The Zhitong Finance App learned that the Zhetong Finance App published a research report saying that the industrial logic of hard discount development has been relatively smooth. The supply side has benefited from the high-quality Chinese pan-products supply chain, social inventories have increased, store rents have declined in the sinking market, and single store profits have gone through. The growth rate of CPI on the demand side has slowed, consumer expectations have declined, the price comparison system has been strengthened, and the cost performance ratio is more universal. Online traffic has moved offline, and store traffic has returned; pre-existing business formats such as mass sale of snacks and various types of soft discounts have already risen. Overseas hard discount models have indicated the direction of development, and the development of hard discounts has ushered in an inflection point in the industry.

Investment suggestions: Focus on Jiajiayue (603708.SH) and Chongqing Department Store (600729.SH). In the new major cycle, the bank believes that offline changes will bring more consumers back to offline. The bank suggests focusing on various offline business formats, focusing on Yonghui Supermarkets (), Gaoxin Retail (06808), Hongqi Chain (002697.SZ), Zhongbai Group (000759.SZ), Sanjiang Shopping (), etc. 601933.SH 601116.SH

The views of Zheshang Securities are as follows:

Point 1: Adapt to local conditions and refine the model

Model commonality: Streamline the whole chain process and operate at low cost. The SKU is basically less than 1000, and the cost is low on a single item scale. The façade area is mostly between 300-500 square meters. The site selection favors locations with cheap rent but high traffic. The facade decoration is simple, and the product turnover period is about 10-15 days. The monthly sales volume ranged from 1 to 2 million yuan, and the gross profit was about 15%. Rent+labor costs mostly account for less than 10% of sales. After deducting headquarters expenses and miscellaneous expenses, the net interest rate is about 2%.

Entrepreneurs use pointers to seek differentiated segmentation and positioning. Deeply cultivate the region within the province first, run the single-store model, open up the regional supply chain system, and build a regional moat with extreme efficiency. Some enterprises have created more than 200 facades in and around the province, and have begun to seek expansion outside the province and strengthen their own brands to increase profit margins. Nationalization exploration is beginning to bear fruit. Outlet, Tiao Ma, and Budget are all main direct business models, while discount bulls are the two models of direct management plus franchise. Outlet positions itself as an urban shopping center type of hard discount, focusing on female urban white-collar workers, while bars, discount cows, and bids are all community hard discounts.

Old brands often transform existing stores and reuse resources. In 2023, many established retailers will initially explore the hard discount business format. Yonghui supermarket has a genuine product discount area to explore new business formats, and has a supply chain system with cross-provincial capabilities. Hema Ole changed from temporary discounts to a hard discount business, with its own brand accounting for up to 35% of sales.

Key point 2: store management+supply chain building+own brand building hard discount competitiveness

The organizational structure is flat and management is refined. The department is set up efficiently and minimally. Only essential personnel are retained, and they hold several positions. Stores generally have no more than 7 employees.

Put effort into refining the supply chain. The purchasing side usually does not charge deductions, promotional fees, display fees, bar code fees, etc., and the supply side shortens the process, guarantees quality and quantity, and reduces product costs as much as possible. Ottler has built a digital global supply chain with dedicated warehouses, a full cold chain, and its own fleet. Established retailers benefit from the original supply chain advantages.

Strengthen your own brand. All major hard discount chain brands are working on their own brands to improve product control and customer loyalty, and increase margin. Outlet, Discounted Cow, and Hema Ole's own brand rates reached 20%, 10%, and 35%, respectively.

Risk warning: The innovation cycle is progressing slowly, management mechanisms are poor, and talent system construction falls short of expectations.