Source: Third Eye Retail Author: Chen Xingxing
The retail industry is experiencing a moment of "qualitative change".
Enterprises represented by Costco, Pinduoduo, and Snack are very busy, relying on commodity price advantages, rapidly rising, cutting the market share of traditional supermarkets and even traditional e-commerce. Let the decline in corporate performance and the closure of stores become the norm in the retail track.
In the past few years, snacks have been very busy, opening 2,000 stores in a short period of time, with annual sales of more than 6 billion yuan, becoming an important player in the retail track. Michelle Ice City completed the leap from 10,000 stores to 20,000 stores in more than one year. From 0-10,000 stores, Michelle Ice City took more than 20 years. Luckin Coffee quickly broke the Starbucks-based coffee market with a price of more than a dozen yuan. It can be said that consumers have proved the attractiveness of low prices at this stage with their own choices.
At the same time, these emerging companies are reconstructing their supply chains and operating systems to provide low-cost, low-priced goods to the market, forcing the entire industry to begin to change. Since the beginning of this year, Taobao and JD.com will reaffirm the low-price strategy and set off a new round of "price war". Reducing costs has become the consensus of many traditional supermarkets, and some companies have begun to deploy discount stores.
We have enough reason to judge that at this stage, the retail industry has entered the era of low prices, and "extreme cost performance" and "small profits and quick turnover" have become the real survival rules of retail enterprises. In fact, in addition to the changes in the domestic retail market pattern, the development experience of foreign retail industry also proves that the economic downturn will give rise to low-price retail formats. Walmart and Uniqlo are both products of this economic environment.
However, it should be noted that "low-price retail" is different from simple price competition, and its essence lies in the establishment of a sustainable low-cost operation system, which is the result of process optimization, cost reduction and efficiency increase.
As a result, two discussions have also been sparked in the industry. First, are domestic discount stores and mass merchandise snack shops real low-price retail formats? Some people believe that the low prices of these stores are at the expense of commodity quality, and at the same time, the possibility of capital boosting and exchanging profits for scale growth is not excluded.
Second, in the new competitive environment, do traditional retail companies still have opportunities to achieve growth through change? In the face of this problem, most practitioners in the interview believe that it is feasible in theory but difficult in practice. The reason is that traditional retail enterprises have formed a fixed business model, and it is difficult to fundamentally change these mechanisms. Therefore, it is difficult for traditional retail enterprises to adapt to the new market environment.
"The retail industry is entering a period of rapid change, and in two or three years, discount stores will appear in batches on the Top 100 Retail Chains list." Tan Zhiwang, partner of Unbounded Innovation Capital, said.
Golden Age
At present, the conditions for the development of low-price retail in China are ripe.
Chen Liping, a professor at Capital University of Economics and Business, told "Third Eye at Retail" that throughout the development of the retail industry, the background of economic downturn can often promote industry change. The supermarket format and the birth of Wal-Mart are all related to the emergence of the American economic crisis in the 20th century. After Japan's economic growth stagnated in 1995, Uniqlo, which focused on cost-effectiveness, appeared as a business supermarket.
Under the circumstance of declining consumer spending power and willingness to consume, these new enterprises can quickly seize the minds of users with low cost, low gross profit and low price, and have an impact on the original retail enterprises.
At present, China is in this context, the sluggish economic environment after the epidemic has made the public's expectations for future income decline, and controlling spending has become the choice of most consumers. Therefore, consumers will be more rational when shopping and pay attention to price factors. This provides conditions for the development of low-price retail.
To be clear, the reduction in consumer spending does not mean that consumption is downgraded, and what really attracts consumers is still high-quality and low-cost goods. The realization of this point is directly related to the changes in the supply side of goods.
On the one hand, the improvement of the domestic manufacturing level provides more cost-effective products for the market. On the other hand, with the gradual enrichment of marketing channels, social platforms and self-media channels provide channels for various brand manufacturers to reach consumers, reducing brand publicity costs. Advertising is no longer monopolized by top brands.
Together, more and more consumers realize that the quality of the goods they can buy is basically guaranteed. Some first-tier brands and third- and fourth-tier brand products may come from the same foundry. If you buy branded goods yourself, you may pay for the brand premium. As a result, brand appeal began to decline, and "white-label" products with price advantages began to be accepted by more consumers.
As a result, merchants can improve market competitiveness by creating their own brands and introducing "white-label" goods to provide consumers with cost-effective and differentiated products. It can be seen that in recent years, a large number of self-owned brands have emerged, and some new brands and time-honored products have become popular on the Internet in a short period of time, which also means that "white label" goods are being accepted by mainstream consumers, which is also promoting the development of low-price retail.
"The competition in the future retail industry is the competition of the price-performance ratio of goods. MINISO, Luckin Coffee, Michelle Ice City and other companies have proved this. Wang Qi, a Japanese retail researcher, said.
revolutionary
Starting with the outbreak of the epidemic in 2020, retail companies with price advantages have generally achieved rapid growth.
Since 2019, Douyin e-commerce has achieved a leap from tens of billions to trillions. The number of community group buying users has approached 900 million, accounting for more than 80% of the total number of Internet users. In physical stores, discount formats have ushered in explosive growth, among which there are many enterprises with thousands of stores in the mass merchandiser snack shop track.
Cai Jingzhong, partner of Unbounded Innovation Capital, said that these innovative formats are rapidly segmenting the market share of traditional retailers. As a profit category of supermarkets, the sales of loose snacks have been divided among mass merchandiser snack shops. In Changsha, snack shops have replaced supermarkets as the main channel for milk sales, with the former already selling five times the latter. Autler has also become the largest distributor of adopting a cow in Chengdu.
"Third Eye at Retail" believes that what proves that the era of low-price retail has arrived is not that there are lower commodity prices on the market, but that some enterprises have established a low-price operation system that is different from traditional retail enterprises.
For membership stores represented by Costco, membership fees are an important part of profits, and they do not simply rely on goods to make money. "Costco was able to sell 300,000 loyalty cards and make a net profit of $60 million before it even opened. In this case, do not add too much price to the goods, and the profit can be very low. Cai Jingzhong said.
Discount stores such as ALDI provide consumers with more advantageous prices by compressing operating costs. In the procurement process, enterprises will reduce the purchase price of products through cash procurement, buyouts and other means. At the product level, discount stores launch their own brand products on the one hand, and on the other hand, they adopt explosive logic and streamline SKUs to reduce costs through scale advantages.
In the operation of the store, the shelves are not displayed with cutting boxes, and forklifts are used. There are also things such as coin to use the cart, prompting consumers to return the cart to the designated location themselves. These measures have reduced employment and labor costs.
Cai Jingzhong told "Third Eye Retail" that under the condition of ensuring price advantages, mainstream discount stores usually control rent and labor costs at 3%-5%, and other expenses 1%-2%. In the case of a gross profit of about 15%, it can also achieve a net profit of 3%-5%. The gross profit margin of most supermarkets must be about 20%.
In Tan Zhiwang's view, compared with the newly born discount stores in China of traditional retail enterprises, they have done better in cost control and operational efficiency. It is understood that these companies can replace 20% of goods every month, the price can be about 20% lower than that of traditional retail enterprises, and the commodity turnover can be about 10 days faster.
The emergence of Douyin e-commerce compresses the intermediate links and can ensure that the factory directly reaches consumers. In addition to controlling costs, the competition of Douyin e-commerce still forces anchors to compress factory profit margins. Therefore, the price of the same product, Douyin e-commerce can be half lower than offline.
According to the retail wheel theory, new retailers will always enter the market as "price killers", replacing the original business model. With the increase of imitators, these companies have to increase the cost of service, decoration and other aspects to create differentiation. It was then replaced by a new "price killer". According to this theory, low-price retail enterprises and traditional retail enterprises will become "revolutionaries" and "revolutionaries".
However, there are also views that the current environment is not suitable for the development of low-price retail. The reason is that the current low prices of most discount stores are at the expense of product quality, and do not really achieve high cost performance. Whether this model can be sustained will still take time to verify.
way out
"In the past relatively relaxed competitive environment, traditional retail companies have not made much progress in the past many years. There are no truly cost-effective retail enterprises in China. Therefore, in the face of new formats, traditional retail enterprises are not much competitive. Wang Qi said.
In his view, in the past few years, retail enterprises have had the problem of selling loose snacks at high prices. So even at present, it is still uncertain whether mass merchandiser snack stores have achieved real cost-effectiveness by compressing costs, rather than burning money in exchange for market share, or introducing low-quality goods to maintain price advantages. But the snack shop has already attracted a large number of consumers.
Japan presents a different picture. Over the past three decades, Japan's economy has largely stagnated, and the market environment has forced retail companies to reduce costs and improve operational efficiency.
"Japanese retail companies have established a global supply chain system and can purchase wherever it is cheaper. Japanese 1L of apple juice with 100% juice content is only sold for about 5 yuan, which is far lower than the domestic price. The reason is that you can go to Africa to plant fruit trees and participate in the whole process from planting to product packaging, thereby controlling costs. Wang Qi said.
Compared with the homogeneous competition in the domestic retail industry, Japan's retail formats are richer. For example, at an intersection there might be a Lawson 100-yen store, a business supermarket, a drugstore, a 7-Eleven convenience store. It is precisely because of the differences that retail companies can avoid falling into price wars and coexist with each other.
In the eyes of practitioners, the development of the domestic retail industry also shows the above trend. First of all, low-price retail enterprises appeared, and the ultimate cost performance became the direction of enterprise competition. Secondly, the format will be gradually subdivided. When hypermarkets close, the vacated market will be divided. Among them, high-frequency products will be mainly community stores, and will be divided into professional fresh food stores and delicatessens. Low-frequency products will be sold in MINISO, good sales and other stores, and gradually go to shopping malls.
Chen Liping believes that there is a lack of socialized service organizations. It is also a reason why it is difficult for small and medium-sized retailers to achieve high cost performance in goods. Alliances such as Ant Business Association and Baoting Club, which allow member companies to share commodity procurement and develop their own brands, will also develop rapidly.
But when it comes to the future, most practitioners say that the era of low-price retail is not the home of traditional retail companies. Because the operating logic of low-price retail is different from that of traditional retail enterprises. It is difficult for traditional retail companies to make fundamental changes. In fact, many traditional retail enterprises have deployed membership stores, warehouse stores and snack shops, but they still have not seen obvious results.
"Do you want to make money from goods or from suppliers? Is procurement a direct cash procurement to reduce costs or use an account period system? How to balance the relationship between private label products and original products? These problems involve the adjustment of organizational structure and assessment mechanism, and it is difficult for enterprises accustomed to the original business logic to make thorough changes. This also means that it is difficult for these companies to adapt to the new market environment. Cai Jingzhong said to "Third Eye Retail".