Source: New Perspective (ID: xinmouls)

Near-expiry discount supermarkets are becoming a new economic phenomenon.

Within the supermarket system, there is an unwritten rule: once a product's shelf life has passed one-third, it can no longer be sold on regular shelves. These removed or unsellable items are known as near-expiry products. They are sent to various snack discount supermarkets, becoming the "new favorites" of middle- and low-income consumers in communities, social groups, and schools.

Image: "Six-level standard for food shelf life" (Source: Beijing Administration for Industry and Commerce)

According to relevant data, China's FMCG market is approximately 12 trillion yuan. Estimating with a 5% inventory rate and a 30% discount on value, the discount FMCG market is also about 180 billion yuan.

The existence of near-expiry discount supermarkets, to a certain extent, aligns with the trend of consumption downgrading in China, using prices to capture consumer psychology, and the market has significant room for imagination. New Perspective observed that, domestically, the larger players in the near-expiry discount field include HotMaxx, Hi-Tech Go, and Zhe Man Man.

Among them, Xiaoxiang Life, which started in Nanjing, is the most typical. It has extensively laid out offline stores in various county-level cities in the Nanjing metropolitan area, and completed a tens of millions yuan angel round financing in April this year, with strong development momentum. Based on this, this article from New Perspective will focus on analyzing:

  • Using Xiaoxiang Life as an example, revealing the logic of near-expiry discount stores;
  • Reviewing near-expiry discount supermarkets, who are their buyers and sellers;
  • Are near-expiry discount supermarkets a "long-term" business?

The "Business Wisdom" Hidden in Xiaoxiang Life

Unlike HotMaxx, which is based in the business districts and enterprise parks of Beijing and Shanghai, and unlike "Dada Zhe," which integrates fresh food stores, Xiaoxiang Life, under the wave of near-expiry discounts, has chosen to focus on community consumption in second-tier and below markets, selling near-expiry discount products at the doorsteps of residential areas.

According to incomplete statistics from New Perspective, as of now, Xiaoxiang 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 like Huangmei, Liyang, and Donghai.

After completing a tens of millions yuan angel round financing, Xiaoxiang Life founder and CEO Su Haihui also publicly stated, "This year is the peak for near-expiry discount products. Xiaoxiang Life will not open in first-tier cities. We will take Nanjing as the origin and sink to surrounding counties and cities."

Compared with other supermarkets, Xiaoxiang Life has obvious differentiation in store decoration and product operations.

In terms of store decoration, Xiaoxiang Life combines the styles of supermarkets and clearance sales. In terms of hard decoration materials, it chooses a simple, quality-oriented route, saving on decoration budget wherever possible.

At the same time, it also borrows from the Don Quijote-style exaggerated promotional poster style, with slogans like "low-price sale" and "saving money is the real deal," which not only attracts consumers but also gives them the psychological pleasure of buying good things at low prices, thereby promoting transactions.

Image: Xiaoxiang Life store (Source: Internet)

New Perspective learned that Xiaoxiang Life's community near-expiry discount products are mainly sourced 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-style" manner.

To ensure price advantages and stable supply, Xiaoxiang Life currently mainly uses self-purchasing, with most single items purchased through joint procurement. Due to differences in product expiration status and supply sources, its product pricing fluctuates with market conditions.

Specifically, Xiaoxiang Life references prices on platforms like Ele.me and Meituan, and also compares group-buying discount prices for the same products on Taobao and Pinduoduo, basically forming a stable pricing system: the pricing of sold products is basically 30-50% of market prices, with overall gross margins maintained at 35%-40%. After more than a year of operation and development, Xiaoxiang Life has gradually positioned itself as a "discount supermarket for basic household consumer goods."

It covers food and beverages, daily necessities, rice, flour, oil, daily fresh milk, frozen food, and other household daily products. While having cost-performance advantages, it has also become an indispensable shopping point for many residents' lives. It should be noted that near-expiry discount supermarkets are still in their infancy, and Xiaoxiang Life is just one in the Nanjing metropolitan area. The first tier, represented by HotMaxx, Hi-Tech Go, and Xiaoxiang Supermarket, has completed the initial market education for consumers on near-expiry food and, to a certain extent, stimulated consumer demand. In the view of industry insiders, "the current stage is the starting period for the near-expiry discount industry, with low thresholds and high gross margins. Rough statistics show there are 150 near-expiry discount brands nationwide, with a total of about 2,000 stores.

Coupled with the push of capital, more and more players are entering the track, jointly contributing to the blossoming scene of near-expiry discount supermarkets."

Behind the Rise of Near-Expiry Discounts

Near-expiry discount supermarkets are a typical "new species."

On one hand, the problem of overcapacity in food factories is a major reason for the growth of near-expiry discount supermarkets. According to incomplete statistics from New Perspective, about 100,000 food factories in China have overcapacity problems, which to a certain extent provides possibilities for the emergence of new sales channels. For food factories, the existence of near-expiry discount supermarkets can both reduce costs and improve efficiency, and reduce inventory; for near-expiry discount supermarkets, purchasing from food factories not only has low prices and large volumes, but also can expand product categories and obtain stable supply. This seems like a win-win situation.

On the other hand, domestic consumer attitudes are beginning to show a trend of downgrading. Here is an explanation of what consumption downgrading is: it can be simply summarized as "low price, de-branding, good quality and cheap," not at the expense of quality, but to buy the best things at the lowest prices. In the context of the new consumption era, people's social lives have undergone significant changes. Consumers are increasingly paying attention to the necessity, healthiness, and sustainability of consumption, and cost-performance has become the primary consumption criterion. Therefore, under the premise of ensuring product quality, it is understandable for consumers to choose low-priced good products. However, it is not easy to meet consumers' demand for "low-priced good products" in the long term and stably, because the downstream near-expiry discount supermarkets cannot control the initiative in selecting products; whatever is left in the market is what goes on the shelves.

In this way, large-scale, multi-channel sourcing has become a major feature of discount supermarkets. "In the south, look at Shanghai for near-expiry; in the north, look at Tianjin." Taking Tianjin as an example, as one of the birthplaces of near-expiry food, Tianjin has dozens of large warehouses with daily sales of 200,000 yuan for near-expiry food, and hundreds of discount stores with daily sales of 50,000 yuan. The supply for near-expiry food discount stores nationwide mostly comes from goods that have been resold several times from Tianjin.

In addition to purchasing from major near-expiry food warehouses, near-expiry supermarkets also seek other supply sources, such as products removed from large supermarkets, self-operated warehouses of major e-commerce platforms, returns and exchanges from e-commerce platforms, and overseas imported goods. As the popularity of near-expiry food discount stores has surged, the industry has also spawned small programs like Super Supply Warehouse.

For now, although the problem of fragmented sourcing is difficult to perfectly solve in the short term, and the management and sales of near-expiry discount products are hard to measure with a unified standard, consumer demand for low-priced goods and the high profits of near-expiry products continue to attract mid- and downstream players to enter.

Is This a Long-Term Business?

Through the above analysis, it is not difficult to find that near-expiry discount supermarkets have many value points.

On the supply side, the emergence of near-expiry discount supermarkets can help large supermarkets and warehouses consume inventory and alleviate overcapacity; on the demand side, near-expiry products allow consumers to enjoy the same products at lower prices. Since most consumption is immediate use or consumption, whether the product is near-expiry does not matter much to them. Taking Xiaoxiang Life, which is in an expansion period, as an example, it has high foot traffic, cheap rent, low logistics costs, and a wide range of product sources, enjoying continuous dividends.

On one hand, there are a large number of factories with overcapacity in the Jiangsu, Zhejiang, and Shanghai region and relatively low logistics costs; on the other hand, there is the purchasing power and enthusiasm of consumers in second-tier cities and below. It is no surprise that Xiaoxiang Life's business is booming.

According to market estimates, a near-expiry discount supermarket can cover 5,000 households, about 15,000 people. Excluding areas with poor location and saturated markets, the urban area of Nanjing with a population of over 6 million can theoretically open 100 stores.

Moreover, based on national product inventory and population density, near-expiry discount supermarkets can reach at least 30,000 stores in size. Currently, there are only about 2,000, and the sinking market is still a blue ocean. What needs to be vigilant about is that near-expiry discount supermarkets also have controversies (because whether consumer demand for near-expiry products is sustainable is questionable). Obviously, the consumers targeted by near-expiry food are mostly those with medium-to-low consumption levels. The demand of such consumers for near-expiry food is not fixed; it comes and goes quickly, driven by impulse consumption rather than periodic preferences or needs.

Among these, merchants use tactics like discounts and promotions to create a sense of urgency and anxiety, which also plays a role. To some extent, near-expiry food is not a rigid demand but a short-term demand. This unstable demand can develop rapidly or fade quickly with market changes, and is also called "trial" or "impulse" consumption.

Looking upward, near-expiry discount supermarkets find it difficult to enter core business districts as independent stores, nor do they have the basic strength to compete with large supermarkets like Auchan and Walmart. Once near-expiry discount supermarkets are widely promoted as an independent business model, the many problems hidden behind them will gradually be exposed.

On one hand, the emergence of near-expiry discount supermarkets has, to a certain extent, intensified the contradiction between brand owners and discount retail.

For brands, the priority is first the output channels such as supermarkets and hypermarkets, and then inventory clearance. The rise of a large number of near-expiry discount stores not only impacts brand prices, causing more brand products to become unsalable, but also brings negative effects to brand image through low-price sales.

On the other hand, the near-expiry FMCG industry involves relatively many links, including transportation, inventory, consumers, and inventory. In the context of blindly pursuing low costs, if there is a lack of timely supervision of the industry, a large number of products that do not meet quality standards may also flow into the market, thereby causing related safety issues.

Before scale expansion, near-expiry discount supermarkets need further consolidation.

Are you "watching" me?