The role of physical stores in China has changed significantly in recent years. From 2019 to 2022, offline retail experienced slow or even negative growth due to COVID-19, with brick-and-mortar stores already feeling the impact of consumers moving their buying habits to online shopping even before the pandemic. As a result of the pandemic, this trend accelerated, leading to decreased foot traffic and sales for traditional retailers.
However, with the easing of COVID-19 restrictions in China and the government's supportive measures, along with the country's robust economic fundamentals, traditional retailers are expected to rebound. To thrive in this fiercely competitive market, offline retailers have been constantly evolving their strategies to meet the demands of discerning consumers. In this article, we will showcase three innovative Chinese retail chains that have differentiated themselves and emerged as successful players in the industry.
Freshippo: New Retail Pioneer
As a pioneer in new retail, Freshippo is no longer a new name for us. The chain boasts an extensive national presence, with approximately 350 physical stores nationwide and 61.2 million monthly active users across all platforms. Its success stems from its mobile-first shopping experience, 30-minute delivery options, and diverse selection of products, including live seafood with cook-in-store options.
Moreover, Freshippo has been experimenting with different store formats to expand its reach and capabilities in China, while the original supermarket concept remains at the heart of most Freshippo locations. For instance, Freshippo Farmers’ Markets cater to price-sensitive consumers living in residential neighbourhoods on the outskirts of top-tier cities. This concept offers fresh produce sold in bulk, daily essentials, digitally enriched features, and 30-minute delivery services. Similarly, the Freshippo Mini stores, which are roughly one-tenth the size of a typical Freshippo store at 300-500 square meters, cater to lower-tier markets in China, where high-quality products are less accessible. Additionally, the Freshippo Station fulfils fresh-produce orders for residents living in urban residential areas where Freshippo supermarkets are not yet available. Other versatile formats, such as Freshippo F2 and Freshippo Pick'n Go, offer ready-to-eat foods, catering to the needs of office workers and busy urban residents in central business areas.
Pang Dong Lai: Supermarket with excellent service
Pangdonglai Company, which has its headquarters in Xuchang City, Henan province, was established in 1995. After almost three decades of growth, it has earned a prominent reputation in China, so much so that business luminaries Jack Ma (cofounder of Alibaba Group) and Lei Jun (cofounder and chairman of Xiaomi) have visited the company to study its operations. Despite having a limited presence of around 30 stores in Henan province only, the company's reputation extends throughout the country and the supermarket itself even becomes a scenic spot. Notably, unlike competitors such as Freshippo and Sam's Club, Pangdonglai has deliberately avoided opening stores in tier 1 and 2 cities, even including the capital of Henan, in order to mitigate the intensity of market competition and maintain its price advantages.
Pangdonglai is renowned for its meticulous and thoughtful service. The entrance and parking lot offer self-service pet storage stations with animal drinking water, excrement bags, and emergency bells. The nursing room is a fully equipped "small postpartum centre" with baby cribs, bottle warmers, water dispensers, sterilizers, mini-fridges, and constant-temperature water dispensers. The restrooms are equipped with Dyson hand dryer machines, combs, cotton swabs, hand creams, and hair clips. Each floor has self-service water dispensers and 7 types of shopping carts to cater to different groups of people. Many products come with useful tips to help consumers use them better. Customers can return any item they are not satisfied with, even if they have consumed most of it. Specifically, if customers are unhappy with a movie they watched, they can receive a 50% refund within 20 minutes after the movie ends (with the other 50% retained by the cinema). This refund policy is an almost unprecedented policy in China.
Pangdonglai's exceptional service is underpinned by its innovative business model. In 2021, the company became the first in its industry to promise a profit margin of only 20% and included cost price, origin, and supplier contact information on its product labels. This approach requires a strong business foundation, which Pangdonglai has developed through the early adoption of self-procurement and self-operation strategies. In addition, Pangdonglai has actively developed its own brand to generate higher profit margins.
HotMaxx: Discounter selling mainly Soon-to-Sxpire Items
HotMaxx, a new entrant to the Chinese retail market in 2020, has made significant strides in expansion, with nearly 500 outlets in operation to date. The company's impressive growth can be attributed to its strategic focus on offering high-quality products at low prices, which resonates strongly with value-conscious consumers. In a time of economic uncertainty, the affordability of HotMaxx's offerings has proven to be a major selling point, especially for low- and middle-income shoppers. The company's ambitious plans to open an additional 4,500 stores by 2025 is a testament to its commitment to expansion and capitalising on the growing demand for value-priced products.
The key to HotMaxx's low-price strategy is its focus on soon-to-expire food and drink items, which allows the company to offer these products at deeply discounted prices. This approach has garnered significant appeal amongst consumers seeking to maximize value while minimizing costs. Moreover, the company's product selection extends beyond just food and drink, as it also offers a range of household goods, personal care items, and other essentials, all at highly competitive prices.
In conclusion, the retail industry in China is rapidly changing, and innovative retailers are constantly rethinking their strategies to stay ahead of the competition. If you want to learn more about these interesting retail cases or explore ways to better engage Chinese consumers, our team of experts is here to help.
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