In China, the hyper-competitive retail industry experienced a host of changes throughout the pandemic. Disruptive models and new trends impacted all retail channels. However, as the impact of the pandemic begins to fade – and as the global economy is increasingly challenged by high inflation, high interest rates, high debt and low growth rates – China’s retail industry is entering a new phase, where operational efficiency now stands as the key to success. Indeed, highly simplified business models focused on operational efficiency are beginning to transform Chinese retail. These models simplify costs and improve efficiency, helping to provide consumers with affordable, high-quality goods. Leveraging insights from Euromonitor International’s new Passport: E-Commerce system, as well as analysis of consumer demand and behavioural changes, this article delves into two examples of simplified retail models in China: multi-brand food stores in offline retail and upstart digital players in e-commerce.
The hottest retail trend in China is the embrace of simplified business models
The multi-brand food store is a new, highly simplified offline retail model in China in which outlets provide an assortment of food products at competitive prices. Unlike supermarkets and discounters, these stores tend to focus exclusively on snacks and soft drinks. This model is finding success by integrating dealers and retailers to streamline commodity circulation and lowering costs to end-consumers through the provision of bulk purchases. Offering better profits and greater efficiency, the model has advanced quickly in China at a time when offering competitive prices has turned out to be the key for retailers to win over cash-strapped consumers navigating the economic downturn.
Emerging e-commerce players in China have also found success through simplification. By integrating marketing and sales, streamlining supply chains, and using data to enable more precise product positioning, these retailers have lowered the cost of customer acquisition while becoming more relevant for consumers and expanding their presence across digital channels.
Multi-brand food stores surge in popularity as they prioritise efficiency
The multi-brand food store model first emerged in China in 2018, but has found greater success in the wake of the pandemic. This model mainly targets consumers in lower-tier cities, who are less loyal to established snack brands and instead prioritise taste and price. As such, private label is the key to these retailers’ profitability, with gross margins on these products generally in excess of 30%.
The past two years have been a critical period for leading companies in the space to gain share, enhance their scale, and position themselves for the future, with the leading players expanding their reach across provinces. Indeed, supported by greater investment, a number of chained multi-brand food stores are emerging.
Many multi-brand food store chains in China already operate over 2,000 outlets, with some banners operating more 4,000 stores. For example, one leading chain, Haoxianglai – which is owned by Wanchen Group – operates over 5,000 outlets. Additionally, after merging with Super Ming, the Snacks Busy Station chain now has 7,500 stores in China.
Over the next 3-5 years, several companies are expected to dominate the multi-brand food store landscape in China. In addition, these retailers plan to add a wider range of product categories, evolving towards a model that is perhaps more akin to hard discounters.
E-commerce players simplify shopping
The essence of e-commerce lies in streamlining the process of commodity circulation to match goods with targeted audiences more efficiently. From the supply side, e-commerce platform optimisation allows merchants to satisfy consumer demands more smoothly. From the demand side, however, as digital consumers become more discerning and increasingly demanding, accurately identifying what, when, and where consumers desire to purchase is increasingly critical to success.
In the grocery industry, different online platforms have different focuses. With fierce competition on prices, each e-commerce platform develops its own unique strengths, which makes the landscape more complex. Under such an environment, a simplified model and efficient targeting tactics can help players optimise operations and better cater for increasingly varied consumer needs. Indeed, some upstart e-commerce retailers are already doing this. For example, in 2020, ByteDance-owned Douyin pivoted from being a pure social media platform to also doubling as an online retailer. Douyin’s use of short-form video content and livestreaming has helped it grow rapidly over the past two years in the Chinese grocery retail space.
By 2023, Douyin had already become the third-largest online retailer in Chinese grocery e-commerce, behind only Alibaba’s Tmall and JD.com
Source: Euromonitor International
To obtain further insights from Euromonitor International’s new Passport: E-Commerce system on which retailers beauty and personal care brands should prioritise partnering to boost digital sales, read our new report, Identifying Key Retail Partners for Brands to Expand E-Commerce Sales, or download our on-demand webinar, Mastering E-Commerce Growth: How to Win Online Amid Uncertainty. For additional insights into the beauty and personal care e-commerce space in China, read our article Online for the Holidays: November 2023 Beauty and Personal Care E-Commerce Performance in China and the US.