What's the secret between Lei Jun and Costco in Huang Zheng?

Author | Tang Yahua Liming Yan Liu Jingfeng

Edit | Wei Jia

On August 27th, Costco, the "God of Retail", opened its first store in Minhang, Shanghai, and was forced to suspend business after only five hours of full passenger flow. Since the next day, Costco has taken measures to limit the flow. Many people began to line up at 4 am, and some even joked that "everyone who grabs the roast chicken is a winner in life".

In fact, behind the excitement, Costco is not a new species. It is the largest chain membership retailer in the United States, established in 1976. Long before it opened a shop in Shanghai, many big names expressed their almost mythical worship of Costco.

Xiaomi CEO Lei Jun once said that there are three companies that have far-reaching influence on Xiaomi, and Costco is one of them; Pinduoduo CEO Huang Zheng once said that Pinduoduo will be a combination of Costco and Disney in the future. Ye Guofu, the founder of famous and excellent products, called Costco many times. After the opening of the Shanghai store, he sent a message late at night to pay tribute to Costco, saying that it understood the essence of human nature and grasped the essence of retail.

What's the magic of this store? Let's first look at a few core data:

Costco has more than 700 stores around the world, and the per capita single consumption is 136 USD, and the unit price of 25% consumers is between 100-200 USD.

Costco has a membership system and currently has more than 92 million members worldwide. Consumers must pay membership fees to spend. Shanghai Minhang Store currently has an annual fee of 299 yuan.

According to the annual report data of fiscal year 20 18, the global membership renewal rate is 88%. In the first three quarters of fiscal year 20 19, Costco's membership fee income was $2.302 billion and its net profit was $2.562 billion. In other words, almost all of Costco's profits come from membership fees.

The overall gross profit margin of Costco stores is lower than 14%, and the gross profit margin of most products is only about10%-1%. The gross profit margin of domestic peer Yonghui in 20 18 was 22. 15%, and that of Gaoxin Retail was 24.79%.

Membership, ultra-low price, few SKUs, no reason to return goods, and restructuring the supply chain … these are the key words of Costco. For consumers, it is the greatest charm to reduce prices without degrading quality, and what many enterprises regard as the standard is its ultimate efficiency under extremely low gross profit margin.

Costco still landed in Shanghai in the context of the massive retreat of many foreign businessmen. What's special about it? Can this veteran retailer, which is invincible in the United States and contracts almost all the middle classes, have a place in China? In this issue of Bistro, Burning Finance interviewed six investors and entrepreneurs to talk about the inspiration brought by Costco and the prediction of the future.

They generally believe that the ultimate cost performance and transaction efficiency brought by Costco will force domestic retail practitioners to integrate the supply chain and enhance their competitiveness. However, with the expansion of scale, Costco almost copied the American model. Under the constraints of many factors, such as the differences in shopping habits between China and the United States, domestic multi-mode competition, rent and labor costs, it is still unknown whether it can maintain its financial model.

Warren Wang, Partner of Innolux Optoelectronic Angel Fund

I haven't been there since Costco entered Shanghai this time. According to media reports, the promotion is really strong. Maotai Wuliangye is 50% off the market price, and of course everyone is willing to grab it. In fact, it is understandable that too many foreign supermarkets have lost their lives in China. When Costco comes in, it must first make a splash.

Costco's membership model is very clear. It's on sale now, and the price is definitely abnormal. Mainly to make you a member, increase the frequency of users' consumption in the store, and develop consumption habits.

Costco has three types of members: ordinary gold star members, business members and executive black cards with 2% cashback. There are also many people who do black cards. Costco has done a good job of drainage in the spirit of "after spending so many years, we must buy back the money".

How did Costco bring down the price when it introduced a lot of traffic? First, based on the principle of large quantity, its packaging is very large and the average customer unit price is high; Second, there is little control over SKU, with independent brands accounting for 25% and other brands accounting for 75%, with high bargaining power.

I have studied Costco's financial report, and it is really cheap. In fiscal year 20 18, the overall gross profit margin of Costco was 1 1.04%. In the past five years, the average gross profit margin of Costco was only 13. 1 1%.

This gross profit is completely unprofitable, and it gives all the benefits to consumers, which is the core of its membership system. Costco sells goods with high cost performance, many of which are big-name products, which means expensive, but in terms of brand and service, it can be worthy of this price.

I am a member of Sam Member Store. Like Costco, there are indeed many promotional items in it, which are cheaper than Taobao Tmall. But what it sells is generally very expensive, mainly because of its high cost performance. It does not sell cheap or even fake goods to the public.

In fact, the acceptance of members in China is not so high. A typical feature of membership-based e-commerce in China is that everyone keeps the price very low, and the lower the price, the better. However, if you study Costco's consumer portraits, you will find that Costco's members are typical middle-class families, and their education, quality and income are definitely better than the average consumption level in the United States. Therefore, if member e-commerce only takes the extremely cheap route, at least I can't see where the rationality lies. Of course, the essence of membership is to save money, but it is definitely not to sell cheap goods.

In the first half of this year, a large number of foreign businessmen withdrew. In this case, Costco chose to enter Shanghai. From a purely commercial point of view, I may not be so optimistic.

Costco will still face some challenges. Its supply chain and price advantages accumulated in the United States will be too challenging if it is purchased in China. On the one hand, the localization environment in China, especially agricultural products, is really different from that in the United States. On the other hand, it is not big enough, and it is also a great challenge to choose products and adapt to the whole market after facing China users. It still has a small amount of financial business in the United States, but it is difficult to obtain a license in China.

Zhang, Vice President of China Shipping Investment

In fact, Starbucks, Metro and other foreign brands are very popular in the first stores in China, and they have been normal in recent years, so it is impossible to queue up all the time. Many people in first-tier cities have gone abroad. Before Costco came to Shanghai, his popularity in first-tier cities was already high. Before opening the store, many bosses stood up and planted grass for everyone, so it was very popular as soon as it opened.

Metro and Costco have very similar operating modes and concepts, and they are also members, paying attention to large packaging, low price, high cost performance, direct sourcing, and extremely large supermarket area, all of which are aimed at reducing operating costs to the extreme, so they can bear lower gross profit. Costco may be more extreme than Metro, and its product positioning is higher than Metro. Behind the low cost and low gross profit is the improvement of its operational efficiency. For any channel or platform, high enough transaction efficiency is the most important factor.

At present, Costco has copied the American model, and it will take some time to observe whether it will work in China. America is a country on wheels. They are used to big packaging, collective shopping by car, and hoarding things for a week or a month at a time. However, people in China do not have such a shopping habit. There are convenience stores and hypermarkets everywhere in China, and the density is too high, so it is convenient to buy things.

The trend in China is getting smaller and smaller. The main business of box horse fresh students is to buy in small quantities, that is, get it immediately, which is inconsistent with Costco's basic concept. In the end, we can't draw a conclusion as to which model is more suitable for China people. I think there may be a market. After all, Metro has billions of sales in China. Costco, too, can't survive, but if it can achieve the same market share as the United States and maintain the same financial model as the United States, it will be considered a real success. The success of a single store is not very representative.

I have always believed that technology is the driving force to improve efficiency. Costco is a company in the last century, and our domestic Internet e-commerce is the product of a new technology application. I don't believe that pure offline can be higher than online. Costco doesn't have so many operating tools and tools that stick to customers. Of course, it doesn't rule out that they may also make something China-like by means of science and technology, but if they don't do it, they can still beat a number of online Costco in China, which is unrealistic.

Costco's entry into the China market is a good thing, forcing domestic enterprises to do a good job in the supply chain, rather than just thinking about drainage. Doing a good job in supply chain is the real core barrier.

The short-term explosion of a company depends on the flow dividend, but it can exist for a long time. What we want is the company's middle-level operation and back-end supply chain. Whether Taobao, Tmall, JD.COM or Pinduoduo can become a company for decades after relying on the traffic dividend, it is more important to build a middle-level operation capability and a back-end supply chain system.

Dai shanhui, founder and CEO of food enjoyment club

Costco's brand has a high degree of direct correlation with the attribute of cheapness, and has formed a strong feature in the brand, so the opening of the business can trigger consumers to snap up. It can achieve low prices, first of all, because of its members. Mode determines the cost structure. Costco's business model is to make a profit by charging membership fees. In addition, Costco's products are large and concentrated, which has advantages in supply chain and store rent, and the cost control in the whole retail chain is very good, and finally the price of goods will be very low.

But Costco can succeed, not only because of the low price. The success of retail depends on the details. Behind the model is a complete methodology system. All the details accumulate to form a huge operating system, which needs various methods to support. Just like Haidilao, its rise depends on the human resources system.

Costco's model is very successful in the United States, but in the long run, its future performance in the China market remains to be seen. China has not fully accepted the membership system, because now people can buy things in many places and enjoy very low prices without paying membership fees.

If you just open a store, Costco's turnover ceiling is very limited. In the later stage of horizontal expansion, it will face the challenge of opening a store quickly and successfully. In addition, in its region, it will face competition from other different formats.

In the past, the traditional retail hypermarkets in China were actually deconstructed by different retail formats, such as e-commerce, community fresh food stores, community group buying and so on. Many retailers' venues signed more than ten years ago have expired one after another, and the impact from different formats is very great. It is understandable that foreign capital has retreated too much.

In the past 20 years of rapid development of e-commerce in China, the main competition is cost performance. However, offline competition, in addition to cost performance, has various reasons such as service and location, involving more dimensions. Once the factors of competition are complicated, the factors of competition are not just price. Costco opened a shop in Shanghai. I think local retail will be relatively stable in the future. Although there will be competition, it will not be as fierce as e-commerce.

Sublease founder Cao Linquan

I have been to Costco store in America, and I have a desire to spend. Things are really inexpensive, cost-effective, and support unconditional return.

From my experience in retail channels, I think we can discuss it from several aspects: if its price is very low, will it have some impact on other channels of these brands? If the goods are returned unconditionally according to the North American policy, can the manufacturer support it? China has a developed manufacturing industry. Besides big brands, can the quality of some small brands be guaranteed?

Costco itself is indeed a subversion, its price and cost control have achieved the ultimate, and its service has also achieved the ultimate, which is its greatest advantage. In addition, I think Costco's supply chain is particularly well solved, but it is difficult to achieve a comprehensive gross profit margin of 6.5 in China, because it will destroy the existing channels and price management system of the brand.

In fact, consumers perceive not only the cost but also the corresponding service guarantee. Judging from Costco's membership system, in theory, members can buy at will, which requires Costco to ensure the supply of goods, but it can't be said that many things can't be bought after users pay the membership fee. It is meaningless to call the membership fee again at this time. In China, for many product brands, I personally think it is definitely impossible.

From the practitioner's point of view, in such a market situation, the enlightenment to us is that pursuing the consideration of consumers and achieving the ultimate cost performance must be a direction in the future and also our pursuit.

If Costco's positioning is a lifestyle supermarket, I think it's ok, but once it comes to medium and high-priced consumer goods, it's actually quite difficult to achieve the ultimate price, and the service will be tested.

It has always stressed that there is no reason to change, and if it is completely in accordance with North American standards, the business burden of enterprises will be very heavy. We can only wait and see what impact the consumption consciousness of China residents will have on Costco's Shanghai business.

Wang Qi, founder of a convenience store brand.

Costco's brand influence, business model, corporate culture and marketing are all worthy of learning and respect from domestic enterprises, but the popularity of opening does not mean that it will continue to be popular. Costco's biggest feature is the pursuit of lower commodity costs and more efficient working systems. However, in China, this model will encounter many challenges, and there is a big gap between the two countries in terms of business systems and laws.

Sam member stores are also very popular when they enter China. The sales of Shenzhen Sam member stores once ranked first in the world, and Beijing Shijingshan Sam store also ranked among the top ten in the world. But it didn't take long for the store to be on fire, and the big problem was that it was not acclimatized. They copied the systems and ideas of foreign companies to China. Although the idea is good, many of it won't work.

Rent and labor costs are probably the biggest problems Costco has encountered in China. Take convenience stores as an example. General rent accounts for 65,438+00% of total sales, manpower accounts for 65,438+00%, and there are utilities, loss and damage fees and taxes, which add up to almost 25%. The poor performance of enterprises is nothing more than poor sales, high cost, and the rent and manpower have killed many enterprises. In this case, it is unrealistic to advocate low gross profit.

In recent years, local retail enterprises in China have become stronger and stronger, and their learning ability is also very strong, so I am not worried about how much impact foreign companies will have on domestic enterprises. On the contrary, I am worried that Costco's model will be difficult to realize in China. Costco is not as magical as everyone said, just hanging on to many big names and completing them step by step. All the companies that can make other peers worship are actually just doing the simplest and simplest truth to the extreme.

At present, there are some hidden rules in domestic large supermarkets. In order to save costs, some supermarkets squeeze suppliers, which will eventually lead to an increase in the purchase price of goods or a decline in quality. In short, the wool is on the sheep, which not only does not save money for users, but makes the cost higher. Foreign companies are not familiar with many domestic rules. Although they may have used a mature management system, the users are still in this circle.

Sun Liang, founder of convenience store

Shanghai Costco was full when it opened. In the final analysis, it is also a temporary promotion. Costco is positioned to serve customers and attaches great importance to customer experience. The hot scene on the first day of opening is not what they are after. The next day, the measure to limit passenger flow is to gradually improve the customer experience. As customers calm down, I don't think there will be such a hot scene for a long time in the future, except for weekends.

There is no doubt that membership is the biggest feature of Costco model. Most of the existing retail stores can be understood as channels, which mainly provide channels for suppliers or manufacturers' goods. What they earn is the access fee, that is, the price difference of goods, and they are closer to the interests of commodity producers. Costco's main profit comes from membership fees. They are closer to their members and are committed to helping them get more cost-effective products, so they are closer to the interests of consumers.

Through Costco's financial report, we can find that their net profit is almost equal to membership fee income, which is basically slightly lower than membership fee income. In fact, it can be understood that their commodity sales do not make money or even make a slight loss, and they need to subsidize this loss with a small part of their membership fee income. However, they have a huge loyal membership group, and these members contribute considerable membership fee income every year.

So in my opinion, Costco is profitable because they don't make money by selling goods, but by serving members. Helping members find the most cost-effective products is their service content. If they do well enough, more members will pay for their services.

Costco's achievements today are fully worthy of evaluation from all walks of life. But the fundamental reason why members are willing to pay membership fees is that you can provide me with satisfactory retail services and find me the most cost-effective products. This has high requirements for the supply chain management of enterprises. After all, Costco has just opened a store in Chinese mainland, and the supply chain system needs to be built from scratch. Whether it can stand the test in the future is the key to measure the success of its model.

The retail competition in China is fierce, especially in China, where e-commerce is developing rapidly. It is easy for consumers in China to obtain high-quality goods and services, so foreign supermarkets are somewhat unsuitable for the retail market in China.

Costco's model is a strict service model. They are a huge middle-class consumer group, which is the most dynamic customer group in China.

If Costco's service concept can impress their target customers, then Costco has a good chance of success in China. However, the market environment in China is different from that in the United States, and the customer needs and consumption habits are different. Costco needs to spend enough time and patience to gradually study how to serve consumers well. At the same time, it needs to face stronger online competitors and give Costco more time to see the future possibilities.

* The title map is from Costco official website. At the request of the interviewee, Wang Qi in the article is a pseudonym. ?