Source | Lingshou
Declining County Town Business
"This is the fresh food supermarket I opened in the county town. After three years, I'm closing it this month." Fang Chao, a supermarket owner in a fourth-tier small county town in Wuhan, Hubei, began reviewing his business experience six days after closing the store.
Fang Chao's supermarket opened in August 2021. Despite the pandemic, business was initially good. Daily turnover reached around 4,000 yuan, and after deducting rent, employee wages, and electricity, monthly net profit was close to 10,000 yuan. However, this situation did not last long.
He admitted that after months of losses, he could no longer hold on and had to close.
After closing, Fang Chao summarized the reasons for failure to the author. He believed that location was one of the main issues leading to the decline. The supermarket was in an elderly residential area of the county town, where surrounding residents had limited spending power. High-margin items like bottled water, snacks, and gift boxes were almost unsold. Additionally, the store was not near hospitals, schools, intersections, or community entrances, relying entirely on foot traffic without a stable customer base.
Furthermore, policy restrictions also had a significant impact. Due to distance issues, the store could not obtain a grain ration certificate, failing to meet the purchasing needs of some male consumers, including high-margin items like betel nut, bottled water, and beverages, which were restricted in the store. Eventually, the decision was made to close.
In fact, in county towns and townships, merchants like Fang Chao, at the end of the retail "capillaries," are commonly facing similar operational difficulties.
In recent years, with changes in consumer demand and intensified market competition, the growth potential of traditional retail models is gradually weakening, and their ability to resist risks is becoming increasingly fragile. Especially for individual merchants relying on surrounding residents' consumption, their living space is being compressed. County towns with populations of several hundred thousand are now mainly left-behind elderly and children, leading to a significant decline in overall spending power.
At the same time, various chain supermarkets are entering county towns, competing with local brands and scattered mom-and-pop stores for the already limited market share. In such an environment, the operational pressure on traditional supermarkets continues to increase, and many merchants are forced to face the choice of transformation or exit.
Guo Lin in a Henan county town has a similar business. He has been running a supermarket in his hometown for six years, with a store area of about 300-400 square meters. In earlier years, the operating environment for township supermarkets was relatively relaxed, with less competition and larger profit margins. Guo Lin even admitted that earning 300,000 yuan a year was not difficult at that time.
His supermarket mainly sold products from unknown small factories, which had high gross margins. Additionally, the township market was relatively closed, with limited consumer choices, making sales easy and profitable. However, starting from the second half of last year, the market changed.
He found that the number of snack stores in the county town increased rapidly, directly diverting his highest-margin products, such as bottled water, beverages, puffed foods, and bulk snacks. Additionally, sales of general merchandise and hygiene products were hit by e-commerce platforms, with sales dropping significantly. "Now I can't sell a single item in a day," Guo Lin said helplessly.
Fruits and vegetables, used as traffic drivers, also faced sales pressure. "The rise of specialized fruit stores in the county town has clearly impacted supermarkets," Guo Lin said. Fruit sales declined significantly, and the first task every morning after opening was to clean the fruit section and dispose of unsold spoiled items. To reduce risk, he dared not stock too much, but this further compressed sales.
In contrast, vegetable and meat businesses could maintain some sales, but profit margins were limited. Vegetables were often sold at low prices to attract customers, but the spoilage rate was high, especially in summer, making them almost unprofitable. Meat was difficult to manage; it had to be sold the same day, otherwise, it would spoil and affect sales, and even price reductions could not attract consumers.
Meanwhile, competition in the township retail market was intensifying. Guo Lin told the author that on a main street near his home, within less than a kilometer, there were four supermarkets, plus four markets every ten days, as well as street vendors and small shops. The market capacity was limited, but more and more people were opening stores, ultimately diluting profits.
"A good supermarket can earn a hard-earned wage, but the others are basically losing money," Guo Lin said.
Supply Chain Difficulties, No Product Differentiation
The experiences of Fang Chao and Guo Lin reflect the difficulties facing county and township retail markets.
"Consumers are becoming more picky, and their needs are diversifying, but the product range in my supermarket hasn't kept up with these changes. Additionally, with the increase in e-commerce platforms, vertical snack stores, and fruit stores, consumers have more choices, and traditional supermarket customers are being diverted," Fang Chao admitted to the author.
He further analyzed: "The only young people with some spending power are being taken away by Pinduoduo and those daigou (purchasing agents). These young people don't come to supermarkets at all. The remaining elderly have limited spending power, so the business can't sustain itself." Young consumers' shopping habits have shifted from offline to online, while the elderly customer base lacks spending power, leaving county supermarkets in a dilemma.
In fact, the fundamental issue Fang Chao mentioned points to product structure. Many township supermarkets have had almost unchanged product ranges for ten years, even letting unknown brands occupy shelves, while prices for regular products are set high. Under the wave of so-called "consumption upgrade," township consumers are also starting to care about brands and quality, but the supermarket product structure is too outdated to attract them.
An industry insider told the author that consumer demand is upgrading, but many county supermarkets remain stuck in traditional business thinking, not adjusting product ranges according to market changes, nor actively meeting new consumer needs.
Behind the lagging product structure is often a supply chain problem. Retailers in county towns and townships are almost entirely at the mercy of local distributors in the supply chain. Because county markets are in fifth-tier cities, with small and scattered sales, mid-to-high-end general merchandise and FMCG brands usually do not want to cover them directly, instead choosing to delegate channels to distributors.
Especially some FMCG brands believe that rather than investing high costs to maintain fragmented county markets, it is more cost-effective to let distributors handle it. This model directly results in retailers having almost no bargaining power, passively accepting the products and prices offered by distributors.
In the past, distributor-agented brands could still attract customers to supermarkets, but with the upgrade in consumer demand, this has gradually become ineffective. Worse, many supermarkets, for convenience, "sell" shelf space to suppliers by section, leading to shelves filled with homogeneous products, and supermarkets gradually becoming "sample cabinets" for distributors.
"The supply chain problem has become deeply entrenched. Without a thorough overhaul of the supply chain, traditional supermarkets will have no future. But the question is, how can the supply chain be rebuilt? Even if we choose cash procurement, it's hard to solve the overall supply chain deficiency," the insider said.
He also emphasized that the self-purchasing model requires high professional capabilities from retailers, and a slight mistake could lead to inventory backlog and cash flow difficulties, with risks that cannot be ignored.
Cost issues are also exacerbating the difficulties of county retail. On the surface, operating costs in county towns seem low, but in reality, they hide a "low-efficiency trap." According to data from the China County Economy Research Institute, although the average rent for county shops is only one-fifth of that in core urban business districts, the output efficiency per unit area is only one-eighth of urban areas.
For example, in a central county town, a street-front shop with a monthly rent of 800 yuan seems cheap, but the average daily foot traffic is less than 50 people, and the customer acquisition cost per customer is as high as 5.3 yuan, far exceeding the 2.1 yuan of urban community stores.
From product structure to supply chain, and then to rent and operating costs, the problems in county and township retail markets are systemic, and adjusting one link alone cannot truly solve them. The industry urgently needs a comprehensive upgrade and transformation, but the reality is that resources are limited, competition is fierce, and many retailers lack the ability and conditions to transform.
Guo Lin admitted: "The road for county supermarkets has come to an end. To break through, we must re-examine the entire business model. But the problem is that transformation requires capital, professional capabilities, and time, which is too difficult for county retailers."
Convenience Stores, Brand Supermarkets, Sam's Club, etc., Are Accelerating Downward Expansion
Finally, competition from all sides is making it difficult for county supermarkets to survive.
"In the past, a township with a population of 30,000 had only one or two supermarkets, plus a few wholesale departments. The market was relatively stable, and competition was not fierce," Guo Lin recalled. However, now the number of stores in townships is increasing, but the operators' thinking has hardly changed. They still use old business methods without differentiated competition, resulting in a shrinking pie.
The rapid expansion of chain convenience stores is an important factor impacting county supermarkets. In recent years, the convenience store industry has accelerated its layout in lower-tier markets, gradually moving from third- and fourth-tier cities to county markets.
According to the China Chain Store & Franchise Association, in 2023, national convenience store sales reached 424.8 billion yuan, a year-on-year growth of 11%, and the total number of stores increased to 320,000, a year-on-year growth of 7%. Among them, the top 100 convenience store companies in China have reached 182,412 stores.
Among these, not only local brands dominate the "township market," but brands like Tianfu Convenience, Lawson, 7-ELEVEN, and FamilyMart are also accelerating expansion. For example, Lawson has covered 17 provinces and municipalities directly under the central government, entering 125 cities. 7-ELEVEN has laid out in Jiangsu, Shaanxi, Hubei, Henan, and other places, gradually taking root in lower-tier markets.
These convenience stores attract consumers with standardized services, rich product ranges, and convenient locations. "The density of convenience stores is increasing, and market competition is intensifying, which naturally affects the business of county supermarkets," the insider pointed out.
In addition to the impact of convenience stores, the "downward expansion" of Sam's Club is also quietly changing the county retail landscape. Judging from the new stores expected to open, Sam's Club has begun to penetrate the "top 100 counties," such as Zhangjiagang, Jinjiang, Kunshan, and other affluent county towns, seizing more market share through "high-quality downward expansion."
Even in county towns where Sam's Club has not yet entered, "daigou" (purchasing agents) have become the main players, penetrating county markets. Fang Chao said that even in county towns, these daigou are called "fenmu" (Sam's Club agents), who bring products from big cities to county shelves, mark up prices, and sell to consumers who cannot go to the stores, making a fortune.
From this perspective, pressure from all sides is competing for the most terminal retail business.
"Now on this street, besides our supermarket, two new supermarkets have opened, and within 300 meters there are three or four convenience stores and many daigou groups," he told the author. These stores each have their own characteristics, some focusing on fresh vegetables, some selling cooked food through WeChat private domains, "almost every store has its own 'competitive point.'"
In such an environment, the pressure on supermarket operators is increasing. Guo Lin admitted: "Now in the peer group, there are all transfer notices, from how much money they made to how much they lost, everyone is transferring." He added that one store's transfer advertisement had been up for almost a year, but no one had taken over.
The difficulty in transferring supermarkets is directly related to the long investment return cycle.
Guo Lin explained: "The investment return time for supermarkets is relatively long. If you have tight funds, I don't recommend opening a store. The retail industry investment is a one-time expense. If you can make a profit soon after opening, it's fine, but if you don't, you have to keep investing, and the capital chain will eventually break."