Source | Finance World WEEKLY Nine million middle-class consumers pay for Sam's Club memberships because of its high quality, contributing over 2 billion yuan in membership fees alone each year, and buying Sam's Club China into a 100-billion-yuan giant. But as Sam's Club opens more stores, quality control issues have frequently surfaced in the past two years. Recently, the topic "Sam's Club customer service says worms in nuts are not an isolated case" trended on social media. Middle-class consumers are driving Walmart's growth in China. On June 18, data released by the China Chain Store & Franchise Association showed that Walmart (China) achieved sales of 158.845 billion yuan in 2024, a year-on-year increase of 19.6%, but the number of stores decreased by 8.5% year-on-year. The main reason for Walmart's revenue growth despite a reduction of more than 30 stores is Sam's Club. In 2024, Sam's Club, targeting the middle class, contributed two-thirds of Walmart China's performance, with sales exceeding 100 billion yuan. In April this year, Walmart China President and CEO Zhu Xiaojing revealed that 8 Sam's Club stores in China had single-store sales exceeding $500 million (approximately 3.67 billion yuan). In 2023, that number was 3. Sam's Club is accelerating its expansion in China. In 2024, Sam's Club opened 6 new stores in China, covering Wenzhou, Shaoxing, Quanzhou, etc., bringing the total to 52 stores. In the first half of this year, Sam's Club opened 4 more stores, and it is expected to exceed 60 stores by the end of the year. But on social media platforms, there have been more and more posts about Sam's Club quality issues recently, such as finding worms in nuts and foreign objects in milk. Many consumers say they are willing to pay 260 yuan for a Sam's Club membership card because they value the high quality and the ability to buy without worry, but they didn't expect to be stabbed in the back. Frequent Quality Control Failures For a long time, the main profile of Sam's Club members has been repeatedly defined: middle-class consumers with an annual income of over 200,000 yuan. Sam's Club sells them the dream of a "privileged club": pay an annual fee of 260 yuan and get access to quality global products. The essence of this contract is "exchanging money for the right to filter." The middle class believes that Sam's Club can help them avoid sulfur-fumigated wolfberries, water-injected beef, and so on. But now, Sam's Club's "middle-class contract" is loosening at an accelerating pace. On the evening of June 18, Zhang Tian from Zhejiang received compensation from Sam's Club. A few days earlier, he had found two pieces of plastic in the milk he bought from Sam's Club. This made Zhang Tian angry and also scared. "What if a child had drunk it?" The video provided by Zhang Tian showed that the two pieces of plastic were larger than an adult woman's thumbnail. Zhang Tian became a Sam's Club member at the beginning of this year. Because he likes Sam's Club snacks that are "tasty and large in portion," such as truffle biscuits, sea salt biscuits, and cheese rolls, Zhang Tian bought a Plus membership card. But unexpectedly, within less than half a year, he encountered a quality problem. Now, Zhang Tian's confidence in Sam's Club is beginning to waver. Not only Zhang Tian, but the author also learned from several Sam's Club members that since the beginning of this year, some people have found rubber bands in beef patties, hair in lamb chops, worms in nuts, and hair in unopened sausages... ▲ Rubber band found in beef patty. Image source/ Interviewee Li Xiao from Jiangsu began to notice a decline in Sam's Club's quality control last year. The Yoplait bulk milk she often bought used to be very fresh, but gradually, the milk delivered was already three to four days old. By the time she finished one carton and opened another, it was close to the expiration date. "There was a ring of solid material around the bottle mouth. I tasted it, and it was slightly sour, like it had gone bad." Although it hadn't reached the expiration date, Li Xiao didn't dare drink it and poured it out directly. Quality problems with Sam's Club products had already emerged in 2024. The author found that in just 10 days in September 2024, Sam's Club was exposed by the media for 5 food safety issues, including black insect eggs attached to milk packaging at the Shenzhen Qianhai store, foreign objects floating in juice drinks at the Nanjing store, and a tooth found in fresh meat mooncakes at the Changzhou store. In 2024, on the Black Cat complaint platform, Sam's Club-related complaints increased by 65% year-on-year. In response, Sam's Club explained at the time that it was due to "the expansion of the member base." Entering 2025, Sam's Club's product quality issues have intensified and have been exposed by the media multiple times. On June 10, the topic "Sam's Club customer service says worms in nuts are not an isolated case" trended on social media. Many Sam's Club resellers have also noticed this change. Sensen told the author that since March this year, the quality of vegetables and fruits at a Sam's Club store in Tianjin that she often visits has not been as good as before. Cucumbers with mold were left unattended. "The quality of fruits recently is indeed not high." Some resellers have even issued a guide to avoid certain fruits due to the changes. Why is Sam's Club's quality control getting worse? Zhu Danpeng, vice president of the Guangdong Food Safety Promotion Association, believes there are three main reasons: after the acceleration of Sam's Club store expansion, the quality internal control and management system need to be updated; the existing logistics and supply chain system cannot support Sam's Club's rapid development; and the adjustment of Sam's Club's organizational structure, including personnel transfers and job changes, will also bring a series of chain reactions.
Disadvantages of Accelerated Expansion
Over the years, with its carefully selected SKUs and strict product selection, membership screening and value binding, as well as omni-channel layout and instant delivery services, Sam's Club has attracted nearly 9 million paying members in China. Not counting product sales, Sam's Club earns more than 2 billion yuan annually from membership fees alone. This gives Sam's Club the confidence to accelerate its expansion. After entering China in 1996, Sam's Club initially opened an average of only 0.6 stores per year, and in 2015, it had 1.5 million members. From 2016 to 2019, then-China President Andrew Miles launched four major reforms, increasing the average annual store openings to 3.5. He also led the membership fee increase, streamlined SKUs to 4,000, upgraded the supply chain, and laid out the online channel. In 2020, Sam's Club entered a period of rapid growth, opening an average of 5-6 stores per year, with 6 new stores in 2024. On May 28, Sam's Club announced it would accelerate its expansion in the Chinese market, planning to open 8-10 new stores per year after 2025, significantly increasing the pace of store openings. Compared to the early days, today's Sam's Club is taking bigger steps. The surge in stores and expansion of scale have highlighted the drawbacks of Sam's Club's old structure. "In the process of a company growing from small to large, some problems will inevitably be exposed," Guo Xiao, a former manager at a leading supermarket company, told the author. For example, the cross-management of the original East District and Shanghai District led to ambiguous rights and responsibilities. Complaints from Jiangsu consumers required coordination from Shanghai, causing delayed responses. And promotions at Zhejiang stores required cross-district approval, missing the golden sales window. In Guo Xiao's view, the loosening of Sam's Club's "middle-class contract" has more detailed and complex reasons. Are Sam's Club's previous rules and regulations, ordering processes, and receiving standards still suitable for a Sam's Club that has expanded three to four times in size? Take the example of milk that shows signs of spoilage before the expiration date. "In addition to possible responsibility at the production end and store management, there is a high probability that the cold chain link had problems." Guo Xiao said that the reason for the cold chain break is usually that staff are too busy, resulting in milk not being delivered to the cold storage in time or not being put on the shelves in time. "The exposure time is too long, leading to quality problems." This is not unfounded. A Sam's Club employee from Hunan told the author about the busyness of working at Sam's Club, often so busy that they had no time to go to the bathroom or drink water. "We also had to move things, like doing hard labor. We often worked overtime at night, with days and nights reversed, and there simply weren't enough hands." She quit decisively after three months. Guo Xiao told the author that when a company grows larger, the supply chain will also undergo rounds of price negotiations. For example, early suppliers had more room for gross profit. As scale expands, suppliers' premium space may become smaller. And Sam's Club's management of suppliers is characterized by "strict screening" and "deep binding." "Sam's Club has been pressing down on suppliers' prices, and suppliers earn money calculated in cents," a person close to Sam's Club told the author. When Sam's Club's scale suddenly expands, the supply volume from suppliers surges, but "does the previous supply chain have sufficient production capacity to cover and ensure quality-stable delivery?" Guo Xiao pointed out the problem. "If more goods need to be delivered in the short term, and the company presses suppliers on price, in order to optimize costs extremely, Sam's Club's products are likely to see a decline in quality control from the production end," Guo Xiao explained. For example, Sam's Club has milk with plastic pieces and beef patties with rubber bands. Sam's Club is not unaware of these problems. In May this year, to address issues like declining management efficiency, Sam's Club's new CEO Jane Ewing launched a major regional restructuring in China on the occasion of her first 100 days in office. In the view of industry insiders, Sam's Club's move is to delegate decision-making power to provincial-level regions, shorten the management radius, accelerate response to local needs, and avoid the disease of big companies. Among the changes, the original East District was abolished; two new districts, Jiangsu and Zhejiang, were established, while the Shanghai District was retained; the North District was downsized, the Central District expanded, and the South and Shenzhen Districts remained unchanged. After the adjustment, the six districts became seven: South, Shenzhen, Jiangsu, Zhejiang, Shanghai, North, and Central. In Zhu Danpeng's view, the major adjustment of the organizational structure will lead to personnel adjustments and job changes. During this window period, Sam's Club's quality control will also be affected. "The core is the human problem," Zhu Danpeng concluded. Sam's Club's founder's philosophy has always emphasized "quality over sales." Sam's Club's former China President Andrew Miles also emphasized the principle of "members first, not sales first," but since Miles took the helm, Sam's Club China has accelerated store expansion. The newly appointed President Jane Ewing not only continues Miles' development approach but also has an even stronger thirst for performance growth. To this end, in addition to organizational restructuring, Jane Ewing has also launched supply chain resilience building, deepening instant retail, and deepening member value, trying to promote Sam's Club China's continued growth after reaching the 100-billion scale. Internal and External Pressures: Stabs and Shoulder Bumps Sam's Club's current management's aggressive strategy and strong thirst for performance and market share are essentially a choice under the superposition of multiple internal and external pressures. The internal worry comes from Walmart Global's increasing dependence on Sam's Club China's performance. Walmart Global regards Sam's Club China's model as a benchmark. Its "instant delivery" and selected SKU strategy have been replicated in markets such as the United States and Mexico. China's innovative experiences, such as private label accounting for 30% and digital product selection, have directly driven global business growth. In the view of senior industry insider Song Feng, aggressive expansion is also forced by the scale effect of Sam's Club's supply chain. Sam's Club's "low prices" rely on global supply chain integration, such as direct sourcing of Norwegian salmon and self-built production lines for Member's Mark nuts. This model requires huge order volumes to support—only when the number of stores and the member base are large enough can it achieve deep binding with suppliers through exclusive sales and price pressure (supply price + 10% profit). "Aggressive expansion is essentially 'renewing life' for supply chain bargaining power," Song Feng concluded. In addition, Sam's Club has invested in hundreds of front warehouses to build a "1-hour instant delivery" network, with online sales accounting for 48%. These infrastructures, such as cold chain logistics and blockchain traceability systems, require higher order density to amortize costs. "Management must ensure the return on digital investment through market share expansion," Song Feng explained. From the external environment, Sam's Club is in a "hand-to-hand fight" with other competitors in China. International competitors are eroding Sam's Club's market share. For example, Costco, another American membership warehouse retail brand, has 7 stores in China, with some stores having an average daily customer flow of 15,000 people. Its global supply chain advantages, such as Australian beef priced 10%-15% below the market average, are impacting Sam's Club's "cost-performance moat." Local Chinese competitors are also bumping shoulders with Sam's Club. Traditional supermarkets like Yonghui and China Resources are slightly impacting Sam's Club's position; Hema X membership stores are gradually seizing the instant retail market through 15-minute fresh delivery and localized product selection such as crayfish prepared dishes. Therefore, for the middle class, they have too many choices. Many people have membership cards for other supermarkets in addition to Sam's Club, such as Guo Xiao. He often buys beef and mutton at Sam's Club. For some instant items, he prefers Hema and Pupu supermarkets that can deliver to his home within half an hour. Zhang Qing from Shenzhen once had membership cards for Costco, Sam's Club, RT-Mart M store, and Hema X store. However, in recent years, with the popularity of Sam's Club and the surge in shopping numbers, Zhang Qing's offline experience has deteriorated. Last year, she did not renew her membership and turned to RT-Mart M store instead. "Fewer people, more categories, and reasonable prices." In the current market environment, "everyone is expanding and grabbing customers. Sam's Club also needs to consolidate its first-mover advantage through store expansion and a series of adjustments," Zhu Danpeng explained. At the same time, Sam's Club's membership model is a double-edged sword. Sam's Club's membership renewal rate is as high as 80%, which means it is more difficult to develop the incremental market. Sam's Club plans to open new stores in northern cities such as Xi'an and Zhengzhou in 2025, precisely to fill the market gap in the "northern dilemma." To achieve performance growth, Sam's Club has already expanded into county-level markets, such as Jinjiang and Kunshan, and is exploring new customer groups through corporate memberships. From the current perspective, Sam's Club's expansion into lower-tier markets is not widespread but prioritizes county-level cities with high per capita GDP and strong consumption potential, such as Kunshan, whose per capita GDP exceeded 218,000 yuan in 2023. These areas form economic linkages with surrounding large cities like Suzhou and Shanghai, allowing low-cost coverage of county markets while radiating to middle-class families spilling over from core cities through "1-hour instant delivery" services. Although Sam's Club has significant development space in lower-tier markets due to its advantages, Guo Xiao believes there are also some risks. In addition to the contradiction between Sam's Club's large packaging and the trend of smaller households in county areas, "how to ensure a member renewal rate higher than 50% is also a problem Sam's Club needs to consider." Guo Xiao also believes that if Sam's Club can find a balance between quality control and cost, it may become a benchmark for high-quality retail in lower-tier markets; otherwise, it may fall into the dilemma of "not adapting to county markets." After all, the food safety issues that Sam's Club urgently needs to solve expose the risk of disconnection between local supplier standards and the global system. In Li Xiao's view, no matter how many difficulties Sam's Club has, the endgame of its "membership system" should not be a trust scam. When she filed a complaint about the spoiled milk, that membership card she once showed off revealed its true nature: a consumption voucher that borrows on trust. At least, for now, Sam's Club is overdrawing its credit limit. 🔺 Details of the 7th China FMCG Conference Scan code for ticket consultation