---
title: "Two Main Lines Will Profoundly Impact China's Retail Transformation"
description: "The rapid changes in today's retail market are undoubtedly causing significant concern among many brand owners, as directly observed in our communications with numerous leading brands. I have always believed that the Chinese market, unlike North America, is a typical society where 'channels' outweigh 'brands.' Whether it's the early supermarket brands, Taobao brands, Douyin brands, or the current snack bulk-selling brands, many brands are homogeneous, and the difference among them is merely who laid out an incremental channel first. Strong channels creating brands is a common occurrence. Combined with the recent market narrative that retail will undergo 'full discounting,' this has intensified anxiety and confusion among frontline brand operators."
author: "戚特"
publisher: "New Distribution"
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published: "2025-04-09"
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# Two Main Lines Will Profoundly Impact China's Retail Transformation

> The rapid changes in today's retail market are undoubtedly causing significant concern among many brand owners, as directly observed in our communications with numerous leading brands. I have always believed that the Chinese market, unlike North America, is a typical society where 'channels' outweigh 'brands.' Whether it's the early supermarket brands, Taobao brands, Douyin brands, or the current snack bulk-selling brands, many brands are homogeneous, and the difference among them is merely who laid out an incremental channel first. Strong channels creating brands is a common occurrence. Combined with the recent market narrative that retail will undergo 'full discounting,' this has intensified anxiety and confusion among frontline brand operators.

The rapid changes in today's retail market are undoubtedly causing significant concern among many brand owners.
This is something we have directly felt in our communications with many leading brands.
I have always believed that the Chinese market, unlike North America, is a typical society where 'channels' outweigh 'brands.' Whether it's the early supermarket brands, Taobao brands, Douyin brands, or the current snack bulk-selling brands, many brands are homogeneous, and the difference among them is merely who laid out an incremental channel first. Strong channels creating brands is a common occurrence.
Moreover, in the past two years, a viewpoint has been circulating in the market that the retail market will undergo 'full discounting,' which has caused even greater anxiety and confusion among frontline brand operators.
As someone who has long tracked market dynamics and helped companies sort out strategies, I may offer a more macro perspective to help clarify thinking.
Two Main Lines of China's Retail Transformation
Today's Chinese retail revolution is unfolding along two main lines.
**First, the compression of the FMCG supply chain under the context of circulation reform, leading to changes in downstream retail, characterized by the emergence of numerous 'price-destructive' retail formats.**
**Second, the return of value in traditional supermarkets, characterized by their adjustment and reform.**
In the previous article, we constructed a model of China's retail transformation, breaking it down into five major segments, and interpreted two of them: community convenience supermarket formats and BC-class supermarket formats under community scenarios. This article will continue to break down shopping mall collection store formats, KA supermarket formats, and urban suburban commerce, and provide a summary.
By sorting through different formats, we can more clearly see how the two main lines of China's retail revolution are changing the retail market.
Discount Collection Stores / Emotion-Value Collection Stores in Shopping Malls
Substitution for Shopping Mall Collection Stores
As we mentioned, a large number of shopping malls is a major feature of the Chinese retail market. In a closed space, consumers generate new shopping needs that partially overlap with community scenarios, but more long-tail needs cannot be met in community scenarios, such as 'novelty' and 'emotional value.'
Similarly, within shopping mall spaces, there are actually two major types of retail formats.
One is the traditional KA supermarket located on the B1 floor, covering 3,000-4,000 square meters with full categories.
The other focuses on a single category, achieving differentiated competition with full-category traditional KA supermarkets in that category. For example, with fresher, richer, and more presentable product combinations, such as beauty retailer Watsons, daily necessities retailer Miniso, and snack retailer Bestore, they complement KA categories and increase the walkability of the commercial complex.
For the latter, 'price-destructive' formats have also emerged, namely efficiency-oriented retail within the shopping mall context. They select and combine products from Watsons, Miniso, and Bestore, reduce gross margins, and improve efficiency, forming a combined format of beauty + daily necessities + snacks. This format has also become a form of 'hard discount' under the Chinese characteristic paradigm.
Thus, within the shopping mall system, there is a divergence: the same customer group pays for cost-effectiveness of specific products on one hand, and for high premiums of specific products (such as emotional value) on the other. Today's young people are both exceptionally 'clear-headed' and exceptionally 'impulsive.' On one hand, they meticulously compare prices online to buy an eyebrow pencil; on the other, they invest most of their savings in addictive blind boxes.
Why does this phenomenon occur?
  * There is a divergence of traffic within the shopping mall system.
  * There is a shift in the population within the shopping mall system.
Due to the bubble in China's commercial real estate, traffic within the shopping mall system has diverged significantly, or some shopping malls have clearly insufficient internal traffic. This requires shopping malls to choose brands that themselves bring traffic attributes. Where does traffic come from? Either the category itself brings traffic (like blind boxes) or the brand itself has high momentum (like leading tea drinks).
Secondly, the main population of shopping malls has gradually transitioned from the post-70s and post-80s to the post-90s and post-00s. Behind this population change, shopping behavior and consumption psychology have also undergone potential changes.
Within the shopping mall system, the structural trend of category collection stores is that discount collection stores and emotion-value collection stores will compress the space of traditional collection stores in shopping malls.
Value-Oriented Supermarkets / Efficiency-Oriented Supermarkets
Substitution for Traditional KA Supermarkets
We have mentioned that the three types of 'price destroyers' cannot shake KA's value positioning in shopping malls. The decline of supermarkets in the past is because their business model has long deviated from the essence of serving consumers.
Therefore, today's KA supermarkets, in the face of retail market changes, have two paths to rethink their value positioning.
One is the value-oriented life-proposal supermarket (like Pangdonglai), and the other is the price-oriented efficiency supermarket (like Biyoute). The value they create for consumers is 'a beautiful lifestyle' and 'family procurement cost-performance expert,' respectively.
Among them, Biyoute's practice of the efficiency path has opened up a successful approach for transforming traditional large supermarkets into efficiency-oriented retail. We need to clarify that due to differences in business models, hard discount achieves extreme product prices by streamlining SKUs, increasing turnover, and enhancing single-item scale. Traditional supermarkets cannot compete with community hard discount formats on price.
In this context, if traditional supermarkets choose the efficiency-oriented retail path, they must think about how to increase scale and shorten the supply chain.
Biyoute, by uniting regional supermarkets to form a large distributor, obtains exclusive agency rights from brand manufacturers, uses scale advantages to reduce procurement costs, and demonstrates strong local supply chain innovation wisdom.
Therefore, in China's KA retail market, I roughly predict that in the future, on one hand, several large retail systems with systematic supply chain capabilities will form, enhancing price competitiveness through scale procurement; on the other hand, several food supermarkets that deeply cultivate regions, price reasonably, and provide value-oriented products will also form.
Warehouse Membership Stores Substituting Traditional Hypermarkets
China's retail infrastructure is closer to consumers, and online e-commerce is highly developed. Today, it is extremely difficult for places that require driving more than an hour to survive. In the past, we would go to wholesale centers, hypermarkets, computer malls, and department stores for aggregated shopping, but today, due to the rapid development of commercial real estate and the rapid improvement of online infrastructure, the 'distance' between products and consumers is getting closer.
We are still willing to go to suburban Sam's Club because it still has a certain scarcity of value, but in the long run, I believe this scarcity will gradually be eroded.
Warehouse membership stores, like hard discount, are 'imported' retail models. The basic logic of the supply chain determines that they must adopt large packaging and high average transaction values. However, this business model in the Chinese market environment has two major problems:
(1) High average transaction values limit the covered population;
(2) It cannot meet convenience requirements.
So we see Sam's Club starting its 'Sam's Cloud Warehouse' front-warehouse business, reducing the average transaction value by half and shortening the 'distance' to consumers to half-hour delivery.
The emergence of this business model already means that today's Sam's Club is a combined format of 'front warehouse' + 'warehouse membership store,' and we must know that 'front warehouse' and 'warehouse membership store' are two completely different business models.
In the medium to long term, the logic of warehouse membership stores will definitely undergo localization in China. The warehouse membership store business model is the surface, while its unique corporate culture is the substance. The essence of the warehouse membership store logic is to position itself as a retail service provider for customers, not a traditional channel that earns profits from price differences. Its core is a strong corporate culture as a foundation, continuously passing on benefits to consumers through supply chain efficiency improvements, thus forming a competitive advanced retail model.
As for which retail channel model to adopt, it can be innovated and adjusted based on the infrastructure and population preferences of different societies.
Therefore, the warehouse membership store format still has significant room for transformation in China in the future.
Let's review what we discussed earlier:
Today's Chinese retail revolution unfolds along two main lines: one is the compression of the FMCG supply chain under the context of circulation reform, leading to downstream retail changes, characterized by the emergence of numerous 'price-destructive' retail formats; the other is the return of value in traditional supermarkets, characterized by their adjustment and reform.
Now, after sorting through the five segments of the Chinese retail market, we can relatively clearly identify which segments are affected by the first and second main lines.
The first transformation line has led to the emergence of numerous price-destructive formats in China.
For example, adopting the full-category, wide-category-narrow-product management philosophy, with an operational approach closer to European and American hard discount community models, also including 'Chinese characteristic' community discount models—snack bulk-selling/wholesale supermarkets—and even discount collection store formats born in shopping mall contexts with Chinese characteristics.
The second transformation line has led traditional Chinese retail enterprises to seek new differentiated value positioning in the increasingly competitive stock market.
Based on this framework for judgment and research, we can more clearly identify the structural changes that offline retail channels will undergo in the next 3-5 years.
Therefore, there has always been a voice or concern in the market, such as whether the retail industry will fully discount, and whether brand space will be white-labeled or even OEM-labeled as downstream channels change.
In fact, after analyzing and sorting all segments, we can recognize that in different contexts and within different formats, the space that price-destructive formats can penetrate varies. At the same time, during the penetration of price-destructive formats, traditional retail enterprises can also find new value positioning, allowing the market to achieve a new equilibrium.
Of course, our focus on retail is not only on micro changes but, more importantly, in the retail transformation, the entire FMCG industry is also being reshaped, from circulation, wholesale to manufacturers, with shifts in patterns and positions.
Considering that China's retail industry is a stock market with high internal competition, and it will only become more competitive in the future, brand owners need to develop insight into consumers on one hand and insight into channel changes on the other.
Qi Te, Chief Research Consultant at New Distribution Research Institute. He has held positions in several FMCG and retail listed companies, responsible for strategy and investment, and has also worked at several well-known domestic and international funds and investment banks, responsible for consumer investment.
He currently focuses on strategic consulting for FMCG and retail enterprises, helping companies think deeply.


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