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The hard discounting business model

The hard discounters business model is still in its infancy in Mexico within the Modern channel.

According to Nielsen, hard discounters, such as Tiendas 3B and Tiendas Neto, only accounted for 2.3% of sales in the Mexican grocery market by 2022.

Although large retail players, such as Walmex (through Bodega Aurrera Express) or FEMSA (through Tiendas BARA), have a presence in discount formats, Tiendas 3B has successfully competed since its inception with those formats, as well as with other established grocery players.

According to BBB Foods Inc. the hard discounters’ business model focuses on a limited variety of private label, high-value-for-money, high-turnover products that address the consumer’s essential daily needs.

The term «hard discounting» refers to business strategies that involve significant or substantial price reductions on the products or services offered.

This approach may be part of the business model of some companies in order to attract customers, increase sales and compete in the marketplace.

Business Model

The grocery market in Mexico is best viewed in two channels: the Modern (or organized) channel, which is a subset of the formal grocery market and is defined to include discount stores, hypermarkets, supermarkets, convenience stores and warehouse clubs, and the Traditional (or informal) channel, which includes, among others, local grocery stores and specialty food, beverage and tobacco stores.

The Modern channel, which accounted for $79 billion in annual sales by 2022 according to Euromonitor data, can be further divided into full-price retailers and discount stores (including soft discounters and hard discounters, such as Tiendas 3B).

Bodega Aurrerá

Discount stores accounted for 30.5% of the Modern channel for the year ended December 31, 2022, according to Euromonitor data.

Walmex is the dominant player in the Moderno channel, accounting for 34.2% of total sales in that channel by 2022 according to Euromonitor data.

Walmex’s most successful format is Bodega Aurrera, a discount chain that accounted for 16.7% of sales in the Modern channel. Beyond that, the market is highly fragmented.

 

Redacción Opportimes

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