Over the past 20 years, China's retail landscape has undergone tremendous changes. Consumers have shifted from functional consumption to experiential consumption; terminal supermarkets have evolved from grocery stores to standard supermarkets, and now to specialized category stores. Market dynamics have changed from channel-centric to consumer-centric, with people, goods, and scenes being reconstructed. As a major FMCG category, daily chemicals have experienced many changes, from multinational companies initially leading the Chinese market to the recent impact of online e-commerce. These changes test the resilience and flexibility of daily chemical brands and distributors; those who lag behind will be eliminated. Under these changes, what transformations have daily chemical products undergone in offline supermarket stores? How should daily chemical distributors respond to these changes? The following content is from a sharing session by Mr. Ming Cong, General Manager of Leshan Chenyu Supply Chain Management Co., Ltd. and Yibin Wanjiafu Chain Supermarket, at a brand distributor annual meeting, compiled for our readers.
Changes in the Overall Retail Landscape
1. Miniaturization Twenty years ago, there was little competition among domestic supermarkets; a supermarket could radiate 3-5 kilometers, with virtually no competitors within 3 kilometers. Today, the retail industry has developed rapidly, with stores highly dense, especially in communities, where stores may be just tens of meters apart or even face-to-face. A notable phenomenon is that while the number of stores increases, their size shrinks, with a clear trend toward miniaturization and boutique-style supermarkets. For example, large supermarkets like Yonghui and Hema are actively experimenting with mini stores. Why are supermarkets moving toward miniaturization? In the past, the core advantages of large supermarkets were complete product selection, affordable prices, and one-stop shopping. However, the rise of online channels has broken these traditional advantages, allowing consumers to choose from a vast array of products without leaving home, often at better prices. In this context, consumer shopping habits have changed, gradually shifting online, leading to declining foot traffic in offline large supermarkets.
Large supermarkets, with their prime locations and relatively large floor areas, face significant cost pressures from rent and operations. Combined with declining foot traffic, profitability becomes more difficult. Especially during force majeure events like the pandemic, large supermarkets lack the flexibility of mini stores, and revenue likely cannot cover costs. On the other hand, young consumers prioritize convenience; they prefer community small stores that save travel time and offer immediate purchase, driving the growth of community retail and reducing sales for large supermarkets.
2. Refinement Twenty years ago, domestic supermarkets generally had rough management. There was little planning; opening a store required only three steps: renting a space, installing shelves, and stocking goods. A common sight was grocery stores in lower-tier markets, which often couldn't even maintain cleanliness. Due to the lack of competitive pressure at the time, even such casual operations could do well. But today, market competition no longer tolerates rough stores; terminal supermarkets have gradually transformed from grocery stores to standard supermarkets. Surviving stores need increasingly refined and standardized processes. From store layout and consumer characteristics to product selection and category data ratios, and then to optimizing the shopping environment and enhancing service items, all are part of standardized processes that retail stores carefully analyze and plan.
3. Polarization of Business In recent years, affected by the pandemic, the domestic retail market has shown a trend of polarization. Some retail enterprises are performing poorly, with consecutive sales declines, and some even face the risk of bankruptcy. For example, Yonghui Superstores is expected to incur a net loss of 2.74 billion yuan in 2022, and Wangfujing expects net profit to drop by 80% year-on-year. Meanwhile, other retail enterprises have risen rapidly, achieving fast growth. For instance, Xinhua Department Store expects net profit to increase by 79%-99% in 2022. In this context, some retail enterprises failed to adjust strategies in time and lacked refinement, while others followed market trends promptly and performed excellently. Gradually, the gap between good and poor enterprises widens.
4. Consumption Upgrades Never Stop In recent years, competition among merchants has been fierce, and consumers have more choices, but due to the pandemic, disposable income has shrunk. This deepens the traditional misconception that consumer spending power is declining, especially in township markets, leading to the belief that low-end products should be sold, with constant promotional discounts to cater to the market. In reality, although the economy appears to be shrinking, consumption upgrades have never stopped. We should break these fixed notions; for example, product assortments in township markets should not be limited to low-end products but should also include high-end products to meet the demand for consumption upgrades. In this regard, our company has always held the concept: provide services that exceed the level of different customer tiers. Let township customers enjoy county-level services, county customers enjoy provincial-level services, and provincial customers enjoy services comparable to those in Beijing, Shanghai, Guangzhou, and Shenzhen, and so on. Facts prove that many mid-to-high-end products are not only bought in township markets but are even bestsellers.
The "Changes" and "Constants" in the Daily Chemical Category The sales of the entire daily chemical category in offline supermarket stores are not optimistic; data shows a certain shrinkage in sales share. Reasons may include the impact of online channels, improved product quality, and longer consumption cycles. Although the sales share is gradually declining, the business volume is growing. Each enterprise's data varies slightly; generally, in non-fresh-food-focused supermarkets, the daily chemical category accounts for 6%-12%. In fresh-food supermarkets, the share is lower, but not significantly. For example, a fresh food chain supermarket in a county town in Leshan, with nearly 40 stores, has seen a decline of less than 0.5% in the daily chemical category share over the past two years. Although daily chemicals are declining in supermarkets and the overall product count is being reduced, they still hold an important position in retail supermarkets.
Why is the position stable? First, daily chemical products are a necessary category for any comprehensive supermarket, representing a consumption scenario. Second, although supermarket stores are gradually miniaturizing, product categories are becoming more diverse. In supermarkets, we rarely see dedicated daily chemical sections; this category is almost never sold alone. Even if there is a daily chemical section, it usually mixes with other categories, either adjacent to cleaning supplies or grain and oil foods, complementing each other. Daily chemicals are an important supplementary category in supermarket product complementarity. Third, there are three categories that retail supermarkets can position as fashionable: daily chemicals, alcoholic beverages, and leisure snacks. Fashion implies a younger consumer base, and young consumers represent the future. As one of the fashionable categories, daily chemicals are highly valued by retail supermarkets. In summary, the daily chemical category holds a stable position in offline supermarkets.
How Should Daily Chemical Distributors Respond? The overall retail market is changing, and the business of daily chemical products in offline stores is also changing. Facing these changes, daily chemical distributors must take countermeasures to maintain growth; those who fail to keep up will be abandoned by the times. Before considering countermeasures, distributors should first clarify what changes these trends will bring to their business.
Taking the miniaturization trend as an example, store miniaturization means the product capacity of the entire store will change, and product selection must be more careful. Previously, traditional hypermarkets over 10,000 square meters had about 13,000-17,000 SKUs, some even exceeding 20,000 SKUs, except for wholesale market stores, which generally had fewer products, around 3,000 SKUs. Now, more and more stores are medium-sized, ranging from 500-1,000 square meters, with 3,000-5,000 SKUs, a 60% decrease compared to traditional stores. The decrease in product count means that the original product configuration cannot meet the needs of miniaturization, and the output per square meter will be low. Both distributors and retailers must carefully select products to maximize benefits. In addition to changes brought by miniaturization, intense competition among distributors gives supermarkets more choices, making it important to stand out among many distributors.
What specifically should be done?
First, product selection. Careful selection does not mean only choosing bestsellers. Consumer needs vary, so product selection must be diversified; a single bestseller is insufficient. Distributors should consider what consumers need and what supermarkets need when selecting products. Distributors can reasonably combine product selection based on the retailer's classification perspective: 1.) Regular livelihood competitive products: These have a large customer base but low profits, mainly used to drive sales volume and basic customers. 2.) Differentiated products: These cater to niche consumers, perfecting shelf categories and enriching different customer levels. If no other stores in the area carry them, our supermarket has a unique advantage. 3.) High-margin products: These offer high profits and are the core source of earnings, while also having decent sales.
Second, in-stock rate. In fact, the larger the distributor, the more SKUs they manage, and the lower the delivery fulfillment rate, possibly because with too many products, arrival quantities vary, making it difficult to precisely meet customer needs. But after store miniaturization, the in-stock rate becomes very important. Since the product count is decreasing, a low in-stock rate would fail to meet consumer demand promptly.
Third, better service. Service includes various aspects, such as personnel service, like more frequent interaction and communication. For example, I have cooperated with some excellent distributors who regularly conduct business reviews to discuss which brand data has declined, which single products have changed, and which stores show differences. Regular interaction like this is a good service.
Fourth, professionalism. Many supermarket buyers have some professional knowledge themselves, but their expertise in daily chemicals is certainly not as deep as that of daily chemical distributors and manufacturers. Therefore, supermarket buyers very much hope to receive professional guidance from daily chemical distributors.
Fifth, support. That is, the degree of cooperation, such as whether distributors can provide support when supermarkets run regular promotional events.
Final words: With the progress of the times, whether it's the trend of miniaturization or refinement, it means that distributors need to be fully alert to do business well; the market environment will only become more competitive. Daily chemical products are a category with a longer consumption cycle in FMCG, and the rise of online consumption has diverted some offline business, making it harder for daily chemical distributors, leaving many feeling helpless and at a loss. In fact, distributors are closest to retail supermarkets downstream. In unstable times, it is especially important to work hand in hand with retail supermarkets, deeply binding and cultivating the offline market.