Since 2023, discounting, low prices, and value for money have become widespread social sentiments. E-commerce platforms have been locked in price wars, offline retail is turning increasingly toward discount models, and even brands that once positioned themselves as part of a “consumption upgrade” movement are now lowering their prices. For mass consumer goods, any price increase or high markup feels almost like an original sin.
Apart from the explosive growth of snack brands, other phenomena related to the discounting trend include Pinduoduo surpassing Alibaba in market capitalization, supermarkets transforming into membership-based discount stores, and even 1688 becoming a sourcing platform for many young people. Domestically, this wave involves companies like Snack Is Busy, Freshippo, and Pinduoduo, while overseas, retailers such as Aldi, 7-Eleven, and Gyomu Super are also part of the picture.
On the surface, this reflects the rigid demand for low prices and high cost-performance. But beneath that lies a deeper pattern: the industry is undergoing a phase of efficiency improvement and bubble reduction. Brands, distribution channels, dealers, and consumers are all about to be reshaped in this new round of transformation.
So, following this inevitable trend, what should brands do? What should dealers do? And what should channels do?
To explore these questions, Gloria Gu, retail-focused investor at GenBridge Capital, was invited to join Zhaibo(窄播)’s podcast. The following is a transcript of this episode.
Understanding the hype around the snack market
Zhaibo: Let’s start with some recent headlines. In the second half of 2023, two major emerging snack companies—Snack Is Busy and Zhao Yiming Snacks—merged. And some strategic investors and secondary market investors reached out to us for discussions after we published articles on snacks and discounting business. What surprised me personally is that although this segment isn’t that large, IPO companies in this sector make several billion RMB in annual sales, it’s receiving an incredible amount of attention. Regarding this niche market attracts so much focus and capital, what are your thoughts on that?
Gloria: From a scale perspective, this market is actually very large. The snack category alone exceeds 500 to 600 billion RMB, and if you include beverages, it becomes a trillion-RMB market.
The reason this space feels like a niche is largely due to its fragmentation. There are numerous subcategories — spicy snacks, marinated snacks, meat-based snacks, baked goods, and more. And within each of these, the brand landscape is equally fragmented, mainly because upstream entry barriers are relatively low. Take meat snacks or baked goods, for example: with just a few hundred thousand RMB, it’s entirely possible to set up a small production workshop and enter the market.
Only a few snack segments have strong brand power due to large upstream investment, long supply chains, and involvement in things like crop cultivation and high-end machinery. One example is the puffed snack segment, where Lay’s is dominant.
As for the snack industry’s surge over the past year, it really comes down to its unique nature—the speed at which the entire distribution channel has shifted has far exceeded everyone’s expectations. More than one leading brand opened 100–200 stores in a single month, with a net increase of 1,000 to 2,000 stores over the year.
Zhaibo: The most direct sign of how hot the sector is, must be the influx of capital, right?
Gloria: Exactly. First, there’s the capital from franchisees, which is very visible—franchisees are looking for investment projects with relatively high returns, and in this cycle, snack brands clearly offer more stable and faster returns compared to other franchise options.
Second, both financial investors and strategic/industry capital have also entered the sector. Why are industry players turning their attention back to this segment? Because they’ve experienced firsthand how changes in distribution channels are reshaping both brands and the entire supply chain. This new downstream channel, with its extremely high sales efficiency, is doing two things: first, disrupting the traditional pricing structures in offline retail; second, forcing major changes in how channels are structured and connected, brands need time to adapt.
Take Yanjin Shop, for example. Its early distribution was focused on KA. But within a year, Snack Is Busy replaced Walmart as its biggest client. In some mature provinces, a single channel can now account for 10 to 15% of the entire snack category, and that share is still rising. When a single retail format starts to take up that much space in a category, it gains very strong bargaining power upstream.
Zhaibo: What was unique about 2023 that led to such dramatic shifts in the snack distribution channels?
Gloria: From the consumer side, there was a shift in overall consumption mindset, consumers became more value-conscious, and discount formats naturally benefited from this trend. From the industry side, several leading players had already completed their initial rollouts in some provinces by 2022. So by 2023, they were entering a new phase of intensifying their presence in their core markets, which accelerated the pace significantly.
Zhaibo: Why did M&A happen so early in this industry? Usually, M&A comes much later, when an industry reaches maturity.
Gloria: From a lifecycle perspective, 2023 was still an acceleration phase for the category, so the timing of these mergers does seem a bit early.
There are two main reasons. First, there were industrial leaders proactively initiating acquisitions, which made M&A a serious strategic consideration earlier than usual. Second, in some provinces, we were already seeing signs of over-saturation and excessive competition. M&A became a rational way for players to avoid internal friction.
During a boom phase like this, it’s not uncommon to see temporary over-expansion. Some players get eliminated, and then the industry returns to a more balanced state.
Zhaibo: Which regions are experiencing the highest competitive density? I’ve heard the market in Guangzhou is especially intense, and the model actually originated in Hunan, which must be competitive as well.
Gloria: Hunan is definitely one. Both veteran and newer players have heavily built out their presence there.
Guangdong is also a very attractive market. It has strong overall consumption power, and in particular, the lower-tier cities and townships have enough demand density to support rapid expansion. Several leading players are actively expanding in Guangdong.
Jiangxi and Hubei, being adjacent to Hunan, are also quite competitive. Other key areas covered by top players include Sichuan in the west, Jiangsu and Zhejiang in the east, and Fujian in the southeast. Most companies use one core province as a base and then radiate outward to neighboring regions.
Zhaibo: So Guangdong is a lucrative market—not just because it’s economically developed, right? For example, in the beverage industry, everyone also sees Guangdong as a must-win market.
Gloria: When I call it a lucrative market, the core reason is that it has both strong purchasing power and high demand density. If you look at it from a convenience store perspective, Guangdong has the highest store density and relatively high per-store output across all provinces in China. That makes it especially suitable for community-based formats like snack discount stores.
From Snacks to Retail: A borderless battlefield
Zhaibo: Earlier, you mentioned convenience stores. In a traditional convenience store, snacks account for about 10% tp 15% of total sales. So when snack discount stores pop up in neighborhoods, are they eating into the convenience store business?
Gloria: They definitely are—especially the ones that aren’t particularly competitive.
Retail is hard to define with clear boundaries. Even in mature markets, there’s constant competition and convergence across categories. For example, in Japan, 7-Eleven also sells local fresh food.
In traditional convenience stores, snacks are definitely a major profit driver, along with beverages, cigarettes, and betel nuts—especially in southern China.
Snack discount stores that can go deep into townships offer better and more diverse products, more convenient neighborhood access, and lower prices. So yes, they’ve absolutely taken some share from traditional convenience stores, especially in snacks and drinks, where the latter can’t compete on price.
But competitive convenience stores still have value. Take some stores in Changsha, for example. They offer fresh food and ready-to-eat products like oden, rice balls, and chilled milk—covering multiple temperature zones. This creates a clear differentiation from snack discount stores, which mainly offer packaged food. The more overlap there is between product categories, the more intense the competition.
Multi-temperature offerings are a defensive category for convenience stores. They require faster inventory turnover at the front end and stronger logistics at the back end. Snack discount stores, in contrast, mostly focus on shelf-stable packaged goods, and overall, they don’t yet have the capability to compete with mature convenience store systems.
Zhaibo: Could snack discount stores potentially add multi-temperature items in the future and compete directly with convenience stores?
Gloria: I think that’s a strategic choice. Part of the reason this category has grown so quickly is because, from the beginning, it chose to outsource the more complex capabilities to third-party providers, instead of incorporating that into their own systems. That keeps operations fast and costs low. I think this decision is one reason they’ve been able to scale so rapidly.
Zhaibo: We spoke with the founder of a snack discount chain who compared his model to Mixue Ice Cream & Tea. He said they open stores in townships, and wherever Mixue goes, they can go too—because Mixue has already validated the demand. Do you think snack discount stores can really go that deep into the market?
Gloria: Honestly, if you visit small stores in more remote areas, you might find that prices are actually higher than in tier-one cities. That’s because traditional retail relied on deep distribution networks. To reach townships, goods had to pass through multiple layers: brand → tier-one distributor → tier-two distributor, and so on—each one taking a cut.
So the more remote the area, the more middlemen, and the higher the final price. You might even find Oreos in township stores priced higher than discounted Oreos in top-tier cities. That’s why, when snack discount stores enter these lower-tier markets, they can still create a strong perception of value.
Zhaibo: Have you visited any of these rural snack discount stores? What do they look like?
Gloria: I’ve been to lower-tier areas in northern Guangdong and Jiangxi. They’re quite different from stores in higher-tier cities. There’s a saying: In lower-tier markets, stores need to “stand tall and stand out”; in higher-tier markets, you have to be “everywhere, all at once.” What that means is: in a township, there may be just one main street, and the goal is to open the flashiest store on that street—big enough to attract the entire town’s foot traffic.
But in a prefecture-level city, you might need to open five or ten stores just to make a dent. There, you first focus on major business districts, then gradually expand into residential neighborhoods. So the site selection strategy, speed, and format are quite different.
Zhaibo: This year, it feels like "value for money" has become a universal demand. But it’s rare to see snack discount stores in tier-one cities. Is it because there’s no such demand? Or are they just not viable in big cities?
Gloria: I wouldn’t say there’s no demand—it’s just that the economics don’t work. First, rents and labor costs in tier-one cities are higher, so you need higher gross margins to make a store viable. Second, the competition is more intense. Consumers have more purchasing channels. For instance, I might just lie at home and order something in Meituan. Or I’ll throw a few snack items into my cart while doing a grocery run. The consumption landscape is more layered and diverse in big cities than in lower-tier markets.
A new round of power struggle between channels and brands
Zhaibo: One major reason why investors are interested in snack discount stores is the expectation that they can become a large-scale, nationwide retail channel. But retail in China has always been fragmented, with many regional giants. Can snack discount stores really become a nationwide chain?
Gloria: I think this is a matter of strategic path. After all, this is a retail format, so most players start by intensifying their presence in specific regions. Some choose to expand across multiple provinces early on, but the majority focus on penetrating three or four key provinces first to build brand presence and regional dominance.
Once stores start competing door-to-door, since they all sell standardized packaged goods, there’s not much differentiation at the product level, and price wars become the primary tactic.
So the first stage is about front-end store density. The second stage is a contest of product and supply chain capabilities.
When it comes to products and supply chains, the test lies in which giants with thousands to even 5,000 stores, can build competitiveness through deeper supply chain integration and product differentiation. That’s a matter of internal strength. If they can stand out in these areas, then national expansion becomes possible. In fact, the wave of mergers and acquisitions in 2023 has already accelerated this process to some extent.
Zhaibo: If everyone is aiming for national expansion, that inevitably means there will be a few national retail giants. That’s going to be tough for brands because it means price erosion. Some brand owners are already feeling the pain.
Gloria: That’s true. The emergence of these new channels has shaken up the old system. Your first reaction might be that these discount stores are slashing prices — selling at 30% less than traditional channels. How can brands survive that?
Zhaibo: A brand owner told me yesterday: “I never imagined that after all these years, it’d be the channel that takes us down.” What should brands do? Some don’t want to become OEMs or ODMs for retail channels. If they refuse, does that mean they’ll be squeezed out?
Gloria: What’s happening is a reshaping of the supplier–retailer relationship. Historically, this relationship has been adversarial — fighting over how much margin the retailer can squeeze from suppliers. But now, with the rise of discounting and the shift from a seller’s market to a buyer’s market, collaborative supplier–retailer relationships are more sustainable than combative ones.
What does a collaborative relationship look like? Take 7-Eleven in Japan. As a retailer, 7-Eleven defines the product, but it collaborates with logistics providers, manufacturers, brand owners, even container and condiment suppliers to jointly develop products. This aligns the interests of the entire supply chain — that’s a new model of cooperation.
Of course, from the brand’s perspective, this is painful. A low-price channel enters and cuts into their margins, disrupts their pricing system. But the reason the new channels are so powerful is because they’re more efficient — and they’re taking market share from less efficient ones.
The brands that figure out how to work collaboratively with these more efficient channels — rather than resist them — will find more growth opportunities. And low prices don’t necessarily mean lower profit. With an improved supply chain and better alignment, the entire industry becomes more efficient.
Zhaibo: Is this kind of transformation only happening in the snack industry, or could it spread to other sectors?
Gloria: It will absolutely spread across all channels. In 2023, Freshippo fully embraced discounting, and Pinduoduo’s market value briefly surpassed Alibaba’s. The snack category just lends itself more naturally to discounting — in other sectors, the transition may be slower.
As for your question about what brands should do, this wave of change is a challenge not just to brands’ pricing power, but to their overall business models and capabilities. It’s not simply a fight between brands and channels.
And brands shouldn’t assume channels will call all the shots going forward. China's retail sector is still young, and there’s a shortage of real merchandising professionals. Many emerging retail formats are actually reliant on brand owners and suppliers to propose better, more innovative products. So it's not about retailers dominating — it's about clearer professional boundaries and collaboration. That’s the future: brands and retailers working together to deliver high-quality, high-value products to consumers.
In other words, the streamlining of the supplier-retailer relationship between brands and channels today has led to a more professionalized and clearly defined division of labor across all levels. For example, retail serves as a touchpoint that is closer to consumers, responsible for understanding their needs and offering input on product definition.
Zhaibo: So the takeaway is that not every channel has the ability to develop or define its own private label brands. Nor does every channel need to "de-brand" in order to do discounting, right?
Gloria: Exactly. And it’s very difficult, too. Not every channel needs to own the ability to create private labels. It all depends on the category and the structure of the supply chain. From the consumer perspective, some categories naturally carry strong brand equity — you think of a specific brand when you think of a product. For others, where product differentiation is minimal, the value of any brand is limited.
Also, not all brands are relegated to OEM/ODM roles. In many categories with high brand concentration, the channel is actually the weaker party.
For a channel to build successful private labels, it must first earn consumer trust. Why would a consumer choose your private label product? Because they trust your channel. And for private labels to succeed, they must either offer exceptional value on core items or feature strong differentiation.Look at Sam’s Club — they clearly have this capability. There are many Sam’s-exclusive SKUs that sell over 100 million RMB annually. For a single supplier, two or three such products are already massive.
Zhaibo: I heard someone from Mondelez say that they co-developed a thin Oreo with Sam’s Club, and the 50-store test launch performed about as well as a nationwide rollout of a new product. That’s powerful.
Gloria: Exactly. And that’s just one product. Sam’s has many private label or co-developed items that become blockbusters.
Zhaibo: So again — is boosting private label share the only way to do discounting? Because we’ve seen some channels aggressively purge branded products in their push toward private label. Is that really a healthy or necessary path?
Gloria: Private label should never be the goal in and of itself. First, the channel must build consumer trust — only then will PB (Private Brand) items sell well.
Second, Chinese market is extremely diverse, which means a wide variety of products is still essential. That’s different from overseas markets. In Europe and the U.S., consumers often show brand loyalty to specific low-differentiation items — like certain baked goods (croissants, baguettes, etc.).
Third, China has huge variation across regions and city tiers. Consumers in top-tier cities are already well-educated about product quality — they know how to read ingredient labels on milk, the difference between plant-based and dairy cream, and what price counts as good value.
The original intention of PB is to own the entire value chain, pass savings to the consumer, and either create traffic drivers or margin winners. But consumers must have the ability to evaluate product quality to build trust in PB products.
So while top-tier consumers may already have this rational consumption mindset, in lower-tier markets — second-tier, third-tier cities, and rural towns — people might still believe “Oreo is the best biscuit.” In that context, developing private label snacks requires consumer education, and it's not guaranteed to succeed.
Lastly, even globally, while retailers like ALDI and 7-Eleven have built vertical supply chains, others still operate more like trade-based platforms, selling a mix of name-brand and second-tier branded goods. OK Store in Japan is a great example — it’s very popular, and it doesn’t rely solely on private labels.
So, there are many ways to achieve discounting businesses — not just by going upstream and building private brands.
Snacks: The first shot in the discount retail wave
Zhaibo: I remember GenBridge has an internal saying: snacks are the first shot in the wave of retail discounting. Why snacks?
Gloria: First of all, snacks are a relatively vertical category, which makes product curation naturally easier compared to more comprehensive categories. But grocery as a retail format involves a mix of subcategories—snacks, beverages, daily essentials—some high-frequency, some low-frequency, and many secondary or tertiary categories.
Second, because snacks as a category are inherently fragmented, it’s relatively easier for channels to integrate.
Third, the overall value chain in snacks is thick enough. The reason discount channels can exert influence is because they redistribute value across the chain—cutting out some middle layers and reallocating profit shares.
Lastly, the logistics barrier for packaged food is relatively low, which contributes to faster development.
As consumers’ willingness to spend changes, and more brand owners in other categories become willing to participate in discount retail, we’ll see further experimentation beyond snacks.
Zhaibo: So when you say other categories will explore further, do you mean industries outside of snacks are also pursuing similar transformations?
Gloria: Not necessarily vertical categories. We can look at some strong international examples for reference—like community-based grocery formats that cover a wider range of products. There’s definitely potential.
Zhaibo: In our internal discussions, we often describe snack discount stores as the offline version of Pinduoduo. But aside from snacks and fresh produce, a lot of discounting already happens through Pinduoduo and e-commerce. It feels like there’s not much room left elsewhere. Do you see opportunities for discounting in more general merchandise categories?
Gloria: E-commerce performs best in standardized and medium-to-low frequency goods. If we return to community retail formats—like fresh produce, snacks, fruit—these are vertical formats that have emerged around basic neighborhood infrastructure.
What they all have in common is high purchase frequency and close proximity to consumers. That proximity plays a big role in consumer decisions. For example, if I used to have to walk 30 minutes to a supermarket, but now only need 5 minutes to reach a fruit or fresh grocery store downstairs, that satisfies my needs in the most fundamental way.
Also, grocery as a retail format has strong vitality not just in China but globally, because consumers still want one-stop shopping. Imagine coming home from work and seeing a full-assortment grocery store with good prices right at your doorstep. There's no reason not to shop there.
Large supermarkets have grocery too, with tens of thousands of SKUs. Convenience stores offer a more curated selection for immediate needs. Today there’s also O2O and hard discount models. All of them are centered around household needs—meals, snacks, breakfast, afternoon tea, daily life.
Consumer needs and scenarios are becoming more segmented and stratified. The key is matching products, people, and channels to those needs—while ensuring the business model still works.
Zhaibo: If we look at online, Pinduoduo achieves discounting mainly in mid-to-low end and standardized product categories. Can we consider that a form of discounting? How do you see Pinduoduo’s role in the broader discount movement?
Gloria: It’s all about a fundamentally different procurement system and traffic model. Pinduoduo has established a very clear value proposition around discounting. At its core, online or offline, discounting is about streamlined, curated product selection, and an “everyday low price, everyday low cost” philosophy.
Pinduoduo’s business flywheel is straightforward: use low prices to drive traffic, convert traffic into pricing power, and then use that pricing power to further squeeze the supply chain for even lower costs. It sounds simple enough, but what really matters is the procurement and traffic system that allows the flywheel to turn.
Its rise this year definitely reflects changes in consumer demand and willingness to purchase, but more fundamentally it reflects a break from traditional e-commerce procurement and traffic allocation.
First, Pinduoduo maximized the weight it places on low pricing, which gives it a much higher efficiency in identifying low-cost offers compared to traditional KA-style procurement. It encourages suppliers to compete, and those with the lowest prices gain more exposure.
Second, on the supply side, it absorbed some of the factory or white-label sellers that other platforms wanted to phase out during their shift toward premium consumption. Offline, we talk about "everyday low cost"—Pinduoduo helps streamline that. It’s a link-based model rather than a storefront model, reducing operational complexity for merchants. It also doesn’t demand fast fulfillment, which lowers merchant barriers further.
From this angle, it empowers the front-end with low prices and drives traffic, then leverages that traffic within 48 or 72 hours to push back on the supply side and reduce prices even further.
In short, yes—it’s absolutely pursuing discounting. And as the platform evolves, it’s moved beyond just “cheap and low quality” to striking a balance between low price and good quality through subsidies and service improvements.
Retail is a business that requires constant cleverness
Zhaibo: When we talk about discounting opportunities, Pinduoduo is certainly one. Then we have snack discount stores. Are there any other discounting opportunities?
Gloria: So far, everyone is experimenting with full-category discount stores. Even Freshippo is undergoing its own discount transformation. There are players in cities like Chongqing, Nanjing, and Xi’an also exploring full-category discount formats.
Shanghai is a representative market. For example, the recently shuttered stores like Biyide and Aldi were both experimenting with community-based discount models. Other regions are also seeing different formats—Henan has Duoletun, Zhekoniu, and Xunwushe; the Southwest has Outler and Tiaoma; the South has Chaohuimai and Aizhekou.
I believe many discount formats will emerge, especially within grocery-related categories. The differences will lie in store sizes, expansion strategies, product curation methods, category selection, and gross margin models. There’s not yet a mature, unified "Chinese discount model." The entire industry is just getting started.
Some players are focusing on communities—like Tiaoma and Duoletun—curating product assortments tailored for local daily life. Others, like HotMaxx and Outllets, choose to go into shopping malls, so they stock products to suit mall-based traffic and customer needs.
So especially for grocery, the core is always dynamic matching of people, goods, and places. Retail doesn’t work with dogmatism. It’s not about insisting on high private label (PB) ratios for the sake of it. Different consumers, different competition environments—everything is always changing.
Zhaibo: Aldi adjusted really quickly in Shanghai.
Gloria: When Aldi first entered Shanghai, it wasn’t positioned as a hard discount store. It was more like a boutique supermarket, which allowed for slightly higher product and gross margins initially.
But by 2023, I think they realized the environment was changing. So they started reinforcing a more discounted, everyday low price image and made more operational and cost structure adjustments.
That’s why retail is a business that requires you to stay smart all the time. Buffett and Munger categorize businesses into two types: smart once and stay smart. Smart once businesses are driven by a moment of innovation—you invent something, and it gives you a runaway lead.
But retail has to stay smart, because you’re always under threat. If you open a successful retail store, your neighbor can quickly copy your strategies. There’s no such thing as a static model—you have to continuously adapt to competition.
Most successful large retailers thrive precisely because they embrace change.
7-Eleven always highlights in its public materials that its history is one of constant adaptation. Even today, it’s adjusting its category structure in response to Japan’s aging population and dual-income household trends. OK Store, a discount supermarket in Japan, saw how sensitive Japanese consumers are to fresh food and adjusted its product mix on top of the Western-style EDLP (Everyday Low Price) model. The hard discount pioneers—Aldi and Lidl—also evolved beyond their original 600-SKU model, refining and expanding their product range, merchandise structure, and positioning to better meet consumer demand.
Retail is a process of constant dynamic adjustment. Whoever can better identify and fulfill consumer needs amid changing environments will succeed. The core is about making effective local adaptations.
Zhaibo: You’ve observed many discount formats in Japan. Which one left the deepest impression?
Gloria: Gyomu Super. It started as a B2B wholesale channel and gradually transformed into a B2C retail format. Its guiding principle is low price but unique.
They achieve uniqueness in two ways. First, by sourcing globally—bringing in distinctive frozen goods from countries like Italy and Spain. Gyomu Super is the only retailer in Japan where I’ve seen "LIUM" (a Chinese preserved plum brand).
Second, they took advantage of Japan’s low production capacity utilization to acquire a lot of high-quality capacity at low cost. In certain high-turnover categories, they achieved vertical integration from manufacturing to retail. This allows them to maintain low prices even when facing cost fluctuations.
For example, they sell a type of mayonnaise-based salad dressing where oil is the main ingredient. When oil prices rise, their in-house manufacturing capability allows them to adjust the formula to use less oil—without compromising on taste—so they can keep retail prices stable.
When other retailers face rising raw material costs, they often have no choice but to pass the price increase to consumers. But Gyomu Super can maintain price stability through vertical integration. That’s a major competitive advantage.
Zhaibo: If we want to achieve “good quality at low price” in China, we’d also need to build deep ties with manufacturers. But in the case of Gyomu Super, they bought factories during a favorable period. Do we also need to acquire factories to achieve vertical integration? Or are there other ways to achieve discounting through manufacturing-retail alignment?
Gloria: There are two layers to that question. The first is about the path to discounting: one is through vertical supply chains, and the other is through trading-based supply chains. The latter doesn’t involve manufacturing—it focuses more on shortening the transaction chain or scaling up purchasing power to achieve discounts.
As for vertical supply chains, there are also two types depending on the category and how mature and specialized its upstream supply chain is.For instance, Gyomu Super achieved vertical integration in certain high-turnover categories, partly because the acquisition cost was favorable at the time.
Seicomart, a convenience store chain rooted in Hokkaido, does it all itself — from growing ingredients to logistics, retail, and food prep. It’s a fully vertical, manufacturing-led supply chain.
7-Eleven also has its own private label brands. But most of the time, it doesn’t own factories. It acts as a supply chain orchestrator—it defines the product, owns the consumer insights, and controls the sales channels. So even without equity in manufacturing, it can still lead production.
Zhaibo: So it’s about the nature of the product category. And if you’re running a trading-based model, it’s about being a value-adding orchestrator who can influence and manage the supply chain upstream and downstream.
Gloria: Exactly. China’s supply chain is already mature and competitive. That’s actually a good thing for the downstream—whether it’s about refreshing SKUs or passing on savings to consumers.
Reshape of brand dynamics amid discount wave
Zhaibo: Let's return to the brand perspective. Which categories will be affected by the wave of discounting, and how will it reshape the brand landscape? Some are even questioning whether certain categories still need brands at all—or whether some brands will ride this wave and grow their market share through strategic channel partnerships.
Gloria: Brands definitely won't disappear. There’s no market in the U.S. or Japan that consists solely of private-label retail brands without product brands. Second, are there opportunities for new brands? That depends on how agile a brand is—how well it can adjust its organizational structure and operational model to align with the highly efficient operations of modern channels. This presents new challenges and expectations for brands.
Zhaibo: Now or in the near future, what kind of brands do we need? What capabilities should product brands possess in order to remain competitive, especially against private labels? Say I walk into a supermarket and see both a private label and a product brand on the shelf—which one will the consumer choose?
Gloria: First, it depends on how much consumers recognize the product and how sensitive they are to branding. Take milk, for example. Many large retail channels will private-label it because, after all, "white milk is just white milk." In Australia, a few dominant retailers can use their private-label milk to command a significant share of the market—leaving little room for branded products.
In such categories where product differentiation is low, it’s hard for a low-priced brand to stand out. So for brands, the real growth opportunity lies in differentiated products—like adding more nutrients to milk, for instance.
In Japan, Meiji remains a strong dairy brand. Despite retailers offering their own milk products, consumers still believe Meiji milk tastes better. When Meiji sits on the shelf at over 200 yen next to private-label milk at just over 100 yen, it still sells. This shows how important product differentiation is for a brand.
Retailers need an assortment that spans multiple price tiers. The lowest price tier meets basic needs, while slightly higher tiers can cater to consumers seeking upgrades. Often a single product category needs at least three SKUs covering low, mid, and high price points—low and high often help shape price perception.
Retailers always have a logic behind their category planning and product assortment. The key ability for brands is to form strong partnerships with channels, aligning with their category strategies and meeting consumers' tiered and segmented needs.
Second, in some categories, consumer demand is inherently diverse—snacks, for example, require many SKUs. One day I might want baked goods, the next day meat snacks. This kind of multi-category, diversified demand absolutely requires brands to fulfill.
For retailers, private-label logic works mainly when there’s a common, large-scale, and stable demand. If a category naturally requires frequent updates and refreshes, it’s hard for a retailer to turn that into a private label.
Zhaibo: So currently, discount snack stores are still in the early stages—expanding in low-price segments and competing on relatively homogeneous products. That's why there's a higher share of white-label and unbranded products.
But once these channels scale up, become more efficient, and shape consumer perceptions—like Pinduoduo did—they will eventually "climb upward." When that happens, snack brands will have more opportunities to work with these channels. But at this stage, it's still tough for brands.
Gloria: Right. But that future depends on scale.
Zhaibo: We’ve spoken to a snack brand that really wanted to enter the discount space. But the channel only had two selection criteria: either you're the clear category leader, or you own your own factory. If neither, your pricing likely won’t be competitive enough.
Gloria: Just look at how Three Squirrels evolved. As an e-commerce brand, it started by leveraging traffic and outsourcing production. Thanks to traffic dividends, it scaled up quickly. But now, their strategy is shifting toward building their own supply chain and strengthening their brand.
Today, if a brand lacks supply chain control, it’s hard to collaborate with offline channels. You can't push prices down or compete on value effectively.
Zhaibo: So do all brands need to have their own supply chains?
Gloria: Not necessarily. But if you want to succeed in discount channels, having manufacturing capabilities and cost-optimization power is crucial.
Zhaibo: Right. Because brands can fall into two types: differentiated or premium brands, and mass-market value-driven brands. For the latter, supply chain is vital for achieving low prices and strong value-for-money.
Gloria: Exactly. Retail is always evolving dynamically. Many great retailers have faced similar challenges. In the U.S., for example, Trader Joe’s once had legal margin protections on categories like milk and wine. When that protection was removed, margins fell to just 2%. Trader Joe’s had to adapt quickly to that new reality.
The retail industry constantly requires improvement, adaptation, and embracing change to stay competitive.