Warehouse club giants are fiercely competing in Nanjing.

On May 28, Costco's first store in Nanjing officially opened. Located in Jiangning High-tech Zone, the store has a total construction area of 50,979.29 square meters, making it Costco's 7th store in mainland China and Nanjing's 7th warehouse club. Just three days before Costco's opening, Sam's Club Jiangbei store also opened its doors in Nanjing.

Notably, the Nanjing Costco features a self-service gas station, a true-to-original Costco experience and the first membership store in mainland China with a gas station.

Costco with a Gas Station

In the United States, gas stations are a standard feature of Costco stores. Bringing this to China can be seen as restoring the authentic "Costco model."

It is understood that the gas station at Nanjing Costco is located behind the store and is supplied by Sinochem Petroleum. It has 12 fueling islands and 24 fuel dispensers, using a self-service model that can accommodate 24 vehicles simultaneously. When Yilan Business visited, many cars were queuing to enter the station.

The popularity is not just due to novelty but also lower prices. On May 31, Costco's fuel prices were: 92-octane gasoline at 7.37 yuan/liter; 95-octane at 7.82 yuan/liter; and 98-octane at 8.80 yuan/liter, which is 0.10-0.60 yuan cheaper per liter than market rates.

In fact, gas stations are one of Costco's "trump cards." According to Costco's fiscal year 2023 annual report (ending September 2023), the company operated 861 stores and 692 gas stations, with gasoline accounting for approximately 13% of its 2023 net revenue, about $30.9 billion (approximately RMB 223.815 billion).

Of course, the introduction of a gas station at Nanjing Costco is not just about presenting its "complete form" to consumers.

First, the Nanjing Costco is located in a suburban area, more than 20 kilometers from the main urban area. This means that the vast majority of consumers visiting Costco drive there. After shopping, they can conveniently refuel their vehicles, saving extra trips and time.

Second, Costco offers lower fuel prices. Over time, consumers may develop a habit of making special trips to Costco for fuel, and in the process, there is a high probability they will think, "Since I'm here, I might as well browse," thereby boosting in-store sales. Additionally, the daily consumption of gasoline can also "schedule" consumers' visits to Costco, ensuring steady sales.

Costco's CFO, Richard Galanti, once said that of every 100 people who come to Costco for fuel, more than half will enter the store to shop afterward. It's clear that the gas station, while ostensibly serving members, is actually a powerful traffic driver that helps increase foot traffic and enhance the customer experience.

Most importantly, the attached gas station gives Costco, which has only recently entered the mainland China market and has few stores, a differentiated competitive edge. It makes Costco stand out in its rivalry with strong competitors like Sam's Club and M Membership Store, building a formidable defense line in the Nanjing market.

In fact, competition in the warehouse club sector in Nanjing is extremely intense, with seven warehouse clubs already operating. It can be said that all the notable warehouse clubs are engaged in close combat in Nanjing.

Nanjing: A Battlefield of Titans

This year alone, Nanjing has seen the opening of three warehouse clubs: in January, M Membership Store's first Nanjing store opened; on May 25, Sam's Club Jiangbei store opened, and just three days later, Costco Nanjing opened. The number of warehouse clubs in Nanjing continues to grow, with seven stores across its 11 districts.

Looking at opening dates, most warehouse clubs have entered Nanjing in the last three years. Sam's Club Jiangbei and Costco opened just three days apart, which can be described as "tit for tat," placing significant demands on both brands' membership renewal rates. If the opening experience is poor, members may easily "defect."

Geographically, warehouse clubs are spread across various districts. Only Sam's Club (EPARK store) and Metro (Yuhua store) are in the same district, and they are in direct competition—less than 5 kilometers apart, a 5-minute drive.

Costco's location is the most "remote," more than 20 kilometers from Nanjing's city center, nearly an hour's drive away. The surrounding area includes Jiangning University Town, Fangshan, and a few residential areas still for sale. Many consumers complain that Costco is "in the countryside." If Costco cannot attract consumers with its unique product appeal, it may face a bleak future in Nanjing's market landscape.

Notably, M Membership Store's location can be described as the "eye of the storm." Generally, warehouse clubs have a radiation range of 5-10 kilometers. Consumers within 5 kilometers form the stable core customer base, while those within 5-10 kilometers are potential customers that need to be actively courted.

Within a 10-kilometer influence radius, M Membership Store faces competition from two Metro stores and two Sam's Club stores, especially the Sam's Club in Yuhuatai District, which is only 5 kilometers away. This undoubtedly puts immense pressure on M Membership Store.

Of course, M Membership Store has not been idle. Its recent launch of free self-service car wash for members can be seen as precisely targeting a "gap" left by competitors. Yilan Business found through the "Sam's Club Benefits Mini-Program" that the car wash vouchers for Sam's Club's Premier members are not supported at any store in Nanjing, and Metro does not offer car wash services either. This gives M Membership Store's car wash service a unique competitive advantage in the market.

Generally, warehouse club revenue consists of two parts: membership fees and product sales. While curating in-store products, clubs deliberately keep gross margins low, using a "low-price, curated" strategy to attract a large number of consumers, trading volume for price. This also means that membership fees are the main source of profit for warehouse clubs. Therefore, the renewal rate becomes a key indicator of operational performance.

Overall, apart from Hema's membership and Sam's Club's Premier membership offering significant discounts, the other clubs' membership benefits are quite similar.

So, the main factor affecting renewal rates is product differentiation, which is specifically reflected in private labels. Specifically, Hema X Membership and Metro Plus Membership have the highest private label ratios, both around 40%, while M Membership Store has the lowest at only 10%. Sam's Club and Costco fall in the middle, at 35% and 30%, respectively.

On one hand, private labels, being exclusive and scarce, can significantly increase product repurchase rates because consumers can only buy these products at the respective stores. On the other hand, private label products can also improve gross margins, creating more profit space for the retailer. Therefore, the higher the private label ratio, the stronger the brand's competitiveness. From this perspective, Hema, Metro, and Sam's Club lead the pack.

Overall, Metro, which has been in Nanjing for over 20 years, has the highest brand awareness; Sam's Club, with two stores in Nanjing, is the most competitive; M Membership Store, despite its low private label ratio, benefits from Auchan's solid property foundation, and its future development potential is highly anticipated; Costco consolidates its unique position with its gas station ancillary service; Hema X Membership seems average, but its membership is interconnected with Hema Fresh stores, effectively forming a 1+N comprehensive service network, making its influence not to be underestimated.

It can be said that Nanjing has brought together the top players in China's warehouse club industry. So, why are they so optimistic about Nanjing?

Why Nanjing?

Zhang Sihan, President of Costco Asia, once said, "The huge city capacity and strong local consumption momentum will bring great opportunities for the development of warehouse clubs." This actually reflects the two core indicators for selecting a city for warehouse clubs.

From an economic development perspective, Nanjing's Q1 GDP was 435.956 billion yuan, a year-on-year increase of 3.8%, ranking 10th nationally. Per capita disposable income was 23,369 yuan, up 4.1% year-on-year. This not only reflects the high purchasing power and consumption level of Nanjing residents, which can "support" so many warehouse clubs, but the steadily rising data also indicates the huge potential of Nanjing's consumer market.

From a geographical perspective, Nanjing is an important transportation hub connecting north and south, a key node in the Yangtze River Economic Belt, with excellent logistics and warehousing conditions. Warehouse clubs require rapid turnover and distribution of large volumes of goods, and Nanjing's transportation advantages can meet this demand.

Furthermore, Nanjing's influence extends to multiple provinces and has even been jokingly called "Hui Jing" (referring to its historical role as a capital for Anhui). Choosing this location allows warehouse clubs to effectively attract consumers from surrounding cities. At the same time, Nanjing's broad influence can help warehouse clubs enhance brand awareness.

Notably, Nanjing has 68 institutions of higher education, with the number of Double First-Class universities ranking third nationally, after Beijing and Shanghai. Students in these universities are the "future consumers" of warehouse clubs. These young people have strong demand for high-quality, cost-effective products and will have considerable disposable income in the future. Entering Nanjing means brands have the opportunity to cultivate this potential consumer group early, which is beneficial for their expansion nationwide.

Nanjing has indeed become a city of opportunity for membership stores.

In fact, Nanjing is not the first battleground for warehouse clubs; the previous one was Shanghai. As of June 2024, Shanghai has at least 13 warehouse clubs in operation, 2 under construction, and 1 being renovated. This means Shanghai has at least 16 warehouse clubs.

In Q1 2024, Shanghai's GDP was 1,109.846 billion yuan, meaning each warehouse club requires an average of 69.365 billion yuan in GDP to support. By this measure, Nanjing can currently accommodate at least 7 warehouse clubs. This also implies that Nanjing's warehouse club market is already "at full capacity," making it more difficult for new brands to enter.

So, if a brand were to continue opening stores in Nanjing, which one has the most advantage? From a location perspective alone, M Membership Store has a clearer edge. It is understood that among Sun Art Retail Group's hypermarket formats, about 33.8% of stores are self-owned properties. In other words, Sun Art Retail has at least 164 self-owned stores, most of which are concentrated in its former sub-brand, Auchan Supermarket. This provides an industrial foundation for converting them into M Membership Stores.

In fact, Nanjing previously had three Auchan supermarkets. The M Membership Store in Nanjing was converted from an Auchan supermarket. The Auchan Hanzhongmen store is less than 5 kilometers from the M Membership Store, so it is not under consideration. Therefore, Sun Art Retail has the capacity to open at least one more M Membership Store in Nanjing.

With a property foundation, on one hand, it can shorten the time for preliminary negotiations and development, allowing for faster expansion than competitors. On the other hand, since Sun Art Retail stores opened relatively early, their locations are often in city centers or regional centers, making it easier for consumers to reach them, thus providing a more obvious competitive advantage.

As warehouse clubs expand and compete in Nanjing, whether the region's middle-class population can sustain their development remains to be tested by the market. In fact, as the market continues to evolve and consumer demands change, we will see more new "battlefields" and new competitive landscapes emerge. From Shanghai to Nanjing, warehouse clubs took only one year. Now, with 2024 already half over, where will the next "Nanjing" for warehouse clubs be?

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