A quiet structural shift is underway in China's retail sector. Over the past decade, online e-commerce platforms steadily gained ground by undercutting offline channels on price. Now, against a backdrop of increasingly rational consumer spending, a new offline model is reclaiming price leadership—the hard discount retail format.
According to market analysis, Goldman Sachs has initiated coverage on two leading players in China's volume-based snack industry—BUSYMING and Fujian Wanchen Food Group Co.,Ltd. The firm assigned Buy ratings to both companies, with target prices of HK$496 and RMB 269, respectively, implying potential upside of 23% and 33% from current levels.
Goldman Sachs highlighted in its report that discount retail models, exemplified by volume-based snack stores, are challenging traditional supermarkets, convenience stores, and even e-commerce platforms through rock-bottom prices, direct sourcing from supply chains, and high inventory turnover systems. This trend is poised to become one of the most significant structural changes in China's retail landscape over the next decade.
The firm forecasts that the industry's Gross Merchandise Value (GMV) will achieve a compound annual growth rate of 13% between 2025 and 2028, with the market size reaching RMB 319 billion and the number of stores expanding to approximately 70,000 by 2028. By 2035, the market share of snack discount stores within the broader snacks and beverages market is expected to rise from the current 5.6% to 7.5%, with store count potentially reaching about 98,000.
A key long-term growth driver behind this expansion is the increased penetration of private-label products. Currently, the proportion of private-label brands in China's discount channels is significantly lower than the 20-30% seen in U.S. supermarkets. Given that private-label items typically offer gross margins 8 to 10 percentage points higher than branded goods, they represent a substantial source of long-term profit expansion.
**Rapid Ascent to Ten-Thousand Stores** The volume-based snack sector has experienced explosive growth over the past two years. Through consolidation and franchise expansion, the Chinese market has quickly evolved into a landscape dominated by two major leaders.
BUSYMING, formed from the merger of "Snack Busy" and "Zhao Yiming Snacks," has become China's largest leisure food chain retailer. Key statistics include: - Approximately 14,000 stores - Coverage across 28 provinces - Annual GMV of around RMB 55 billion
The other leader, Fujian Wanchen Food Group Co.,Ltd., has rapidly expanded through brands like "Haoxianglai": - Store count exceeding 15,000 - Annual GMV surpassing RMB 40 billion
Goldman Sachs estimates that these two companies collectively hold about 70% of the Chinese volume-based snack market, indicating a gradual evolution towards a duopolistic structure. This signals the industry's transition from early regional competition to a nationwide scale-driven phase.
**Repricing Offline Retail** The core appeal of volume-based snack stores is singular: low prices. However, Goldman Sachs emphasizes that this pricing strategy is not merely promotional but is built on a fundamental restructuring of the supply chain.
Traditional retail systems typically involve multiple distribution layers: Brand → Regional Agent → Wholesaler → Supermarket → Consumer. Each layer adds a markup, ultimately inflating the final price for consumers. In contrast, volume-based snack stores employ a direct procurement model that shortens the chain significantly: Brand → Discount Channel → Consumer. Companies further compress costs through three primary mechanisms: 1. **Scale Purchasing:** With store counts surpassing ten thousand, leading players gain stronger bargaining power through consolidated orders. 2. **Centralized Warehousing and Logistics:** National distribution networks help reduce per-unit logistics costs. 3. **High-Turnover Product Mix:** Stores typically stock 1,800-2,000 SKUs, frequently introducing new items and quickly phasing out slow-movers to enhance inventory turnover efficiency.
Under this system, prices for comparable products are typically 20-30% lower than in supermarkets and convenience stores. Goldman Sachs notes this gives volume-based snack stores a price advantage over e-commerce platforms for certain items.
**Shifting Consumer Priorities: Value for Money Takes Center Stage** The deeper driver behind the rise of volume-based snacks is a shift in China's consumption structure. Goldman Sachs observes a clear change in consumer behavior in recent years—a move from "brand first" to "value first" (Value for Money). Against a backdrop of moderating macroeconomic growth and more rational spending, consumers are increasingly prioritizing cost-performance ratios.
This trend closely mirrors the rise of hard discount retail in Western markets, where players like Costco and Aldi expanded rapidly during periods of consumer rationalization, ultimately reshaping their respective retail sectors. Goldman Sachs suggests China's volume-based snack model may be in a similar early stage of development.
**Lower-Tier Cities: Fertile Ground for Expansion** The rapid expansion of volume-based snack stores is also closely tied to the consumption potential of China's lower-tier markets. Consumer spending in Chinese counties now accounts for nearly half of total retail sales, with growth rates in third-tier cities and below generally outpacing those in top-tier cities.
Store locations are heavily concentrated in these regions. For instance, approximately 60% of BUSYMING's stores are located in county towns and townships. This "surrounding the cities from the countryside" expansion strategy allows companies to avoid high rents in major cities, reduce direct competition with large supermarkets, and quickly build regional network density. Goldman Sachs points out that once store density is achieved, supply chain costs can decrease further, creating a flywheel effect of scale.
Comparing potential industry store density to small-format modern retail chains in Japan and Korea, Goldman Sachs scenario analysis suggests room for an additional 220,000 to 390,000 snack discount stores in China. This could bring the total potential store count to between 770,000 and 940,000, indicating the current base of approximately 55,000 stores is still in the early expansion phase.
**A Strategic Dilemma for Brands, a Direct Threat to Convenience Stores** Discount channels are not entirely adversarial for brand manufacturers, but they do not offer growth without concessions. Goldman Sachs's value chain analysis indicates that brand manufacturers' gross margins in discount channels are typically compressed by about one-third compared to traditional wholesale channels.
However, this model also eliminates certain traditional channel costs, including distributor rebates, slotting fees for key accounts, display fees, and in-store promotion expenses. This is particularly attractive for mid-tier brands and generic suppliers, who often face higher channel costs in traditional systems. Discount stores allow them to achieve higher sales volumes through lower overall channel costs. This model of co-creating SKUs with channels is changing the traditional logic of brand development and sales.
While brand manufacturers face a strategic dilemma, convenience stores confront direct competition. Volume-based snack stores overlap significantly with convenience stores on several fronts: similar store size (around 130 square meters), comparable product mix (packaged snacks, beverages), and a highly similar customer base. A 2023 industry survey by KPMG indicated that 89% of convenience store operators reported significant GMV erosion due to competition from snack discount stores.
**Low-Margin Business: Scale is Key to Victory** Despite rapid expansion, the volume-based snack sector is not a high-margin business. The industry普遍ly operates on a classic "small profit, large sales" model, with gross margins around 7-8% and net margins approximately 2%. This means profitability is highly dependent on economies of scale and supply chain efficiency.
Goldman Sachs believes future competition will primarily focus on three areas: 1. **Store Network Scale:** Companies that first establish a nationwide network will gain procurement advantages. 2. **Supply Chain Capability:** Direct procurement ratios, logistics efficiency, and inventory turnover will directly determine cost structures. 3. **Private-Label Development:** Following the path of overseas discount retailers, private-label products are expected to become a crucial source of profit margin improvement.
**Broader Potential: From Snacks to Community Retail** In Goldman Sachs's view, the true value of volume-based snack stores extends beyond the snack market itself. More importantly, this model has demonstrated that offline retail can still compete on price through efficiency gains. Once the supply chain and store network mature, the discount retail model could easily expand into more categories, such as community food retail, daily consumer goods, and instant consumption products.
This suggests that volume-based snacks might only be the first step in a broader discount retail revolution in China. The past decade's dominant narrative in Chinese retail was the rise of e-commerce. The next decade could see a significant reconfiguration of offline channels. Companies like BUSYMING and Fujian Wanchen Food Group Co.,Ltd. are challenging traditional retail pricing systems through supply chain efficiency and scale advantages. If this model can be successfully replicated, the fundamental logic of competition in China's retail industry could shift from brand premium competition to efficiency and cost competition. This is precisely what Goldman Sachs describes as discount retail "structurally changing" Chinese retail.
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