On January 17, Mingming Henmang Group unveiled its snack chain 3.0 version at the Water Cube in Beijing, launching 30 private-label products, signaling the start of the 2025 battle in the bulk snack industry. Not just the bulk snack track, but looking at recent years, China's retail sector has been improving overall. In 2024, the number of domestic retail chain stores exceeded 15,000, with sales surpassing 55 billion yuan. Mingming Henmang Group's store count exceeded 15,000, and together with Wanchen and Snacks Youming, the top three snack chains approached 30,000 stores, with sales exceeding 100 billion yuan. Local chain supermarkets like Pangdonglai, Dazhang, and Biyoute have also seen rapid growth in sales and profits; Hema's 2025 CNY sales and profits exceeded company expectations, planning to reach 1,000 stores by 2025-2027; foreign discount supermarket ALDI has developed rapidly; Meituan Flash Delivery, Dingdong Maicai, and Pupu, these front-warehouse model OTO formats, have also achieved very good results, and Sam's Club has soared. It can be said that in 2024, the offline retail format has gradually recovered: companies have started to define consumer segments, plan product categories around consumption scenarios, shorten supply chains to improve supply efficiency, emphasize product strength and consumer experience, and shift from a fee-based model to a selling model. This means that China's offline retail has entered its second development stage. Although Sam's Club and Hema are ahead with their talent systems, supply chains, and scale advantages, the overall retail transformation has just begun comprehensively, and everyone is now on the same starting line. Many local chain supermarkets still have significant development opportunities. Currently, the most struggling in China are national and large local chain supermarkets and CVS (convenience stores). National chain supermarkets basically closed stores in 2024; their organizational structures, business models, product assortments, and operational thinking all need major adjustments, but the difficulty of reform is too great, and it can be said that they are too deep in the mire to extricate themselves! Although CVS can solve consumers' immediate needs and provide convenience, excessively high retail prices will inevitably be "robbed" by other retail formats in an era of consumption downgrade. It's not that they have no chance. Hunan's CVS Xinjiayi has achieved rapid store expansion by adjusting product structure and optimizing supply chains, providing a model for other CVS reforms; Yonghui, while cutting off its own arm to save itself, is learning from Pangdonglai, increasing the proportion of bakery, fresh food, and produce in stores, and many adjusted stores have seen sales growth. Now, each offline retail format has good benchmarks. Some say Pangdonglai represents version 1.5, Hema is version 2.0, and Sam's Club is version 3.0. Whether it's 1.5, 2.0, or 3.0, what suits your own development is most important. Offline retail formats are learning from excellent retail companies like Pangdonglai, Hema, ALDI, and Sam's Club, gradually optimizing in product selection, pricing, and supply chains. No matter how well they learn, one thing is certain: companies willing to step out and learn and change will definitely improve on their original basis. But how to establish a development path suitable for themselves and build their own competitiveness is still a long road. Looking at China's offline retail landscape today, it is very similar to the United States in the 1970s. In the 1970s, the U.S. supermarket industry had a slotting fee model similar to China's, with every supermarket displaying the same products, constantly negotiating with suppliers over entry fees, shelf space, and store location. Products were highly homogeneous, and they could only attract consumers through promotions, coupons, and price wars. This was the era of big brands, with procurement always oriented toward big brands; they didn't care about or understand the products they sold, and the most important thing between supermarkets was whether their selling price was lower than nearby supermarkets. Today's U.S. offline retail format might be what China's offline retail will look like in ten or fifteen years. Given the speed of domestic offline retail development, catching up with the U.S. might not take ten years, because Chinese business owners' learning ability and efficiency are too high! The Flourishing U.S. Offline Retail Market What Lessons Can It Offer Chinese Companies? When discussing the development of the U.S. offline retail format, we must mention some representative local retail channels. Based on 2023 sales: Walmart and Kroger, two large national supermarkets, rank first and second in offline retail, known for low prices and targeting low-income consumers. Walmart has three formats: hypermarkets, neighborhood markets, and Sam's Club membership stores. Third in sales is Costco, a warehouse membership club, positioned to meet consumers' stockpiling needs. These national supermarkets are basically known for low prices, unified procurement, but average service. Another category is discount supermarket formats, mainly Germany's ALDI, LIDL, and U.S.-based Dollar Tree and Family Dollar. These supermarkets are characterized by low prices, convenience, and a focus on private-label products, with limited product categories to meet basic consumer needs, targeting low-income groups, and are called "poor people's supermarkets" in the U.S. In reality, in the U.S., supermarkets with good consumer experience and rich product offerings are mostly regional supermarkets, which have absolute advantages in their regions, targeting middle-class and affluent consumers, or intellectuals and young people who pursue quality of life. The larger and more influential ones mainly include H-E-B, Publix, Trader Joe's, and Wegmans, with scales ranging from $10 billion to $40 billion. These supermarkets excel in flowers, fresh food, deli, and bakery, which typically account for over 60% of their sales. They focus on consumer needs and value product knowledge. For private-label product development, they emphasize two points: uniqueness or cost optimization, and they value sales per square foot and consumer experience. Last October, I visited many types of supermarkets in the U.S. Wegmans excelled in product layout, display, and fresh food preparation. What impressed me most was its made-to-order salad: a dozen fresh vegetables, a dozen dried fruits and nuts, a dozen sauces, and a dozen meats. I selected my ingredients, and they mixed them on the spot, packed them with sauce. This experience is something many high-end restaurants can't match. Additionally, the variety and display of bakery, sushi, fresh juice, and energy bowls were also stunning. Wegmans was named the best supermarket in the U.S. by Fortune magazine for two consecutive years. After returning home, I visited Pangdonglai and other domestic supermarkets with good consumer experiences, and I felt there was still a gap compared to Wegmans. There are also some U.S. national supermarkets with relatively more stores, such as Whole Foods, Safeway, and Kroger's Harris Teeter. These supermarkets also mainly target middle-class or consumers with quality-of-life requirements. Based on my personal visits to these three supermarkets, their consumer experience is still a notch below Wegmans. That said, looking at today's U.S. offline retail format, traditional supermarket chains, discount supermarkets, and CVS are all doing well, each with different consumer positioning and core product categories. In terms of retail format scale, supermarkets remain the mainstream offline retail format. First, regional chain supermarkets focus on regional markets, emphasize consumer experience and product uniqueness, target mid-to-high-end consumers, and combine regional product characteristics to form their own business barriers. After nearly a hundred years of development, they still operate well and haven't been defeated by national retail giants like Walmart. This situation also tells us that although today's Sam's Club and Hema are developing well in China, in many regional markets, local chain supermarkets will still dominate in the future, such as today's Pangdonglai and Yichang's Yasi in Hubei. They better understand local consumers and their shopping habits, and can better meet consumer needs in terms of products. Second, for national chain supermarket brands, they generally choose essential and high-frequency scenarios, customizing products suitable for national sales. To facilitate management and improve supply chain efficiency, they mostly adopt centralized procurement models, with standardized store operations. In this case, low prices are their biggest competitiveness, which is why the top U.S. supermarkets target low-income consumers. Of course, today's Chinese supermarket professionals shouldn't feel inferior. As everyone continues to learn and improve their operational capabilities, I believe that in the future, China's best supermarkets will definitely be local ones, and consumers everywhere will prefer their local supermarkets. That day will surely come. As Churchill said, "The farther backward you can look, the farther forward you are likely to see." The U.S. offline retail format can be said to be the direction of China's development in the next one or two decades, and the general model should be similar. However, China's national conditions differ from the U.S., and some formats may differ. Through analyzing the development of the U.S. offline retail format, let's look at what opportunities exist for China's future offline retail development.
China's Future Offline Supermarket Development:
Shift from "Involution" Competition to Value Competition Let's first look at a set of data: According to relevant data, China has about 100,000+ bakery shops, 500,000+ fresh food shops, 1 million+ fruit shops, and 2 million+ vegetable shops (vegetables, meat, fish, etc.) offline. In developed countries like the U.S., Europe, and Japan, these types of products are mainly purchased in supermarkets, but in China, the proportion of consumers buying them in supermarkets is very low. These four categories are core categories for supermarkets in developed countries, and I believe they are also categories that Chinese supermarkets should focus on in the future. In this context, let's look at today's Chinese consumer groups. Over the past 20 years, China has had an average of over 10 million university graduates per year. Although most of this group has relatively low incomes, they still pursue a quality life. Just like the U.S. in the 1970s and 1980s, when consumers' needs for food and many daily necessities were not met, many people didn't want to shop in supermarkets because they didn't have what they wanted. It was also during this time that a batch of retail stores focusing on product strength was born, such as Sam's Club and Costco, which opened in the 1980s, and Price Club, the pioneer of the Costco model, founded in 1976. Today, Sam's Club and Hema treat product development as the core work of procurement. They focus on researching consumer needs and supply chain product development capabilities. Product strength has become their core competitiveness, stimulating the needs of target consumer groups through products and enhancing consumer stickiness to meet huge potential consumer demand. Breaking down consumption by city tier, supermarkets in China's third to fifth-tier cities all look the same, but consumers with different income levels have different needs. For example, in terms of daily necessities like houses, cars, and clothing, affluent people's needs can be met, but in food, supermarkets don't provide differentiated products for these groups. This was proven by Hema's booming business in county towns and prefecture-level cities during this year's Spring Festival. In other words, providing high-quality products to intellectuals and middle-to-high-income people in these cities is a huge market, which requires today's supermarket professionals to adjust in terms of consumer positioning, product planning, and supply chain construction. In summary, the biggest challenge and opportunity for China's offline retail industry in the future is that most of today's offline chain supermarkets and CVS are unwilling to change their profit model based on fees. They are unwilling to change, or the resistance to change is indeed great, including product homogeneity, high prices, and slow introduction of new products, such as RT-Mart, China Resources, and Jiajiayue supermarkets; FamilyMart, 7-Eleven, and Meiyijia convenience stores. Additionally, many local chain supermarkets are unwilling to change due to a lack of talent or insufficient competition. These outdated offline retail business models will eventually be eliminated by newer, more efficient methods. During the Spring Festival, I visited Quanzhou to survey the market. I didn't expect that the retail format in this economically developed prefecture-level city was far behind that of inland and northern cities. Local wealthy people could hardly find the products they wanted in supermarkets. All local supermarkets still relied on high entry fees and display fees to share costs, and the product planning, display, and shopping environment were no different from thirty years ago. I had no urge to buy, which is why Sam's Club's store in Quanzhou is so popular. I believe Hema would also be a hit if it opened a store in Quanzhou. At the end of the day, to do well in offline supermarkets today, the first thing to think about is how to get consumers to switch from bakeries, fruit shops, butcher shops, and vegetable shops to your store. Whether your product quality, variety, and price can have an advantage is the core work for offline supermarkets in the future. These categories have no advantage in e-commerce. Community group buying will grab some market share, but it won't become mainstream. I think everyone can build their own advantages in localization, product freshness, and consumer experience. Additionally, for ambient packaged food, customization of core categories is a major direction. For daily chemical and general merchandise categories with stockpiling attributes and e-commerce price advantages, you can reduce the number of products and display area. Just like in the U.S. and Japan, supermarkets under 5,000 square meters place over 80% of their area with food, and many supermarkets only sell food. Today's supermarkets can't be big and comprehensive; consumers' shopping channels have diversified, especially in China. I think the product selection logic of Trader Joe's in the U.S. is worth learning from: sales per square foot, product turnover rate, whether the product is high-frequency, price advantage, or product uniqueness. China's Market Is More Complex and Diverse, Cannot "Copy-Paste" Foreign Experience Many professionals like to predict China's future retail format based on the current retail development in Japan, Europe, and the U.S. I think there's a big problem with this because many current practical issues need to be considered for the development of China's offline retail market. For example, in 2024, the most studied overseas channel cases were Germany's ALDI and Japan's Don Quijote. Because snack chains and discount supermarkets have developed rapidly, everyone seems to think discount supermarkets will become the mainstream offline retail format in China's future. Therefore, domestic supermarkets are learning from Pangdonglai and Hema; in product development, they learn from Sam's Club and ALDI. Through learning, everyone has begun to optimize their products and improve product quality; shorten supply chains, focus on core suppliers, and reduce retail prices; develop private-label products to provide consumers with high cost-performance products while increasing gross margins; improve business environments and enhance service awareness, etc. Through this series of self-iteration, supermarket foot traffic has indeed increased, bakery and fresh food sales have seen rapid growth, and many stores have turned from losses to profits. Change is gradual, and new systems take time to refine, but if you consider the differences between today's Chinese market and Europe, the U.S., and Japan during the transformation, you'll avoid many detours. What are the differences between the Chinese market and overseas? In summary, mainly the following points:
- China's developed e-commerce and efficient logistics distribution: From the development of our online e-commerce, Japan's Don Quijote would have no chance in China. If Japan had Pinduoduo, Taobao, and Douyin, Don Quijote would definitely face decline; the German ALDI model is also not suitable for today's Chinese market. Here's an example: Shanghai's Biyide was previously modeled after Germany's ALDI. Many of its product retail prices were indeed lower than nearby CVS and supermarkets, but compared to Taobao, Pinduoduo, Meituan Select, etc., it had no advantage. Former Hema CEO Hou Yi also said that Biyide did well in cost control, but didn't do well in fresh food, and offline standardized products have no advantage. For offline retail, you must find categories where you have an advantage over e-commerce and OTO, and make that category bigger and stronger, forming your own barrier to have a future. Additionally, product uniqueness can make consumers exclaim "wow," and doing well in cost-performance is where Sam's Club is the teacher.
- Chinese people's irrational competition: In Europe and the U.S., before opening a supermarket, you generally analyze the local consumer group, population size and structure, purchasing power, competitive landscape, etc., and only open if the analysis shows a return on investment. But in China, it's not like that. If you see someone making money, you open a store next door, imitate their operations, and undercut their prices. We call this behavior "involution," and eventually the industry deteriorates, and everyone loses money. This behavior mainly arises from a lack of barriers, and people choose to do simple things. A single store is easily imitated, and because it's easy to imitate, it gets "involutioned." Today's snack chains and discount supermarkets are like this. Competition is never around products but around customer satisfaction. Products are single-dimensional competition; the end point of all product competition is homogeneity, and when products converge, prices drop. Customer satisfaction is multi-dimensional competition, corresponding to customer interests, some related to products and some not. Are today's advantages of Pangdonglai and Sam's Club just product advantages? Would you open a store next to such a supermarket? You might open another brand's snack store next to a snack store, but would you open a fresh food supermarket next to ALDI?
- The low-price advantage of Chinese catering in lower-tier markets: In the U.S., the price of a bowl of instant noodles is one-fifth to one-tenth of eating a bowl of noodles at a restaurant, and the same for a meal; in Japan, it's about one-third. In contrast, in China, a bowl of Luosifen in a first-tier city costs about 25 yuan, while packaged food costs 10-12 yuan. Convenience food is half the price of dining in, in second-tier cities it's two-thirds, in third-tier cities it's the same, and in fourth and fifth-tier cities it might be 1.2 times. Because there's not much difference between catering prices and convenience food, fresh food, and prepared dishes, this directly leads to low sales in these categories in supermarkets. Therefore, many consumers in the U.S. and Japan buy a lot of food in supermarkets to solve their three meals a day, while Chinese consumers rely more on delivery or catering companies. This is why CVS can't open stores in third to fifth-tier cities in China. In Japan and the U.S., CVS meals account for a large proportion of consumption, and the same is true in China's first-tier cities, but in lower-tier markets, catering prices are more competitive. The experience of Japan and other Southeast Asian countries doesn't apply to China. CVS and supermarket products not only compete with other CVS and supermarkets but also with e-commerce and community platforms, and you must consider the price of substitutes for the products you sell. So, meeting the same consumer need isn't limited to the same category.
- The huge difference in per capita income across regions: In China, from first-tier cities to townships, per capita income varies greatly, while in developed countries like Japan and the U.S., the gap is relatively small. In daily consumer goods and food, first-tier cities and townships can basically be satisfied with one set of products, but in China, the difference is still significant. Products from FamilyMart and Lawson convenience stores are not competitive in third to fifth-tier cities, which is why 7-Eleven is ubiquitous in Thailand but can't go downmarket in China (this also has a lot to do with 7-Eleven's pricing).
- The huge difference in Chinese food categories and regional tastes: China has eight major cuisines; the north eats noodles, the central region eats rice, the south likes rice noodles, some regions can't do without spicy food, and some emphasize the original flavor of ingredients, etc. In this case, using one set of products for the national market will definitely abandon many products consumers need. If you make differentiated products, national supermarkets will definitely increase procurement and operations difficulty, and cost control will be harder. Therefore, if regional chain supermarkets can combine regional characteristics to develop products suitable for local consumers, they will definitely win a greater competitive advantage. For a country like the U.S. with relatively small consumption differences, H-E-B developed localized products in Texas, and ultimately locally sourced products accounted for 19% of total sales, making local characteristics one of its core competitiveness. So, national CVS, snack chains, and supermarkets are just larger in scale, but that doesn't mean they are more competitive. The competitiveness of offline retail formats is the competitiveness of stores, which is competition around consumer satisfaction. 【New Order · Symbiosis】 ****The 10th China FMCG Innovation Conference Time: March 17-19, 2025 Location: Chengdu, China