It's a real help, and it's also a soft franchise
Text/Wei Xia
Editor/Wang Fangjie
The most fascinating question this summer has finally arisen, that is, where did Fat Dong come from so much energy to help his peers?
Along with its fame, this local retail company in a corner of the country galloped north and south in the image of a white knight, and then turned stones into gold like a magic pen Ma Liang, making those struggling retail enterprises seem to rejuvenate overnight.
According to recent media reports, among the enterprises supported by Fat Donglai, Yonghui Supermarket experienced the first day of opening after the "adjustment", the customer flow was 5.3 times the average daily traffic before the adjustment, and the sales volume was 13.9 times that of the daily sales before the adjustment; On the first day of opening, the passenger flow reached 8,955, and the sales exceeded 920,000, a year-on-year increase of 272%.
What's even more commendable is that Fat Donglai, the "miracle doctor" in the retail industry, does not charge "consultation fees", and there are even remarks that Fat Donglai is "upside down" to help, and even the travel expenses are borne by himself during on-site guidance.
This is really a bit of a touch of China.
But is that the whole truth of the matter? In fact, as long as you study the cooperation model between Fat Donglai and other supermarkets, it is not difficult to find that under the dazzling news offensive, it is a good business that is covered.
First of all, this kind of cooperation has a high threshold for risk, and it is not a big deal if it is not done well. Originally, many retail companies have been declining, such as "Return the Offline to the Offline, New Retail Goes to the End" previously released by "The Most Words", to the point where they have to make a last stand.
But if it is done well, Yonghui and backgammon will be saved from fire and water, and Fat Donglai, after this battle, will not only be famous, but also "borrow the belly to give birth", and sell its own brand goods across the country.
It is understood that Fat Donglai is forming an alliance with "Lianshang Donglai Business Research Institute" as the core, and most of the member companies are local supermarket chain brands.
As far as the product structure is concerned, a considerable number of member companies have been adjusted, and on the basis of removing the products of the third and fourth line brands, retaining and adding the first and second line brand products, they have also introduced the private label products of Fat Donglai. For example, Chengdu Linyou Supermarket, a member of the seed class of Lianshang Donglai Business Research Institute, mentioned in the "Commodity Reform Announcement" that more than 70% of the planned products are consistent with Fat Donglai.
In addition, there are also large national supermarket chains that accept the "help" of Fat Donglai, including Yonghui Supermarket, Hunan BBK Supermarket, etc., and their pilot stores have also made significant adjustments to the commodity structure, and the commodity structure of the stores that accept the "adjustment" has even reached more than 90% of Fat Donglai.
If you think about it carefully, Fat Donglai's assistance model is similar to the most fashionable supply chain franchise model in terms of business form: franchisees open stores, bear store rent and personnel costs, and the brand exports supply chain products and standardized service capabilities.
Coincidentally, the most successful supply chain franchise company is also in Henan, that is, Mixue Bingcheng.
Of course, the relationship between Fat Donglai and the help object is much looser than that between Michelle Bingcheng and the franchisee, for example, its cooperation object is not a small store owner, but a mature chain brand, or we can call this way: "soft franchise".
Obviously, in the short term, it is impossible for Fat Donglai to hang his brand on Yonghui's store, but the reality is that Fat Donglai's brand has become their source of traffic, as Yu Donglai said, "To Yonghui, isn't it to Fat Donglai?" ”
To a certain extent, these objects of "help" have essentially become another fat Donglai. Sometimes, the brand is not hung on the door, but in the hearts of consumers, just as it is not necessary to announce it when joining, as long as it is tacit in the circle.
01
Yu Donglai is regarded as the most "conservative" entrepreneur in China, who started his business as early as around 1990, and has not only not left Henan, but also Xuchang and Xinxiang. It is said that such a choice is related to his early experience, more than 30 years in business, and several ups and downs, making Yu Donglai a rather cautious person. Therefore, Fat Donglai is not only slow to expand offline, but also does online business very restrained.
At present, only a small number of products such as bath towels, laundry detergent, and liquor are online in the Fat Donglai Mini Program, and although the two accounts on Douyin have accumulated more than 4 million fans, there are only more than 20 kinds of products in the window, including a large number of "DL combination gift boxes".
However, a company always has to answer the question of development, especially when the company has grown its wings and become famous, just like a young man who has passed adolescence, and the desire for development has pushed out of his Adam's apple.
Paradoxically, if you insist on only opening stores in Xuchang and Xinxiang, Fat Donglai has actually touched the ceiling. Combined with previous reports, Yu Donglai estimated that Fat Donglai's sales in 2023 will be about 10 billion yuan, and the net profit will be 140 million yuan, while the total amount of social zero in Xuchang and Xinxiang in 2023 will only be about 250 billion yuan.
So, what should Fat Donglai do next? Is getting out of the country the only option?
If the answer to this question is yes, Fat Donglai will first face the cost pressure brought about by offline expansion, including store rent, personnel costs, etc., in addition to the expansion of management boundaries. These pressures also mean risks, especially at the moment when the growth rate of the entire society is slowing down, it is simply the "gray rhinoceros" in front of all national chain retail enterprises.
Is there a way to grow at scale without requiring the company to take on the riskiest part of the entire business chain?
If you don't focus on supermarkets, the experience of other chain industries may be a reference. For example, Mixue Bingcheng, which is also in Henan, has solved the above problems by joining the supply chain.
As of September 30, 2023, Mixue Bingcheng has more than 36,000 stores, covering 11 countries in China and overseas. Mixue Bingcheng, which relies on the franchise model to carry out business, has franchised stores accounting for 99.8%. But the interesting thing is that Mixue Bingcheng does not make money from franchise fees.
In the prospectus released at the beginning of the year, Mixue Bingcheng mentioned that its franchise fee accounted for only 2%, and the sales revenue of goods and equipment accounted for 98%. This set of data also makes the industry evaluate Mixue Bingcheng as a "supply chain company in the garb of milk tea".
It is understood that the franchise fee of Mixue Bingcheng ranges from 7,000 yuan/year to 11,000 yuan/year, and the threshold for joining is extremely low. However, after becoming a franchisee of Mixue Bingcheng, it is necessary to purchase ingredients, packaging materials, equipment and facilities from Mixue Bingcheng, and in this process, Mixue Bingcheng actually plays the role of "supplier".
This model of "supply chain joining" is the key to the profitability of Mixue Bingcheng year after year.
According to the prospectus, the cost is mainly the cost of sales, which includes the cost of purchasing and processing raw materials, packaging materials and store equipment, as well as the cost of logistics and distribution. In addition, Mixue Bingcheng also needs to bear the expenses of marketing, research and development, as well as the salaries of the company's employees, of course, these do not include the cost of store rent and store staff salaries of franchised stores.
In contrast, today's Fat Donglai's assistance model is similar to that of the supply chain franchise. On the one hand, whether it is a hard or soft franchise, or help, it is a kind of common benefit logic at the bottom, as Yu Donglai said, "We are not involuting each other, but mutual achievement, from the immature and jealous mentality of only wanting to defeat the opponent, to transform us into comrades in this industry and benefit our society together."
On the other hand, the introduction of Fat Donglai's own brand products is an important part of receiving "help", which also makes Fat Donglai a supplier of "help" objects. The relevant person in charge of BBK told the media that Fat Dong's sales of goods from brands accounted for almost one-third of BBK supermarkets.
02
In the retail industry, private label products are not original to Fat Donglai, in fact, in recent years, the development of private label has become an important strategy for many supermarket chains.
A person close to Hema told "The Words" that because of direct procurement at the source, Freshippo's own brand products can be sold at a price 30% lower than that of products of the same quality, and the gross profit margin is 10 percentage points higher.
Generally speaking, the gross profit margin level of retail enterprises will be required to be about 30%, that is, a commodity priced at 1 yuan, the supply price is 0.7 yuan, the retailer earns 0.3 yuan, and the supplier will keep part of the profit margin.
If the product is a private label, the retail company can set the price at 0.7 yuan, but it gets the profit part of the supplier in the supply chain, and the gross profit is 0.28 yuan according to the formula of Freshippo.
It can be seen that in the category of private label goods, retail enterprises can drive more sales through low prices on the one hand, and on the other hand, they can still achieve considerable profit margins.
It is worth noting that, judging from some commodity price tags that have been circulated, Fat Donglai, which has won a reputation for "high quality and low price", has not reserved 30% of the gross profit space for itself in terms of its own brand, but it still has greater flexibility compared with other brands. For example, the gross profit margin of a private label clothing is set at 28%, while the gross profit margin of other brands is mostly around 22%. Of course, there are also some private label items that are discounted and promoted, and are sold almost at a flat price.
But in any case, when Fat Donglai's own brand enters Yonghui and BBK supermarkets, Fat Donglai, as a supplier, should get the corresponding profits, referring to the profit reserve space given by Fat Donglai to the supplier, which is between 5~15%.
Moreover, in this kind of cooperation, Fat Donglai does not need to digest the various expenses and costs of the enterprise in the limited gross profit space like a cooperative supermarket, and it only needs to place orders for its suppliers according to the sales situation.
This is the charm of supply chain joining, at the same time, under this model, with the expansion of terminal sales scale, upstream suppliers can further achieve cost control and efficiency.
Taking Mixue Bingcheng as an example, through its self-built production base, logistics and distribution network, warehousing system, etc., the cost has been further reduced, and the global procurement network directly connected to the production area and the super large procurement scale have also made the price of core raw materials purchased by Mixue Bingcheng lower than the industry average.
In the prospectus, Mixue Bingcheng mentioned that the cost of self-production was about 49% lower than the external purchase price during the first nine months of 2023; In 2022, the procurement cost of milk powder and lemon of the same type and quality will be more than 10% and 20% lower than the average of the same industry, respectively.
In the name of providing franchisees with "competitive one-stop solutions", Mixue Bingcheng has become the only "supplier" for franchisees, which has also allowed it to rely on the supply chain to create tens of billions of revenue for three consecutive years.
03
Because of the mentality of "a dead horse as a live horse doctor", the retail enterprises that accept the help of Fat Donglai have a very strong willingness and motivation for reform.
Yu Donglai mentioned at the sharing meeting of Guizhou Heli Supermarket, "Within three months, we will remove all unqualified items from the shelves, and we would rather lack than abuse." Perhaps the most painful thing for you now is the tens of millions of entry fees, pile fees, bar code fees, etc. of these brands, but we must give up and do it unswervingly. ”
This also means that, like Guizhou Heli Supermarket, the "soft franchise" Fat Donglai supermarkets have given up the original profit model, can no longer charge suppliers a variety of additional fees, they can only bet almost all their income on the supply chain, one in and one out, simple and clear.
In other words, the supported supermarkets are exchanging volume for price by compressing their profit margins, in addition to reducing fees on the supplier side, they are also on par with Fat East in terms of service granularity and employee treatment.
"Most Words" found that as a member of the Lianshang Donglai Business Research Institute, Qinghai's supermarket chain brand "Qinghai Family" has set up the same direct drinking water dispenser, handwashing station and other facilities as Fat Donglai, and even it has carried out localized transformation to add a variety of tea drinks that meet the taste of local people. The supermarket clerk also told us that after the renovation, wages were linked to performance, but the overall increase was increased, and the working hours were limited to seven hours.
Overall, most supermarkets will seek to break even with lower profit margins through assistance. Of course, this is not impossible, as long as supermarkets can achieve a larger and more stable long-term sales scale after the "adjustment" of Fat Donglai.
Objectively speaking, this possibility does exist, after all, Fat Donglai is an evergreen "topic star", and after this period of public opinion, many people who didn't know Fat Donglai before also had curiosity, and in a period of time, favorability and curiosity can be converted into traffic into stores and consumption.
But in the long run, there is uncertainty with this cooperation. Fat Donglai's success has its irreproducible part, that is, scarcity, and everyone knows that scarcity is expensive.
Many supply chain franchisees have repeated a similar trajectory, at the beginning of the brand with a unique selling point to start the market, and then open the franchise, and as more and more franchisees, more than a number of stores in a region, the public began to desensitize, and the franchisee fell into disorderly competition. For example, a brand franchisee told "The Most Words" that in the first two years of joining, he did earn money, but later lost it.
When Fat Donglai came to a corner of peace, because of the reputation of price and service, it became a "myth" and brought a halo, which made outsiders also arouse their curiosity, and even produced purchasing agents, which is scarcity. But when supermarkets cooperate with Fat Donglai, Fat Donglai's brand products can be seen everywhere, although they reach customers directly, but the scarcity disappears, and it gradually becomes a homogeneous product, no longer with a "mental premium".
In fact, even purely self-operated chain brands have had similar pains. Taking Haidilao, a catering brand that also provides high-quality services, as an example, after a period of rapid expansion, Haidilao also experienced a cycle of declining turnover rate in the past few years, until the last year or two, Haidilao began to rethink the relationship between regional supply and demand, closed some stores, and regained its growth motivation.
However, if a brand adopts a direct sales or franchise model, the benefit mechanism is different after all. The former is balanced in a financial statement, and the latter has its own account book, and the brand will not cover for the franchisee, as long as it sells more.
Even cruelly, even if the final long-term effect of this "help" experiment is not as expected, it is just a bold attempt by Fat Donglai to get out of Xuchang and Xinxiang, and it will not damage the basic plate if it fails, but for the "soft franchisees" who have been "helped" from all walks of life, they need to do a dojo in a narrower screw shell for a long time, and have been fighting traffic anxiety.
At present, there are two main ways to solve this problem: the first is to reproduce the service of Fat Donglai; The second is the introduction of Fat Dong's own branded products.
But in the long run, these supermarkets still need to internalize these grasps into their own capabilities in order to truly control their own destiny.
After all, under the premise of ensuring that the national price of Fat Donglai brand products is the same, the gross profit space that "soft franchisees" can obtain in the sales process is likely to be compressed, or even inferior to other brand goods, because for them, these goods are not directly sourced by themselves, that is, they need to retain a part of the profits for suppliers, that is, Fat Donglai.
Of course, if these commodities can play the role of draining explosive products, the merchant will make profits and be nothing more than a concubine, but how many explosive products does a supermarket need? In addition, at present, Fat Donglai has formed a self-owned brand commodity system with extremely rich SKUs, and how many of them can really play a role in drainage?
Regarding these questions, as the first batch of supermarkets to be helped, "Qinghai Family" gave us the answers.
A few days ago, the clerk of the Xining Qinhu store of "Qinghai Family" told us that at the beginning, Fat Donglai beer sold very well, and the purchase was restricted. But on that day, we waited in front of the beer container for a long time, and found that there were very few people who came to get Fat Donglai's beer.
Nearby is the tea container, we tried to find Fat Donglai jasmine tea, another clerk simply persuaded us to buy "Qinghai family" tea: "We learned Fat Donglai's 'direct source' business philosophy, and our own tea quality is also very good." ”
In fact, this store does not have Fat Donglai brand jasmine tea at all, and there is no plan to purchase this product, because it has its own tea directly sourced. After all, soft franchise is not a real franchise, and the first thing it has to consider is its own interests. From the perspective of game theory, "soft franchisees" can't assume that Fat Donglai is selfless, so the optimal strategy is actually to learn it, and after learning it, walk on your own.
Therefore, in this big drama, the shape is married but the soul is unmarried, and all players should be ready to break up at the moment of shaking hands.