Last week, I spent nearly an hour in a Hema store in Hangzhou. I wasn't shopping; I was mainly looking at products. The trend was obvious: branded standard products on Hema's shelves are becoming fewer. Private labels, co-branded items, and customized products are lined up one after another. When I finally spotted a familiar branded standard product, it was often next to a nearly identical Hema private label, with simpler packaging and a lower price. This is not a change unique to Hema. Over the past three years, several things have happened in the retail industry:
Snack discount stores have redefined price bands;
Pangdonglai has become a model for supermarket overhauls, with many supermarkets cutting SKUs and restructuring their product assortments;
Sam's Club and Aldi are increasingly popular, but what attracts consumers is no longer traditional branded products, but exclusive products unique to their channels. On the surface, these business formats are different—some focus on discounts, some on membership, some on supermarket overhauls. But when viewed together, they are all doing the same thing: allocating more shelf space to products they can define, control, and differentiate. For brand owners, this is not a change to watch from the sidelines: the shelves are still there, but the way to get onto them has changed.
Why is everyone focusing on private labels?
Over the past 20 years, Chinese chain retail has largely relied on "brand-driven traffic." Consumers entered supermarkets for familiar brands, supermarkets gained foot traffic, and then sold that traffic to brand owners. Slotting fees, display fees, barcode fees, and promotional fees were all products of this logic. But this system has begun to loosen over the past few years. E-commerce has educated consumers to "search for products first, then decide where to buy." Consumers can buy the same brand on many platforms, so there's no reason to go to a specific supermarket. When branded products no longer bring in foot traffic, retailers must find new ways. Private labels are one path retailers have found. The reasons are straightforward. First, better gross margin structure. Private labels reduce intermediate links, allowing retailers to directly control specifications, pricing, and supply chain costs. Second, stronger differentiation. Private labels are only sold in their own channels, so consumers who want them must come to that store. Third, greater shelf authority. In the past, shelves were the domain of brand owners, with retailers acting more like sub-landlords. Once private labels are established, retailers are not just sellers but also become definers of products. So you see Sam's Club strengthening its product barriers with membership and private labels; Aldi rebuilding price bands with efficient SKUs and private labels; Hema creating channel differentiation with private labels, co-branded items, and customized products; and regional supermarkets, during overhauls, starting to reassess which brands are worth keeping and which categories they can do themselves. This is not a coincidence. Standard products can only compete on price, so retailers must use new differentiated products to give consumers a reason to enter the store.
The space on shelves for standard products is shrinking
What does this trend mean for brand owners? Quite directly: the natural qualification that branded standard products once had to occupy shelves is weakening. According to data from the China Chain Store & Franchise Association, in 2024, the top 100 supermarket enterprises had sales of about 900 billion yuan, a year-on-year increase of only 0.3%; the total number of stores was 25,200, a net decrease of 2,750 stores for the year. Sales didn't grow much, but a batch of stores closed. In this stagnant market, retailers have to find a way out from the shelf structure—the share of processed foods and private labels is expanding, and the space left for standard products is being systematically compressed. In this situation, retailers will definitely go back to the shelves themselves. In the past, shelves were more about competition among brand owners. Whoever had brand power, fees, and distribution system could get more space. Now, retailers will ask another question: Is this SKU efficient? Does it drive repeat purchases? Does it contribute to gross margin? Does it create channel differentiation? Once this question is raised, many standard products will find themselves in an awkward position. The advantage of standard products is that they are well-known, have stable distribution, and are familiar to consumers. Their weakness is also obvious: they are available everywhere, prices are easily compared, and channels find it hard to create unique value. So retailers will reserve shelf space for three types of products:
- Strong brands that consumers explicitly ask for;
- High-efficiency products that consistently contribute to sales and gross margin;
- Private labels, customized items, and co-branded products that create channel exclusivity. The remaining standard products that are neither here nor there will see their space compressed. This is what brand owners really need to watch out for. What brand owners should focus on is not a single delisting, but the overall change in the criteria retailers use to select products in the coming years.
Don't comfort yourself with "most can't do it well"
Recently, there's a saying in the industry: most retailers can't do private labels well, so brand owners don't need to take it too seriously. This judgment is only half right. If you look at individual retail companies, it's true. Doing private labels is not simple; it requires supply chain capabilities, product selection, quality control, consumer insight, and long-term operation. Just putting your own label on a product doesn't make it a private label. Many retailers currently lack these capabilities. But if you look at the industry level, this judgment is insufficient. The direction of the industry is not determined by the weakest companies, but pulled by the leading players. Sam's Club has done it, Aldi is doing it, Hema is doing it, and Pangdonglai is continuously strengthening its product capabilities. Once the leading players create a model, it changes consumer perception of private labels. In the past, many people thought of private labels as "cheap substitutes." But today, consumers who are used to buying Member's Mark at Sam's Club no longer see it as a compromise but as a quality standard. Once this mindset is formed, it's hard to reverse. So, comforting yourself with "most retailers can't do private labels well" is risky because you might underestimate the speed at which leading examples pull the entire industry. The real question to ask is not "how many retailers can do private labels well now," but "what will the shelf selection criteria be in five years."
Brand owners are not without opportunities; the opportunities have changed
Many brand owners don't pay attention to private labels, thinking it's just the retailer's business. But private labels are just a manifestation; the deeper change is that retailers are redefining how they cooperate with brand owners. In the past, brand owners entered with mature standard products, negotiating shelves, fees, displays, and promotions. Now, more and more retailers care about: Can you co-develop products? Can you make exclusive specifications? Can you reorganize a supply system based on my membership, stores, and price bands? This means brand owners are not without opportunities; the opportunities have changed. In the past, the opportunity was in national distribution. Today, the opportunity lies in channel customization, joint development, private label supply chains, and exclusive product lines. Many brand owners have a misunderstanding about private labels: they think private labels mean retailers kick out brand owners and make products themselves. That's just one form. In reality, many retailers' private labels still require suppliers with production capacity, technology, and quality control capabilities. The ones that can truly cooperate long-term are often not just low-cost OEM factories, but brand-oriented supply chain companies that understand products and can cooperate with channel development. Cooperation methods are not limited to OEM. Some brands do co-branding with retailers, using channel influence to test new products; some brands do customization, developing exclusive flavors, specifications, and packaging for a specific channel; some brands allocate part of their production capacity and R&D capabilities to serve specific retail systems. This is not an ordinary distribution relationship. Because channel data, membership, sell-through capabilities, and repurchase mechanisms are all involved. It's also not simple OEM. Because the brand's technology, formulas, quality control, and product understanding are also involved. The combination of the two is forming a new way of binding. For brand owners, the value of this is not just an additional sales outlet, but an opportunity to enter the retailer's core product system. Whoever understands the retailer's new needs first is more likely to become a long-term partner. Brands and retail need to build a new cooperative relationship Brands and retail have never been in a simple opposition; they are symbiotic. In the past, many conflicts between manufacturers and retailers came from an old mechanism: brand owners wanted to distribute more widely and push deeper; retailers wanted more fees and higher gross margins; distributors were caught in the middle, bearing inventory, payment terms, and sell-through pressure. This mechanism could still function in the era of growth because the market was expanding, and many problems could be masked by growth. But today, consumption is more fragmented, channels are more diverse, and shelf space is more limited. Simply relying on pushing inventory, distribution, and buying shelf space is no longer enough to solve problems. The heat of private labels is essentially not about retailers eliminating brand owners, but about retailers wanting to organize products in a more controllable way. This will change the cooperative relationship between brands and retail. From "I give you shelf space, you give me fees" to "we make products together, share risks together, and share benefits together." This sounds simple, but it represents a huge change. For brand owners, in the past, it was enough to sell standard products and distribute them. Now, they also need to understand channel scenarios, cooperate with retailers on specifications, flavors, packaging, and price bands, and also pay attention to sell-through, repurchase, and consumer feedback. For retailers, they can't just rely on price pressure and gross margin demands. For private labels and channel customization to truly work, they must have product selection, development, quality control, and continuous operation capabilities. If the two sides' understanding is not aligned, the cooperation that should happen won't happen, and the incremental growth that should be released will be missed.
Brands must seize the dividend opportunity of the next 5 years
This is the reason we are holding this conference—on June 4-5, the China Private Label Industry Chain Conference, with three forums specifically designed for brand owners. The first forum, "Brand Dual-Track: National Distribution + Channel Customization," discusses how brand owners can run the channel customization line without disrupting their existing national distribution system. The second forum, "Regional Retail Transformation and New Opportunities for Brands," discusses what new windows are left for brand owners after this round of supermarket overhauls, SKU reductions, and product restructuring. The third forum, "Brand × Retail: Joint Development and New Synergy Mechanisms," discusses how brands and retail can move from past fee negotiations to deeper product co-creation. These three discussions answer the core questions brands must focus on now: In the current context of retail reshaping the shelf landscape, where is the position for brand owners? Where are the opportunities? And how should they enter the new product system of retail? This conference is not just a trend lecture. It's more like an industry chain communication meeting. Retailers need to find partners who truly understand products, supply chains, and can co-develop products; brand owners also need to re-understand what kind of supply the future retail shelves will need. The new opportunities brought by the reconstruction of retail shelves in the next five years: channel customization, joint development, private label supply chains, and deeper manufacturer-retailer collaboration. Brands must seize them!