Exclusive analysis! From the collapse of Biyide, we can see the prospects of different hard discount

Author丨 Qi Te.

Editor's note:On December 23, 2023, Biyide Supermarket issued an announcement announcing that it would suspend business from December 22, 2023, and at the same time close the mini program** and official website.

The closure of Biyide has attracted widespread attention in the industry, especially at the moment when hard discounts are on the rise in China. There are a lot of reports and analyses about Biyide, but isn't it true, as some ** say, that the hard discount model doesn't work in China? What are the implications of the case for the development of hard discounts in China?

This article is a special article for new distributionQi Te, a partner of Zhengxuan Capital, who has long studied the development of hard discounts in China, exclusively wrote an analysis: Looking at the prospects of different hard discount models in China from the collapse of Biyide.

Since the opening of the first Philippe store in Shanghai in October 2016, about 7 years later, the hard discount practice of Beyide in China has officially come to an end. But in fact, Philippe has already left Shanghai in 2021, and the new investor is Argan Capital, a mid market merger from the UK**.

Argan Capital's team has been investing in BIM and achieved good returns, and after the establishment of the new **Argan Capital, they set their sights on China, because Philippe has laid a good foundation, Argan Capital believes that Biyide in China will be able to replicate the story of their incubation of BIM in Turkey.

However, contrary to expectations, the data of Biyide: store opening speed, ramp-up data, store profit margin, etc., did not meet the basic requirements. At the same time, Biyide has also adjusted from a peak of 200 stores to 150 stores, and it is clear that Biyide's hard discount model in China is far from meeting Argan Capital's expectations.

As a result, Argan Capital began to entrust investment banks in the market to start looking for new buyers in the first half of last year, but without success, and finally decided to cease operations and withdraw from the Chinese market at the end of the year. It is understood that at present, Argan Capital has also fully returned to the European domestic investment market.

First of all, there are a few basic concepts that need to be clarified about the cessation of operations of BID.

Clause.

First, the cessation of operation of Biyide is not like many **, "the hard discount model does not work in China".

On the contrary, judging from the data of Biyide's stores, at least more than half of the stores can achieve profitability, and at the same time, with the slow ramp-up of stores, the proportion of profitability can be further increased by slowly adjusting the time, and the ramp-up period of Biyide model is indeed relatively long.

Clause.

Second, Biyide ceased operation, which is a stop-loss behavior of an investment institution, as any institution is likely to stop losses in time if the investment does not meet its own expectations.

Especially considering that the retail industry in China is far more complex than Argan Capital imagined, and the factors of the epidemic are superimposed, it is impossible for the investment to meet the expected returns of Argan Capital in a certain period of time. It is very normal to choose to quit if you can't afford to lose money or feel that the cycle is too long, after all, not every company is a Hema .

Clause.

Third, the matter of whether Biyide is not adapted to the soil is a question of white horses and non-horses.

Indeed, if Biyide fails as a foreign-funded enterprise to do retail in China, anyone can give him a hat of "not adapting to the soil and water", then I ask rhetorically, some local enterprises and Biyide have almost adopted the same model, if they can't do it one day, ** will be crowned with a "not adaptable" hat? Or is it a hat of "hard discount models don't work in China"?

In fact, no retailer will completely copy the past experience and stop innovating, and Biyide's localized innovation has actually been practiced in the past two years. When the problem comes, what we need is to be able to disassemble the problem, analyze the problem, and review the problem, rather than simply and crudely "capping".

I think Biyid can indeed give us at least two inspirations:

First of all, in China, you must lower your expectations when you do a hard discount model, this will not be a quick process.

I have been in this industry for 3-4 years, and to this day, you will still find that many companies that are doing well are still very small in terms of store size, and they are only in the scale of dozens of stores.

To tell the truth, it is this store opening and growth rate, I am afraid that any investment institution will not be able to accept, and the growth rate of the entire industry has returned to the growth rate of the supermarket chain industry 20 years ago.

The reason is that at present, it seems that hard discounts still need to use a model of directly operated stores, and at the same time, we estimate that we need to use 500 stores to 1,000 stores to make money when the scale effect will rise.

From another point of view, the discount model of the community format is not particularly attractive, at least compared with the early snack stores, one is that there is no category bonus period, and the other is that the climbing period is relatively long.

Secondly, about the matter of self-owned goods, everyone must have a cognition, in fact, self-owned goods are a competitive strategy, not a necessary action.

In fact, there is no need to equate the matter of self-owned goods with discounts, and self-owned goods are an inevitable result of enterprises seeking differentiated competition after reaching a certain scale, rather than a process. Going away with your own goods too early for the sake of commoditizing your own goods will only be a process that erodes your own cash flow.

So what are the prospects for China's different hard discount models?

First of all, I would like to take this opportunity to give three words to all entrepreneurs in the hard discount industry:

1.Discounting is a historic process, and we must bet resolutely. 2.China's discount retail format will never be dominated by one model, and insisting on the road to keep yourself alive is the right way.

3.Don't be afraid, no one in China has the right answer, but the right answer may come to those with "unconventional" and "rebellious" thinking.

At present, there are a hundred flowers in the domestic hard discount entrepreneurial team, but if you want to make a distinction, in general, it is distinguished in two large dimensions.

1. Product (group goods).

From the perspective of group goods, one of the important ways to distinguish is to see whether there is fresh food. Fresh food here refers to the management of fresh products based on the number of SKUs and specifications in the fresh food section of small supermarkets.

At present, there are only Jing small boxes in Xi'an that can operate both fresh food areas and discount plates, and Shaanxi Bu, which is also in Xi'an with a model very similar to Beijing small boxes.

At the same time, I am also more optimistic about some opportunities in the process of transformation to discount in the future, because the traditional supermarkets have experience in the fresh sector, if the supermarket lowers the operation standard in the fresh area, operates in a streamlined way of SKU, and at the same time superimposes the non-fresh area to run with a discount model, I think there will be a good opportunity.

2. place

Another way to distinguish is location selection, and it seems that the main way to distinguish is to choose to open a store in a community, a business district or a shopping mall.

I think it's a very clever way to open a store in a mall. The first is to use the traffic of the shopping mall for drainage, and the second is that you don't need to do fresh food, you can add beauty products, and make money with beauty products, and the gross profit is relatively good. Therefore, this model can run relatively fast.

And this can also be put to join, because relatively speaking, its money-making effect comes faster, and it is more ** for franchisees.

But this model is also subject to certain limitations. The first is that the number of stores opened is limited by the location location, and the second is that he is more affected by the category bonus period, especially the bonus period of discount products for beauty.

Based on the logic of business districts and shopping malls, it is to go down gradually. Therefore, I have also seen some of these models have a decline in the same store, because they eat the dividends of the category and the dividends of the shopping mall.

Another option is to open a store in the community, then at this time there are also two choices, one is to make fresh food, and the other way is not to do fresh food.

If you are a supermarket in a community, you need to have an area of 300-400 square meters, but to tell the truth, it is not easy, because you need to splice the two composite formats together, and it is very difficult to ensure that your fresh area has more advantages than supermarkets and vegetable farms, and your discount area has more advantages than discount formats.

One of them is that the requirements for the team are very high, and the other is that we have always said that the retail industry is very interested in the time and place, especially the location part.

Therefore, the format of community fresh food + discount must not be able to achieve the same effect in every region.

We currently believe that the northern region is more suitable for this format.

Here are a few reasons why.

First, the business competition environment in the north is more relaxedMany northern cities do not have very complex commercial formats like southern cities, such as convenience stores, discount stores, supermarkets, and stores. Many cities in the north are basic supermarkets and stores, and they are in a state of basic mid-curfew at night, which is quite different from the nighttime economy in the south, so his competitive environment is relatively good.

Second, the climate in the north is colder than in the south, so there is a general habit of hoardingIn fact, the consumption habits of the Chinese nation are not very good at hoarding, but the north will be more because of the climate.

Third, the eating habits in the north are different, and the further south China goes, the higher the requirements for fresh ingredients. The number of fresh SKUs in the diet is very demanding, so you will find that the number and density of vegetable farms in the south are much higher than those in the north. So I have observed that the hard discount model in many southern regions is not as good as that in the north, and it is difficult for the data of many stores in the south to break 10,000, but many stores in the north can break 10,000.

So what to do in the southern region?

In a southern region where the market format is developed and the community is more concentrated, a more pragmatic way to open a store next to the market is to use non-fresh products as the core as a supplement to the market format. This model has always been considered to be more realistic, because Chinese consumers have always been accustomed to this cross-format way of buying groceries in the vegetable market and then going to the supermarket to buy daily necessities.

For example, in one of the cases, I often talk to many founders about JHC, JHC is a community discount format in Hong Kong, of course, it is mainly based on some electrical appliances and kitchen utensils, but this is what I have seen so far, in areas with relatively high per capita GDP output value, and mature community discount formats with consumption attributes in southern China.

You'll notice above that we've actually talked about the two P's in the 4 Ps of retail, Product and Place.

But in fact, there are two P's that I think are ignored in the current market, but all entrepreneurs need to think about them.

1. Promotion (promotion and publicity).

The practice of hard discounts has been said from the first day that I don't do any promotion, and his party ** is completely dependent on the natural word-of-mouth spread of community residents or shopping by himself to find out and then slowly repurchase. Therefore, in the traditional model of hard discounts, the advertising cost is about equal to 0, because it is necessary to reduce the cost of store operation to the extreme.

But my point is,When you do retail in China, don't limit yourself to one box. The traffic in the Chinese market is scattered, and there is almost no boundary between online and offline, which is completely different from the European market, if you can do private domain, you can use some clever ways to circle online traffic, why do you just stick to these street traffic in the community?

Another example is whether hard discounts need to be digitized? Is it necessary to have a membership system?

Taking don Quijote membership system as an example, the don Quijote Majica membership card can currently contribute 30% of the group's revenue, but his recharge rebate rate is only 1%, so this business is not cost-effective, everyone can figure it out by themselves.

2. price

Nowadays, all hard discount companies adopt the EDLP (Low Everyday Price) pricing strategy by default. But will I be able to combine EDLP and High Low pricing? Can I combine some other formats with high gross margins on top of the hard discount EDLP?

Because the selection of hard discount stores is narrow, and then they abandon fresh food, the flow of customers who can eat in the store itself is limited, and the gross profit is also low, in fact, the room for maneuver in the store model is very small.

All in all, the current model on the market has more exploration in location and group goods, and the future direction is that the exploration of location and group goods can be refined, and the other is the best on the private domain, in the pricing, and there is still a relatively large space for exploration in the combination of formats, which depends on the eclectic innovation ability of entrepreneurs.

Finally, back to the two sentences I said.

First, discounting is a historic process, and we must bet resolutely.

Overall, we believe that the penetration rate of hard discount formats in China will be between 10-20% in the long run. Of course, this proportion may be higher, but it depends on whether more excellent founders can explore innovative formats that combine their national conditions.

Second, don't be afraid, no one has the right answer in China, but the right answer may appear in those who have "unconventional" and "rebellious" thinking.

In the past, we may have taken Aldi as a teacher, but today in China, we need to break some blind beliefs in terms of ideas.

Copying the Western model, we have seen that a lot of problems have arisen:

1.The store is based on the single revenue of the community, which requires a long ramp-up period, but if you use such a low gross profit to do online, it is obvious that you will not be able to calculate the account.

2.To do fresh food is to die, and not to do fresh stores is not enough to make revenue.

3.The ramp-up period is long, the payback period is long, and it can only be done directly.

4.Blindly intervening in the company's own goods at a premature stage.

Moving beyond these established hard discount frameworks, there are many ways in which we can combine innovations. I've also seen it recently, thinking about some new models and exploration directions, I think there will be some disruptive significance, if you explore practice and entrepreneurship in the field of discounting, welcome to communicate with me.

The author of this article, Mr. Qi Te, Partner of Zhengxuan Capital, confirmed to attend the 2nd China FMCG Hard Discount Conference and delivered a keynote speech - "The Evolution of China's Hard Discount Business Model from the Comparison of China and Foreign Countries".

On March 15, Chengdu, the 2nd China FMCG Hard Discount Conference, where discount retail founders, brand executives, dealer owners, traditional retail enterprises, industry research experts, etc. gathered together to focus on the core issues of hard discounts and examine the new direction, new thinking and new opportunities in the era of discounting. Looking forward to seeing you there!

On March 14th, a closed-door meeting on hard discounts will be held: hard discount mode and **, one-on-one dialogue and discussion with expert teachers, sharing experience, and discussing bonus opportunities in the era of hard discounts!

During the three-day meeting, around the theme of the first chain revolution, in addition to the second hard discount conference, a main forum, a China FMCG dealer conference, more than ten sub-forums and closed-door exchange meetings, and the first blockbuster appearance of the [extreme chain] brand factory will meet in Chengdu with thousands of FMCG brands, distributors, retail reformers, and industrial service providers from all over the country, continue to burn their brains, and jointly meet in the challenges and opportunities, changes and ways out of the era of chain revolution.

In this era of chain revolution, a new business era will be born, I hope that every participant will still have a place under this wave, I believe this will be a worthwhile meeting!

Conference business cooperation, ticketing consultation, private message for more details.