THE NEXT BATTLE OF CHINESE INTERNET COMPANIES: DISCOUNT SUPERMARKETS

I have said it before, and I’ll say it again. China’s supermarket sector is being reshaped by its internet companies.

About 10 years ago, Alibaba’s Hema Fresh (Freshippo) was born, which has been struggling for a long time due to its diversification into too many concepts, including a Sam’s Club copy, Hema X. Still, it became profitable last year, mostly because it ditched all loss-making formats and focused on Hema Fresh and discount store Hema NB, of which it now has over 300 stores.

At the time, JD followed with its 7Fresh stores, and Meituan tried a concept called Ella (Xianxiang Supermarket), which failed and quickly disappeared from the market.

A lot has been happening in this sector recently. Hema is ditching its X stores. Hema Fresh and 7Fresh have established front-end warehouses (emulating another success factor of Sam’s Club in China) to expand their service area and reduce delivery times.

I recently wrote (substack.com/@techbuzzc…) about how Hema seemed to be rebranding its Hema NB stores. This became official on Friday. Hema NB is now Chao He Suan NB (超盒算), a wordplay that implies super value for money. The stores have 1500 SKUs, 60% of which are private label and offer prices 15-20% lower than ‘comparable product on the market’.

In a few years, this discounter went from being Hema Outlet to Hema NB to its new identity. It maintains the 盒 (He) character in the name, as well as Hema NB’s blue and red colours. It’s a good decision to phase out its Hema legacy because the positioning was confusing, next to its middle-class brother Hema Fresh.

Meanwhile, Meituan has opened its first discount store, Happy Monkey (Kuai Le Hou) in Hangzhou last Friday (interestingly, all this happened on Chinese Valentine’s Day, Qixi). These are 1,000 m² stores holding over 1,000 SKUs and are run by the team that previously operated Meituan Youxuan. Youxuan was Meituan’s community group buying platform, which recently scaled back drastically after losing market to Pinduoduo’s Duoduo Maicai. Happy Monkey, like many Chinese discounters, includes a fresh bakery, ready-to-eat hot dishes and has a significant share of private labels. It also has displays with the results of pesticide tests of vegetables to create trust. Meituan wants to expand Happy Monkey to 1.000 stores.

After a quiet year-long Beijing pilot, JD has opened JD Discount Supermarket (Jīngdōng Zhékòu Chāoshì 京东折扣超市) in Zhuozhou, Hebei, last month. While Chao He Suan’s stores are 600-800 m², these JD stores are 5,000 m² and have 5,000 SKUs, with 20% being private labels.

In 2023, instant retail food platform Dingdong Maicai also opened a supermarket outlet in Shanghai. Walmart has also been opening small community supermarkets, sized at 500 m² (only 1/20th the size of traditional hypermarkets), holding a maximum of 2,000 SKUs, of which 20% are private label. Wumart and Lianhua have also created discount formats.

With supermarkets, discount stores and instant retail grocery delivery, China’s internet companies have become major players in the food retail sector. They can leverage the hundreds of millions to one billion users of their main apps to drive foot traffic. And the new battle will be between the discounters, which include ALDI (77 stores, 90% private label, with stores expanding beyond Shanghai). In China, ALDI has moved from its upmarket positioning in pre-COVID stores back to being a discounter.

Photos by Linkshop.