How long will warehouse-style membership supermarkets remain popular?

In recent years, warehouse-style membership supermarkets have suddenly become popular. The author of this article analyzes the industry market from three aspects: high revenue, high cost-effective strategy and brand matrix of membership supermarkets. Let's take a look!

On June 29, a flagship Sam's Club supermarket opened in Shenzhen. In order to attract attention, the supermarket launched a limited edition instant noodle bucket priced at 168 yuan, each bucket contains 24 bowls of Cup Noodles, and each consumer can only buy two buckets. The unique shape and reasonable price-performance instant noodle bucket were very popular, and many people started queuing before the supermarket opened. Later, the price of this instant noodle bucket was raised to 1,999 yuan, and the topic of "What do you think of the price of Sam's instant noodle bucket being raised to 1,999 yuan" also became a hot search on Weibo.

As a leading brand in membership supermarkets, Sam's Club has its own aura and traffic, and every move attracts countless eyes. The limited-edition instant noodle buckets sold at the opening have played the role of social currency, arousing the love of countless young netizens on the Internet. Although Sam's Club is a supermarket, it has gradually evolved into a symbol of class and lifestyle, and has therefore achieved brand value and popularity beyond ordinary supermarkets.

1. Revenue exceeds 200 billion, this is really popular

At present, there are two main reasons why membership supermarkets are so popular in China. On the material level, with the trend of consumption upgrading, consumers are more willing to pay for the high-quality goods and services provided by membership supermarkets. Take Costco as an example. Costco uses a strict internal mechanism to ensure that the gross profit margin of all goods does not exceed 14%, and uses extremely high standards to screen out suppliers with high cost performance. This set of internal and external mechanisms gives Costco the ability to meet consumers' demand for high-quality, cost-effective goods.

On the spiritual level, membership supermarkets provide spiritual added value and social currency value, allowing consumers to seek identity recognition and value resonance. In this era where everything is a brand, membership supermarkets such as Sam's Club and Costco are the leading brands in the supermarket industry. Like traditional brands, they also enjoy the brand effect and the ability to charge consumers a premium.

The dual advantages of membership supermarkets in terms of both material and spiritual needs have been transformed into performance advantages. In the first quarter of this year, Walmart China's net sales were US$5.3 billion, a year-on-year increase of 28.3%. Specifically, its e-commerce business is the main pillar of performance growth, with a net sales growth of 54%, and Sam's Club's own brand Member's Mark also achieved a 46% sales growth.

Costco achieved total revenue of US$226.954 billion in fiscal year 2022, a year-on-year increase of 15.8%, and net sales of US$222.730 billion, of which membership fees contributed US$4.224 billion. Net profit for the fiscal year was US$5.844 billion, a year-on-year increase of 16.7%.

At the same time, as Sam's Club and other membership supermarkets actively approach young consumers, the trend of younger users is becoming more and more obvious in the membership supermarket industry. For example, more than 30% of Sam's Club's new members are 30 years old or younger. In absolute terms, this number is not large, but in the case that Sam's Club is more oriented towards family consumption scenarios, this number clearly shows that the influence of membership supermarkets is gradually expanding. The popularity of warehouse-style membership supermarkets can be said to be built up by the new middle class in China with real money.

2. How convincing is the selling point of “high cost performance”?

Although membership supermarkets have been labeled with many labels, they are still a rigid industry that is closely related to people's food, clothing, housing and transportation. The reason why consumers choose Sam's Club is still related to the products themselves. On platforms such as Weibo, many posts recommending Sam's Club have a common keyword, namely "high cost performance".

Most of the products provided by Sam's Club come from carefully selected suppliers, and the product quality is the best of the best. The large-volume packaging method can easily achieve scale effect, allowing Sam's Club to lower the price of products, which is a win-win situation for Sam's Club and consumers. However, for those who cannot accept large-volume packaging, Sam's Club's high cost-effectiveness is obviously not true.

In many communities and universities, a new business model has quietly emerged based on Sam's Club - "Sam's group buying". Since most of Sam's products are family packs with high unit prices and large portions, many office workers and students choose to group buy with people around them, and then divide the products into multiple portions so that everyone can take what they need.

This extended "industry" is based on two prerequisites. First, the products of Sam's Club have a high production level, and popular products such as cakes and desserts have good flavor and are very popular with consumers; second, although these products are expensive, they are very cost-effective after amortization. This actually reflects a problem - at a time when the single economy is prevalent, the family size of membership supermarkets such as Sam's Club is too unfriendly to singles.

At Sam's Club, a box of beef often costs hundreds of yuan, a box of cakes costs nearly one hundred yuan, and 500 grams of vegetables cost two digits... Therefore, some consumers jokingly call Sam's Club a "thousand-yuan store", meaning that once you go to Sam's Club, the total price of any few items you buy will exceed one thousand yuan. Although Sam's Club's products often come from high-quality supply chains, for some consumers, Sam's Club's pricing does bring some pressure.

In May this year, Sam's Club also became a hot topic due to the price difference of the same product. Some netizens found that in the Sam's Club App, the price of "The Cheesecake Factory American Imported Original Cheesecake 1.7kg" was 165.9 yuan in Hangzhou, but only 95.1 yuan in Shanghai.

At present, consumers have worn off their sense of novelty for Sam's Club, and many disputes over pricing have surfaced. The company's insistence on making family-size products and giant instant noodle buckets, which have repeatedly sparked discussions, reflects its ability to control traffic and set agendas, but also reflects the contradiction between singles and families.

The selling point of high cost performance is already very clear, but whether this selling point is attractive enough and can cover a wider range of people is still a big challenge. Even Sam's Club, which frequently plays with hot marketing, can hardly give a perfect answer.

3. High barriers to entry, a business that new brands can’t “grasp”

Scrambling for instant noodle buckets, long queues, and group buying are all accidental and unsustainable. Supermarkets are positioned in daily consumption scenarios, which requires them to be well embedded in consumers' daily lives, with a very low sense of presence but a very high sense of value. However, Sam's Club has too high a threshold for its customers. In other words, Sam's Club is too "picky" about its users. Unable to fit itself into the daily lives of Chinese residents, Sam's Club has to find ways to attract people's attention and boost consumer demand.

Although Sam's Club's financial report is very good, in China, a country with a population of more than one billion, Sam's ambitions have obviously not been satisfied. Sam's Club has not yet "captured" Chinese consumers. According to the China Council for the Promotion of International Trade Research Institute, the laws of retail format development in various countries show that a specific national income level corresponds to a specific retail format. China's current economic conditions are not the most ideal environment for warehouse-style membership supermarkets such as Sam's Club.

The sinking market that even Sam's Club cannot capture is undoubtedly a hell for other new brands. In the eyes of new entrants, the membership warehouse supermarket market is a tempting blue ocean, but it is definitely not a business that they can easily enter.

At present, first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen have been occupied by several leading brands, while the sinking market consisting of third-tier and lower-tier cities is far from reaching the corresponding economic conditions. This means that it is difficult for new brands to find their own niche market in the large track of warehouse-style membership supermarkets, and the strategy of relying on differentiation to help new brands avoid direct competition is not useful at all.

At the same time, warehouse-style membership supermarkets are asset-heavy models, which place extremely high demands on the company's supply chain strength, cost control capabilities, and private brand building capabilities. Sam's Club and other membership supermarkets have accumulated a lot of experience and bargaining power in the supermarket industry, which constitutes a strong business moat, and these are all things that new brands cannot quickly surpass.

The membership supermarket is an upgraded version of the shelf model, achieving the leap from "people looking for goods" to "goods looking for people".

The reason why consumers are willing to pay for membership is that supermarkets such as Sam's Club do provide value that ordinary supermarkets cannot provide. For example, Sam's Club will maintain insight and response to consumer needs, and work with suppliers to design and manufacture. Membership supermarkets such as Sam's Club can influence and control the supply chain, rather than simply moving the supply chain. In addition, membership supermarkets need to build their own brand matrix, which places high demands on the brand's supply chain strength, brand influence, and bargaining power.

At present, Sam's Club, Costco and HEMA are the undisputed three giants of my country's warehouse-style membership supermarkets. However, as a representative of domestic brands, HEMA's influence and strength have not yet reached the level of Sam's Club and Costco, and there is very little time left for other new players to catch up.

The pictures in this article are only used for picture introduction and are not for any commercial purpose.

Author: Hellshing

Source: New Consumption Think Tank