After seeing Laiyifen’s warehouse membership store, I think Sam’s Club is more attractive

Although Laiyifen’s attempt at warehouse membership stores is innovative, it faces many challenges. Compared with the mature Sam’s Club, its shortcomings in many business strategies such as supply chain, product variety and operational efficiency are further exposed.

What is it like for a snack brand to open a warehouse membership store?

On August 10, Laiyifen's first warehouse membership store in China officially opened in Shanghai. This is the first warehouse membership store opened by a snack brand. From the perspective of communication, Laiyifen said that "whatever Sam's Club has, Laiyifen must have."

So, as the "first snack stock", how is Laiyifen's warehouse membership store different from Sam's Club and Costco? On August 15, the fifth day after its opening, Yilan Business visited the store.

1. Most of the products that Sam's Club has are not available in Laiyifen

Laiyifen’s warehouse membership store is located at No. 855, Jiuxin Road, Songjiang District, Shanghai, right next to the snack museum it opened. It is the first warehouse-style paid membership experience store launched by Laiyifen. The business hours are 10:00-22:00.

In terms of location, Laiyifen’s warehouse membership store is a bit remote.

It is about 30 kilometers from downtown Shanghai, and takes about an hour to drive. There are mainly some industrial parks and a small number of residential areas nearby. There are 3 bus lines within 500 meters, and the nearest subway station is at least 4 kilometers away. The transportation is not convenient.

In comparison, Sam's layout is obviously more thorough. It has a total of 6 stores in Shanghai, distributed in various areas, forming a widely covered consumer network, which greatly improves the convenience and accessibility of customers' shopping.

Judging from the store area, Laiyifen's warehouse membership store has at least four floors, but the shopping area is only on the first floor, with an area of ​​only 2,500 square meters. Compared with the tens of thousands of square meters of Sam's Club, it is obviously a bit small and can only be regarded as a large supermarket at most.

In terms of product types, Laiyifen sells products including snacks, beverages, dairy products, grains and oils, and instant foods. Its main products are snacks and beverages. The number of product SKUs is less than 200, and there is no fresh food. The product richness is obviously not as good as Sam's Club.

However, the snack categories of Laiyifen warehouse membership stores are almost all private brands. Overall, the proportion of private brands is higher than that of Sam's Club.

Based on the fewer SKUs, Laiyifen divides product prices into multiple levels, including the hot-selling area, 0-5 yuan area, 9.9 yuan area, 10-20 yuan area, etc. Various labels are clear and concise, highlighting the prices, making it convenient for consumers to shop on demand.

In addition, Laiyifen has posted similar slogans in many places in the store, emphasizing its "high cost-effectiveness". In terms of price alone, Laiyifen does show a higher cost-effectiveness advantage than Sam's Club.

From the internal layout, Laiyifen is similar to Sam's Club, with a spacious layout and large shopping carts, which makes shopping more comfortable for consumers. It also has multiple self-checkout devices and at least 4 manual checkout channels, which can minimize the waiting time for consumers even if the customer flow is large.

In addition, there is a parking lot in front of the warehouse membership store. Consumers can push their shopping carts directly to the car, and the shopping route is relatively smooth.

Next to the cash register, Laiyifen also set up a "restaurant bar", but unlike Sam's Club, it does not sell a variety of prepared food products. It only has a coffee corner and reserves space for its coffee brand LaiKa.

The staff told Yilan Business that customers who spend more than 99 yuan can get a free cup of coffee. However, if consumers need it, they can also buy it separately without membership.

In terms of entry threshold, Laiyifen and Sam's Club are significantly different.

First, there is no need to verify membership to enter Laiyifen warehouse membership stores, and you only need to show your membership code when checking out. This means that Laiyifen can use the products in the store to attract consumers who may not have a clear purchase intention, thereby stimulating potential consumer demand.

Secondly, the membership fee is also the lowest among its peers, only 99 yuan a year. When you sign up, you will receive a 50 yuan coupon as a membership gift, and you can also receive a limited-time gift of a box of SoftMineral Natural Soft Mineral Water and a bag of snacks.

In addition, this membership is not limited to warehouse membership stores, but can be used in more than 3,600 ordinary stores across the country, building a huge and widely covered store network matrix, which undoubtedly enhances the brand's attractiveness and market competitiveness.

However, Laiyifen warehouse membership store does not accept card returns. The staff told Yilan Business that since the membership fee is low and a series of gifts and vouchers are given, the cost of opening a card is less than 20 yuan, which is very low. Therefore, once the card is opened, there is no way to return it.

In addition to shopping in physical stores, consumers can also make purchases online through the Laiyifen Cloud Store mini program. The delivery range covers the entire country, and free shipping is available for orders over 68 yuan.

It is worth noting that in the field of local life, Laiyifen still cannot keep up with Sam's Club. As of August 15, the warehouse membership store has not yet opened the surrounding delivery business.

In other words, if consumers want to buy products in warehouse membership stores, they can either only shop offline or buy them in the cloud store mini program and wait for the products to be delivered to their homes.

Moreover, Laiyifen has not yet decided on the price of the peripheral products. A store clerk told Yilan Business that it has not yet been determined whether the online prices of warehouse membership stores can enjoy the same discounts as offline prices.

Based on this, the manager of the warehouse membership store explained that since the warehouse membership store had just opened and had not yet gotten on track as a whole, the merchandise variety was relatively single and would be continuously supplemented in the future.

He pointed out that there is a warehouse behind the membership store, which is currently under renovation. If all goes well, the area will be open for business at the end of the year. In addition, Laiyifen may also introduce fresh food. "Whatever Sam's Club has, Laiyifen will have."

So, is it really that simple to run a warehouse membership store?

2. An Ordinary Imitator

Judging from the details of Laiyifen's efforts to build a warehouse membership store, it basically follows the characteristics of this business format: warehouse-style display, large-scale product packaging, large business area, and using cost-effectiveness and membership services to attract and consolidate the paying membership group.

However, Laiyifen’s attempt this time is more of a formality. It is still insufficient in terms of in-depth exploration of building a supply chain system, precise product management, and cost efficiency optimization. At best, it is just one of the many Chinese brands that imitate warehouse membership stores.

Chinese food industry analyst Zhu Danpeng is also not optimistic about Laiyifen’s approach this time. He pointed out that imitation of the form but not the spirit will be difficult to sustain.

First, due to Laiyifen’s own snack brand attributes, its membership stores show the characteristics of “narrow SPU and narrow SKU”. According to Laiyifen’s official statement, its product SKU is around 185, while Costco and Sam’s Club both maintain around 4,000.

Hema X membership store currently has more than 3,000 SKUs, and will add new products every month. Both the product categories and product types are monotonous, which is inconsistent with the "wide SPU, narrow SKU" pursued by warehouse membership stores.

At present, the revenue of warehouse membership stores is composed of two parts: membership fees and commodity sales expenses. While selecting the commodities in the store, supermarkets actively lower the gross profit margin of commodities, using the strategy of "low price selection" to attract a large number of consumers and exchange quantity for price.

This also means that membership fees are the main source of profit for warehouse membership supermarkets. Therefore, the renewal rate has become a key indicator to measure its operating effectiveness.

Then, the most important factor affecting the renewal rate is the differentiation of products, which is specifically reflected in private brands. On the one hand, private brands can significantly increase the repurchase rate of products due to their exclusivity and scarcity, because consumers can only buy these products in their own stores.

On the other hand, private label products can also increase the gross profit margin of products and create more profit space for merchants. Therefore, the higher the proportion of private labels, the stronger the brand competitiveness.

But now it seems that the products of Laiyifen’s warehouse membership stores can all be purchased online, and there is not much difference from snack discount stores.

Moreover, the large-format packaged goods sold by warehouse membership stores are targeted at families, and consumers' demand is "one-stop shopping". Laiyifen's current product variety obviously cannot meet consumers' needs. So, why should consumers choose you?

Yilan Commercial randomly interviewed 5 consumers on the spot, 3 of whom came here to buy because they were hosting a dinner party with friends at home and heard that the prices here were relatively affordable. As for the other two, one did not make any purchase, and the other brought his child to the nearby Laiyifen Snack Museum and came here to buy some snacks for the child.

These consumers all said that Laiyifen's warehouse membership store has too few categories, and it is not cost-effective to come here specially for shopping, and they will not come again in the short term. Judging from the online feedback, everyone is not satisfied with Laiyifen's warehouse membership store.

Second, Laiyifen’s supply chain capabilities are still in doubt. The core of a warehouse membership store is comprehensive supply chain capabilities, but at present, Laiyifen’s supply chain capabilities are mostly concentrated in snacks. For other categories, especially the fresh food category it wants to “attack”, Laiyifen’s supply capabilities are still questionable.

Moreover, the fresh food business is a tough business. It not only tests the upstream supply capacity, but also the logistics, warehousing and front-end management capabilities. It is difficult to overcome this problem in a short period of time.

In addition, Laiyifen explained on its official WeChat public account that it was to "select high-quality products from around the world." However, if Laiyifen wants to purchase products from around the world and pursue "good quality and low price," the test of its global supply chain strength will be even more severe.

Third, Laiyifen’s ambition to recreate a Sam’s Club will inevitably bring pressure on operating costs. In recent years, Laiyifen’s revenue and net profit have not been in good condition, while costs have remained high.

Yilan Business Statistics found that Laiyifen’s sales expenses accounted for about 31% of its revenue, ranking among the top in the industry.

Taking 2022 as an example, the sales expenses of Laiyifen, Three Squirrels, Bestore, and Yanjinpu accounted for 27.44%, 21.02%, 18.60%, and 15.81% of their operating income respectively. Laiyifen, whose revenue is in the middle and lower reaches of the industry, has the highest sales expense ratio among its peers in listed companies.

Cost reduction and efficiency improvement were not achieved. So, how should Laiyifen deal with the cost increase brought by the money-burning business model? How can it regain its former competitive advantage in the snack industry?

Fourth, the “birthplace” of Laiyifen warehouse membership store was chosen in Shanghai, where competition among warehouse membership stores is the most intense.

According to incomplete statistics from Yilan Business, as of June 2024, there are at least 13 warehouse membership supermarkets in operation in Shanghai, 2 warehouse membership supermarkets are under construction, and 1 warehouse membership supermarket is being renovated. This means that there are at least 16 warehouse membership supermarkets in Shanghai.

It can be said that Shanghai is home to the top warehouse membership supermarkets in China. However, Laiyifen’s competitiveness is obviously weak from multiple perspectives, whether from the product side, experience side, or home delivery scenarios, and its sustainable development remains to be seen.

3. The self-help rules are messy

Obviously, Laiyifen's warehouse membership stores are a manifestation of its search for new growth points and the creation of differentiated competitiveness. Zhan Junhao, founder of Fujian Huace Brand Positioning Consulting, told Yilan Business that Laiyifen hopes to attract more consumers who focus on cost-effectiveness and shopping experience through warehouse membership stores, thereby enhancing its brand influence and market share.

In fact, this is not the first time that Laiyifen has "crossed borders".

In 2017, Laiyifen launched a light coffee area in Laiyifen Life Center - "LYFEN COFFEE". In 2023, Laiyifen announced that its coffee brand would be upgraded to "Laicup coffee".

In 2020, Laiyifen entered the sauce-flavor liquor industry and launched the "Zui Ai" series of sauce-flavor liquor. From 2021 to 2022, it achieved revenues of 8.5719 million yuan and 5.6139 million yuan, respectively, which are almost negligible in the company's revenue;

In 2022, Laiyifen launched the sparkling water product "Paipai Ning", focusing on the concept of "0 sugar, 0 fat, 0 calories", benchmarking Yuanqi Forest, and spent a lot of effort on investment in research and development, but now it has been removed from the entire network.

In addition, Laiyifen has entered into multiple food categories such as grains, oils and seasonings, wine and beverages, and fresh fruits, and has even entered non-food fields such as beauty and skin care and daily necessities. Judging from the current development, Laiyifen's cross-border efforts have basically ended in failure.

It is not difficult to find that Laiyifen's series of practices have failed to form a systematic strategic means, and there is a sense of "trying all kinds of methods in desperation". There are two main reasons why Laiyifen lacks "steadiness" in its business strategy.

First, the company's performance is not good. Whether it is revenue scale, revenue growth rate or net profit, it ranks last among its peers, and its stock price is also at the bottom. Faced with the dismal financial data, Laiyifen's actions are not surprising.

Second, market competition is fierce, industry trends are changing, and snack wholesalers have become the main "spoilers." Yilan Business Statistics found that 4 out of 10 listed snack companies saw year-on-year revenue growth, with the fastest growth coming from Yanjin Shop, Jinzi Food, and Ganyuan Food. These three companies have a close relationship with snack wholesale brands.

Zhan Junhao said that such frequent strategic adjustments may also lead to problems such as the dispersion of corporate resources, unclear brand positioning and confusion of consumer perception. If Laiyifen wants to regain its former glory, it must clarify its brand positioning and market positioning and not be fickle.

Moreover, the membership store market has also seen some eliminations. The Yonghui warehouse membership store in Suzhou Impression City closed at the end of July; Metro’s first warehouse membership store in Shanghai underwent a store renovation in January this year and has not been open since then, and is suspected of being closed;

In May 2023, Carrefour closed its first warehouse membership store in Shanghai... If Laiyifen’s warehouse membership store wants to survive, it will need to invest more.

Laiyifen has been established for more than 20 years. In the fierce market competition, it is commendable that Laiyifen can stand firm. As latecomers catch up, the former "No. 1 snack stock" is gradually losing its luster and has begun a series of self-help measures.

But at present, perhaps doing nothing and focusing on snacks is the best choice for Laiyifen. After all, taking steady steps and maintaining the company's stable operation and sustainable development may help the company win a long-term future better than blind expansion or frequent cross-border expansion.

Meng Jiayi | Author Xue Xiang | Editor Yilan Business | Produced by This article is written by the operator [Yilan Business], WeChat public account: [Yilan Business], original/authorized to be published in Operation Party, and any reproduction without permission is prohibited.

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