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Sam's Club's Expansion Picks Up Steam As China Welcomes Membership Stores

Sam's Club's Expansion Picks Up Steam As China Welcomes Membership Stores
Tennis coach Liu Zheng, who lives in Beijing, has a set schedule for every other Sunday: breakfast with her husband, a trip to the grocery store, and a later drive to her parents' house for dinner.
But her neighbourhood does not have a grocery. Instead, she decides to take a two-hour round-trip drive to a Sam's Club location in the United States, which is owned by Walmart. At each visit, she spends at least 2,000 yuan ($276.39) stocking up on items like cheesecakes and Japan's Ippudo instant noodles.
While membership club warehouses like Sam's Club and Costco have long been popular in the United States, Chinese consumers are just now beginning to fall in love with them, which is driving their expansion and the formation of local rivals.
There are currently 11 of these chains in China, seven of which debuted in the previous three years. These include locations for the regional supermarket companies Yonghui Superstores and Freshippo from Alibaba.
According to data from Euromonitor, sales at warehouse clubs in China more than doubled to $3.7 billion last year from $1.8 billion four years prior.
However, according to the data business, membership stores only represent 0.3% of sales in China's grocery purchasing industry, which is significantly lower than the 11% percentage in the U.S. This shows there is still significant space for growth.
In China, warehouse clubs became increasingly popular during the pandemic as people kept ready supplies of food at home out of fear of lockdowns. Despite the lifting of COVID-19 limits, interest has persisted as consumers look for better deals amid a faltering Chinese economy.
The hypermarket industry in China, which battled with a shift towards online purchasing during the epidemic, is seeing sales declines, and the membership stores are also growing in popularity. Along with Walmart, Carrefour China, and Yonghui, Carrefour China has closed several of its own smaller format stores.
According to Derek Deng, who oversees Bain & Company's consumer products practise in greater China, the club warehouse model is "the only bright spot."
According to research from Bain and Kantar Worldpanel, the number of customers at these stores increased by 30.3% from a year earlier in the first quarter of 2023, while the frequency of purchases increased by 12.8%.
Sam's Club, which began operations in 1996 and quietly grew over the next 25 years, currently holds the top spot in the market. As of December 2022, it had 44 locations throughout 25 Chinese cities, and 4 million families were members.
"Sam's Club are doing well. They appeal to a higher demographic within China," Walmart International CEO Judith McKenna said during an investor briefing in April.
By the end of this year, Sam's Club will have 48 locations, up from the six that it opened last year. By then, it will have seized the opportunity to expand as Chinese social media users posted lists of their top Sam's Club products, including Chobani yoghurt and Bouchard dark chocolate, and as long lines formed at its new store openings.
According to local media, its primary overseas competitor Costco now only has four locations in mainland China, but has intentions to expand to six by the end of the year. An inquiry for comment from Costco did not immediately receive a response.
According to a Walmart spokeswoman, Sam's Club concentrates on offering members curated and distinctive products to stay ahead of the competition. To compete with nearby rivals, it also provides online delivery in as little as 30 minutes.
Sam's Club also has associations with well-known companies, such as Beijing Da Dong Roast Duck, a classy eatery that sells packaged, ready-to-eat Peking duck for around $22.
Local competitors of Sam's Club, according to analysts, have mainly imitated its shop idea. Standard membership costs at the Walmart spinoff and other businesses like Beijing Yaodi Agriculture-backed Fubi and Sun Art Retail Group's M Club range from 258 yuan to 365 yuan annually.
By focusing on smaller, less affluent locations, local warehouse businesses have so far set themselves apart from the competition. Beijing Hualian Supermarket established a membership shop in Lanzhou, and M Club launched its first location in Yangzhou. However, their product selection is typically less carefully chosen, with the majority merely packaging their current range as bulk purchases.
"Every player needs to find unique value propositions to attract consumers, besides just adding membership on top of a traditional hypermarket retail model," Bain's Deng said.
Sam's Club's main competition is Freshippo, a well-known grocery chain owned by Alibaba. Freshippo has nine locations, six of which are in Shanghai, and started opening membership-style Freshippo X stores in 2020.
Targeting China's younger, tech-savvy urbanites, Freshippo has been expanding its selection of foreign and specialised goods, ranging from well-known Japanese chocolates to seasonal speciality fruits from various Chinese provinces.
According to two people involved with the meeting who were not authorised to speak with the media, the chain was the sole competition Walmart's China CEO Christina Zhu mentioned in February while delivering a lecture internally about the competitive environment Sam's Club faced in China.
However, Sam's Club was eventually certain that it is currently far ahead, according to one of the persons.
"She did not mean it as a real competitor," the person added. "No one is close to Sam's. She means if there is anyone that potentially can be a rival then it is (Freshippo) because the grocery supermarket is very innovative with their food offerings too."
There were no comments on the issue from Walmart.

Christopher J. Mitchell

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