Soochow Securities released a research report stating that rationalized consumption and overcapacity are driving the retail market towards a buyer-centric model, leading to the rapid rise of high-value-for-money retail formats. The retail landscape is trending towards accelerated community orientation, smaller and more specialized stores, and discount-oriented models. Hard discount retail is currently one of the most closely watched and robust segments in the global retail industry. Declining rents and slowing online growth rates are creating expansion opportunities for chain brands. Leading companies are enhancing single-store efficiency by increasing store count and expanding product categories, thereby reshaping the industry value chain. The main views of Soochow Securities are as follows:
A shift in consumer behavior, technological advancement, and business model innovation are collectively driving significant changes in retail. Against the backdrop of overcapacity and a transformation in economic growth drivers, consumer behavior has become more rational. The consumer goods market is shifting from "seller-dominated" to "buyer-dominated," leading to a restructuring of retail formats and the vigorous development of new retail models. High-quality, value-for-money formats such as membership stores, specialized vertical stores, and hard discount stores, along with instant retail that deeply integrates online and offline channels through well-established front-end warehouses, local stores, and instant delivery systems, are rapidly emerging. Retail formats are exhibiting trends of accelerated community focus, smaller and more specialized operations, and discount orientation. Hard discount retail is a particularly strong and closely watched global segment, and its development in China is exceptionally rapid. It is no longer merely a short-term strategy to cope with economic downturns but a long-term business model reshaping the retail value chain.
High-value-for-money, essential, and high-frequency chain formats are achieving rapid growth. Driven by both sufficient production capacity and changes in demand structure, chain formats characterized by high value-for-money, necessity, and high frequency are expanding against the trend. Among these, snack specialty stores stand out due to their combination of high value-for-money and high frequency, demonstrating particularly strong performance. The market size has surged from RMB 10.9 billion in 2020 to RMB 129.7 billion in 2024. Leading companies have seen their store counts exceed ten thousand, with GMV achieving exponential growth. Their success stems from accurately meeting consumer demand for extreme value-for-money, compressing channel markups through a flattened supply chain, and building a strong price moat. Meanwhile, other representative chain brands are also showing signs of recovery from their lows. One brand has re-entered a growth phase by launching cost-effective meal sets, expanding into categories like barbecue and frozen desserts, and strengthening online-to-offline integration. Another brand has effectively improved single-store efficiency by innovating with a "dine-in soup dumpling store model," adapting to scenarios and enhancing the lively atmosphere.
Declining rents coupled with slowing online growth are reopening the growth ceiling for high-quality chain formats. On one hand, influenced by macroeconomic conditions and consumer expectations, the commercial property leasing market has cooled overall, with shop rents in major national commercial streets and across city tiers generally under pressure, especially with significant declines in third-tier cities. This provides a direct cost benefit for chain formats reliant on physical stores. On the other hand, the period of rapid expansion for online e-commerce has ended, with penetration rates stabilizing between 24% and 26% in 2024-2025. In this context, community-based essential formats, represented by fresh food stores and convenience stores, have demonstrated strong resilience. Their demand support is robust, making them infrastructure that is difficult to replace online. Instant retail is rapidly emerging as a new engine; its development highly depends on local physical store networks, transforming offline stores into front-end warehouses, which benefits chain enterprises with dense networks.
"Larger stores, multiple formats" is a common industry strategy, with leading enterprises seizing the rent dividend to expand confidently. Facing the opportunity of declining rents, many chain brands have commonly adopted the strategy of "enlarging stores, expanding scenarios, and increasing store efficiency." Based on reduced rental costs, brands are proactively increasing store area and expanding related product categories to enhance overall operational efficiency. For example, a leading snack specialty brand is trialing "budget supermarkets," introducing categories like daily chemicals and frozen goods to cover more consumer groups and increase daily sales. A hot pot ingredient brand has upgraded its single-category stores into diversified community kitchens integrating fried foods and beverages, with pilot renovated stores showing significant daily sales increases. A food brand has upgraded from a takeaway model to a specialized soup dumpling dine-in store, achieving a doubling of daily sales. The underlying logic of this strategy is that eased rental pressure makes store expansion significantly more marginally beneficial. Through multi-category synergy and optimized in-store experience, the customer base is broadened, effectively increasing foot traffic, average transaction value, and customer loyalty, ultimately boosting single-store efficiency.
Investment Recommendations: 1) The snack specialty store industry is still in its early stages; continued recommendation for specific companies is advised. In the short to medium term, the outlook is highly certain; single-store revenue has shown a trend of sequential improvement since Q3 2025. In the medium to long term, the potential is significant: net profit margins may continue to break upward; experiments with budget supermarkets and diversified formats remain promising. 2) Strong recommendation for specific food and beverage chains. In 2025, one brand validated the feasibility of opening stores in townships, with this trend expected to amplify further in 2026; additionally, the exploration and rollout of renovated stores and new concept stores are bringing new growth. Another brand has successfully tapped into the soup dumpling product category. Leveraging the company's competitive advantages in management and supply chain, the soup dumpling store model is expected to accelerate its expansion in 2026.
Risk warnings: Food safety issues, fluctuations in raw material costs, slower-than-expected recovery in household consumption power.