In 2023, China's retail industry underwent significant changes. Hypermarkets continued to struggle, seeking new paths in discount stores and warehouse club formats. Online, traditional e-commerce platforms adopted low-price strategies amid consumption downgrading. Meanwhile, membership clubs like Sam's Club and Costco accelerated expansion, with Sam's planning 6-7 new stores annually and Costco reaching 6 stores in China, putting pressure on local players. This prompted the industry to realize that consumers in the same circle tend to buy similar products through similar channels, forming relatively fixed consumption patterns. Concurrently, a price war between Hema X Membership Club and Sam's Club officially began, with consumers waiting to benefit. Additionally, a capital winter hit the new consumption market, but the snack industry flourished, with discount snack stores expected to reach 30,000 by 2025, prompting established players like Three Squirrels and Bestore to cut prices. Competition, integration, survival, and development unfolded across the retail sector.
State Capital Takes Over Traditional Supermarkets This year, similar cases of state capital investment were frequent. Carrefour China reached strategic cooperation with the Yingjiang District government of Anqing City, Anhui Province; Shaanxi state capital Qujiang Cultural Investment gained absolute control of Renrenle; and Better Life signed a share transfer agreement with Xiangtan Industrial Investment. A few days ago, the actual controller of Hongqi Chain, Cao Shiru, and her concerted actor Cao Zengjun, along with Yonghui Superstores, transferred part of their shares to Sichuan Commercial Investment Co., Ltd., which has Sichuan state capital background. These retail enterprises that have been invested in or controlled by state capital share commonalities: first, they are all traditional retail enterprises with certain scale and influence in their regions; second, they all had glorious pasts with similar development trajectories and circumstances; third, their decline is due to unsuccessful transformation, especially facing the impact of new retail, with multiple attempts yielding little effect. After three years of pandemic-induced contraction and performance decline, the recent state capital investments in traditional supermarkets have sparked market speculation. On one hand, while state capital intervention can alleviate some operational pressure, traditional supermarkets and hypermarkets still face huge challenges amid fierce competition from e-commerce, front warehouses, and membership stores, and whether state capital can reverse the decline remains uncertain. Moreover, most state capital institutions lack retail experience, so how they will support these enterprises is unknown. On the other hand, these investments may aim to use listed companies as platforms for asset integration or mixed-ownership reform. Currently, the direction of state-owned enterprise mixed reform and securitization remains unchanged. Therefore, being acquired by state capital may be seen as part of these enterprises' role as asset integration or reform platforms. Overall, for many loss-making retail enterprises, being acquired by state capital seems to be one option.
Local Membership Stores Slow Down In 2023, the development of membership stores significantly slowed. For example, Hema X Membership Club added only one new store from the end of 2022 to this year, reaching a total of 10. RT-Mart M Membership Store added one store in April this year, but progress has been relatively slow, with two stores expected to be converted to membership stores in the second half of fiscal 2024. Additionally, Carrefour originally planned to expand 100 membership stores within three years, but reality fell far short, with store closures instead. The reasons for this slowdown: First, consumer attitudes toward membership stores are changing. Changes in Chinese family structures and young people's consumption habits are driving the membership store format to become more complex. Consumers increasingly prefer rational and practical consumption, making the previous "fewer varieties, large packages" strategy a pain point. Meanwhile, it is estimated that a paid membership store like Sam's Club needs 200,000 to 300,000 members to support one store. In China, only about 50 cities can support such stores, with total demand possibly only 60 to 80. Thus, market limitations are a major challenge. Second, from an operational management perspective, local membership stores have issues. The operational model differs significantly from traditional hypermarkets, focusing on inventory turnover, supply chain management, product selection, and target customer positioning. This unique operation places new demands on the supply chain and requires time to adapt and learn. After all, the core of membership is building consumer loyalty through a rich product assortment and private brands. But success depends not only on store opening speed and quantity but also on deep supply chain capabilities. Third, real estate resource constraints and human resource allocation are also challenges. In first-tier cities, suitable property resources are scarce, limiting new store openings. At the same time, new stores typically require mobilizing experienced staff and training many new employees. Therefore, the challenges in market positioning, operational model exploration, and resource allocation explain the slowdown. By thinking more deeply and adapting to market changes, local membership stores can achieve longer-term development.
Snack Discount Store M&A Wave In the second half of this year, M&A activity in the snack industry was frequent. Wanchen Group continued its M&A strategy, announcing the acquisition of the management team of Laoban Daren snack brand, following the integration of four brands: Luxiaochang, Laiyoupin, Haoxianglai, and Yadiyadi. Meanwhile, on August 9, Snack Busy invested tens of millions of yuan in Qiahuopuzi, and on the same day, Ai Snacks announced controlling stake in Chengdu local brand "Dinosaur and Teddy." Additionally, Snack Busy invested in Henan Wangfoufou and Shaanxi Xixi, while Snack Youming integrated Yutaitai. Especially on December 18, snack discount chain Snack Busy introduced 1.05 billion yuan from two snack companies, Yanjin Shop (002847.SZ) and Haoxiangni (002582.SZ). Over a month ago, Zhao Yiming Snacks and Snack Busy announced a merger to form Snack Busy Group. These M&A activities indicate that leading snack companies are rapidly expanding through capital operations to quickly scale and occupy important market positions. If they cannot expand quickly, they will struggle to become leaders in fierce market competition. After the M&A wave, regional snack brands have expanded to external markets, despite intensifying competition. In the eyes of capital markets and franchisees, the core competitiveness of snack stores is reflected in store count and revenue capability, which tests expansion ability as well as supply chain and operational capabilities. However, regional brands' external expansion is not easy, lacking local advantages and time advantages. Past experience shows that most brands struggle to surpass local brands, and even well-known brands face challenges in cross-regional development. The main difficulties are the scarcity of prime store locations and intense market competition; once a price war occurs, resource-rich head brands will have an advantage. For non-head snack companies, rapid expansion brings huge pressure from store subsidies and hardware investment. Under the full registration system on the A-share market, it is increasingly difficult for franchise-based companies in the food industry to go public, and they may consider listing on Hong Kong or US stock exchanges. In summary, through cooperation or M&A, snack companies can develop more quickly, which is both a competition between brands and a game with capital.
Price War Erupts, Supermarkets Bet on Discount Stores In 2023, retail giants such as Hema, Yonghui Superstores, and Better Life adopted "discount transformation" strategies, representing a deepening exploration of low prices and discounts in retail. First, consumers increasingly focus on cost-effectiveness. Under economic pressure and market diversity, consumers prefer good quality and low prices. Supermarkets can attract price-sensitive consumers by offering discounted products, enhancing market competitiveness. For example, Hema announced expanding discounted products to 5,000 items with an average 20% price cut; Better Life, after reopening stores, announced a low-price strategy with 15% reductions. Second, optimizing inventory management and reducing waste is another reason. Offline supermarkets face challenges with shelf life and freshness, often needing to remove products nearing expiration but still edible, leading to waste and affecting inventory turnover. Through discount store models, supermarkets can handle these products more efficiently, reducing losses and improving turnover. For instance, Yonghui Superstores plans to optimize national stores and add "genuine discount stores," mostly discounted or near-expiry items. The collective shift to low prices not only signals a price war but also reflects supermarkets' efforts to defend their position in the new economic cycle and consumption environment. The core of the discount store model is price advantage, achieved by purchasing large volumes to lower costs and attract consumers. However, this strategy demands higher cost control capabilities. Without strong cost control and supply chain management, discount stores may incur significant losses. While price wars may bring short-term traffic and "recovery," long-term success depends on retailers' comprehensive operational strength.
Community Group Buying "Dead in Name"? In the first half of 2023, the community group buying market structure changed significantly. The "old three groups," including Xingsheng Youxuan, showed weakening momentum. Xingsheng Youxuan experienced a struggle period, gradually withdrawing from several provinces, reducing its business to Hunan, Hubei, and Jiangxi. Months ago, the company announced the establishment of a group store division, positioning it as the strategic focus for the next three years, planning to open 100,000 group stores by the end of 2024. As analyzed in previous articles, this strategic shift attempts to adjust the relationship between the platform and group leaders. In the new model, group leaders are no longer just sellers but become "franchisees," strengthening ties with the platform through store formats. Meanwhile, the profit model shifts from relying solely on sales commissions to profits based on product purchase and sale price differences. Of course, the group store model has unique advantages. It can concentrate large orders, stabilize sales, and facilitate brand promotion; through centralized orders, group stores can effectively manage inventory, reduce backlog and waste, which is particularly beneficial for large platforms in clearing inventory. Beyond Xingsheng, in the second half of this year, community group buying heat rose again, with Alibaba and JD.com re-entering the arena. Both aim to enter or reposition in the community group buying market through low-price strategies. Their purpose is clear: leverage low prices to find new growth opportunities. However, achieving this is not easy, especially when existing market leaders like Meituan and Pinduoduo still face profitability challenges. According to financial reports, Meituan's new business still lost money last year. Pinduoduo's Duoduo Maicai, despite long-term market competition, has only achieved "positive gross margin" in a few provinces. This situation has led participants in the community group buying market—platform operators, group leaders, and ordinary users—to gradually lose interest in these "already played" market models. Under the intertwined influence of uncertainty and multiple expectations, this field is destined to continue undergoing profound changes and intense market competition.
Foreign Membership Stores Continue Expansion In 2023, Costco significantly accelerated its expansion in China, opening 4 new stores in total, plus a planned new store in Nanjing in May 2024, bringing its total in mainland China to 7. Meanwhile, Sam's Club also opened 4 new stores this year, with plans to have 48 stores nationwide by year-end. It is no coincidence that foreign warehouse membership stores accelerated in China at the same time. First, after education by Sam's and local membership stores, the format is in an upward development phase; Chinese consumers increasingly accept the membership model and have loyalty to high-quality products. Membership discount stores, which focus on selling high-end products, are more attractive to consumers. Second, Walmart and Costco have mature supply chains and strong purchasing capabilities, supported by their global resource systems, providing strong support for membership store development. As store numbers increase in China, Costco and Sam's can further optimize supply chains, reduce operating costs, and improve efficiency. Third, the acceleration of warehouse membership stores is actually a trend in retail format development. Currently, hypermarkets are in a downturn with poor performance. Previously, hypermarkets relied on the influence of business districts, but in the internet era, business districts are more community-oriented, and this hypermarket format has been "fragmented." Taking Sam's as an example, its current layout strategy is related to its previous supermarket business development. Financial reports show Walmart's fiscal Q1 2024 revenue increased 7.6% year-over-year to $152.3 billion. Among this, Sam's Club contributed the most, with net sales reaching $20.5 billion, up 4.5% year-over-year. Walmart previously had a large number of supermarket stores in China, and years of accumulated resources can help projects land quickly. Additionally, many second-tier cities still have land space in core urban areas, meeting Sam's and Costco's positioning for large stores in relatively core areas. In summary, Costco and Sam's expansion is not only a response to the upgrading trend of China's consumer market but also part of their global strategic layout.
Zhongbai Financial Loophole Financial Personnel Fled Abroad On December 20, Hubei retail chain Zhongbai Group (SZ:000759) announced that a financial staff member, surnamed Shao, at its wholly-owned subsidiary Zhongbai Warehouse Supermarket Co., Ltd., was suspected of embezzling funds, with an estimated cumulative amount of approximately 219 million yuan. Investigation revealed that Shao exploited loopholes in the fresh food non-standard product procurement and settlement system, forging documents and approver signatures to embezzle funds. On October 13, 2023, public security authorities arrested all suspects who had fled abroad. In fact, fresh food products, as non-standard items, have many uncertainties in procurement, such as price and quantity fluctuations, inconsistent quality standards, and perishability, making fresh procurement a major challenge in retail. Without effective supply chain management systems, this can lead to inflated prices and quantities, and other corrupt practices. Additionally, traditional fresh procurement channels lack standardized transaction processes, easily leading to issues like inflated suppliers and payments. In contrast, some more compliant fresh e-commerce platforms use systematic supplier introduction systems for effective supervision, ensuring transparency and compliance through factory audits and product inspections. These platforms also implement strict online approval systems to ensure transaction authenticity and payment clarity. This incident at Zhongbai Group highlights the lack of internal control and risk management in supermarkets. To prevent similar incidents, supermarkets need to strengthen financial systems and internal audit processes, and improve transparency in operations and financial reporting to maintain good communication with stakeholders. This also reminds the retail industry, especially companies involved in complex supply chain management, to prioritize internal controls and risk management to prevent financial irregularities and corruption.
E-commerce Price War From 618 to Double 11, e-commerce platforms declared all-out war, collectively engaging in price wars. Jack Ma proposed returning to Taobao, saying it's Taobao's opportunity, not Tmall's. JD.com also played the low-price card, launching channels like "Billion Subsidy." All claimed to be the lowest price online, even offering ultra-low discounts, with similar tactics. In such circumstances, low prices seem like a good strategy, but as the saying goes, "Those who learn from me survive, those who imitate me die." Pinduoduo was the first to fully adopt low-price strategies, but now all e-commerce platforms have billion subsidies. One reason is that in recent years, consumers across all classes have begun to focus on reverse consumption, with a clear mentality: "Not afraid of buying expensive, but afraid of high prices" has become the norm. Coupled with overall weak consumption, there is higher demand for cost-effective products. Second, in the past few years, Double 11 sales have grown but at a slowing pace, with consumers experiencing aesthetic fatigue. This is because with more e-commerce platforms, various shopping festivals have emerged, and consumers have "seen through" the tricks; promotional festivals claiming lowest prices don't actually offer low prices, and with too many festivals, consumers have become numb to promotions. So for this year's Double 11, although e-commerce platforms have fully adopted price strategies, how to highlight their own advantages has become the biggest issue. Meanwhile, the rise of new models like short-video e-commerce and membership e-commerce has had a huge impact on traditional e-commerce. These new models not only provide more shopping choices but also improve the shopping experience. For traditional e-commerce giants, continuous innovation and change are needed to maintain market leadership. In the long run, price wars are just the starting point of e-commerce competition. While low-price strategies may stimulate consumer purchasing desire, how to truly attract consumers and prompt them to place orders in a price war is a major test for every platform. Of course, avoiding the vicious cycle of price wars has also become an important challenge for the e-commerce industry.
Capital Winter: Market Cold, "Abandoning" Consumption Track In 2023, investment and financing in the new consumption track were freezing. The once-hot stories of crazy expansion and high valuations for Chinese noodle shops, national trend dessert shops, and beauty sample stores are no longer common. Especially the new tea drinks and Chinese fast food industries, which were crazy in previous years, face pressure to IPO if they advance, or fall into fierce market competition and involution if they retreat. Statistics show that in the first 11 months of 2023, new consumption brands had only 161 financing rounds, far lower than 513 in 2021. This phenomenon is attributed to "consumption downgrading." In fact, the current consumer market is undergoing transformation. Consumers tend to seek faster, more economical, and direct shopping methods, while also preferring offline experiential consumption. This change, though interpreted by some as "consumption downgrading," more accurately describes a new era of "consumption stratification." The characteristic of this trend is that consumers in the same consumption circle tend to buy similar products through similar channels, forming stable consumption patterns. In this context, Sam's Club, serving the middle class, continues to expand steadily, planning 6 new stores annually, with a total of 48 stores expected by year-end. In fact, merchants like Sam's Club have already attracted the remaining "middle class," because some middle-class people have "returned to poverty." On the other hand, platforms like 1688, discount stores, and "big brand alternatives" are also developing rapidly, reflecting diversified and layered consumption trends. Under the capital winter, Luckin Coffee released its Q2 financial report, showing total net revenue of 6.201 billion yuan, with quarterly revenue exceeding Starbucks for the first time; Chinese-style burger brand Tastien has now surpassed 6,000 stores, compared to 500 in 2020. This shows that consumers are now more rational, or perhaps anxious about future uncertainty, so they painstakingly seek higher cost-effective consumer goods, and those capital-driven business paths are no longer viable. In the future, extreme cost-effectiveness is the main direction consumers pursue.
Douyin Intensifies Local Life Services Opening Supermarkets, Launching Delivery, Entering Instant Retail At the beginning of this year, after Douyin Supermarket officially launched, "hourly delivery" also appeared on its interface. Douyin Supermarket mainly offers next-day delivery but also has hourly and next-day delivery capabilities. In the second half of this year, Douyin independently tested the hourly delivery entrance, placing it on the homepage-shopping interface within the Douyin app, at the same level as Douyin Supermarket. For Douyin, entering instant retail will undoubtedly become a new growth curve for Douyin e-commerce to increase GMV. Similar to the development trajectory of e-commerce and local life services, Douyin can use its massive traffic to develop instant retail, combined with product placement scenarios and interest-based recommendations, to quickly promote and attract more users to place orders. However, the difficulty is not small. Competition in online supermarkets mainly tests the platform's supply chain and logistics capabilities. On the supply chain side, in the supermarket category, many brands are already mature, and consumers mainly focus on price. In the short term, platforms can increase market share through subsidies, but in the long run, price levels test the platform's bargaining power with brands and inventory turnover speed. From a fulfillment perspective, Douyin's hourly delivery has a key shortcoming: unlike other platforms, Douyin does not have its own delivery system, currently cooperating with third-party logistics, with Douyin Supermarket goods shipped via SF Express. This prevents forming a complete closed loop from sales to delivery. Additionally, major platforms have been laying out online supermarkets for years, with Alibaba Supermarket and JD Supermarket in stable positions above, and Meituan Select and Duoduo Maicai focusing on low prices below. Douyin's entry into local life services may drive industry reshuffling, full of unknowns.