting to enter a retail system takes 'ages,' but even then, feelings may not develop. Such low efficiency and slow response lead to the loss of many excellent product opportunities. How can it compete with new formats? The product structure is outdated, aging, and unattractive, gradually weakening competitiveness. In contrast, new-style hard discounters are very fast. For example, 'Guanpake' is a benchmark for quick decisions, quick judgments, and quick actions. Terms are confirmed within an hour, a group is immediately created for communication, required materials are concise and effective, and by the time the negotiators leave Fuzhou, the products are already on their way to the warehouse. The 'second sin' of traditional procurement is work habits and attitudes. Traditional procurement has a strong 'buyer's market' mindset, with arrogant and rough attitudes towards suppliers. They are 'ruthless' to suppliers, often not answering calls, not replying to WeChat messages, and not responding to emails. Traditional procurement has long formed a 'fishing' work habit, with insufficient excitement and acceptance for new products, categories, and things. They often passively accept products, like 'Jiang Taigong fishing, willing to take the bait.' For innovative potential new products, they are even more 'cold,' with phrases like 'this is risky, that trend is not obvious' becoming the mantra that kills new products. With such attitudes, one cannot expect traditional procurement to actively seek excellent products. They have been 'treated as honored guests' for years; how could they condescend to take the initiative? That would be improper! However, new-style retailers present a different scene. For example, Tianjin's 'Jinbaibai,' a representative of the new hard discount model, is very humane, with efficient and enthusiastic negotiations, willing to listen to supplier suggestions, and showing humility, generosity, and professionalism. How could suppliers not love such a retailer? 'Jinbaibai' not only treats suppliers with courtesy but also cares for its employees, even offering free drinks to delivery drivers as a token of thanks. Traditional procurement focuses only on price, not value, which is the third drawback. Traditional procurement habitually cuts prices, indiscriminately bargaining on all submitted products. Regardless of whether the quote is reasonable, regardless of the reason, they cut, cut, cut! 'Wherever the long knife points, everything is cut.' Over time, this creates a vicious cycle where suppliers passively raise their quotes—since there will be a cut anyway, they negotiate after the cut. This not only wastes communication resources but also undermines trust. It is appropriate for procurement to determine reasonable prices, and it is their job, but it should be based on factors such as product cost, craftsmanship, competition, and timing, and should be grounded in horizontal and vertical database analysis, with evidence and context. Otherwise, it's easy to 'kill with a single stroke'! Suppliers also need reasonable profits. If procurement cuts so much that suppliers have no room, they may either refuse to cooperate or find profits by compromising quality, which poses significant hidden risks. Moreover, procurement should focus on the value perception of products. Price is superficial; value is what drives consumer loyalty. Retailers can only increase traffic, solidify profits, and boost performance by continuously accumulating value perception. Therefore, product procurement should assess the anchoring relationship between perceived value and price, not just price. Sam's Club excels in value perception, with strict high-value requirements for introduced products. On this basis, they can promise suppliers large-volume purchases to support their competitive quality and price. The fourth flaw of traditional procurement is focusing only on short-term interests, ignoring long-term development. Traditional procurement's main performance indicators are sales and profits, so they naturally focus on short-term metrics and prefer products already 'famous' in the market. This 'copy homework' approach to procurement has low short-term risk, but sales rely on promotions, often leading to price wars. Short-term sales may be guaranteed, but long-term competitiveness accumulation is worrying. Traditional procurement's short-sightedness leads to many potential new products being rejected, hollowing out the retailer's competitiveness. Therefore, to escape the current predicament, retail must first eliminate traditional procurement! With traditional procurement eliminated, who will be responsible for product introduction? The future retail industry no longer needs traditional procurement; it needs elite-level 'marketing procurement.' 'Marketing procurement' (Yingcai) is marketing-oriented procurement, which can be understood as super procurement, capable of proactively, quickly, efficiently, and responsibly completing product introduction. Yingcai possesses comprehensive capabilities such as market insight, competitive research, category management, brand management, quick judgment, product integration, and operational diagnosis, and is accountable for results. With such high requirements, Yingcai personnel command higher salaries. Doesn't that increase costs for enterprises? On the contrary, Yingcai personnel not only improve the retailer's gross margin but also reduce labor costs. Traditional retailers have gross margins between 60% and 80% and do not bear product operational risks. The future retail format will generally have gross margins no higher than 30%. Retailers must promote organizational and process reengineering to achieve extreme operational efficiency and gain opportunities for profit, survival, and growth. Therefore, retailers should promote extreme flattening of management, significantly reducing process-oriented procurement staff, and only need a small number of fast, accurate, efficient, and responsible Yingcai personnel. They can do the work of many, so overall labor costs are reduced. Secondly, with fewer management levels, management costs decrease, and efficiency and effectiveness improve, indirectly saving costs. Additionally, under the new direct procurement model, Yingcai focuses more on product value and is accountable for product results. They will more fully consider product sell-through, and with capability assurance and result orientation, they will significantly reduce the rate of slow-moving inventory, reducing reverse logistics and loss costs. The capability of Yingcai determines the product strength of retail enterprises and affects the foundation of future competitiveness. The future retail industry is not just about traffic competition but also stickiness competition. Consumer trust and loyalty come from the accumulation of long-term value satisfaction provided by retailers. In the past two years, retailers nationwide have visited and learned from Pangdonglai, but they find that Pangdonglai's products are not the cheapest in horizontal comparison. Yet, it attracts many customers, with high average transaction values, and shopping carts are full. Why? Because visitors only see the slice of information Pangdonglai presents today, without deeply understanding the vertical accumulation Pangdonglai has pursued for over 20 years. Pangdonglai has insisted on product stickiness construction for over 20 years, forging consumer loyalty. Pangdonglai is no longer a pure retailer but a brand. Today, Pangdonglai's promotion of its business philosophy and humanistic care is a brand maintenance and upgrade behavior, seemingly unrelated to sales, but with far-reaching effects. Today's Pangdonglai comes from yesterday's efforts. The most urgent transformation for traditional retail is to promote product value adjustment. Where can Yingcai show differences in product aspects? The future product competitiveness of retail enterprises is mainly reflected in the proportion of extreme cost-performance products and unique sticky products. Extreme cost-performance products are traffic-driving products that greatly satisfy target consumers' perceived value, creating a strong sense of gain, and can quickly spread and attract traffic. They may have low gross margins, but with large volumes, the gross profit is considerable. Extreme cost-performance products have strong time and space attributes, making Yingcai's comprehensive sense, reaction speed, and negotiation ability crucial. These products are either well-known products purchased in large scale or non-first-line brands with characteristics, innovation, and trend attributes. They carry certain risks and responsibilities, so the requirements for the introducing personnel are very high. Traditional procurement cannot handle this; only highly capable 'Yingcai' can take on this major task. Unique sticky products generally refer to retailers' private brands or self-owned products. Traditional procurement generally has biases against private brands because they occupy system resources and affect traditional procurement's power space, so they usually do not actively promote private brands. Yingcai personnel are different. They have market insight, understand consumption changes, know category development trends, understand product development, and are more likely to discover potential products that can be 'self-owned.' Yingcai's management height and sense of responsibility also enable them to understand and support the development of private brands, clarify the relationship between external procurement and private brands, and jointly promote private brand development, increasing the proportion of unique sticky products and enhancing competitiveness. The high proportion of private brands at Sam's Club, Costco, and Pangdonglai are obvious examples. For retailers, with external 'double shrink' pressure and internal peer competition, the only way out is to change, promote process reengineering and value recreation. Of course, they will unhesitatingly kick away the 'stumbling block' of traditional procurement, cut it out, and use Yingcai. The value of traditional procurement was in the traditional retail era, and its flaws were also caused by traditional retail. For individual procurement personnel, it is passive and innocent, not their personal fault. However, as times advance and models iterate, reform is inevitable. Only those who continuously learn and actively strive can cross the cycle. Those who cannot adapt to development and stick to traditional thinking and working methods will be eliminated, while those competent as 'Yingcai' should be boldly empowered to fully utilize their professional abilities. Traditional retail must start with procurement reform, use performance improvement as motivation, and comprehensively promote reform to achieve nirvana! Xue Wenfa, with over 20 years of experience in product development and brand management at large listed companies, has been responsible for managing the private brand management and operations of the largest platform enterprise in China. 【New Order · Symbiosis】 The 10th China FMCG Innovation Conference Date: March 17-19, 2025 Location: Chengdu, China