Hard-discount stores emerged in China in 2023, led by snack discount chains. After more than a year of rapid expansion, consolidation, and acquisition, the broad market structure had largely taken shape.
The market was becoming saturated and the leading players were increasingly dominant. As a result, several snack discount brands began signaling a change of direction in the second half of 2024. Full-category discount supermarkets built around the hard-discount model became a major focus of industry attention.
In the fourth installment of the “New Distribution Dialogue” series, New Distribution invited Zhang Haibo, co-founder of retail technology provider Lemon, for an in-depth conversation with New Distribution CEO Ren Wenqing about full-category discount supermarkets.
Where Are Snack Discount Stores in Their Development?
Ren Wenqing: What stage have snack discount stores reached, and how will they evolve?
Zhang Haibo: To understand their current stage, we first need to understand where they came from. Three main store formats have appeared during the development of the segment.
Before 2012, the mainstream format was the self-operated, private-label snack boutique represented by Bestore and Laiyifen. Stores were typically around 50 square meters and carried 200 to 300 SKUs.
In 2012, Laopodaren pioneered the bulk snack-store model.
From 2012 to 2015, many bulk snack stores opened across China.
The format peaked in 2015, followed by three years of relative stability without rapid growth.
In 2018, Busy for You began scaling a new store model, and Zhao Yiming Snacks added further momentum.
By 2021, the snack discount format had largely taken shape and entered a period of rapid expansion.
Looking back, the dominant snack-store format tends to change every five or six years.
Every change in format produces a different explanation from manufacturers and distributors. Some attribute it to higher efficiency, others to changing consumer preferences, a weaker economy, or softer consumption. Each explanation has merit.
From Lemon's perspective as an industry observer, every store format has its own life cycle, generally lasting five or six years. One indicator marks the turning point: when the payback period for a franchisee exceeds 24 months, the vitality of that store format is largely exhausted.
Early franchisees capture a wave of growth. After a format has operated for two or three years, more participants enter, competition becomes intense, store sales begin to decline, and the payback period lengthens. The chain must then update its merchandise—and its real product is the store format itself.
Local chains without capital support are now finding it difficult to keep opening stores. Some have responded by forming purchasing alliances and improving their supply chains. Others have joined forces with listed companies and used capital to develop new formats.
The two national leaders have largely completed their initial land grab, but they still have a great deal of work ahead. They need more refined store operations and must move from using volume merely to lower prices toward using volume to improve quality.
Snack discount stores are therefore still in a growth stage, with considerable room to improve. The current format may have lost some efficiency, but lower procurement costs, stronger store execution standards, and continued iteration could still produce a new format with renewed vitality.
Who Is Entering Full-Category Discount Supermarkets?
Ren Wenqing: Snack discount stores were extremely popular from 2023 into 2024. Now more people are discussing full-category discount supermarkets. Which groups are entering this market?
Zhang Haibo: At the end of April, Lemon held its first discount-retail forum in Wuhan, followed by a nationwide roadshow covering 16 cities. In August, we worked with New Distribution to hold the third China Hard Discount Conference in Shanghai.
From the customers we met, participants in full-category discount supermarkets fall into three broad groups.
The first group comes from traditional supermarkets. The supermarket format largely peaked in 2016. The pandemic then accelerated its decline. Many traditional supermarket operators began looking for change. They moved away from a model based on selling shelf space and started paying greater attention to real consumer needs and product sell-through.
The second group comes from local convenience-store chains. These operators have been pressured by e-commerce, delivery services, on-demand retail, and other online channels. They want to add lower-priced everyday products. Beyond convenience, they want to serve more consumption occasions with richer assortments and better value for money.
The third group consists of category-killer chains, including snack and fruit stores. They are using their existing chain-operating capabilities and adding products for more everyday occasions around their original categories.
How Are Discount Supermarkets Similar to—and Different from—Snack Discount Stores?
Ren Wenqing: What similarities and differences will appear as discount supermarkets develop from the snack discount format?
Zhang Haibo: Vertical-category stores emerged partly because traditional supermarkets charged manufacturers and suppliers so many different fees. By our estimates, store-level costs at most local supermarkets amount to roughly 25 percentage points. To make a profit, the retailer has to add a substantial markup, typically 40 to 60 percent.
High markups and high prices allowed many specialist categories to leave the supermarket and become street-front or neighborhood chains.
Full-category discount supermarkets, however, are returning to the supermarket form. If prices are sufficiently low, consumers prefer one-stop shopping because it saves time and improves shopping efficiency.
Snack stores and discount supermarkets therefore share two important characteristics.
First, both are built around efficiency. They focus on lowering the cost-to-revenue ratio. A traditional supermarket might carry 25 percentage points of store-level cost, while a single-category store can reduce that to 12 points. That is the essence of hard discount.
Second, both are built around product sell-through. They must understand how products perform, what consumers actually want, and how to become the consumer's buying agent.
The organizational structure of discount supermarkets will also need to change. Headquarters and stores must collaborate through standardized operations and continuous iteration. Many successful international systems use a strong headquarters and strongly managed chain, with unified materials, warehousing, and distribution to create standardized stores and organizational capabilities.
The difference lies in the range and experience consumers expect. Discount-supermarket location choices and category structures must differ from those of a single-category specialist chain.
Discount Supermarkets Are a Trend, Not Merely an Opportunity
Ren Wenqing: Many industry participants want to transform their businesses and enter discount supermarkets. Is this really an opportunity?
Zhang Haibo: Discount supermarkets are not an opportunity; they are a trend.
People are still using the term “hard-discount supermarket.” In another two years, the “hard discount” label may gradually disappear, because this is how a supermarket should operate in the first place.
It should use unified materials, warehousing, and distribution; meet consumers' product needs; and stop behaving like a landlord that makes money by selling shelf space.
The transition will certainly create a period of advantage, and many participants will share in it. Upstream factories can return to developing and producing good products. Channel operators and chain brands can transform into distributors with real category-management capabilities. Pricing authority can move back toward retail.
Every participant can benefit from this broader change. That is why I see it not as a temporary opportunity, but as a highly predictable structural trend.
What Problems Must a Discount Supermarket Solve?
Ren Wenqing: What are the core problems an operator must solve to run a discount supermarket well?
Zhang Haibo: Retail is moving broadly in two directions: one is based on efficiency, and the other on consumer experience.
Efficiency-based retail does not try to create dramatic emotional reactions. A store near a consumer's home may be visited many times each month. Its value comes from dependable delivery and value for money.
Consumer experience can be divided into two parts.
The first is emotional value. Pangdonglai, for example, creates a positive shopping experience through service, lighting, and many other details.
The second is saving consumers time. E-commerce, Douyin, Meituan, and instant-delivery services meet sudden or immediate needs.
Offline chain retailers need to emphasize different priorities at different stages, but the real core is return on investment.
In the early stage, store-format refinement, customer positioning, site selection, assortment and pricing, marketing and merchandising, construction cost, and staffing must all be designed around store-level return on investment.
If the store is the product of a chain system, a repeatable return on investment is the real value of that product.
The chain must then build capabilities in franchising, warehousing, logistics, and financing. Once those foundations are in place, it can optimize the supply chain, use volume to negotiate lower prices, gradually use volume to improve quality, and eventually develop private-label products.
Different stages require attention to different issues. The operator must understand which problem needs to be solved at each stage.
Which Cases Offer Useful Reference Points?
Ren Wenqing: Among the many clients you serve, are there successful discount-supermarket cases that others can study?
Zhang Haibo: In Fuzhou, Lin Yongqiang, chairman of Guanh Supermarket, handed the traditional supermarket business to his existing team and launched Guanpaike hard-discount supermarkets himself, targeting younger consumers.
Wangge Discount Supermarket in Shangqiu, Henan, evolved from a snack-store business and focuses on lower-tier markets. Its founders, Wang and Luo Bin, have spent years serving those markets and now operate hundreds of stores.
In highly competitive Changsha, Wangpi Matou is another long-standing client. Starting with snacks, it added products for broader everyday occasions. It no longer defines itself against the snack-store segment and now resembles an upgraded version of Furong Xingsheng.
Traditional snack chains such as Qiahuo Puzi in Guangxi, Lingshi Hennenghai in Yunnan, and Lingshi Youxuan in Changsha have also added products for more daily-life occasions.
Nearly everyone is iterating and exploring. Different cities, regions, and customer groups need different store formats and models. Some experiments have only just begun; others have already succeeded and entered a new stage.
China is a vast market. Cities at different levels and consumers with different needs leave room for many forms of exploration.
Can Franchisees Recover Their Investment within 18 to 24 Months?
Audience question: Can the profitability of a full-category discount chain support franchisees? Can they recover their investment within 18 to 24 months?
Zhang Haibo: For a mature chain going through transformation, the first priority is designing the store format. Category mix, pricing architecture, and hero products must all be designed to produce a reasonable daily or monthly return.
Gross margin matters, but actual sales matter as well.
How Long Will the Growth Window Last?
Audience question: How many years do you expect the discount-supermarket growth window to last?
Zhang Haibo: China is enormous. There are coastal and inland regions, first- and second-tier cities, and urban and suburban markets even within the same city.
We estimate that China's neighborhood-supermarket structure will take shape over the next five to ten years. Each province may eventually have two or three major companies worth RMB 20 billion to RMB 30 billion.
In North America and Europe, the broad structure is already established and startup opportunities are rare. In China, many participants are still refining their formats. Successful chain systems should begin to emerge gradually, and capital may enter around 2026, setting off another period of expansion, acquisition, and consolidation.
What Role Can Distributors Play?
Audience question: What role can distributors play in this transition?
Zhang Haibo: Distributors will continue to exist for some time. But as supermarkets move toward hard discount and unified materials, warehousing, and distribution, some traditional distributors will be squeezed.
North America uses the term “distributor” for a business that combines distribution and category expertise. Such a company understands a specific category extremely well.
The distributor of the future must serve its channels more deeply. For a regional chain, it should provide the assortment, professional category services, and recommendations. It can be understood as a new type of category concession operator for the discount-supermarket era.
Our own services have therefore expanded from retailers to upstream distributors. Once a retailer reaches sufficient scale, it naturally takes on distributor functions and can work directly with many upstream manufacturers.
At the same time, many large distributors—or distributors that recognize the structural change—are entering retail themselves.
Overall, the direction is toward the integration of distribution and retail.