---
title: "New Retail Bloodbath: Old Giants Fall"
description: "The retail industry undergoes a revolution with each generational shift, and China is currently experiencing its third retail revolution. This article analyzes the internal logic of these revolutions, predicting that community group buying and membership stores will emerge as winners, while supermarkets and e-commerce will evolve and coexist with new retail giants."
author: "彭程柚子合伙人"
publisher: "New Distribution"
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published: "2021-12-08"
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# New Retail Bloodbath: Old Giants Fall

> The retail industry undergoes a revolution with each generational shift, and China is currently experiencing its third retail revolution. This article analyzes the internal logic of these revolutions, predicting that community group buying and membership stores will emerge as winners, while supermarkets and e-commerce will evolve and coexist with new retail giants.

Source: 爱思考的柚子 (ID: gh_c899544adc0a) Author: 彭程, Partner at Youzi Investment

Every generational shift in the retail industry is a revolution, filled with innovation and chaos. Currently, China is undergoing its third retail revolution.

The first wave was chain supermarkets and home appliance retail (2000-2010); the second was e-commerce (2010-2020); the third is new retail (front warehouses, community group buying, membership stores).

**Consumers' wallets are limited, and in each revolution, the rise of new giants is a bloodbath for old giants. This is especially pronounced in the third revolution.**

Yonghui, a first-generation player, lost 2.178 billion yuan in the first three quarters of 2021, up 207%. During the same period, Suning lost 7.568 billion yuan, up 1483.29%. Alibaba, a second-generation player, saw revenue of 200.7 billion yuan from July to September 2021, only a 29% year-on-year increase. Its full-year revenue growth is expected to be only 20-23%, the lowest since its IPO in 2014.

**In this third war, new forces have also paid a high price.**

In Q3 2021, Meituan's new business revenue was 13.7 billion yuan, up 66.7%, with an operating loss of 10.9 billion yuan, up 437.5%. In the same quarter, Dingdong and Miss Fresh combined lost 4.1 billion yuan.

Who will win in the retail chaos is the ultimate question for every practitioner, boss, and investor.

By analyzing the internal logic changes of these three retail revolutions, we found a main thread. Based on this thread, we discovered that community group buying and membership stores will be the winners of the third revolution, but supermarkets and e-commerce will not die; they will self-innovate, and ultimately old and new retail giants will coexist.

**What surprised us most is that the current losses of e-commerce giants like Meituan and Pinduoduo are not very meaningful.**

**Overview**

Before explaining our findings in detail, we need to review the first two revolutions to clarify the context.

To use an analogy, the retail giants of the first and second generations are like fishermen, profiting by weaving nets to catch fish.

Chain supermarkets and e-commerce both rely on offline or online traffic, then convert foot traffic or traffic into sales through a rich assortment of goods.

A supermarket is a small net, covering only consumers within 3 km. Its mesh is also sparse; everyone walks the same path, leading to low purchase probability. E-commerce is a huge net, covering consumers nationwide, with a denser mesh. Each person sees different products, increasing purchase probability.

The focus of the net-weaving model is: **traffic, conversion, and delivery**. After lowering the barriers of conversion and delivery to extremely low levels through algorithms and express/delivery riders, anyone can do e-commerce as long as they have traffic. Despite Alibaba and JD.com standing in front, successors still flood in: social Pinduoduo, short-video Douyin and Kuaishou, food delivery Meituan. Alibaba and JD.com cannot stop them.

The first and second generations of retail focused on place and product, while the third generation focuses on people—that is, for specific consumers, retailers act as product managers to develop high-quality, well-priced products that consumers cannot resist.

First and second-generation retail had many products and low average order value; the third generation has few products and extremely high average order value. According to our estimates, consumers spend 3,800 yuan annually at Yonghui, 9,200 yuan at Taobao, and over 30,000 yuan at Sam's Club China.

Looking globally, among the top ten retailers, all three generations have representative players.

  * Supermarkets - tens of thousands of SKUs: Walmart, Kroger, Carrefour
  * E-commerce - hundreds of millions of SKUs: Amazon, JD.com
  * Membership stores - 3,000 SKUs: Costco, LiDL (Schwarz), Aldi, Sam's Club (Walmart)

Note: LiDL and Aldi do not charge membership fees, but they follow the same business philosophy. For convenience, we categorize them as membership stores.

Next, we review the first two revolutions to understand why Yonghui and Alibaba succeeded, and why that success became a fatal obstacle in the third revolution. (Readers who understand the above retail logic can skip the supermarket and e-commerce sections below.)

**First Retail Revolution: Supermarkets**

After reform and opening up, to solve severe housing shortages, the Shanghai government built the large Quyang New Village in the Quyang area. In September 1991, Shanghai's first chain supermarket, Lianhua Supermarket, opened in Quyang, kicking off the rapid development of chain supermarkets in China. By 2010, chain supermarkets began national expansion. For example, Yonghui's revenue grew from 12.3 billion yuan in 2010 to 93.1 billion in 2020, and its stores grew from 135 to 1,017—a 6.5x increase in 10 years.

The first step to opening a supermarket is to find a high-population-density location and sign a 15-20 year low-rent lease. The second step is to rent shelves to suppliers. The third step is to run promotions to attract consumers within 3-5 km. Once consumers establish awareness, the store is stable. Then, the supermarket repeats this process in a region, weaving a net of stores and products to cover local consumers.

**This business model relies heavily on offline location. After forming density in a region, it is difficult for competitors to enter. This shaped China's fragmented supermarket retail landscape, where each city has its own retail overlord.**

But due to this regional location characteristic, even Yonghui, with its fresh produce advantage, only achieved chain operations in four regions, not a truly national chain.

In 2020, Yonghui's revenue was nearly 100 billion yuan. In contrast, Walmart can open stores on empty land near small American towns without location barriers, with revenue of $550 billion—over 30 times Yonghui's.

Looking at Jiajiayue's store layout dominating Shandong, where many cities are not penetrated, further illustrates the importance of location in Chinese retail.

**E-commerce: From Alibaba to Douyin**

During the 2012 Double 11, Tmall created 19.1 billion yuan in sales, causing all express companies' warehouses to overflow. Since then, China's e-commerce industry entered a golden development period. Alibaba's GMV grew from 0.67 trillion in 2012 to 7 trillion in 2020, a 6.5x increase in 8 years.

**E-commerce's advantages lie in three points: 1) unlimited shelves provide unlimited choices (supply), 2) nationwide consumers (traffic), 3) data + algorithms improve matching between the two (AI).**

The first two are easy to understand. Taobao once had the slogan "If you can think it, you can buy it," and the Taobao ecosystem has 890 million users, accounting for 61.8% of the national population, almost all urban residents. With both in place, the key is how to get consumers to see products they like and complete transactions. Since both sides are in the hundreds of millions, manual recommendation is impossible; data + algorithms are necessary. Showing different products to different consumers increases purchase probability.

Alibaba's challenge is insufficient data. The Taobao ecosystem sells long-tail products, and consumer purchases are very random. From purchase records of socks, dresses, and lipstick, Alibaba cannot guess what else the consumer wants; it can only recommend another lipstick or dress.

**Algorithms nurtured by limited data inevitably create information cocoons.**

To gain more data, Alibaba suddenly went all-in on mobile social in 2013. While everyone was confused, it launched Laiwang, a social app challenging WeChat; on the other hand, it invested in and acquired Weibo and Umeng. Laiwang failed as expected, but investing in Weibo and Umeng brought Alibaba rich data. Weibo represents social data, and Umeng represents behavioral data from long-tail app users. The significance is:

After obtaining multi-dimensional consumer data, Alibaba began using AI to profile consumers as accurately as possible, finally launching in 2015 **algorithm-based, large-scale personalized product recommendations, i.e., "thousand people, thousand faces."**

Previously, consumer profiles were unclear, with only dozens of bidding sellers, and a browse cost a few cents. Now profiles are clear, with hundreds of bidding sellers, and CPC can reach 0.2 yuan. Prices have multiplied. **In plain terms, Alibaba can finally auction consumers to sellers at higher prices!**

With huge traffic and a monetization tool, Alibaba's financial reports looked like cheating. Since 2015, Alibaba's monetization rate has continuously increased, from 2.4% in 2015 to 7.4% in 2020 (from Yicai), a 200% increase in 5 years! During the same period, Alibaba's revenue grew from 101.1 billion yuan in FY2016 to 717.2 billion in FY2021. Net profit grew from 72.1 billion to 150.5 billion.

However, aside from competitors like JD.com and Pinduoduo, Alibaba's market share was further eroded after short-video platforms rose in 2016. As a short-video e-commerce platform with clear differentiation from Alibaba in form and model, we also discuss it here.

**Short-video platforms have advantages in all three of Alibaba's barriers (supply, traffic, and AI).** Douyin e-commerce's GMV exceeded 500 billion yuan in 2020, triple that of 2019.

In supply, short-video platforms are compatible with sellers from Taobao, Pinduoduo, and JD.com. In traffic, short-video apps now have the highest user time share at 29.8%, even surpassing WeChat. **In AI, short-video platforms not only have more accurate user profiles but also can influence consumer purchase decisions through different content, commonly known as "planting grass."**

Short-video platforms accumulate more data: average usage time is 1.5 hours per day, with each video lasting from seconds to minutes. This means users can accumulate a large amount of browsing, viewing, liking, sharing, and commenting data daily. When this data is connected to phone contacts and compared with friends' data, the user data volume increases geometrically. Algorithms can then obtain a very complete profile of users.

Short-video platforms can better influence decisions: these profiles are so accurate that third parties can use targeted video content to slowly and imperceptibly brainwash users, ultimately changing their minds. The most extreme example is Cambridge Analytica, which helped Trump become US President from an unlikely clown by targeting different content to different groups. The most common example is brands using influencers to plant grass in users' minds, instilling consumer desires, like Xiaohongshu.

**In short, user data is valuable; accurate user data is more valuable; users who can be influenced are the most valuable.**

From the short-video e-commerce purchase process, it is clear that platforms want consumers to maximize impulse purchases without a moment of calm.

The purchase process on short-video platforms is very simple. Click on a product to enter a purchase page, and consumers directly click to buy without comparing prices, paying, or using a shopping cart. Cash on delivery (COD) is used.

This impulse consumption leads to a much higher return rate for short-video e-commerce than Alibaba. However, Douyin charges sellers using OCPM, i.e., advertising fees based on transaction amount. Returns do not affect the platform; commissions and advertising fees are collected regardless. This means merchants must pass more costs to consumers.

**The same product, the same seller, sells more expensively on short-video platforms.**

It is worth noting that COD originated in e-commerce markets with underdeveloped payment and delivery systems, like Southeast Asia and India, where cash on delivery was necessary. But in China in 2020, short-video platforms still use this method purely for their own benefit. This leads to popular products on short-video platforms having a "IQ tax" feel, like pipe uncloggers or palm-sized shrimp.

Short-video platforms are trying to reverse their short-sightedness; Douyin has begun increasing the proportion of prepaid GMV. But this will not have a substantial impact on the third revolution wave, as e-commerce is already an involuted market with little incremental growth.

**New Retail: Innovation Amid Involution**

As online traffic becomes increasingly scarce (reflected in rising costs) and e-commerce becomes more involuted (e.g., "choose one of two"), startups and giants are turning their attention back to offline fresh food retail, the only area untouched by e-commerce. The food delivery market proved that consumers' massive local dining consumption can be digitized, and new retail, which digitizes supermarkets and delivers within half an hour, has become the focus of everyone's attention.

**New retail seems innovative, capturing new markets, but it invisibly intensifies retail involution.**

In 2016, Hou Yi, who left JD.com, joined Alibaba and returned to Shanghai to open the first Hema store. The Hema model was very novel at the time: consumers order online, and delivery arrives within half an hour. New retail innovations address the pain point of consumer "laziness" and put great effort into products to please consumers.

Hema built huge pools for lobsters and other seafood, Miss Fresh launched various internet-famous products, and Dingdong offers live fish slaughtering. Products choose consumers; new retail hopes to attract the post-80s and post-90s generation with these new products.

These consumers, born during China's best economic growth period, are thought to have massive, fervent consumption power like the post-war generation in the US and Japan. But consumerism has not appeared in this generation of Chinese consumers, at least not in grocery shopping.

Young people without children are bound by 996 and wolf culture, have no time to cook, and often choose takeout. Families with children carry the three mountains of expensive medical care, expensive housing, and difficult schooling, and they are as frugal as their parents' generation when it comes to food.

New retail's ambition is to improve both products and services, but this process involves too many trial-and-error costs, ultimately making "eating well" a luxury. To this end, new retail players have to subsidize to attract consumers, leading to massive losses. In Q3 2021, Miss Fresh's GMV grew 47% year-on-year, but losses grew 88%.

**New retail's two supporting legs are "half-hour delivery + new products." After 2018, one leg was taken away by Meituan.**

Meituan, with its delivery riders and traffic advantages, made half-hour delivery commonplace and fostered a group of new retail players. Various front-warehouse-based dark stores bloomed on Meituan, including convenience stores, supermarkets, pharmacies, pet supply stores, etc. In the first half of 2021, Meituan's flash purchase business GTV growth is estimated to exceed 100%. Wang Xing said future order volume will reach 10 million orders per day, exceeding the total of all current new retail players.

Meituan not only crippled new retail players but also supermarkets. As mentioned, the core barrier for chain supermarkets is location. Prime locations are scarce for any offline retailer, but Meituan allows stores to open anywhere offline, such as warehouses not facing the street or sparsely populated storefronts (front warehouses). No need to go to a pharmacy for medicine or a supermarket for groceries; Meituan riders deliver from front warehouses.

Previously, offline consumer traffic shifted online, directly causing online traffic value to exceed offline store value. The most direct impact is that stores that used to support three generations are now unwanted, while Meituan's stock price kept rising until it hit antitrust.

**Wang Xing thought flash purchase was the endgame of new retail, but he was wrong.**

Meituan brings chain supermarkets many low-priced orders around 30 yuan. When the cost of delivery riders rises from 7 yuan to 10 yuan and continues to rise, Meituan's main low-priced orders will decrease accordingly, which Meituan cannot tolerate.

Therefore, Meituan hopes chain supermarkets, like restaurants, will invisibly pass on rising delivery fees to consumers by raising prices, rather than directly charging consumers extra delivery fees at the end of the order. But chain supermarkets have highly homogeneous products; consumers know exactly how much a bottle of Coke costs. Once consumers detect this "fleece" behavior, chain supermarkets will permanently lose customers.

Although this is a poisoned chalice, many chain supermarkets have drunk it, and Meituan's subsidies have delayed the negative effects. But once Meituan stops subsidies, supermarket users will drain away, and flash purchase GMV and orders will decline.

**Regardless of Meituan, the hope of new retail and chain supermarkets for online orders to turn around is unrealistic. For chain supermarkets, consumers' pockets are only so big; Meituan has not helped them expand the market.**

Fortunately or unfortunately, the trial-and-error costs of new retail are borne by capital, not consumers.

**Community Group Buying Distorted by Giants**

When traffic growth peaks, user data is protected, algorithm efficiency is hard to improve, and chain supermarkets and e-commerce begin to involute, the industry must undergo drastic changes.

Option one is to enter new markets; option two is to go deep and segment the market.

The former includes sinking markets and overseas; **the latter means selecting targeted, high-quality, well-priced products for consumers, making consumers believe the retailer serves them rather than selling them to advertisers.**

While new retail players were polishing products for members in the existing market, a model targeting the incremental sinking market with a few cheap, good products was successfully run by a Hunan shop owner named "Xingsheng Youxuan."

The community group buying model represented by Xingsheng Youxuan combines features of both options and was immediately noticed by giants, becoming a battlefield they must fight for.

The biggest difference between community group buying and chain supermarkets and e-commerce is: fewer SKUs. Community group buying has only 1,000 products, far fewer than the 15,000-30,000 in a typical supermarket.

**If we use the traffic + monetization model of chain supermarkets and e-commerce, community group buying with only 1,000 products is extremely difficult to monetize. If products are seen as a net and traffic as fish, community group buying's net is much sparser than a supermarket's, let alone e-commerce.**

Xingsheng Youxuan's success is based on years of polishing, understanding local consumer tastes, selecting product combinations, and refining cooperation with suppliers and logistics providers, precisely capturing every penny of consumers, finally achieving profitability in Hunan.

If Xingsheng's success comes from precise consumers + precise product combinations, then this model is completely different from e-commerce giants' traffic + monetization model. This slow accumulation of success cannot meet e-commerce giants' need for large-scale, high-growth GMV to quickly build a second growth curve. Thus, community group buying became a distorted game.

In this distortion, GMV is paramount. It doesn't matter if essential products for consumers are not done well, nor does it matter what general merchandise and retail consumers need.

For example, meat: upstream factories lack small-package processing capabilities, and suppliers cannot be found, so community group buying has to do it themselves. But managing a team of workers working over ten hours in zero-degree conditions is clearly not a retailer's strength, let alone e-commerce companies sitting in offices.

To achieve crazy GMV growth, giants have to bear loss rates as high as 20%. In the first half of 2021, a single giant lost up to 2 billion yuan per month. In comparison, the ride-hailing and bike-sharing wars were child's play.

Community group buying players used different methods to reduce losses, but unexpectedly, the one that truly fits the above business logic is Chengxin Youxuan, which has no e-commerce genes. After burning money for a year, Chengxin Youxuan made drastic reforms.

  * Focus on small stores as core customers, wholesale products to them (i.e., large items), connect brands and small stores, and build a non-loss-making fulfillment system.
  * Cut multiple provinces, cut first-, second-, and third-tier cities, cut SKUs, focus only on 2C group buying in sinking markets, and concentrate energy and resources on selecting products for this consumer group.

Although Meituan and Pinduoduo have daily volumes of 41 million and 35 million pieces, with average order value rising from 3 yuan to 8 yuan, **Meituan and Pinduoduo have not achieved a 0-to-1 breakthrough in community group buying.**

To put it bluntly, giants are currently making drastic and distorted moves in community group buying because e-commerce sells consumers as products to merchants, while community group buying needs to treat consumers as gods.

**Will Membership Stores Be Retail's Salvation?**

We once doubted whether the independent-thinking Wang Xing and the genius Huang Zheng truly failed to see the essence of community group buying. Have the bosses' cognitions become so rigid? Is it likely we are wrong?

It wasn't until we deeply understood the investment opportunities in membership stores that this doubt was dispelled.

We found that the essence of community group buying is no different from membership stores. Both have few SKUs and do both wholesale and retail. The only difference is one targets the sinking market, the other targets the middle class. And membership stores have already produced multiple world top 10 retailers like Costco, LiDL, and Sam's Club.

**China's community group buying is actually the e-commerce version of American membership stores in China.**

Costco, which opened its first store in Shanghai in 2019, is the global leader in warehouse membership stores, with revenue of $163.2 billion in 2020. Costco's predecessor was Price Club, the originator of American membership stores, which copied Germany's Cash & Carry (supermarket wholesale shopping model, similar to Metro) and improved it to be more retail-oriented.

When Costco started, its target customers were owners of small shops like restaurants and gas stations, meeting both business and personal needs, such as consumables like paper towels for business and TVs for personal use. In subsequent development, Costco gradually expanded personal consumption products for this group.

When Costco started, Seattle was dominated by Safeway, which had a 60% monopoly market share. Supermarkets mainly sold non-food items. At that time, European supermarkets were very good at food, but not non-food. However, American consumption upgrades demanded high-quality food, so Costco integrated the strengths of both and launched membership stores.

**Under the guiding principle of serving members first, membership stores form differentiated competition against other retail businesses.**

The core logic of membership stores can be broken down into several steps:

First, charge membership fees, not for the fee itself, but to filter out precise customers.

Second, focus on member renewal rates, not revenue and profit, to ensure product selection and pricing meet consumer needs.

Third, aggregate consumer demand, build the largest procurement capability upstream, and obtain the best quality and best price.

Fourth, charge only a very low markup rate, returning maximum benefits to consumers.

This is the flywheel logic of Costco's continuous growth. This logic works not only abroad but also in China. In September 2021, Walmart opened the world's largest Sam's Club in Shanghai. This is the 11th membership store Sam's has opened in the past two years.

It's easy to say, but extremely difficult to do. E-commerce giants have tried. Alibaba has Taofactory, Pinduoduo has Pingfactory, and startups like Biyao have attempted. But with huge investment and slow returns, the ROI is low, and giants eventually abandon it. After listing, Wall Street looks at monthly profits; collecting advertising fees and slotting fees is the way, and slow-returning things are neglected.

When scale is small, achieving collective procurement is very difficult and slow. Costco also experienced suppliers unwilling to customize, then accepting OEM, and finally reaching a scale where manufacturers produce according to its design. In China, breaking through regional restrictions of fresh produce to find products that sell nationwide, Sam's Club also experienced years of downturn, finally turning around in 2019 with bakery and prepared dishes.

In the domestic retail industry, Alibaba's Hema spent years building this capability. Alibaba's integrated Taocaicai also claims to be committed to this. But from the results, Hema seems to have achieved the form, but the foundation is far off. This is reflected in:

**First, excessively high markup rates.**

Take CP's shrimp wontons as an example: Hema sells 29.9 yuan/144g, Sam's Club 105 yuan/750g, and CP Fresh (Meituan flash purchase store) 39.5 yuan/255g—per 100g prices are 20.7 yuan, 14 yuan, and 15.4 yuan respectively. Hema is 48% and 34% more expensive. Hema's product prices are generally higher than chain supermarkets and membership stores, possibly due to weaker supply chain or genetic issues.

Costco's founder told a story about genes: once Costco got a batch of Lee jeans, added $1, and sold them at $29.99 each. After selling out quickly, they got another batch at a lower price of $21.99. If they sold at $29.99, they could earn $8 more. The former gross margin was 3%, the latter 27%. But Costco still added only $1 and sold, because earning that $8 is like taking drugs; once you do it, you get addicted.

**Second, weak team building.**

Costco has product-manager-level procurement teams. They develop customized products entirely around the daily consumption needs of target member groups, comprehensively reduce SKU numbers, and de-brand some categories through PB products, significantly improving product quality and cost-effectiveness.

Even with high salaries, such talent takes time to cultivate. Costco employees have an average tenure of 30 years and a 6% turnover rate. Costco not only provides medical insurance and pensions but also pays 60% more than Walmart. The company once promised 90% medical reimbursement but only achieved 88%; when the founder and CEO discovered this, he paid the 2% out of his own pocket.

A full commercial crime investigation department-level integrity team. Internal corruption is infinitely close to zero across the entire chain, fundamentally ensuring that every penny members spend goes to the product itself.

In contrast, Hema employees, except store managers, sign labor contracts with outsourcing companies. Overtime is the norm, even beyond 996. You can search for details yourself.

The member-first philosophy and all internal strengths ultimately reflect in financial indicators. Financially, Costco comprehensively crushes chain supermarkets, let alone new retail.

A more interesting financial detail is that Costco's gross margin is consistently only 11-12%, while Walmart is 25%, Yonghui is 19%, and RT-Mart is 26%. This comes from Costco's founder setting a strange rule: all products' markup rate cannot exceed 15%.

This means all of Costco's product benefits are returned to members. This rule not only constrains the company's desire to increase gross margins but also restricts management from giving themselves high salaries and stock options or large dividends to shareholders.

In fact, Costco's founder's salary + stock options are only one-third of the average US CEO, and his equity wealth is only a few billion dollars. As the founder of the world's second-largest retailer, he has never appeared on the Forbes list.

**When Will the Third Retail Chaos Settle?**

During the first and second revolutions, players faced new markets and used a "build from scratch" approach. By targeting one consumer pain point, building a rough but efficient team, burning enough money, and defeating a few competitors, they could succeed in a few years.

But in the third revolution, players face an old market and must use a "renovate the old house" approach. This requires solving all consumer pain points from quality to price, building a team that is meticulous and understands the current situation, and not being distorted by burning money data, while uniting most existing players in the industry to succeed.

**Under completely different approaches, the past success of giants becomes their biggest obstacle now.**

So, in which niche industries will companies with new capabilities emerge first? What will their business formats look like?

The key is whether the target consumer group in this niche market is large enough to support a business of sufficient scale. If not, the format is not yet mature.

Take chain convenience stores as an example. Japanese chain convenience stores exploded after 1980, when Japan's GDP per capita was $9,138, equivalent to 170,000 yuan today. In 2020, only 10 cities in China had GDP per capita exceeding 150,000 yuan, and reaching Japan's 1980 level still requires several years of economic growth. Differences in consumer groups are reflected in per-store revenue of chain convenience stores. In 2020, FamilyMart's average daily store revenue in mainland China was only 8,673 yuan, while in Taiwan it was 13,500 yuan.

Finally, based on whether the target consumers of different formats are sufficient, we analyzed the various niche markets under the third revolution and found the following:

**1) The first to emerge: community group buying targeting the sinking market.** According to Alibaba's 2020 National Day consumption and travel trends report, during the National Day holiday, 53% of appliances were sold to county-level markets, and 48% of buyers were from small-town users. The county-level economy, without the three mountains, has become a new driver of sustained consumption growth in China.

**2) The second to emerge: membership stores targeting urban middle class, like Sam's Club.** This market's growth is very clear. According to HSBC forecasts, China's middle class will grow by over 45%, from about 340 million in 2021 to over 500 million in the future. Of course, there are many players; Sam's Club plans to open 26 new stores in the next two years, and domestically there are Wumart Metro, Yonghui, Fudi, etc.

**3) Those needing more than 5 years to emerge: chain convenience stores targeting young urban singles, like FamilyMart.** FamilyMart entered China in 2004 and took 16 years to reach 2,967 stores. In 2020, it achieved revenue of 9.29 billion yuan, but it is still expected to be loss-making. Similarly, Japanese convenience stores like 7-Eleven and domestic Bianlifeng also have a long road to profitability.

**4) Still unclear: coffee and new tea drinks targeting urban white-collar workers.** Similar cases to Luckin have succeeded abroad, like Taiwan's Louisa, which is positioned as affordable and exquisite. But such retail requires strong culture to sell added value, which domestic players still lack.

**5) No one is doing it yet: low-price chain supermarkets targeting ordinary urban consumers, like Aldi.** Aldi has only 1,300 SKUs, with over 90% private labels. There is no domestic counterpart yet, and it is likely that existing chain supermarket companies will transform to do this.

Finally, we've finished our retail analysis. If you've read through this 10,000-word article, you're a true fan. But this is only the first part of the third retail revolution. How will the third-generation retail reshape upstream distribution, brands, and production? We'll break it down in the next article.

**Are you "watching" me?**


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