The Zhitong Finance App learned that Tianfeng Securities released a research report saying that the retail discount business has received widespread attention recently, and the “discount economy” buzz is not a single phenomenon; it is consistent with the overall trend of changes in the consumer environment. In the process of wave-like economic development and tortuous progress after the epidemic, the return to the essence of products in an affordable and high-quality retail format may become the mainstream trend in domestic retail in the future. Judging from the results: The growth rate of global retail channels has slowed, and channel development is clearly divided. Since the epidemic, China's cost performance channel growth rate has been 5 times the average. Domestic monthly news agencies have zero data verification, and the online and offline scissor gap has gradually narrowed, and it has been overtaken for two consecutive months. The underlying reasons behind the dismantling: ① Rational consumerism has risen in the economic cycle, and residents' preferences for cost performance have increased; ② Online traffic is getting more and more expensive, and offline stores are gradually regaining their comparative advantage.

Introduction: This special study focuses on sorting out the recent situation of market participants in different business formats under the current wave of the domestic discount economy.

Through the above analysis and research, it was discovered that ① the domestic soft discount model has benefited from the rapid rise in the background of the epidemic's end goods growth era. The development has now faced challenges such as scattered supply channels for final goods and large fluctuations in store gross margin due to final goods, and the racetrack is changing itself; ② As the first form of retail discount industry, mass-selling snacks, as the first in the retail discount industry, already has the prototype of hard discounts in some dimensions. Capital attention is high, competition in the industry is relatively sufficient, new entrants are emerging, long-tail brands are being cleared in the later stages, the industry pattern is expected to be optimized, and leading advantages may be further highlighted. ③ Hard discount retail is on the rise in the domestic market. Referring to mature representatives from overseas, the hard discount model has the ability to cross the economic cycle. Behind “high quality and low price” products is the systematic optimization of the entire retail system. Excellent enterprises can achieve extreme cost reduction and efficiency optimization in every aspect of procurement, logistics, stores and headquarters.

▍ The main views of Tianfeng Securities are as follows:

Why is the discount economy booming?

Recently, the retail discount industry has received widespread attention. The “discount economy” buzz is not a single phenomenon; it is in line with the changing trend of the overall consumption environment. In the process of wave-like economic development and tortuous progress after the epidemic, the return to the essence of products in an affordable and high-quality retail format may become the mainstream trend in domestic retail in the future.

Judging from the results: The growth rate of global retail channels has slowed, and channel development is clearly divided. Since the epidemic, China's cost performance channel growth rate has been 5 times the average. Domestic monthly news agencies have zero data verification, and the online and offline scissor gap has gradually narrowed, and it has been overtaken for two consecutive months. The underlying reasons behind the dismantling: ① Rational consumerism has risen in the economic cycle, and residents' preferences for cost performance have increased; ② Online traffic is getting more and more expensive, and offline stores are gradually regaining their comparative advantage.

What is the economic development of discounts?

According to data disclosed by Euromonitor International, warehouse members+hard discount stores accounted for less than 1% of China's offline channels in 2022, far below the global penetration rate of 10% +. Compared to overseas markets, China's current discount retail business is still in the early stages of development. Selling snacks as a subdivision of the discount economy previously received widespread capital attention. Currently, there are few independent and mature comprehensive discount supermarkets (Lele national exhibition stores). Market participants have not yet formed a clear competitive advantage at the product and operation levels, and are still in the early stages of price competition.

Hard discount business format: The essence of the hard discount business is a business model that pursues extreme efficiency. The model originated from ALDI in Germany. By optimizing product selection and reducing supply processes, it has achieved a “low gross profit & high turnover” model at sales terminals. The mass snack chain business that has continued to rise in recent years is only a business model under the hard discount model. Currently, more and more traditional supermarket leaders are exploring the hard discount business. Among them, Jiajiayue, Hema Olay, Yonghui Supermarket, and Chongqing Department Store are successively laid out as independent brands or “store-in-store” formats. 2023 may be the first year of the full discount era.

Soft discount business format: The soft discount model sells temporary products, finished goods, defective products, etc. at low prices. Typical examples are Don Quixote in Japan, as well as early domestic sales and special sales. Retail channels were hit hard during the pandemic, and soft discount stores relied on the “drop off” advantage to grow countercyclically. After the epidemic, brand stores, which were dominated by soft discount models in the early stages, were actively or passively transforming their product structure. The proportion of temporary products dropped drastically and replaced them with low-priced, high-margin products such as beauty, daily cosmetics, and trendy toys. At the same time, it is also building its own brand and source supply chain cooperation model to obtain more stable supply channels and differentiated competitive barriers.

Summarizing:

For companies and brands, the hard discount model is a historic transformation and innovation under long-term principles. Traditional department store supermarket leaders Jiajiayue and Chongqing Department Store have an advantage in regional dominance, and have an advantageous foundation in the layout of discount retail formats, which are reflected in ① sufficient supply chain resources (actively building the shortest supply chain through collection+direct procurement), ② high-quality property conditions (advantage in number of regional networks+high proportion of owned properties), ③ huge consumer membership base (20 million plus, Jiajiayue 12 million +) and ④ sufficient cash reserves (up to Q3 23, with a capital of 3.94 billion yuan, Jiajiayue), etc. aspects. It is recommended to focus on investment opportunities for high-quality companies such as Jiajiayue (603708.SH) and Chongqing Department Store (600729.SH).

Risk warning:

Increased market competition, model expansion falling short of expectations, food safety issues, etc.