Summary of Key Points
Over the past five years, there has been a noticeable shift in China's supermarket industry, characterized by the replacement of traditional formats with newer models. Traditional hypermarkets (such as Yonghui and RT-Mart) have seen a decline, while four types of retail outlets have experienced growth against the trend: membership-based stores (like Sam's Club and Kaishikai), omnichannel businesses (like Hema), discount stores (like Aoleqi), and regional strong players (like Pangdonglai and Biyoute). The key change behind this transformation is that the way supermarkets arrange their products on shelves has shifted from a system where brand owners paid to have products displayed, to one where retailers select items based on their value. Brands now need to demonstrate the unique value they offer within the supermarket's product mix.
I. Major Changes in the Retail Landscape Over Five Years
1. Traditional Hypermarkets in Decline
- Yonghui has suffered the most: sales dropped by 40%, and the number of stores was reduced from 1,090 to 403.
- RT-Mart's position seems stable, but its sales have decreased from 98 billion yuan to 67.4 billion yuan (it managed to maintain its ranking due to the even steeper declines among its competitors).
- Wumart, Lianhua, and Zhongbai Warehousing have either remained stagnant or seen significant drops; none of them have experienced true growth.
This is not due to poor management alone, but rather because the traditional hypermarket model's attempt to cover a wide range of consumer needs no longer aligns with current market demands.
2. Growth in Four Types of Retail
- Membership-Based Stores: Sam's Club has led Walmart China in sales for five consecutive years, with Kaishikai growing from 2 stores and 3 billion yuan in sales to 7 stores and 10 billion yuan.
- Omnichannel Businesses: Hema has risen from 6th place in the industry to 2nd, with sales exceeding 100 billion yuan and a 86.5% increase in the number of stores.
- Discount Stores: Aoleqi's sales have quadrupled over three years, while JD's discount supermarket and Qixian business have grown from 4 billion yuan to 10.2 billion yuan in one year.
- Regional Strong Players: Pangdonglai has added only one store, but its sales have increased from 4.6 billion yuan to 12.6 billion yuan (with a significant improvement in efficiency per store), and Biyoute has risen from 36th to 14th place.
These stores have not stuck to a single business model; for example, Sam's Club offers online sales as part of its offerings, Hema has its own discount brands, and Aoleqi has expanded into home delivery services. Those that can cater to specific consumer needs are the ones that are thriving.
II. Fragmented Consumer Demands
In the past, a single hypermarket could meet the needs of all consumers with a range of about 20,000 products. However, today's demands are more diverse:
- Consumers looking to stock up on bulk, high-quality items go to membership-based stores.
- Those seeking cost-effective options visit discount stores.
- Those preferring local products opt for regional strong players (like Pangdonglai, which sells locally trusted dairy products).
- For emergency purchases, they use instant delivery services (such as milk delivered within half an hour).
The same product category (e.g., milk) can come in different sizes, prices, and packaging at various stores. This means that the market has not become more fragmented; rather, consumer needs have broken down into smaller segments, and stores that cater to these specific segments are thriving.
III. Changes in the Way Products Are Arranged on Shelves
The traditional model where brands paid to have products displayed on shelves has given way to a new approach where retailers choose which items to include based on their value. For example:
- Sam's Club limits the number of products to around 4,000 and only allows those that meet quality and repeat purchase criteria; it also sells its own brands.
- Pangdonglai has reduced the product range and restructured its offerings, with strict selection criteria.
- Hema focuses on exclusive and collaborative products to attract customers.
IV. Seven Ways for Brands to Enter the Supermarket Market
Brands now have seven different options to get their products on supermarket shelves, depending on the level of control they want to have over distribution:
1. National Distribution: Products like Kangshifu instant noodles are widely available but may not reach high-growth channels.
2. Channel-Specific Offerings: Creating exclusive versions for certain types of stores (e.g., salted snacks for bulk retailers).
3. New Channel Brands: Developing new brands specifically for niche markets (e.g., low-price brands for discount stores without affecting the main brand's price).
4. Collaborative Customizations: Working with retailers to create unique products (e.g., joint-branded snacks).
5. Private Label (PB) Products: Manufacturers use retailers' branding (e.g., Gan Yuan's nuts sold under Sam's Club's “Member’s Mark”).
6. Private Label Customization: Retailers set standards, and manufacturers produce according to those requirements (e.g., fresh milk produced by Mengniu for Sam's Club).
7. Co-Creation with Manufacturers: Jointly developing new products with long-term partnerships (e.g., exclusive snacks).
V. Three Things Brands Need to Do
To succeed in the new market:
1. Reevaluate Channels: Stop thinking of channels as fragmented; instead, recognize that consumer needs have changed. For example, milk is sold in bulk at membership-based stores and as affordable basic products at discount stores.
2. Redraw the Channel Map: Identify who is buying your products and which stores are meeting those needs. Ensure your product specifications and prices align with these stores' offerings, and that you can deliver to them effectively.
3. Reallocate Resources: Many brands focus their efforts on traditional hypermarkets that are declining, while neglecting new channels (such as membership-based and discount stores). Shift resources from outdated markets to meet current consumer demands.
In Conclusion
Supermarket shelves still exist, but they are no longer a resource that can be acquired simply by paying. Brands need to show retailers that their products can help them attract and retain customers. Otherwise, investing more money will only serve to support outdated business models.