A "Price War" Triggered by a Durian Layer Cake Sam | Member | Durian
In early August, Hema quietly launched a "mountain moving price" promotion in Shanghai, without much promotion, but it became popular due to a durian layered cake. The reason for the popularity is not how delicious the cake is, but rather the more eye-catching "price war" with Sam's Club.
The "price war" that has lasted for more than half a month has spread from Shanghai to the national market this week, with international retail giants and the new generation of domestic retail facing a "tough confrontation". From price to supply chain, Sam and Hema are engaged in a membership battle behind the low price competition for internet celebrity cakes. Experts believe that the follow-up to this "price war" may open up a new model of Chinese style membership supermarkets.
"Moving mountains" and "tug of war"
A few years ago, Sam's 1 kilogram durian layer cake became a popular item on Xiaohongshu, with a perennial price of 128 yuan. It wasn't until this month that Hema X suddenly lowered the price of cakes of the same size to 99 yuan, and Sam's durian layer cake was reduced by 0.1 yuan to 98.9 yuan on this basis. Subsequently, Hema lowered the price by another 10 yuan, followed by Sam who dropped it to 88 yuan... "You're 1 yuan cheaper, I'll lower it by another 10 cents." The price war went on and on for several rounds, and in the end, the price of a 1kg durian layer cake at Sam's stopped at 85 yuan, while the price at Hema X membership store was 79 yuan.
Perhaps due to the success of the first battle of durian layers, Hema has expanded the range of "price shifting" to more baking and cooked food fields. Sam's internet famous products such as Swiss rolls, roasted chicken, and sweet potatoes can be found at low prices in Hema.
While Sam and Hema were engaged in a fierce battle and consumers were fleeing, Meituan Maicai suddenly joined the fray and launched a "tug of war price". A 400g durian layer was directly promoted at half price, taking advantage of the heat of the "price war". Similar to Hema and Sam, Meituan Maicai's "tug of war price" products belong to its own brand and come from its "Elephant Chef" brand, with a focus on fresh produce.
"Hema's' move price 'wants to remove Sam? Meituan's' tug of war price' wants to remove Hema?" Many netizens joked while "pulling wool": the real business war is so "simple".
What is the actual promotional effect of this "price war" being hyped up online? The reporter visited the Hema X and Sam's Club located in Putuo Zhenru, and there was no scene of crazy buying at the scene. However, in front of popular online product counters such as durian floors and whole roasted chicken, more consumers stopped to buy, and the supermarket also marked a limit of 2 servings per person. Benefiting from the extremely high level of discussion, the durian thousand story counter not only attracted some citizens to take photos, but also attracted some "group buying" anchors to come and live stream.
The data obtained by the reporter from Hema shows that in the past month, the sales of durian layered cake have increased by 11 times compared to the previous month, which has also driven the sales of other products. Since early August, Shanghai residents have purchased the most eggs without antibiotic resistance, Hema daily fresh milk, fresh meat mooncakes, Kirin cream watermelon, and Peruvian blueberries. In terms of sales growth, products such as Haagen Dazs chocolate ice cream, Hema mixed nuts, and Swiss rolls have also seen a growth of more than six times.
Starting this week, with the help of the "East Wind" of durian layers, Hema, which has gained enough attention and sales, will promote the "Moving Mountain Price" to 15 cities across the country, including Guangzhou, Hangzhou, Shenzhen, and Nanjing. Consumers who spend 499 yuan in store can also receive a free durian layer cake.
In fact, this is not the first "business war" between Hema and Sam. Even before the opening of Hema X membership store in 2019, Hema and Sam had also sparked a "live freeze dispute" over seafood issues. In 2021, the "one out of two" dispute among suppliers will push the dispute among Sam, Hema and Carrefour's membership stores to the center of public opinion. Since then, competition among domestic member stores has gradually entered the red ocean.
The "ceiling" of a membership store
The "business war" that lasted for four to five years ultimately shifted the focus to price, but low prices were not the end point of the Sam's Box Horse dispute. The goal of "moving the mountain" was to attract and grab customers.
Membership based supermarkets are not new in China. As early as 1996, the first Sam's Club opened in Shenzhen, and it was not until Costco's first mainland store opened in Shanghai in 2019 that membership based supermarkets experienced a peak of "foot traffic". After more than 20 years of development, domestic member stores have formed three main forms: the first type is represented by Sam's and Costco, focusing on offline physical warehousing stores, mainly profiting through membership fees; The second type is new retailers represented by Hema, which have the advantages of online and offline dual channel operations through digitization and integration of multiple formats; The third type is membership based e-commerce represented by JD Plus members, without physical stores.
At present, Sam still holds the top spot in domestic membership supermarkets. According to the data of Wal Mart, Sam's parent company, the number of paid members in China in Sam's Club has exceeded 4 million in November last year. As of June this year, Sam has more than 40 offline stores across the country, and still maintains a fast pace of opening. After opening six new stores last year, he plans to open four more this year. In contrast, Hema X has only 9 stores nationwide, with nearly 3 million paying members. Costco's number of stores is even lower, and it will open its fifth store nationwide on August 26th.
According to the data from the third-party platform Monthly Fox iAPP, in June this year, the user overlap rate between Sam and Hema was as high as 43.1%, and Sam's overall network penetration rate was about 2% lower than Hema's, while the monthly active users were about 13 million less than Hema's.
Comparing two sets of data, it is not difficult to find that Sam has far more stores and members than Hema X member stores, but user stickiness is not as good as Hema. More importantly, the user groups of the two are highly overlapping, equivalent to more than 40% of Sam's paid members also being Hema users. As the head of Hema, Hou Yi had already anticipated this: Hema X membership store, along with Sam's and Costco, faces the same customer group - urban middle-class and above consumer groups. "These people either buy on Hema or Sam's, which is the challenge we face today."
When interviewed by multiple consumers, it was found that although the development momentum of domestic membership based supermarkets is strong, it is also accompanied by a certain number of member losses. Mr. Gu, who lives in Songjiang, once purchased two membership cards, Costco and Sam. However, due to the limited need to balance the shopping needs of both within a one-year validity period, he ultimately abandoned Sam.'s membership. Mr. Feng, who lives in Putuo, had a bad shopping experience at the Hema X Club and turned to the nearby Sam's Club.
In addition, the downward trend of the global economy has also cast a shadow over the retail industry, with member style supermarkets that far exceed ordinary supermarkets in terms of average customer value feeling the chill first. Taking Costco as an example, its total revenue in the third quarter was $53.648 billion, an increase of 1.9% compared to the same period last year, but it was lower than the market expectation of $54.66 billion. The net profit attributable to the company was $1.302 billion, a decrease of 3.8% compared to the same period last year.
Whether it's revenue or number of members, the ceiling of membership based supermarkets is a sword of Damocles hanging over the heads of Hema and Sam.
A benign "price war"
"This' price war 'is a bit different. Previously, we were fighting for prices through' distribution channels', and purchasing prices were very transparent. Price wars often fell into vicious competition of 'life and death'. According to Lao Yuling, director of the E-commerce Research Center at Shanghai University of Finance and Economics, the main focus of this price war was on self operated products. For example, durian layered cakes are Sam's and Hema baked goods, which have independent pricing power and can effectively control costs, and can force businesses to improve production efficiency. 'This price war did not lower the quality of the products, nor did it have malicious price cuts that directly halve the original price.'"
Under the balance of low prices and profits, the importance of the supply chain is becoming increasingly prominent. Hou Yi has calculated that there is a price difference of 5-10 times between domestic retail prices and production costs, mainly spent on sales channels, logistics costs, market promotion, and many other factors. If the price difference can be reduced by optimizing the supply chain, retailers can not only ensure profits but also reduce costs to benefit consumers.
Take the rose price of Qixi as an example. Except for a few varieties of roses that have slightly increased due to the influence of the origin, the price of flowers on sale in Qixi box horses this year is lower than last year as a whole, basically the same as the daily price. The "mountain moving price" roses in Shanghai are even only 19.9 per bunch, far lower than the previous high price of 100 yuan. Qixi's confidence in selling affordable roses comes from more than 40 flower direct picking bases nationwide. Through order cooperation, on the one hand, it is to reduce costs through disintermediation, and on the other hand, it is to improve the quality control of goods from the source to the whole chain of stores.
Sam is also a "master" of the supply chain. Relying on the perfect membership system, he successfully operated the self owned brand Member's Mark, and then relied on Wal Mart's perennial suppliers and foundries to retain millions of paying users with cheap self owned goods.
Continuously optimizing the supply chain, appropriately lowering prices and offering benefits, in exchange for brand loyalty from members, ultimately expanding one's membership pool, and strengthening one's own supply chain... According to Lao Nuling's observation, the "price war" between Hema and Sam is a controllable and benign competition, especially in the "new retail experimental field" in Shanghai, where the two member manufacturers exceeded the benchmark competition model, which also has strong guiding significance for the promotion and replication of the national market.
In addition to being cheap enough, internet celebrity products like "no one I have" are also an important factor in testing the supply chain. In Hou Yi's view, consumers will not buy all products on a single retail platform, and there is no one-stop shopping. Therefore, there must be popular products that leave a deep impression on consumers. Discount promotion is not just about low prices, but about differentiated product competition, vertical supply chain, and extreme operating costs.
For example, at the beginning of Sam's launch of the durian layered cake, this cake was not yet common on the market, which attracted many citizens to rush to buy and became the top 10 that Sam must buy among netizens. The Hema X Club, from the original benchmarking of Sam and Costco, copied its own products, to now, has successively launched innovative products such as milk yellow rice with flowing heart Babaofan (Rice pudding with eight-delicious ingredients), pickled Tuk fresh green rice ball, which has also been recognized by the market.
The "underachievers" in the supply chain are now showing a strong trend of catching up, putting pressure on their predecessors. A Reuters report quoted Zhu Xiaojing, CEO of Wal Mart China, as saying that Hema has "outstanding advantages in the food supply chain" and has become the only competitor of Sam's Club in China.
The Chinese model of membership stores
In observing the growth of membership based retail in China, Lao Wangling has her own opinion: "Since membership stores entered China as an imported product, the domestic retail industry has been following suit and exploring for several years. It is worth redefining the 'Chinese style membership store supermarket model' through Chinese business practices."
Twenty or thirty years ago, Wal Mart's CPFR was adopted as the standard by business schools. This system allows retailers to help manufacturers manage inventory, and even the sales data of a pair of jeans can be transmitted to manufacturers in a timely manner, which can not only reduce inventory backlog, but also be more responsive to the market. Nowadays, the retail supply chain has undergone earth shaking changes. The digital management of the domestic retail industry is completely comparable to CPFR. Moreover, the supply chain has gone back from the tertiary industry to the secondary industry and even the primary industry, combining the consumer Internet and the industrial Internet. This road is even farther than Sam, so it is no match for the international retail giants in fresh food.
In recent years, retail giants including Sam have also launched the "offline+online" service model. This innovation based on the development of China's Internet also reflects that the development conditions and foundation of China's retail have taken the lead in the world.
In addition, at the beginning of the emergence of warehouse style membership stores, middle-class American families drove to the suburbs on weekends to purchase goods for a week, so they needed large packaging and mass selling products in order to seek cheaper prices. However, most Chinese families did not have this condition, and large packaging products and long-distance shopping did not meet the needs of domestic consumers. Many online group buying agents were extremely popular, which indirectly reflects the alternative tolerance of the Chinese market towards membership systems. "In China, large packaging can be appropriately reduced and store locations closer to the urban area." Lao Yuling believes that the significance of Chinese membership stores may lie in the stratification and screening of consumers. Merchants can use more accurate consumer group portraits to launch more suitable products, rather than blindly seeking high prices. Taking Hema as an example, among the centrally purchased products, the best quality is supplied to X member stores, the second best is given to Hema Fresh Store, and the remaining is given to Hema Neighborhood and Hema Ole to meet the consumption needs of different groups of people.
"In terms of fresh produce, domestic retailers such as Hema have strong competitiveness, but they still face significant challenges in other fields." Lao Yuling told reporters that member stores usually have 3000-4000 SKUs, and fresh produce is only a small part. However, Sam's and Costco still have significant advantages in common categories such as home furnishings. She also recalled a past event: on the day when the first store of Hema X Membership Store opened, Hou Yi repeatedly reminded the store staff to "study hard" at Costco during the home furnishings section. Now that three years have passed, Hema still faces development shortcomings in higher profit home furnishings.
Meanwhile, the construction of a global supply chain is also an unavoidable issue for Chinese member stores. Both Sam and Costco have established a global procurement and sales system, which enables product procurement to have sufficient competitiveness and the ultimate cost-effectiveness of product prices. In response to the "price war" with Sam, Hema also demonstrated its ambition: "We have been working hard, constantly innovating and changing, humbly learning from the predecessors of the international retail industry. Perhaps we are still young now, but there will definitely be opportunities to catch up in the future. Chinese retail will eventually develop a business model with Chinese characteristics and international advanced retail experience."
