Source: 中购联 (ID: mallchina-org)
In recent years, traditional supermarkets have seen a significant decline in performance and urgently need to find new growth points. First, the repeated impact of the pandemic affected offline traffic, and then community group buying seized the online market, which undoubtedly added insult to injury for offline stores operating on the hypermarket model. The explosion of warehouse clubs has undoubtedly brought a turning point for supermarket transformation.
In fact, as early as 1996, Sam's Club had already established a presence in China, and the paid membership model was not unfamiliar to Chinese consumers. Until 2018, Sam's was still the only supermarket in China that insisted on a paid membership system.
With economic development, the living standards of Chinese consumers have improved, and their understanding of the paid membership model has gradually deepened, ushering in a new stage of development for the membership system.
Starting with the explosion of COSTCO and Sam's Club, warehouse clubs entered an era of "enclosing land" (rapid expansion), and 2021 was the explosive first year for warehouse clubs.
How popular are warehouse clubs?
The battlefield of warehouse clubs in China seems never short of heat. Sam's Club validated the feasibility of the warehouse club track, and followers followed one after another.
With the influx of new forces, domestic warehouse stores are broadly divided into three mainstream categories:
First, established warehouse club companies like Sam's and Costco, which have been cultivating the warehouse club track for many years and have already entered the stage of scale development, achieving both performance and reputation.
It is understood that Costco announced net sales of $61.441 billion for the fourth quarter of fiscal 2021 on September 23, a year-on-year increase of 17.5%; total revenue for fiscal 2021 was $195.929 billion, a year-on-year increase of 17.7%.
On November 22, Sam's Club announced that its paid membership in China had exceeded 4 million, and Sam's China achieved double-digit growth in comparable sales and membership in the third quarter.
In the future, it is expected that by the end of 2022, Sam's will have 40-45 stores open and under construction, and it also plans to continue investing in new Sam's membership stores in Fuzhou, Xiamen, Quanzhou and other places in Fujian Province, as well as laying out a new batch of shopping malls and community stores.
Costco will also accelerate its expansion, with locations in Suzhou, Shenzhen and other places.
Second, local supermarket companies transforming from the hypermarket model, such as Metro, Yonghui, Renrenle, and Carrefour, which are upgrading existing hypermarkets and launching warehouse store formats.
In April this year, Yonghui Superstores tested the warehouse model, upgrading traditional stores to warehouse stores, advocating "everyday low prices, wholesale and retail" to attract customers. By the end of June, 20 warehouse stores had been opened nationwide after renovation.
On June 27, Metro's membership stores opened simultaneously in Beijing and Chengdu; on November 24, it officially announced an upgraded brand strategy and opened 16 membership stores at once.
On August 20, Renrenle entered the warehouse membership store market, with the first two Renrenle membership discount stores opening in Shenzhen and Tianjin.
On October 22, Carrefour China's first membership store officially opened in Shanghai.
Third, emerging forces such as Hema X Membership, fudi, and Beijing Hualian are entering the market in clusters, each with its own characteristics.
In October 2020, Hema opened its first "X Membership Store" in Shanghai. On November 9, 2021, Hema announced that Hema X Membership Stores would welcome four new stores.
In May this year, Fudi's first fresh food warehouse membership store debuted in Beijing. On September 5, COFCO·Xiangyun Town signed a contract with fudi membership supermarket under Beijing Yaodi Agricultural Technology Development Co., Ltd., marking its second location in Beijing after its first store on the Fourth Ring Road, and also the first fudi store in Shunyi.
On September 9, Beijing Hualian's first warehouse-style membership store in China officially opened in Lanzhou. These up-and-comers benchmark against Sam's and Costco, with different gameplay and characteristics.
As a retail format that is not new, warehouse clubs have truly ushered in a major industry reshuffle!
Competing for Supremacy, Each with Its Own Characteristics
The influx of warehouse clubs actually hides an urgent need for market transformation. Warehouse clubs, with advantages such as low-cost property efficiency, scale of single items, and membership model, have become a new direction for many traditional supermarkets to transform.
Currently, China's warehouse club market is roughly divided into two categories based on whether membership fees are charged: one is the high-end route, charging membership fees to serve some consumers, such as Costco, Sam's Club, Metro, and Carrefour.
The second is the people-friendly route, targeting lower-tier markets without charging membership fees, serving all consumers, such as Yonghui.
So, in the current market of a hundred schools of thought contending, do local supermarkets have a chance to overtake on the curve? Next, 中购联 will illustrate with a differentiated analysis of Costco, Sam's, Hema X Membership, and Yonghui.
1. Costco
(Scene of Suzhou Costco opening)
On December 8, the official opening of Suzhou Costco once again attracted industry attention, with crowds of people and bustling scenes... Not only that, on the first day of membership card issuance at Suzhou Costco, more than 10,000 memberships were processed, breaking its global record for first-day card issuance.
It is understood that the price for both Costco Gold Star membership and Business membership in Suzhou is 199 yuan/year, which is not cheap. What magic does a warehouse membership store that "requires payment to shop" have to win consumers' hearts?
The answer lies in products and services.
In terms of products, Costco deeply understands consumer needs and offers concessions, continuously providing high-quality and low-priced goods (by keeping product gross margins low), covering various daily needs. With complete inventory and a strong private brand matrix, including the popular private label Kirkland, its unmatched product differentiation means later entrants have yet to fully replicate its product matrix.
In addition, Costco also has member service areas such as Western dining, hearing service center, optical glasses department, and tire repair center. After-sales service is even more generous: most products, except jewelry, support unlimited and unconditional returns, and member service levels continue to rise.
It is worth noting that most of its profits come from membership fees, not from selling products.
2. Sam's Club
(Real view of Guangzhou Tianhe store)
Sam's Club's core profit also comes from membership fees. Under the trend of consumption stratification, Sam's provides members with value-for-money membership services and experiences. In product selection, it emphasizes "originating from members, half a step ahead of members."
It is understood that Sam's Club typically has 3,000-4,000 SKUs, with over 700 self-developed SKUs.
In terms of services, Sam's provides one-stop solutions and focuses on upgrading the shopping experience, such as spacious and bright spaces that give a sense of freedom, combined with rich products and tasting activities to bring an "immersive, fun, interactive, and professional" new shopping experience.
In addition, Sam's is committed to creating a high-quality lifestyle.
For example, its first flagship store in Shanghai achieved multiple "Sam's bests" - the most new products, the richest experience areas, the largest Sam's cafe, and the largest smart parking lot; it also added Sam's Cloud Home VR Lab, toy and digital, coffee, wine, and deli experience areas, allowing family members of all ages to find a sense of belonging, excitement, and fun.
In terms of membership benefits, Sam's tends to provide additional services for in-store consumption, such as a one-card pass for 800+ stores globally, free shipping coupons for online shopping nationwide, free eye exams, hearing tests, blood pressure tests, and 1-hour express delivery. Unlike Costco, it has clear membership tier distinctions, with different services for different membership levels.
Facing the shortcomings of online business, Sam's has also increased investment in e-commerce. Currently, its self-operated e-commerce services have expanded to most regions of the country; and "Sam's Cloud Warehouse" combined with "Dada Now" provides members with "express delivery" services, covering cities with Sam's stores, with over a thousand high-frequency daily necessities available for immediate delivery, achieving rapid growth across all channels.
Unfortunately, Sam's recently seemed to have targeted the removal of Xinjiang products, sparking strong dissatisfaction among domestic consumers, with many stores seeing a wave of membership cancellations. This adds more uncertainty to Sam's prospects in China. However, as Chinese consumers, resolutely resisting any behavior that harms China's interests is beyond doubt!
3. Hema X Membership
As a "leader" in China's warehouse club sector, Hema X Membership has its own characteristics.
It is understood that Hema X Membership stores have over 3,000 SKUs, with the most outstanding localization of products, and private label products account for 40%. For example, Hema MAX has launched specialty items such as sesame sauce baked cakes, Qiangmian steamed buns, Mending meat pies, and sauced beef shank. In the future, it will also launch co-branded products with time-honored Chinese brands like Yueshengzhai and Tianfuhuo.
Fresh seafood is also a major feature of Hema X Membership stores, with a fresh food area offering dozens of live seafood items, such as seasonal crayfish, as well as deep-sea fish like king crab, giant grouper, and king salmon, and various shellfish. Hema X Membership stores also have distinctive features in baking and 3R (ready-to-cook, ready-to-heat, ready-to-eat).
Like Costco and Sam's, Hema X Membership stores have also introduced new formats and supporting services, but with more thorough localization, such as providing shopping guides at each shelf, tasting services, pet services, car maintenance services, and clothes dry cleaning services.
In terms of membership benefits, Hema X Membership's digital online services are very complete. Its benefits can be used at all Hema stores and the APP, with delivery as fast as 30 minutes and free shipping with no minimum order, which is very convenient for members who shop online at home.
4. Yonghui
Sam's goes left, Yonghui goes right! Among the warehouse club ranks, Yonghui is a special case: it does not charge membership fees, consumers can shop without any threshold, and its people-friendly, low-price, and lively atmosphere are its major characteristics.
To achieve affordable pricing, Yonghui warehouse stores adopt a "wide category, narrow assortment" approach, reducing the number of SKUs from ten thousand to a few thousand, keeping only selected brands and varieties, focusing on livelihood traffic products.
In addition to more cost-effective products, Yonghui warehouse stores have fully upgraded the shopping experience, providing users with various value-added services such as free water, unlimited tastings, rain ponchos on rainy days, children's balloons, and specialty sugar paintings/cotton candy.
In summary, Costco, Sam's, and Hema X Membership focus on membership services, targeting middle-to-high-end consumers, each with unique features in product selection, supporting services, and shopping experience. Yonghui warehouse stores, on the other hand, benefit the people, serving consumers with affordable products and convenient services.
Compared with established giants, local supermarkets clearly understand Chinese needs better, with more outstanding localization and higher digitalization; for established foreign giants, online business will become a new growth point.
Will Warehouse Clubs Be a "Good Business"?
Although warehouse clubs are not lacking in popularity and major supermarkets are entering the fray, warehouse clubs are still a business worth "discussing." This new "red ocean" still tests the enterprise's self-management capabilities. Therefore, traditional supermarkets should think twice before adding warehouse club formats.
Warehouse clubs have a different business model from traditional supermarkets. The profitability of warehouse clubs lies in the number and contribution of members. Compared with traditional supermarkets, warehouse clubs sell in huge volumes, have fewer SKUs, higher average transaction values, and faster turnover efficiency.
Under this turnover efficiency, warehouse supermarkets have better capital efficiency and returns than traditional supermarkets. To maintain efficient turnover and sales, the core lies in product selection capabilities and a complete supply chain.
"Warehouse membership" product selection is the core, there is no doubt about that. For example, Sam's follows the product selection logic of "insight into consumer needs, half a step ahead of members," that is, "goods find people." It precisely targets its member base and achieves "what others don't have, I have" in products, meaning every product at Sam's has the ability to attract traffic.
Moreover, Sam's has its own standards for new products: products must achieve the highest cost-performance ratio of the same brand and quality, or be exclusively sold, and also have a high repurchase rate. Excellent "quality control" is the core method that has kept it ahead in the market for years.
For example, a bottle of authentic Moutai priced at 1,499 yuan at Sam's is hard for consumers to resist.
Second is supply chain capability. This is actually easy to understand. To achieve batch production of goods within limited SKUs, pass on benefits to consumers, and control gross margins (generally within 15%), it is necessary to ensure timely production, so building a supply chain is essential.
For example, in recent years, Yonghui has relied on a supply chain scale of tens of billions to stand firm in the great retreat of hypermarkets. Even the up-and-coming Hema X Membership store quickly completed its membership store polishing and achieved profitability in the short term by relying on Hema's 500+ source supply chains, global direct sourcing, and localized category advantages.
In addition to the supply chain, private brands are also a core competitiveness of membership stores. It is understood that private brand products account for up to 30% of sales at Sam's China membership stores, and Hema X Membership stores have over 40% private label products, also launching the private brand "Hema MAX."
The market proves that a strong supply chain and distinctive private brands are the moats of warehouse clubs.
It is not difficult to see that on the track of warehouse membership stores, there are thresholds for supply chain and product selection. These two points alone are enough to keep a large number of new players who want to "share the pie" out, not to mention the extremely high cost of trial and error in new fields. Only retail enterprises with good supply chain and product selection capabilities are qualified to compete for the market.
On the track of seizing warehouse membership stores, for every one who stands up, someone falls!
Final Thoughts:
In the view of 中购联, the warehouse membership store formats of Sam's Club and Costco were not achieved overnight but came from years of trial and error and deep cultivation.
Warehouse clubs do have unique advantages, but for now, the exploration of warehouse clubs by local enterprises in China is still in its infancy. Whether it can provide transformation ideas for hypermarket supermarkets and become a performance growth point still needs time to prove.
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