Summary of Key Points
Internet giants such as JD.com, Meituan, and Hema have accelerated their expansion into the affordable discount supermarket sector this year. By opening new stores and focusing on their own brands to reduce costs and improve efficiency, they have tapped into a growing market segment amidst declining performance in traditional supermarkets. The discount supermarket category is becoming increasingly attractive due to its significant potential for growth. In the future, these platforms will need to establish differentiated competitive advantages based on cost-effectiveness, while also competing on supply chain capabilities and streamlined operational models.
Why are the giants rushing to open affordable supermarkets?
Simply put, this is a business model that offers stable profits and can support their main businesses:
1. Meeting community needs: Buying groceries and daily necessities is a frequent activity in communities, providing a steady stream of customers. For example, JD.com's discount supermarkets located near residential areas can capture the local consumer demand.
2. Reducing costs: The more stores they open, the larger the purchase volumes, which lowers supply chain costs (e.g., bulk purchasing of rice, flour, and oil is more economical), and optimizes delivery routes.
3. Enhancing instant retail services: Physical stores act as "front-end warehouses" for faster food delivery. For instance, Meituan's Happy Monkey stores can deliver orders within an hour, boosting the competitiveness of its food delivery service.
JD.com has surpassed 11 discount supermarkets this year, and Meituan Happy Monkey has opened new stores in cities like Yiwu and Tianjin, all in pursuit of this profitable market segment.
Own brands are the key to profitability in affordable supermarkets
Affordable supermarkets don't rely on selling third-party products; instead, they build success around their own brands:
- Eliminating middleman profits: JD.com's "Jing Xian Fang" rice and "Jing Yue" personal care products are purchased directly from manufacturers, reducing costs by about 30% and allowing for higher margins.
- Differentiation: Products unique to these brands attract loyal customers. For example, Hema Super Box accounts for 60% of its sales with its own brands, many of which are exclusive, which helps retain customers.
- Testing new products: E-commerce platforms can promote online-selling items through their offline brands, creating a mutually reinforcing cycle between online and offline sales.
Why are traditional supermarkets struggling while discount supermarkets are thriving?
Traditional supermarkets are facing challenges this year: The number of top 100 supermarkets has decreased from 25,200 to 21,000, with more than half experiencing profit declines. In contrast, the discount supermarket sector shows strong growth potential:
1. Large growth space: The market size for discount supermarkets is expected to exceed 200 billion yuan by 2024, although the penetration rate is still only 8% (compared to 42% in Germany and 31% in Japan), indicating significant untapped opportunities.
2. High demand for discounts: The opening of JD.com's Huainan store attracted 190,000 visitors within three days, demonstrating consumer preference for affordable and reliable products.
3. Proven success models: German discount supermarkets like Aldi have seen a 100% increase in sales and a 60% rise in store numbers in China, indicating the viability of this model.
Low prices alone are not enough; differentiation is essential to avoid competition
Consumers value more than just low prices; they also seek quality experiences and uniqueness:
- Improved services: Successful supermarkets offer additional services such as fresh food preparation and innovative baking, transforming the selling experience from a mere transaction into a comprehensive service. For example, some supermarkets prepare fresh seafood into delicious meals for customers willing to pay a higher price.
- Integration with existing ecosystems: Meituan Happy Monkey integrates with its food delivery service, while JD.com's discount supermarkets work with JD.com's home delivery services, providing a seamless shopping experience both online and offline.
- Brand recognition: Customers become loyal to specific brands (e.g., JD.com's Jing Xian Fang), which helps avoid price wars that can erode profits.
Future competition: Learning from Aldi's streamlined model
In the long run, the giants will compete to replicate Aldi's successful strategies:
- Streamlining product offerings: Focusing on the most popular products (e.g., Aldi has just over 1,000 SKU compared to tens of thousands in traditional supermarkets) to reduce inventory and management costs.
- Localization: Adjusting product ranges to suit local tastes (e.g., selling more fresh bamboo shoots in the south and pasta in the north).
- Optimizing supply chains: Direct cooperation with farmers ensures fresh, affordable products.
In summary, affordable supermarkets are not just a low-cost option; they represent an important strategy for giants to capture community markets and support their main businesses. Only those who can differentiate their offerings based on cost-effectiveness will emerge as winners in this competitive landscape.