---
title: "The Way Out for Hypermarkets Is Neither Warehouse Stores Nor Membership Systems"
description: "As traditional hypermarkets decline in China, retailers are rushing into warehouse clubs and membership models, but the key to success lies not in the format itself but in offering unique value that compels consumers to visit."
author: "谢康玉"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2021-08-18"
language: "en"
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# The Way Out for Hypermarkets Is Neither Warehouse Stores Nor Membership Systems

> As traditional hypermarkets decline in China, retailers are rushing into warehouse clubs and membership models, but the key to success lies not in the format itself but in offering unique value that compels consumers to visit.

**Click 'Read Original' for details**
Source: 36Kr - Future Consumption
(WeChat ID: lslb168)
As retail 'new species' fade, warehouse membership stores take over. The last time we saw such a concentrated rush toward a retail model was in 2017, when Hema sparked a wave of new species: Yonghui had Super Species, JD had 7Fresh, Suning had Su Xiansheng, Meituan had Xiaoxiang Fresh, and Century Lianhua had Jingxuan...
Now, most of them are either history or shrinking by closing stores. In the past few years, traditional hypermarkets have suffered major setbacks in China, but the 'new species' that followed did not open up a better new chapter as people imagined.
So after the previous wave of 'small stores' and 'boutique stores,' we now see everyone closing traditional hypermarkets and 'new species' while starting a new wave of attempts at 'warehouse stores' and 'membership systems.'
**The Hypermarket Dilemma Lies in Its Model Itself**
In the past, many said the problem with hypermarkets was reliance on backend margins, insufficient product strength, lack of digitalization, etc. But in fact, these are not the key issues, or most of them stem from the hypermarket business model itself.
For a long time, brands could not directly connect with consumers; they could only reach them indirectly through traditional advertising. As the most important distribution channel for FMCG and a key display and exposure window for brands, the saying 'channels are king' originated from this. But because they couldn't directly connect with consumers, brands were inherently more sensitive to who consumers are and what they think, as this is the starting point for all brand actions.
Offline retailers as channels operate on a different logic: if a store is in the right location, consumers will come in; as long as supply chain ensures timely replenishment and in-store experience is good, there will be a steady stream of traffic. "Many people in retail say consumers first, customers first, but they may not really think about it because their business model is like that; they don't specifically think about who my positioning is and whose needs I serve." A hypermarket executive told 36Kr - Future Consumption when discussing the current difficulties. But this cannot even be called a shortcoming of the hypermarket model, because it is the starting point of hypermarkets. The platform-based hypermarket, which rose to unify offline retail, relied on this, just like Taobao later.
When hypermarkets entered China in 1995, Chinese retail was still chaotic. The 'self-service supermarket' format was just emerging. On one hand, the domestic market lacked goods; on the other, distribution channels were limited. Before that, people were more familiar with department stores with three-foot counters and salesclerks. They bought clothes and appliances at department stores, and food at farmers' markets or grocery stores. Consumers at that time could hardly imagine buying clothes and food in one place.
It wasn't until the 1990s when Carrefour brought the hypermarket model to China that the convenience of one-stop shopping and abundant goods made hypermarkets highly popular. It was common to see consumers queuing at the door before the store opened. But this platform-based format that once integrated offline retail later faced a more adept platform economy competitor—e-commerce. Online platforms are naturally easier to scale and adjust in real-time than offline. Of course, beyond platform e-commerce, more vertical formats are diverting consumers.
In the era of relatively insufficient supply, the platform model had an advantage, but when supply began to explode, **meeting consumers' personalized needs became more important** (we can also see this problem in today's platform e-commerce). So, **consumers have too many choices, and personalized needs are not fully met**—this is a core issue behind the hypermarket dilemma.
**Times Have Changed, and So Have Consumers**
Another key reason for the decline of hypermarkets is that the soil that once supported this model's growth is gone. North America and Europe are where hypermarkets originated and thrived. In these sparsely populated areas, people are used to driving to hypermarkets for bulk shopping. Each store is large, and homes have storage rooms where daily necessities are stockpiled like warehouses.
In contrast, in developed Asian cities, including China's first- and second-tier cities, high housing prices and fast-paced lifestyles make the market environment very different from North America and Europe. In the era of low product variety, 'one-stop shopping' was the biggest selling point of hypermarkets. Many families made weekends a family day, driving to stock up for the week.
But now, especially in the first-tier markets where hypermarkets are deeply rooted, characteristics of some developed Asian cities from a decade ago are emerging: **family units are shrinking, time costs are rising, and immediate, 'hamster-style' small-batch purchases better fit current consumer habits**. Especially in China, where e-commerce is highly developed, opening your phone and using various home delivery platforms can get goods delivered within an hour, making hypermarkets with no obvious product differentiation less advantageous.
Besides e-commerce, there is also fierce competition in an oversaturated hypermarket market, and diversion from various specialized single-category formats. For example, in fresh produce, there are fresh supermarkets and e-commerce everywhere; in daily necessities, there are various 'strict selection' and 'quality goods' stores... Under such diversion, the remaining small user base can hardly support a store's profitability.
With intense competition already lowering gross margins and sales, and having to support stores of tens of thousands of square meters, while rent and labor costs keep rising, opening a hypermarket is indeed too difficult now. Some have pessimistically believed that first-tier cities are no longer suitable for such heavy models.
#### **What Is the Core of Warehouse Membership Stores?**
#### The above-mentioned issues, such as insufficient convenience and weak willingness of first-tier city consumers to stock up, are also questions warehouse membership stores need to answer. However, these problems become less unsolvable in the face of differentiated products and services. Simply put, give consumers a reason they must come. In 2019, when foreign hypermarkets were retreating one after another, Costco entered China, and the grand opening scene became a hot topic. It was probably from Costco that people saw some hope.
Since then, the warehouse store model has rapidly spread in China. Sam's Club China accelerated expansion, Metro revived its membership system, Hema opened its first X Membership Store last year, and Yonghui, as a representative of hypermarkets, followed suit in early May.
But among these, some are warehouse stores but not membership-based, some are membership-based but not warehouse stores, and some are warehouse 'semi-membership' (non-paying members can also enter and buy, while paying members enjoy special benefits). Representatives include Yonghui, Carrefour, and Metro, in a 'blossoming of a hundred flowers' situation. "If you only learn the shell of a membership system without real efficiency, it is meaningless. A qualified retailer needs to think clearly about who they serve, what needs they meet, and what methods they use to be more qualified than others to meet those needs."
Zhu Xiaojing, President and CEO of Walmart China, commented on the current 'blossoming' warehouse stores in a previous interview with 36Kr - Future Consumption. As the two predecessors of warehouse membership stores, Costco and Sam's Club both follow the logic of 'narrowing.'
In terms of products, they adopt a strategy of selected SKUs and large-pack sales, using about 4,000 SKUs (traditional supermarkets typically have around 30,000 SKUs) to serve a portion of consumers. In Sam's words, they serve families with mid-to-high-end spending power in first- and second-tier cities.
'Narrowing' in products allows membership stores to achieve larger volumes per SKU, thereby enhancing bargaining power upstream, reducing operational costs such as warehousing, logistics, and personnel management, and passing savings to members. Membership systems also mean 'narrowing' in the customer base, allowing stores to concentrate resources on a small group, reducing service costs and improving service precision.
For example, traditional hypermarkets target all consumer groups, meaning they must cover all aspects in product selection, inevitably leading to a large number of SKUs, mostly standard products. Moreover, once products are substitutable, two problems arise: one is the convenience issue mentioned earlier, easily losing business to more convenient formats. The second is being trapped in the price difference between selling price and purchase price. Once retail falls into the business of earning a purchase-sale price difference, it means low profit margins, especially under such severe competition.
So what can attract consumers now is more about unique, high-quality products. This is why Costco and Sam's Club with 4,000 SKUs can attract consumers who willingly buy membership cards to shop. At the same time, **the 'buy ticket to enter' model means membership stores no longer follow the traditional retailer's price-difference model but use annual membership fees as the core revenue source.** Although annual membership fees account for a small percentage of revenue, they contribute most of the operating profit. Differentiated products and services, competitive prices, and the resulting user stickiness make consumers choose to pay for membership, making their loyalty stronger than that of traditional supermarkets.
Therefore, whether hypermarkets succeed in this wave of warehouse store attempts depends not on whether it is a warehouse store or a paid membership system, but on **what non-negotiable value they can offer consumers**. For example, products that others don't have, or lower prices and higher quality for the same products, as exemplified by Costco's private brand Kirkland, which combines quality and cost-effectiveness.
But as is well known, private brands need sufficient volume to support them, especially for products that are not globally sourced but locally produced. Furthermore, even top players like Sam's Club and Costco still face the need to further validate the model in the Chinese market. There is not yet sufficient data to prove that this model has an absolute advantage in domestic physical retail.
After all, Costco has only opened one store so far, and Sam's Club has only opened 33 stores in over two decades, with adjustments to the model. If the top players' models still need validation, then the hypermarkets that have switched midway are even more uncertain.
**PS**: From September 23-25, 2021, the 2021 (4th) China FMCG Conference hosted by New Distribution will be held in Shanghai. **Focusing on industry trends + practical cases + growth connections**, **3,000** FMCG practitioners will gather.
10 thematic forums cover **new retail O2O, community group buying, short-video live e-commerce, distributor transformation, rise of new consumer brands, new alcoholic beverage interpretation, distribution B2B supply chain, omni-channel marketing, B2B2C new technology applications**, etc., with operators from various segments bringing the latest case studies.
Confirmed heavyweight guests so far include: **1. Tao Shiquan, founder of Jiangxiaobai; 2. Yao Xuhong, general manager of Meiyijia Holdings Co., Ltd.; 3. Lu Xiuqiong, global expert partner at Bain & Company and former vice president of marketing for Coca-Cola China; 4. Chen Xiaodong, senior vice president of Nestlé Greater China; 5. Zhang Fujun, president of Lee Kum Kee Sauce Group China; 6. Bi Chaojiao, general manager of China Resources Snow Breweries (China) Marketing Center; 7. Yang Hongbin, vice president of Junlebao Dairy Group; 8. Yang Shun, COO of Lipton Greater China; 9. Zhang Yipeng, general manager of Kuaishou E-commerce SKA Brand Operations Center; 10. Li De, e-commerce general manager of Gold Hong Ye Paper Group...**
**A grand gathering for FMCG people, you must be there!**
**Are you 'watching' me?**


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