Recently, at the Jing'an Temple station of the Shanghai Metro, several eye-catching oversized vegetables, milk and bread have appeared to make pedestrians stop.
(ALDI was launched at Shanghai Metro Station, publicity time: December 18, 2023 - January 7, 2024, photo source: Xiaohongshu)
The sculptures are from an affordable supermarket, ALDI. They are not only vivid, but also very "down-to-earth", Chinese cabbage is shouting "I am a good dish, but cheap!", carrots "I am not talking nonsense, I am so cheap!", "exaggerated! the Swiss rolls next door expire before they are finished!", the copywriting all revolves around the keywords of "high quality", "low price" and "small packaging".
Quite ironically, next to this scene is Sam's advertisement, which has also been ridiculed by netizens: fake business wars - price reductions, poaching, real business wars - yin and yang weirdness, face opening.
Led by Hema and Sam's fierce battle with Yishan price, to ALDI's resurgence in the year-end business war, "cost performance" is undoubtedly the main theme of the retail industry in 2023, and the wind of low prices has blown all the way from soft discounts such as good sales and hi special purchases to more retail channels: the snack mass merchandiser leader Snack is very busy and the group is heading towards 10,000 stores, while BESTORE, the "first stock of high-end snacks", has reduced prices twice to "change its own life"; Pinduoduo, the market value of the e-commerce platform positioning in the sinking market, surpasses Alibaba; and "Commodity City" MINISO's performance this year has repeatedly reached new highs, and a number of core data such as gross profit margin and net profit margin have achieved historic breakthroughs.
These cost-effective consumption representative enterprises are showing an expansion speed and growth beyond the industry as a whole, and the prosperity is prominent.
This article will analyze the following three points in detail:
1. In 2024, "cheap" will still be the core of retail
2. In the complex and ever-changing Chinese market, where will the retail discount format evolve?
3. The discount track is still in its infancy, and the competition pattern is not yet clear, who will have more advantages in the leading players in the track, such as ALDI with overseas hard discounts in China, and Hema with the transformation of local retail to discounts?
The essence of retail: to complete the circulation of goods at the lowest cost and the highest efficiency
If 2012 is regarded as an important inflection point for retail offline to online, then 2023 is more like an inflection point for the entire retail industry.
When the increment peaked after the prosperity, the performance of the giants was differentiated, and Ali and Jingdong were anxious. On the one hand, price competition models such as Pinduoduo, community group buying, and live-streaming e-commerce have opened up new traffic entrances, while on the other hand, the rapid rise of new business formats such as mass selling snacks and discount supermarkets has forced retail enterprises to optimize their supply chains.
The market has formed a consensus: the future of retail will return to the essence, that is, to complete the circulation of goods with the lowest cost and the highest efficiency.
The reason behind it is also very simple, the current consumer demand has been fully satisfied, the market is oversupplied, they no longer pursue unilateral brand premium goods, pay more attention to cost performance; at the same time, the efficiency of retailers is not high enough, the markup rate of end products is still high, and there is still room for improving efficiency in the intermediate links. For example, after the extreme compression of the supply chain, the price of ALDI products in German discount stores can be 20%-30% cheaper than that of ordinary supermarkets, and the price of snacks in mass merchandisers is about 10%-20% lower than that of ordinary supermarkets.
(Compared with the commodity circulation link of ordinary retail through manufacturers-distributors-second-batch merchants-retail stores-consumers, the commodity circulation chain of the hard discount system is shorter and more efficient)
In other words, the popularity of low-cost channels such as discounts is not only a manifestation of consumers' disenchantment of brands and focusing on the product itself, but also an inevitable trend in the retail format from low-efficiency channels to high-efficiency channels.
This can also be enlightened by referring to Japan's development path. According to the "Fourth Consumption Era" written by Miura Zhan, a Japanese consumer society research expert, Japanese consumption after 2005 is in a similar situation to China's current situation: in the economic downturn, consumption has shifted from the rapid growth stage of high-end branding to simple consumption, which corresponds to the transition of Japanese retail channels from department stores and supermarkets to convenience stores and discount stores. Housewives and other different customer needs.
Don Quijote has been growing revenue for 30 years, maintaining a strong counter-cyclical growth capacity. In FY2023, the company's revenue and net profit attributable to the parent company will be 1.94 trillion yen and 76.4 billion yen, respectively, with a compound growth rate of 12.5% and 18.3% in FY06-23, respectively, and the net profit margin level has increased from 1.7% in FY06 to 3.9% in FY23, profitability has steadily improved, and the stock price has risen more than 7 times since FY06.
(Comparison between don Quijote and Seria, Japan's Aeon's revenue growth rate and Japan's GDP growth rate, image source: Wind, Bloomberg, Changjiang Securities Research Institute)
Different from overseas countries, the penetration rate of hard discount formats in mainland China is still very low, and the penetration rate of both community-based hard discounts and warehouse membership stores is less than 0.5%, which is a huge cake. According to the calculation of China Merchants Securities, referring to the 15% penetration rate of community-based hard discounts in Germany and the 4% penetration rate of warehouse member stores in the United States, assuming that the penetration rate of hard discounts in mainland China reaches the global average, the market space of community hard discounts + warehouse membership stores is expected to reach nearly 700 billion.
China's discount market in 2024: the battle between local and overseas, speed and efficiency
However, when it comes to the word "discount", the first thing that most consumers think of may be the soft discount represented by the good sale and the hi special purchase, and the "discount" seems to be inherently related to the means of sacrificing quality for low prices such as expiration date and passing the season, and is considered to be a "paradise for poor ghosts".
But in Shanghai, a unique "strange phenomenon" is emerging. The discount supermarket "ALDI" is becoming a good place for financial women in Shanghai and fitness men in Shanghai after work, with fat reduction meals, sugar-free drinks, and high-protein meat, all of which can be done within 50 yuan, and is praised as "the most suitable supermarket for Shanghai's distinguished workers" in Xiaohongshu.
(Image source: Xiaohongshu)
Different from most affordable supermarkets, although it sells goods at very low prices, the sense of experience and B style are a lot, walking into the bread and cooked food area, bursts of heat mixed with aroma come to the face, and the German lye knot of 6 yuan a piece makes colleagues call "better than dozens of dollars better than boutique bakeries". You can live a "petty bourgeois life" with a small amount of money, and ALDI has grasped the "face" and "lining" that Shanghainese people pay attention to.
The reason why this century-old "originator of hard discounts" from Germany has such a low price can be summed up in one sentence: to reduce SKU and operating costs to the extreme, shorten the supply chain to improve efficiency, and launch its own brand, thereby reducing the retail price of the channel. Reducing costs and increasing efficiency is the core logic of community discount stores like ALDI.
Compared to Walmart, which has more than 100,000 SKUs, ALDI only has 1,800, but the sales of a single SKU are more than 10 times that of Walmart. Larger purchases bring more significant pricing advantages, with Wlofe Research's comparison of the cost of a basket of fixed goods at ALDI and Walmart, which costs only about 80% of Walmart's.
In order to minimize costs, ALDI pays employees higher wages than their peers, and adopts the method of one employee wearing multiple hats, such as tally and cashiering, to improve human efficiency. Compared with the $4,000-$6,000 floor effect of Wal-Mart and Target's traditional hypermarkets, after squeezing out the decoration costs, labor costs, tally costs and other moisture, ALDI's floor efficiency is about $8,800.
Significantly different from other discount stores, ALDI has also achieved the ultimate in its own brands, with 90% of its own brands accounting for much higher than Costco, Sam's and Hema brands. Even in the Chinese market, its own brand products account for more than 70%, and according to industry insiders, the optimization of its own brand in the manufacturing end can bring about 40% of the price reduction space of ALDI.
(Source: Inspur New Consumption, A.T. Kearney, Huaxi Securities Research Institute)
As Germany's largest discount retailer with more than 10,000 stores worldwide, ALDI is expanding in China at a slow pace. After 4 years in the Chinese market, 50 stores have been opened, which is not in line with the three-digit expansion plan revealed by Roman Rasinger, CEO of ALDI China, in 2022.
However, since the second half of last year, it is obvious that the German retail giant has begun to "exert itself".
Whether it is using low-cost basic ingredients radish and cabbage to attract the target group of migrant workers at Jing'an Temple Station, which has a huge commuting flow, or the main white-label products such as 10 sanitary napkins of 3 pieces of 9, shampoo and conditioner of 9 pieces of 9 are significantly lower than the price of competing products, and the whole network marketing of color, iterating and expanding SKUs such as "Old Shanghai Babao Duck", "Shanghai Old Hotel Chinese New Year's Eve Dinner", "Butterfly Crisp without Queue in International Hotels" and other products that can more impress locals, ALDI is accelerating changes.
The most important change is that more than 80% of ALDI's existing suppliers are local Chinese suppliers.
However, ALDI still faces challenges in order to gain an absolute advantage in the huge Chinese market, starting with Hema Xiansheng, which is also based in Shanghai's local market. In order to expand the share of the discount market, Hema has also spared no effort in its own reform.
The second half of last year became a node.
In October, Hema reduced the price of more than 5,000 products by 20% and planned to streamline SKUs to about 5,000. What supports the price reduction is the readjustment of the supply chain system. If Hema once had the advantage of "understanding Chinese better", then the supply chain is the biggest shortcoming of local retailers' transformation of discount formats, and the uneven quality of products, many SKUs and miscellaneous have always been criticized by Hema.
And Hema is also working hard to make up for this shortcoming. One of the important measures in the reform is to adjust the KA model that was common in supermarkets in the past on a large scale, and re-establish the same procurement system as ALDI, Sam's and other mature discount stores, with "OEM/self-production" as the core.
For example, in the past, Hema used to make large items of white toast, Hokkaido toast, mochi, and croissant flour through multiple processes and transportation, but now it is delivered directly to the sugar box factory through its own factory, Yihai Kerry Factory, which saves the cost of flour transportation and packaging, and greatly reduces labor costs. At present, the design capacity of the sugar box factory is 20,000 tons/year, and the output value reaches 350 million yuan.
At the same time, Hema decided to suspend the renewal of the membership system, although this caused dissatisfaction among old members. If a supermarket is positioned as a high-quality product, but there is not enough advantage in price, and at the same time, it lacks competitiveness in product selection and cannot be significantly differentiated, then the membership system is useless. In particular, the current discount market competition is becoming more and more fierce, and there is no price advantage compared with discount formats without thresholds such as ALDI.
After the reform, Hema was once again pushed to the table.
summary
In general, the discount format is not only a subversion of the retail price system, but also a reshaping of the supply chain, brand, channel and product structure. The adjustment of each link will lead to the redistribution of the interest pattern and profit model.
In 2024, cheapness will still be the core of retail. Whether it is a local retail giant that has transformed to a discount format, or a "hard discount originator" who has entered China overseas, if you want to gain a firm foothold in the early stage of the industry and occupy an absolute advantage, you must not only rely on the past experience model, but must actively seek change, and speed and efficiency will become the key to market success.
If the expansion is slow, it will not be able to achieve scale effect, and if the expansion is fast, it will face higher trial and error costs and greater capital investment. When the capital ebb out, whether the enterprise itself has enough hematopoietic capacity to continue to invest in strengthening the moat is also the key to future competitiveness, after all, not all enterprises are like Hema backed by Alibaba.
This article is from Wall Street News, welcome to download the APP to see more