Soochow Securities has released a research report providing an in-depth analysis of the service sector. The research team posits that with China's total retail sales of consumer goods reaching 50 trillion yuan in 2025, leaders in specific chain industry segments must pursue nationwide expansion to achieve scale. Concurrently, a broad customer base, robust single-store profitability, and strong competitive advantages are particularly crucial for these leading companies.
The report recommends focusing on: 1) Beverage chain leaders with strong penetration into lower-tier markets, such as Mixue Group (HKG: 2097) and Guming (HKG: 1364); 2) Snack discount chains like Busyming (HKG: 1768) and Wanchen Group (SHE: 300972); and 3) Other categories, including supermarket and department store leaders, hotel chain leaders, and MINISO Group (HKG: 9896), which possess reform capabilities.
Defining Service-Based Commercial Models
Examining developed nations, Japan's convenience store sector serves as an example. Its sales have long rivaled hypermarkets, roughly doubling department store sales, while maintaining steady growth. The top three players hold over 90% market share, indicating a stable, highly concentrated market where leading companies achieve significant scale, revenue, and profits. For instance, 7-Eleven Japan reported approximately 20,000 stores in 2024, with total sales/revenue of 256.57/42.94 billion yuan and net income in the billions. Similar distinctive formats exist in Mexico, North America, and Europe. The underlying success factors are: 1) Meeting the needs of a broad consumer base; 2) Developing a profitable single-store model through capabilities in products, supply chain, and operations; 3) Possessing competitive advantages that enable standardized expansion.
China's Market Landscape and Opportunities
China boasts a massive consumer base, offering opportunities in both goods and services. The immediacy and experiential nature of physical retail formats remain irreplaceable. With total retail sales hitting 50.12 trillion yuan in 2025, lower-tier markets represent a significant and fast-growing segment, necessitating nationwide expansion for chain segment leaders. Furthermore, as economies mature, the service sector inevitably becomes dominant. Frequent supportive policies in China aim to enhance supply and optimize reforms. Service-based commercial businesses with scaling capabilities not only benefit the companies themselves but also promote employment and consumption.
While the evolution of retail channels and the rise of e-commerce have somewhat diminished the need for one-stop shopping at physical stores, the growth of instant delivery and retail confirms diverse fulfillment needs. This presents greater challenges for small-format stores to achieve scaled profitability across all categories, underscoring the unique value of immediacy and in-store experience.
First Area of Exploration: Beverage Chains with Lower-Tier Market Penetration
The beverage chain industry features strong demand and high customer loyalty, with the market size reaching around 350 billion yuan in 2025 and a compound annual growth rate of nearly 20% over the past five years. Compared to sectors like fast food or marinated snacks, beverage chains benefit from relatively smaller regional demand variations and higher barriers to entry for individual operators. The standardization of stores confers stronger scale advantages. The single-store economic model in this sector demonstrates higher gross and net profit margins alongside a relatively shorter payback period. Leading franchisors also enjoy stronger pricing power or profit advantages.
High-quality leaders are expanding into lower-tier cities. Mixue Group possesses competitive strengths across procurement, production, logistics, R&D, quality control, digitization, marketing, supplier management, and membership, leaving room for its scale to potentially double. Guming also holds competitive capabilities, outperforming peers in 2025. With plans for single-store model optimization in 2026, it has the potential to expand to 30,000-40,000 stores.
Second Area of Exploration: Snack Discount Chains with Core Advantages
From 2020 to 2025, China's bulk snack industry grew from 10.9 billion yuan to 214 billion yuan, an 81.5% CAGR. This growth is driven by category consumption and demand for extreme value-for-money, as well as the competitive performance of leading players. Quality leaders build consumer mindshare through product and brand strength, leverage scale for cost advantages and upstream customization capabilities, and continuously deepen expertise in warehousing and fulfillment, franchise system operation and management, and full-process digitization. According to company disclosures, Busyming, Snack Busy, and Haoxianglai accounted for 23.6%, 19.0%, and 30.3% of industry GMV respectively in 2025. Long-term, both the industry and leading companies have the potential to double their store counts.
Additional Sectors: Supermarket and Department Store Leaders with Reform Capabilities
As one-stop shopping demand slows, supermarket and department store leaders are upgrading their service-based commercial models through various methods: 1) Revamping products, services, and business models. Adjusting profit models and improving product offerings, services, staff, and store layouts to enhance the consumption experience and drive single-store growth. 2) Content-driven strategies. For example, capitalizing on trends like "GuZi," companies like Bailian Group and Wangfujing Group are leveraging their existing locations and customer traffic to transform spaces, introduce brands, and host events, using anime and related content to turn shopping into a destination activity. 3) Innovations in value-for-money and experience. Examples include outlet malls and youth-oriented brand building. Leading companies' outlet stores often achieve higher same-store sales growth over the long term compared to other formats, and are increasingly focusing new store openings on improving the efficiency of existing assets and format upgrades.
Investment Recommendations and Risk Factors
The report reiterates that with a 50 trillion yuan retail market, chain segment leaders require nationwide scale and must also possess a broad customer base, profitable single-store models, and competitive strength. The concept of "service-based commerce" is introduced to identify chain industry leaders with both scale and profit potential. Core recommendations include: 1) Beverage chain leaders with lower-tier market penetration like Mixue Group and Guming; 2) Snack discount chains such as Busyming and Wanchen Group; 3) Other categories including supermarket/department store leaders, hotel chain leaders, and MINISO Group with reform capabilities.
Key risks highlighted include: 1) Consumer spending growth falling significantly short of expectations; 2) A severe intensification of industry competition; 3) Leading companies failing to meet expectations regarding expansion or cost control.
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