On January 12, Costco's first store in South China opened with great fanfare, attracting over 140,000 new members on the first day, ranking first globally, and achieving the highest daily sales in China. Amid the current sluggish physical retail consumption, the opening of Costco Shenzhen store presents a different picture of prosperity. Rather than saying that China is currently in a stage of consumption downgrading, it is more accurate to say it is at the cusp of consumption stratification. In China's vast population, the lower-tier market and the middle class form the backbone of consumers. Warehouse clubs on the market focus on the "fat meat" of the middle class in first-tier cities. If Walmart does business with everyone, then Costco, as the pioneer of membership systems and the world's largest chain of membership warehouse retailers, focuses more on the middle class. In 2019, Costco began its offline localization in China, opening its first store in Minhang District, Shanghai. It wasn't until 2021 that it opened its second store in Suzhou. Compared to Sam's Club, which has been rooted in the Chinese market for over 20 years, Costco, the pioneer of membership systems, can be considered a latecomer. Looking at Sam's Club's 27 years in China, it has 47 stores nationwide, 5 million members, and 500 front warehouses, showing rapid expansion. Costco's requirement for opening a store is that the country's per capita GDP must be at least $10,000. In 2013, this condition was not met, so the pace of opening stores in China was paused. Costco understands that China has a rich e-commerce soil and has never stopped exploring the domestic market. Earlier, it opened an online store on Tmall, mainly featuring its own brands. The online operations received a good response, with its consumer base mainly concentrated in Shanghai and the surrounding East China region. This move also provided reference data for the selection of Costco's first store in China, located in Minhang, Shanghai. Currently, Costco is mainly concentrated in developed first- and second-tier cities along the eastern coast. Except for Shanghai, it operates one store per city. In terms of site selection logic, it is roughly the same: directly purchasing land to build its own stores. The land requirement is about 50,000 square meters, of which 15,000 square meters is for the store, and it must accommodate 1,500 parking spaces. It is located in the near suburbs, about 30 minutes' drive from the city center, and within 10 kilometers of competitors like Sam's Club and Hema. In terms of products, they generally use super-large packaging, mainly to improve product turnover. Compared to supermarkets with a dazzling array of products, Costco typically has no more than three SKUs per category, with an average gross margin of around 10%, but a very high average transaction value. According to JP Morgan data, Costco's prices across all categories are 30% cheaper than Walmart and 14% lower than Aldi. Therefore, shopping at Costco doesn't require price comparison, and you won't suffer from choice paralysis. Its shelves are filled with carefully selected global bestsellers, and through massive purchasing volumes, it lowers procurement costs and then passes the savings on to consumers. Low-frequency purchases, bulk buying, and high average transaction value are the key positioning keywords for Costco. Looking back at several Costco store openings, it's not hard to see that Moutai and Hermès, as opening traffic drivers with obvious price advantages in the Chinese region, were quickly snapped up during these periods. A box of 22-year-old 53-degree Moutai priced at 20,499 yuan sold out immediately upon listing, and an Hermès item priced at 180,000 RMB was also grabbed within ten minutes of opening. Costco's essence is an offline retail channel. Using such super products to attract consumers into the store is undoubtedly one of the reasons for its long queues at every opening. From affordable bakery croissants and durian cheesecakes to luxury goods, these are all part of Costco's in-depth research on its opening strategy in the Chinese market. With Shenzhen's large middle-class population, Costco's latest layout is a move into the South China market. The Longhua Costco has a total area of 44,500 square meters, with a shopping area of 15,000 square meters. Thanks to its global procurement advantages, the store offers around 4,000 SKUs. Its location near Shenzhen North Station also facilitates out-of-town consumers to shop there. In previous years, the saying was "Earn in Shenzhen, spend in Hong Kong," but in recent years, the trend has reversed to "Earn in Hong Kong, spend in Shenzhen." As economic integration between Hong Kong and the mainland deepens, the Longhua Costco is not only targeting Shenzhen's fertile ground but also Hong Kong, the Asian Tiger, which is just a few dozen minutes away by high-speed rail. As mentioned earlier, Costco's main target group is the middle class, and with Hong Kong's even larger middle-class population, it falls within the operational range of the Shenzhen Longhua store. To this end, Costco has even specially arranged shuttle buses between Hong Kong and the Shenzhen Longhua store to make it more convenient for Hong Kong consumers to visit, reducing customer loss due to transportation distance and promoting consumption. Looking back at Sam's Club, in 1996, it opened its first store in Asia in Shenzhen, located in the wealthy Xiangmihu area of Futian District. As of June 2023, Sam's Club has opened a total of four stores in Shenzhen. Shenzhen was the first stop for Sam's Club in the Chinese market and serves as its base. The Sam's Club Futian store was the first true membership supermarket in Shenzhen, ushering in the era of warehouse-style shopping. This time, the Shenzhen Longhua Costco is only 1 kilometer away from the Longhua Sam's Club, marking the closest competition between the two giants. Costco, Sam's Club, and Hema now form a tripartite balance in China's membership supermarket market, inevitably leading to comparisons among consumers. Sam's Club has been seizing the Chinese market for 27 years, making it a veteran presence; Hema earlier abolished the membership fee policy, ushering in the Hema discount era; and Costco holds the trump card of global procurement. Facing these two formidable rivals in the Chinese market, Costco does not have a guaranteed victory. According to the "2022 China Chain Top 100 List" released by the China Chain Store & Franchise Association in 2023, Costco's two stores in China generated total revenue of 3 billion yuan in 2022, with an average of 1.5 billion yuan per store. Based on this calculation, with the opening of the sixth and seventh stores, Costco's revenue in China is expected to exceed 10 billion yuan this year. In contrast, Sam's Club's revenue in the Chinese market exceeded 60 billion yuan in 2023, a significant gap. In February last year, Walmart China CEO Zhu Xiaojing stated that in China's membership supermarket market, the only possible competitor to Sam's Club is Hema, because Hema has accumulated a certain level of food supply chain and is unique in food innovation. Sam's Club in China has a unique city-wide distribution and express delivery service; Hema consumers also use online services more frequently. In the online delivery-to-home service segment, Costco consumers are directed from the Costco App to the "Tiaotiao Shopping" mini-program, where a third-party company handles delivery and after-sales, and it is only available in certain cities and regions. On this shopping platform, product notes also indicate that prices are 6% higher than in physical stores. Therefore, delivery efficiency and product experience have repeatedly become points of criticism among Chinese consumers. In instant delivery, Costco will continue to face fierce competition from Sam's Club and Hema. Previously, the price war between Sam's Club and Hema, due to product copying leading to severe homogenization, prompted Costco to adopt a "Tian Ji horse racing" strategy, not focusing on promoting products in areas where competitors have advantages, such as bakery products. Instead, it focuses on categories where Sam's Club and Hema perform average, such as home appliances. It must be said that Costco still has a long way to go in exploring the Chinese market. How much success it can achieve in China remains to be seen over time. Meanwhile, more local players are joining the competition. For example, the "dark horse" of warehouse clubs, Gaoxin Retail, opened its third M Membership Store in Nanjing on January 12. In 2024, Costco's first store in Nanjing and Sam's Club's second store in Nanjing will also open almost simultaneously. M Membership Store has taken a first-mover advantage by entering Nanjing before the two giants. In terms of site selection, M Membership Store differs from the two giants, mainly based on RT-Mart's network resources, prioritizing the renovation and upgrade of existing properties and hypermarkets, mostly located in city centers, making them closer to consumers. In the past year, Gaoxin Retail has launched more than 300 private brands, with annual sales of private brands expected to reach 1 billion yuan. Beijing's local membership warehouse supermarket FUDI, in two and a half years, has opened 4 warehouse membership stores, 2 premium supermarkets, and has 200,000 paying members. On Xiaohongshu, FUDI is labeled as "affordable Sam's Club," meaning that as a warehouse membership store, it offers smaller portions, lower prices, and flavors closer to Chinese consumers in some fresh and bakery products. Therefore, if the warehouse club giants target the middle class with 3-5 member families, then FUDI is more oriented towards young people living alone. "It's not like a high-end middle-class supermarket, but more like a themed shopping mall for young people." Decoration and display are also key areas where FUDI invests effort. Initially, it landed in Beijing with internet-famous attributes, and taking photos and checking in are its main means of attracting young consumers. Therefore, many consumers describe FUDI not as "good for shopping" but "good for hanging out." Warehouse clubs show more of people's trust in retail brands and their choice of good products. Foreign warehouse clubs are accelerating their expansion, while local warehouse clubs are exploring differentiated new paths. The competition for middle-class families and advantageous markets is in full swing. Lin Xiaohai, Executive Director and CEO of Gaoxin Retail, said: "The difficulty of the membership store format is actually greater than any other format. Membership stores require a property foundation, a complete set of differentiated product systems, and the concept and team for member services." Although warehouse clubs have strong development potential in China, opening one well is no easy task. What will this market look like in 2024? Let's wait and see. From March 14 to 16, 2024, the 9th China FMCG Innovation Conference, co-hosted by New Distribution, with joint hosts Ande Logistics and Yonyou Digitalization, along with the 2nd China FMCG Hard Discount Conference and the 2nd China FMCG Distributor Conference, will be grandly held in Chengdu! The 2nd China FMCG Distributor Conference is hosted by New Distribution and co-hosted by Zhoupu Data; the 2024 Supply Chain Digitalization Innovation Summit is hosted by New Distribution and co-hosted by Yonyou Group. During the three-day conference, centered around the theme "Supply Chain Revolution," there will be one main forum, one China FMCG Hard Discount Conference, one China FMCG Distributor Conference, over ten sub-forums and closed-door exchange meetings, and the first major debut of the [Extreme Supply Chain] Brand Factory Direct Procurement Fair. Together with thousands of FMCG brand owners, distributors, retail transformers, and industry service providers from across the country, we will meet in Chengdu for continuous brainstorming to discuss the challenges and opportunities, changes and solutions in the era of supply chain revolution. In this era of supply chain revolution, a new business era will be born. We hope every participant will still have a place in this wave, and we believe this will be a worthwhile conference! 🔺Scan code for ticket consultation🔺