On the evening of July 6, 2021, Zhang Jingyi, the 63-year-old former board secretary of Yonghui Superstores, after officially bidding farewell to his former employer, reluctantly posted a WeChat Moment. While saying goodbye to Yonghui, where he had worked for 12 years, he sighed, "We are going downhill." Within seconds of posting, screenshots of this post circulated rapidly across multiple retail practitioner communities, sparking widespread sharing. Looking back, this phrase not only expressed the helplessness of Yonghui's difficult transformation in recent years but also pointed out that Chinese supermarket enterprises, after experiencing fierce battles with foreign supermarket chains like Walmart, Carrefour, Metro, Makro, Auchan, Tesco, CP Lotus, Ito-Yokado, Lotte Mart, Dia, Aeon, and New World, had gone from regional players to national chains in their heyday, only to be hit by multiple factors such as e-commerce and the pandemic, forcing them to close stores and enter a new period of pain. In the two years since Zhang Jingyi left Yonghui, most Chinese supermarket enterprises remain in dire straits. On one hand, despite bold attempts at different new formats and active adjustments to store product mixes, foot traffic has not improved; on the other hand, although all supermarket enterprises are actively building private brands to change sales gross margins, most have still failed to open up profitability. Compared to their foreign counterparts, Chinese supermarket enterprises are like the Chinese men's football team—they try hard but fail to achieve satisfactory results, leaving them with unspoken grievances. Although each company's profit model may differ, the author believes that compared to warehouse club stores like Costco and Sam's Club that have recently become popular in China, setting aside costs such as rent, labor, marketing, and R&D, many local Chinese supermarkets have clearly not done enough homework in building private brands, especially several listed companies.

Foreign Supermarkets Never Disappoint

In recent years, a particularly interesting phenomenon has emerged in the entire supermarket industry. Against the backdrop of a still-weak global economy, many top-ranked foreign supermarkets, including Walmart, Costco, Metro, Kroger, Tesco, and Seven & i Holdings, have maintained sustained profitability. Among them, those still operating in the Chinese market have achieved impressive results. In contrast, the situation for local Chinese supermarket enterprises is less optimistic. According to statistics from the Lianshang.com Retail Research Center, in the first half of 2023, among 13 listed supermarket companies, 8 saw year-on-year revenue declines, accounting for over 60%. Even 40% were mired in losses, struggling to survive. Compared to the aforementioned foreign supermarkets, the performance of Chinese supermarket enterprises presents a completely different picture. How big is the gap between local Chinese supermarkets and foreign ones? Let's first look at the following sets of data.

In the second quarter of fiscal 2024, Walmart's total revenue was $161.63 billion (approximately RMB 1,177.246 billion, same below), up 5.7% year-on-year; operating profit was $7.3 billion (approximately RMB 53.17 billion), up 6.7%; net profit was $7.891 billion (approximately RMB 57.475 billion), up 53.3%. Among them, Walmart China's net sales reached $4.1 billion, up 21.7% year-on-year. More notably, comparable sales grew 17.2%, and e-commerce net sales achieved astonishing growth of 44%. Additionally, Costco, one of the few supermarkets that doesn't profit from price differences, reported revenue of $78.9 billion for the three months ending September 3, exceeding market expectations of $77.9 billion, with net earnings of $2.2 billion, up about 17.6% year-on-year. Furthermore, in the third quarter of fiscal 2023, Metro recorded quarterly revenue of €7.642 billion (approximately $8.03 billion), with net profit attributable to shareholders of €174 million, compared to a net loss of €290 million in the same period last year. Similarly, in the first six months of fiscal 2024, Kroger (KR) recorded cumulative revenue of $79.018 billion and cumulative net profit of $783 million. Like European and American supermarket enterprises, Japan's Seven & i Holdings (which owns 7-Eleven and Ito-Yokado) also performed well. According to its latest financial report, in fiscal 2022 (March 2022 to February 2023), company sales surged 35.0% year-on-year to ¥11.8113 trillion (approximately RMB 617 billion), and net profit surged 33.3% to ¥280.9 billion. This was the first time a Japanese retail company surpassed ¥10 trillion in sales. Statistics show that besides the aforementioned companies, although some others saw declines in revenue and profit, they overall remained profitable. The overall situation remains relatively controllable.

In contrast, the current situation for local Chinese supermarket enterprises is much more complex. According to semi-annual reports from 13 listed supermarket companies including Yonghui, Lianhua, Jiajiayue, and Bubugao, over 60% saw revenue declines. It's important to note that many of these companies have seen revenue decline for consecutive years, so the situation is unusually complex. Among them, as a representative of state-owned supermarket giants, in the first half of 2023, Lianhua Supermarket's turnover was RMB 11.772 billion, down about 13.3% year-on-year, with same-store sales down about 12.2%. Loss attributable to shareholders was approximately RMB 116 million. Notably, this is not Lianhua's first loss; according to its historical financial data, since 2017, Lianhua has been loss-making for seven consecutive years, with cumulative losses exceeding RMB 2 billion. Additionally, Bubugao Supermarket, currently in a liquidity crisis, saw operating revenue of RMB 1.788 billion in the first half of 2023, down 69.29% year-on-year; net profit attributable to listed company shareholders was -RMB 449 million, down 2162.98%, setting a new industry record. Besides Bubugao's sharp profit decline, Renrenle also suffered significant losses. According to Renrenle's 2023 semi-annual report, the company achieved operating revenue of approximately RMB 1.612 billion, down 23.14% year-on-year; net loss attributable to listed company shareholders was RMB 309 million, with losses expanding by 31.03%; net loss after deducting non-recurring gains and losses was RMB 306 million. This is not Renrenle's first loss; according to its financial data over the past decade, it has only been profitable for four years, with cumulative losses exceeding RMB 3 billion. Similarly, Beijing Jingkelong saw main business revenue of RMB 4.141 billion in the first half, down 14.9% year-on-year; net loss attributable to the parent company was RMB 48.58 million, compared to a loss of RMB 10.72 million in the same period last year, with losses widening. Like Jingkelong, Shunkelong reported revenue of RMB 323 million in the first half, up 3.2% year-on-year; net loss of RMB 12.751 million, narrowing by 10.7%. The company had a net loss of approximately RMB 26.53 million in fiscal 2022 and RMB 38.26 million in fiscal 2021. Overall, among the 13 listed supermarket companies, although Yonghui and Gaoxin Retail (which owns RT-Mart, Zhongrunfa, Xiaorunfa, and M Member Store) both turned profitable, they had suffered huge losses of RMB 2.763 billion and RMB 739 million respectively in the previous year. The remaining few supermarkets achieved profitability but with razor-thin margins near the loss line, with profit amounts almost negligible compared to total revenue. Compared to the hundreds of billions in profits of the aforementioned foreign supermarkets, the profit amounts of Chinese supermarket enterprises are hardly worth mentioning.

Although comparing these foreign supermarkets with local ones may be unfair, given differences in operating history, format layout, and supply chains, the author believes that setting these aside, how local supermarket enterprises like Yonghui, Gaoxin Retail, and Lianhua can build sustainable profitability is a key point of interest for the industry.

Foreign Supermarkets Obsessed with Private Brands

Private brands are not only the most effective way for supermarkets to differentiate themselves but also the most beneficial measure to increase customer loyalty and improve store product sales gross margins. So it's easy to understand why European and American supermarkets are so enthusiastic about developing private brands. According to the Private Label Manufacturers Association (PLMA), in 2022, U.S. private brand (PB) sales grew 11.3%, nearly double the growth of national brands (NB) (6.1%), adding $23.2 billion and setting a new record of $228.6 billion. Among them, PB products accounted for 20.5% of sales, meaning one in every five products sold in the U.S. was a PB product. Additionally, PB products' sales share in 2022 hit a record high of 18.9%, with a growth rate of 40% over the past five years. It's important to note that private brands now account for 29% of total U.S. retail sales, while in China, that ratio is only 1%. Furthermore, in 2022, private brand market share also increased in almost all European countries. Among them, the overall private brand market share in 17 European countries, including Germany, France, Spain, and Italy, reached 38.1%.

Specifically for supermarket enterprises, the top global chain supermarkets generally have high private brand sales ratios. For example, Walmart's private brand sales ratio has exceeded 25%, Germany's food-focused chain supermarkets Aldi and discount supermarket ALDI have private brand ratios exceeding 90%, U.S. Trader Joe's has 80%-90%, Japan's Ito-Yokado has 50%, Costco's private brand ratio is 31%, 7-Eleven's is over 60%, and FamilyMart and Lawson both have 40%. In contrast, ordinary convenience stores in China currently have a private brand ratio of only 5%. It must be said that private brands have become a major feature of the European and American retail market and have completely overturned the traditional "small profits, quick turnover" model of Chinese traditional supermarkets. Although it may be difficult for local Chinese supermarkets to surpass Aldi, ALDI, Trader Joe's, and Ito-Yokado in the short term, catching up with foreign supermarkets/convenience stores like Walmart, Sam's Club, Costco, 7-Eleven, FamilyMart, and Lawson is not entirely impossible.

Speaking of Walmart's performance in private brands, we can describe it with two phrases: "comprehensive and refined" and "strong localization." First, "comprehensive and refined." As the world's largest retailer, since launching its first private brand ol'roy in 1982, Walmart now has private brand products covering 20 categories, with 319 private brands and 29,153 SKUs. Currently, Walmart's annual private brand sales growth is 40% year-on-year, especially for rice, flour, vegetables, fruits, and eggs, which have seen sales growth of 60%, far ahead of peers. Walmart's private brands cover most categories, and according to Deloitte data, private brands contribute over 50% of profits from 30% of Walmart's global annual sales. Now, "strong localization": After entering mainland China in 1996 and opening its first Walmart store and Sam's Club in Shenzhen, Walmart officially registered the "Great Value" trademark, which was also the first private brand cultivated by a foreign supermarket in China. After more than 20 years of localization, Walmart has successfully developed three private brands in China: "惠宜" (Great Value), "沃集鲜" (Marketside), and "George," with nearly 4,000 SKUs in total, covering packaged food, fresh food, and home apparel. Among them, "惠宜" mainly covers packaged food, daily necessities, and frozen fresh food, with over 2,000 SKUs.

Speaking of Walmart's bet on private brands, we must mention its warehouse club Sam's Club. It can be said that Sam's is one of the typical foreign supermarket representatives that fully implements the private brand concept. Since opening its first store in Asia in 1996 at Xiangmihu, Futian, Shenzhen, Sam's brought its private brand Member's Mark to the Chinese market. After more than 20 years of development, Member's Mark now has about 700 products covering all categories. Notably, over 65% of these 700 products are produced by local Chinese enterprises. According to Zhang Qing, Chief Procurement Officer of Sam's Club China, Sam's private brand sales ratio has reached 30%, far exceeding most local supermarket enterprises in China.

Besides Walmart, the performance of Costco and 7-Eleven in private brands is also worth our attention. Costco, although entering the Chinese market late—opening its first store in Shanghai in 2019, 13 years later than Sam's, and having only four stores in four years—brought its private brand Kirkland Signature to China upon entry. Currently, Kirkland covers more than 10 categories including food seasonings, home care, pet supplies, clothing accessories, travel and outdoor equipment, from batteries to vodka, from mineral water to golf clubs, from nuts to chicken soup. In Kirkland's streamlined and comprehensive product portfolio, consumers can easily find quality products to meet daily needs. In just four years, Costco's private brand Kirkland Signature has exceeded 10% of sales in China. If you simply look at this data, you completely underestimate Kirkland's influence. In 2021, Kirkland sales reached $59 billion, exceeding one-third of Costco's total sales. Many local Chinese supermarket practitioners may not know that Kirkland is not only a traffic-driving ace on Costco's shelves but also the undisputed number one brand in the entire FMCG market. High-quality star private brand products have become one of the important reasons why many members visit. Many popular items are snapped up by fans as soon as they hit the shelves. All Costco purchase and recommendation guides are filled with admiration and praise for Kirkland products. It is the customer loyalty brought by these private brand products that has achieved Costco's industry myth of a 91% membership renewal rate. The author found that on Xiaohongshu and Douyin, netizens pay the most attention to Costco's salmon, but in reality, Kirkland's toilet paper is Costco's best-selling treasure item. According to CNBC, Costco sells over 1 billion rolls of Kirkland toilet paper annually, with sales exceeding $400 million.

Like Walmart, Sam's Club, and Costco, 7-Eleven is also a leading private brand player in the convenience store industry that all local convenience store operators should continuously pay attention to. 7-Eleven's private brand was born in 2006, when Japan was experiencing a severe economic bubble and product stagnation. To create new product value, Japanese 7-Eleven founder Toshifumi Suzuki organized the development of the private brand 7-Premium, which later became the first in Japan's supermarket industry. Later, with continuous adjustments and accumulation in supply chain and quality control standards, 7-Premium's sales share expanded: in the first year, it had 380 product types with total sales of about ¥80 billion; by fiscal 2012, private brand sales reached ¥420 billion, accounting for 13%; by fiscal 2017, sales grew to ¥1.15 trillion, accounting for nearly 30%, with 3,650 product types, now Japan's largest convenience store private brand. Subsequently, targeting different categories and customer groups, 7-Eleven launched other private brands such as 7-Gold, 7-Select, 7-Lifestyle, and 7-Uni, covering high-end food, coffee, and cosmetics. Currently, in Taiwan, China, 7-Eleven directly uses the U.S. 7-Eleven private brand name 7-Select, while mainland China's 7-Select imports products directly from Taiwan, China. The root of 7-Select is the U.S. 7-Eleven's private brand. 7-Premium comes from Japan, with over 1,000 items in Japan, covering almost all daily necessities. The 7-Premium series sold in Shanghai convenience stores is directly licensed from 7-Eleven in Beijing, with production in mainland China, not imported. 7-Uni is a private brand developed by Uni-President Group, which can be sold in Uni-President's retail outlets, such as Beijing's Tongjie Supermarket and Sichuan's Uni-President Hypermarket. Uni-President Group obtained the 7-Eleven license in Shanghai, so it has dual identity to operate both types of private brands. Currently, a single 7-Eleven store sells about 3,000 SKUs, with private brands accounting for over 60%, and food sales accounting for nearly 70%. The gross margin for private brands is as high as 40%.

Overall, whether it's top supermarket enterprises in Europe and America or Japan's leading supermarket/convenience store enterprises near China, they have formed their own characteristics in building private brands, which have become one of the important trump cards for entering the global market. In contrast, local Chinese supermarket/convenience store industries appear relatively immature in private brands. In recent years, facing the same economic turmoil, Chinese and foreign supermarkets have shown different levels of resilience. At present, it's hard to say that private brands are the fundamental reason foreign supermarket enterprises have weathered risks, but it's certain that private brands have become one of the important protective umbrellas for foreign supermarket enterprises against risks.

The Mystery of Local Supermarkets' Private Brand Exploration

Reviewing the history of private brand exploration in the global retail industry, we find that Chinese supermarket enterprises entered the private brand exploration stage not late, but why are there only a handful that can compete with foreign supermarkets' private brands? This is a mystery. Going back to 1996, the first year when foreign supermarkets including Walmart, Sam's Club, Metro, Makro, and Aeon were officially approved to enter mainland China, Shanghai Hualian Supermarket, which had just been established for five years, took the lead in registering the "勤俭" (Qinjian) private brand. This was also the first private brand created by a domestic supermarket enterprise. Since then, Chinese supermarket enterprises began to compete in creating their own private brands. In 2003, Tianhong and Dashang Group's private brands were officially launched, with the latter launching more than ten brands including New Mart, Qiaohui, Maileduo, and Leshang. On December 11, 2004, China's retail industry fully opened up, and 7-Eleven and FamilyMart entered mainland China. At the same time, another state-owned supermarket representative, China Resources Vanguard, officially launched its first private brand trademark "简约组合" (Simple Combination). The Chinese supermarket industry began to usher in the first wave of private brand development. In 2007, RT-Mart began to make efforts, successively launching its own brands "大润发" (RT-MART) and casual clothing brand "贝兹卡洛" (BESCAROL). At the same time, Qingkelong from Northeast China also announced the sale of private brands. That year, the sales scale of private brand products of China's top 100 chain enterprises reached RMB 4.35 billion, a sharp increase of 52% over the previous year, with private brands accounting for 0.51%. At this point, almost all mainstream supermarket enterprises in China had entered the game and launched their own private brands. For example, Wumart Supermarket has multiple private brands such as Meirixian, Geinisheng, Wumart, Binfen Tianyuan, Dongfang Xizhi, Weiben Shenghuo, and Liangshiji, covering fresh food, groceries, and general merchandise, with private brand SKUs accounting for about 8% of total products. Among them, "每日鲜" (Meirixian) currently covers 130 vegetable categories. At the same time, Yonghui Superstores has successively launched private brands such as "田趣" (Tianqu), "永辉农场" (Yonghui Farm), "优颂" (Yousong), "馋大狮" (Chandashi), "惠相随" (Huixiangsui), "辉妈到家" (Huima Daojia), and "Ofresh," covering fresh food, dry goods, daily necessities, beverages, snacks, cleaning, home, and quick-frozen dishes, with over 1,000 private brand SKUs. According to Yonghui's 2022 financial report, private brand sales reached RMB 3.27 billion, up 23.40% year-on-year. Additionally, Tianhong Supermarket's private brands have expanded to four categories: Tianyou (food), Tiankouwei (fresh and cooked food), Feierfu (daily necessities), and Aobaisi (pet products). Currently, Tiankouwei private brand sales contribute 40% of turnover, followed by Tianyou at 30%. After years of development, Tianhong Supermarket's private brand SKUs now approach 1,500, covering grain, oil, non-staple food, food and beverages, daily necessities, fresh vegetables, and more. In 2022, Tianhong's private brand sales reached RMB 850 million, up 11% year-on-year, accounting for nearly 10% of sales.

In addition, RT-Mart has successively launched private brands including Dabazhi (Thumb), RT-MART, BESCAROL, CHEROKEE, MIYA, Youfang, Haomai, Huishang, Youfang, Zhandian, and Red Bow. Among them, Dabazhi is RT-Mart's earliest low-end private brand, aimed at meeting the needs of low-income customers who care about price. Dabazhi is also abbreviated as FP (First Price), meaning low price. This brand has nearly 2,000 products, 60% cheaper than leading brands, and 10% cheaper than similar products in the store, with average annual sales growth of 30%. In RT-Mart stores, all Dabazhi products use uniform white-green POP labels for promotion to attract consumer attention. Additionally, RT-Mart launched "大润发" (RT-MART) in 2007, positioned as quality and affordable products, directly challenging domestic leading brands. The "大润发" brand products don't offer the lowest prices but are at least 15% cheaper than leading brands. Since its inception, RT-Mart has developed over 10,000 private brand products, covering more than 80 categories, with nearly 700 new products launched annually.

Unlike the aforementioned traditional supermarkets, as a representative of new retail exploring online-offline integration, Hema has listed private brand building as its core strategy since its inception. This is somewhat similar to the business tactics of Costco and Sam's Club. Hema's first private brand product was "五常大米" (Wuchang Rice) launched at its first store in 2017. Since then, Hema has accelerated the expansion of its private brand product line. After seven years of exploration and accumulation, Hema's private brands have gradually formed a matrix including Hema Ririxian, Hema Gongfang, Hema MAX, and Hema Organic, covering fresh food, snacks, cooked food, bakery, flowers, alcoholic beverages, and daily necessities. It is understood that as of the end of October 2022, Hema's private brand product categories have reached over 1,200, giving rise to 10 "Hema brands" with sales exceeding 100 million yuan.

Overall, Chinese supermarket enterprises entered the private brand field not late, and their development density is not inferior to any foreign supermarket, and many products have formed differentiated competition with foreign supermarkets. However, when Chinese supermarkets' private brands can compete with foreign supermarkets' private brands is truly worth looking forward to.

Opportunities for Local Supermarkets in Private Brands

Reviewing the exploration of private brands by Chinese supermarket enterprises over the past 20-plus years, we find that, according to incomplete statistics, over a hundred private brands have been born, with SKUs far exceeding 50,000. Among these private brand products, most are produced in OEM and ODM forms, while a small number are produced by the supermarket's own enterprises or production bases. Therefore, many private brands are just white-label products, strictly speaking not private brands. According to an industry insider who previously worked as a purchaser at a large supermarket, in the past, including management of many supermarket enterprises, everyone's definition of private brands was that products with the company logo on the packaging were private brands. In the early stage, without scale bargaining conditions, many supermarkets took "shortcuts," directly making minor adjustments to best-selling products in the market, such as replacing some materials, changing sugary products to sugar-free similar products, or changing packaging design, and then selling them directly. But in the end, because they were disconnected from the real needs of front-end consumers, most private brands ended up as one-month wonders on supermarket shelves.

At the same time, Chinese supermarkets and foreign supermarkets are completely different in the staffing of private brand procurement. For example, many foreign supermarkets have dedicated procurement personnel responsible for private brand product recruitment management, commonly known as "buyers." These people enjoy higher authority and treatment than ordinary procurement personnel internally. In most Chinese supermarket enterprises, private brand recruitment management is concurrently handled by company purchasers. This may also be one of the main reasons why Chinese supermarket private brands have not grown strong.

In addition to the above phenomena, the reason why many local supermarket enterprises' private brands haven't taken off is likely closely related to the attention paid by company leaders. In fact, whether it's Costco or 7-Eleven, their CEOs personally participate in the development and management of private brands. For example, Costco benefits from co-founder and CEO Jim Sinegal, who wisely chose to unify the company's dozens of private brands under the name "Kirkland" in 1995, leading to today's high membership renewal rate. There are two versions of the story about Costco's private brand renaming. One version is that then-co-founder and CEO Jim believed that the names of the company's 30-plus private brands were not easy for consumers to remember, so he required the company to rename all private brands to "Kirkland." The 30-plus private brands included Simply Soda, Chelsea toilet paper, Ballantrae wine, Clout detergent, and Nutra Nuggets dog food. At that time, Costco collectively referred to these brands as Price Costco because Price Club and Costco merged in 1993, and four years later, Costco removed "Price" from its name. Another version is that Jim was a penny-pinching boss, so his cost control principle was: save where you can, spend where you must. One day, when he returned to the office from a trip, he was furious to find a room full of experts hired specifically to name the company's private brand products. He immediately dismissed all the experts and fired the relevant company personnel. Later, an employee suggested using the city name of the company's headquarters as the private brand name, which Jim unexpectedly adopted. Since then, Kirkland Signature, known as "KS" at Costco, was quickly affixed to all private brand products, from diapers to tires to golf clubs.

Like Costco, 7-Eleven also listed private brands as a "CEO project." In the book "The Philosophy of Retail," Toshifumi Suzuki, founder of Japanese 7-Eleven, lamented the difficulty and hardship of creating private brands. In 2006, Suzuki personally organized product development leaders from group companies and spent over two years successfully developing 49 products under the private brand "7-Premium." But just as they were about to launch, they unexpectedly faced resistance from the heads of different business formats under the group, including 7-Eleven, Ito-Yokado, and Sogo & Seibu. Among them, 7-Eleven convenience store personnel directly stated that the company didn't want to sell cheap products like supermarkets. Ito-Yokado personnel emphasized that their sales model was completely different from convenience stores and department stores that never discount. Finally, Sogo & Seibu personnel also believed that displaying the same products in department stores as convenience stores and supermarkets was inappropriate. In the end, with no other choice, Suzuki had to issue a notice in his capacity as CEO, requiring all group formats to "must implement." Thus, after 7-Premium was launched, it achieved sales of ¥80 billion in the first year, and by 2012, sales grew to ¥490 billion. In 2010, Suzuki again supervised the development of a higher-end private brand series "7-Gold." Since then, private brand development gradually became the focus of 7-Eleven's annual operations.

In contrast, although many local Chinese supermarket enterprises may have CEOs directly overseeing private brand development and operations, from existing results, it's clear that the depth of involvement is far from sufficient. The author believes that although local supermarket enterprises have been busy adjusting and transforming in recent years, and many have realized the importance of private brands, if they don't change the above three phenomena—private brand development and operations not being professional, not returning to consumer needs, and insufficient attention from top management—then even registering more trademarks will be futile.

From the background of major foreign supermarket giants increasing their investment in the Chinese market, China lacks neither manufacturing power nor consumption power, so theoretically, local Chinese supermarkets still have unlimited possibilities.