2024 is destined to be an extraordinary year, with supermarket performance continuously declining, e-commerce traffic peaking and falling, and CVS daily sales per store dropping significantly. However, hard discount stores are expanding against the trend, with capital increasing investment. An industry veteran predicts that 2024 will be a watershed for the retail industry, with a large number of businesses dying or being reborn, sinking or reviving, and lying flat or improving. The industry is lamenting bad luck and sighing over the current situation. But how many people have considered: Why is today's pain not yesterday's 'achievement'?! The Decline of Supermarkets and the Rise of New Formats A decade or so ago, supermarkets were also all-powerful, bustling, and highly profitable. As long as you chose a good location, rented the property, and put up shelves, you could just wait to collect money. Procurement squeezed suppliers in every way possible. Years ago, an industry giant trained its procurement staff with the motto "Don't treat suppliers as human beings." This led to a long-term mindset among procurement staff of "only comparing prices" and "pressing for lower prices", without understanding or wanting to do consumer research and insights, and without paying attention to category innovation and growth. Management, lacking effective means to prevent procurement rent-seeking, also focused mainly on price and profit as key performance indicators, without putting consumers first. At the same time, supermarkets delayed payments to suppliers, ranging from two to three months to half a year or even a year, using these funds for other investments, causing great distress to suppliers. Furthermore, supermarkets developed private labels with a relatively low-level procurement mindset, competing with brand manufacturers rather than developing complementary private-label products to enhance their own competitiveness. They also required suppliers to run promotions and invest in fees, while maintaining their own profit margins, and these costs were reflected in product prices. This only led to a situation where prices rose with costs, creating a mismatch between price and value. So when new formats such as e-commerce, discount stores, and membership stores emerged, the price-to-value advantage of supermarkets collapsed, their reputation fell further, leading to a vicious cycle of declining traffic and profitability. Where did the growth opportunities for new formats come from? Fundamentally, they were given by supermarkets themselves! Recently, Pangdonglai became an industry hotspot, with traditional supermarket giants like Yonghui and Bubugao seeking its help. Why did a supermarket from a third-tier city in Henan suddenly become popular? Traditional retail giants are humbly seeking advice to rejuvenate themselves. Is it that Pangdonglai really has some extraordinary tricks or profound theories? Are the executives of these giants truly unaware of the reasons for their decline? It's not that the theory is profound; Pangdonglai is not too smart but too principled. It follows the basic logic of commercial supply and demand, respecting consumers, respecting employees, being honest, and giving back to society. Can other supermarkets in the industry do the same? Only by truly optimizing processes, respecting customers and consumers, developing private labels with quality, and rebuilding trust with consumers and suppliers based on quality-price ratio and experience, can the future be promising. Traditional E-commerce Traffic Peaks Showing Signs of Decline E-commerce rose rapidly due to factors such as diversity, convenience, price advantages, and promised returns and exchanges. Whether traditional e-commerce, community e-commerce, or live-streaming e-commerce, their formats are more favored by young people, who prefer not to think too much, save effort, and follow trends. In previous years, traffic climbed steadily, unstoppable. Why is traffic now peaking and showing signs of decline? The e-commerce model is somewhat similar to "casino logic". Consumers can only judge the quality of products through visual presentation, and the final quality of the product is uncertain, especially for non-standard products. Product selling points are strengthened through appearance. In the absence of physical inspection and knowledge-based judgment, exaggerated presentation of selling points and price become the main competitive means. This leads to a situation where low quality and low price are often the traffic password. Consumers buy out of trust, and return without conscience. Merchants operate dozens or even hundreds of stores in a matrix manner. If one store fails, they open a few more, with little cost. Treating consumers with a hunting approach, the "leek-cutting" sickle is unavoidable. But leeks have memory after being cut too many times. How can traffic not shift? In addition, platforms, in order to please consumers without principles, implement return and exchange policies without scientific screening, allowing some bad actors to become parasitic industries, driving out merchants who want to operate well. E-commerce platforms operate with casino logic: as long as there is traffic, they harvest profits, ensuring steady returns regardless of weather. Without regard for transaction quality or consumer experience, how can they sustain traffic in the long run? Moreover, from an operational logic perspective, e-commerce is uneconomical due to excessive packaging, scattered logistics, and home delivery. Although it saves on physical store property costs and improves labor efficiency, the actual costs are not low. If other formats improve floor efficiency and experience, e-commerce's advantages will gradually weaken. Therefore, if e-commerce wants to maintain its advantages, it must return to the basics of business, build a credit system, crack down on bad behavior, sell value-for-money products, and have platforms provide good service and rule protection. CVS Shows Growth But Value Gradually Weakens CVS had a high-growth period of nearly 10 years before 2023, starting from high-tier markets and expanding to lower-tier cities in recent years. Its value is mainly reflected in convenience, with location and density, products, and services as operational cores. However, with the rise of hard discount stores and instant e-commerce, convenience store daily sales are also declining. The core reason is value weakness. Convenience stores generally adopt a franchise model. Although there are challenges in executing consumer scenario creation, product management can still be relatively unified. Consumers can easily judge price differences for branded products, and when there are no other options, they are willing to pay a slightly higher price for time. But when the density of various retail formats increases significantly, especially with the continuous emergence of discount stores, consumers naturally choose cheaper products, weakening the value of convenience stores. Convenience stores should focus more on traffic and stickiness rather than solely pursuing product gross margins. They should rationally and objectively reduce the wholesale and retail gross margins of branded products. Developing a systematic and quality private label with substance, retaining consumers with value and stickiness, and ensuring franchisees' retail gross margins are the long-term path. Hard Discounts Rise Rapidly But "Price Wars" Are Not a Long-Term Business Hard discount stores have developed rapidly in recent years, with tens of thousands nationwide, giving rise to large chain enterprises such as Mingming Henmang, Wanchen, and Snacks Youming. Hard discount stores have effectively seized on the pain points of supermarkets and convenience stores, such as low operational efficiency and high profit requirements, while also making up for the shortcomings of e-commerce in immediacy and credibility. By exploiting the defects of traditional brand channels being too long and price chain management, they appear as price killers. When the economic cycle arrives, they gain market recognition and grow against the trend, which can be considered timely. In addition, price wars are the core competitive means of hard discount stores, which also leads to low entry barriers for this format. In a prime location, several hard discount stores open consecutively, each claiming to be "the cheapest," with highly homogeneous products. How can consumers choose? A city with a population of 100,000 can accommodate at most about 8 discount stores. If everyone rushes in, adopting a robber mentality of selling first-tier brands at low prices to attract traffic and profiting from non-standard packaged snacks or other products, with average gross margins only in single digits, relying on small profits and high volume, how easy is it to maintain traffic? Simply competing on the merits or quantity of "stealing" brand products is speculative behavior that cannot form competitive barriers, and homogeneous low prices will also face collective suppression from brand owners. In this context, it is better to negotiate and reconcile with brand owners, ensuring unique competitive advantages through customized products. In addition, it is necessary to develop private labels to form differentiated advantages in unique categories, creating a different kind of hard discount store, rather than always adopting a "I'm a rogue, who's afraid of whom" attitude. Such competition is not sustainable. In Conclusion So who can save the retail industry? Only by returning to the essence of business, respecting consumers, being honest, pricing reasonably, providing high-quality and value-for-money products, improving operational efficiency, respecting and supporting supply chain partners, and coordinating development reasonably. The entire industry will then leverage strengths and avoid weaknesses based on different resource endowments and capabilities, build healthy differences, and ultimately form a stable equilibrium, each getting what they need, each benefiting, and developing in a cycle. 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. From August 20 to 22, 2024, the 6th China FMCG Conference with the theme "Crossing the Era of Shrinkage" and the 3rd China FMCG Hard Discount Conference & the 3rd China FMCG Distributor Conference will be held grandly in Shanghai. Mr. Xue will be a guest speaker at the conference, sharing in-depth insights at the "China FMCG Hard Discount Conference" forum. Interested friends are welcome to scan the QR code to inquire about the details of this conference!**