Goldman Sachs initiates coverage on BUSYMING and Wanchen, stating that discount stores are undergoing "structural changes" in Chinese retail

A quiet structural change is happening in China's retail industry. Over the past decade, online e-commerce has continuously squeezed offline channels with its price advantages; however, in the context of more rational consumption, a new offline model is beginning to regain price dominance—Hard Discount retail.

According to Chasing Wind Trading Desk, Goldman Sachs has recently initiated coverage on two leading players in China's bulk snack industry—BUSYMING and Wanchen Group, giving both players a buy rating with target prices of HKD 496 and RMB 269, corresponding to an upside of 23% and 33% from current stock prices, respectively.

Goldman Sachs pointed out in the report that the discount retail model represented by bulk snacks is impacting traditional supermarkets, convenience stores, and even e-commerce through extreme low prices, direct supply chain procurement, and high turnover systems, and may become one of the most important structural changes in China's retail industry over the next decade.

Goldman Sachs expects the GMV of the snack discount industry to achieve a 13% annual compound growth rate from 2025 to 2028, with the market size reaching RMB 319 billion and the number of stores expanding to approximately 70,000 by 2028. By 2035, the share of snack discount stores in the overall snack and beverage market will increase from the current 5.6% to 7.5%, with the number of industry stores expanding to about 98,000.

Behind this increment, the penetration of private labels (private domain brands) is the most important long-term growth logic. Currently, the share of private labels in China's discount channels is far lower than the 20% to 30% in U.S. supermarkets, while the gross margin of private labels is usually 8 to 10 percentage points higher than that of branded products, serving as a long-term source of profit margin expansion.

Store Scale: Rapid Rise of Bulk Snack Sector

The bulk snack sector has experienced almost "explosive" expansion over the past two years.

Through integration and franchise expansion, the Chinese market has quickly formed a pattern of two leading players.

BUSYMING was formed by the integration of "Snacks Are Busy" and "Zhao Yiming Snacks" and has now become China's largest chain retailer of leisure foods. According to industry data:

• Approximately 14,000 stores

• Covering 28 provinces nationwide

• Annual GMV of about RMB 55 billion

The other leader, Wanchen Group, has rapidly expanded relying on its brands such as "Hao Xiang Lai":

• Store scale has exceeded 15,000

• Annual GMV of over RMB 40 billion

In Goldman Sachs' view, the two companies together occupy about 70% of China's bulk snack market, and the competitive landscape is gradually evolving into a duopoly structure.

This means that the bulk snack sector has moved from the early stage of regional competition to the stage of nationwide scaled competition.

Repricing Offline Retail

The core attraction of bulk snacks is simple: they are cheap.

However, Goldman Sachs pointed out that this low price is not merely a promotional strategy but is based on a restructured supply chain.

The traditional retail system typically goes through multiple levels of distribution: brand owners → regional agents → wholesalers → supermarkets → consumers. In this chain, each level adds a markup, ultimately leading to continuously rising end prices Bulk snack retailers significantly shorten this chain through a direct procurement model: brand manufacturers → bulk snack retail channels → consumers. At the same time, companies further reduce costs through three mechanisms:

First, large-scale procurement. As the number of stores exceeds ten thousand, leading companies can gain stronger bargaining power through centralized orders.

Second, centralized warehousing and logistics systems. By reducing the logistics cost per item through a nationwide warehousing and distribution network.

Third, a high turnover product structure. Bulk snack retail stores typically have 1,800 to 2,000 SKUs and maintain a high frequency of new product launches and rapid elimination mechanisms, thereby improving inventory turnover efficiency.

In this system, the prices of similar products are usually 20% to 30% lower than those in supermarkets and convenience stores. Goldman Sachs points out that this means bulk snacks already have a price advantage over e-commerce platforms for certain products.

Changes in Consumption: Price-Quality Ratio Becomes the Core Variable

The deeper reason for the rise of bulk snacks is that China's consumption structure is changing.

Goldman Sachs believes that in recent years, there has been a clear shift in Chinese consumer behavior—from "brand first" to "value first (Value for Money)."

Against the backdrop of slowing macroeconomic growth and more rational consumption, consumers are increasingly valuing the price-quality ratio.

This trend is highly similar to the period of hard discount retail rise in Europe and the United States. For example, overseas markets like Costco and Aldi rapidly expanded during the rational consumption phase and ultimately changed the retail industry landscape.

Goldman Sachs believes that China's bulk snack model may be in a similar early stage.

Lower-tier Markets: The Key Soil for Expansion

The rapid expansion of bulk snacks is closely related to the consumption potential of China's lower-tier markets.

Currently, the consumption scale in China's county-level areas is approaching half of the total social retail sales, while the consumption growth rate in third-tier cities and below is generally higher than that in first-tier cities.

The layout of bulk snack stores is highly concentrated in these areas. For example, about 60% of BUSYMING's stores are located in county and town markets.

This "rural encirclement of cities" expansion path allows companies to: avoid high rents in first-tier cities, reduce direct competition with large supermarkets, and quickly form regional network density.

Goldman Sachs points out that once store density is established, supply chain costs will further decrease, creating a scale flywheel effect.

If we benchmark the industry store density against the small modern chain retail formats in Japan and South Korea, Goldman Sachs' scenario analysis shows that there is still space for 220,000 to 390,000 more discount snack stores in China, with the total number of stores in the industry expected to reach 770,000 to 940,000. The current scale of about 55,000 stores is still in the early stages of expansion.

A Game for Brand Manufacturers, A Threat to Convenience Stores

Discount channels are not the opposite of brand manufacturers, but they are certainly not "growth without cost."

According to Goldman Sachs' value chain calculations: the gross margin for brand manufacturers in discount channels is usually compressed by about one-third compared to traditional wholesale channels.

However, at the same time, some costs in traditional channels are directly eliminated, including: distributor rebates, KA entry fees, display fees, and terminal promotion expenses This model is particularly attractive to mid-tier brands and white-label suppliers, as they often have to bear higher channel costs in traditional channels, while discount stores allow them to exchange lower full-chain costs for greater sales volume. This co-creation SKU model is changing the logic of traditional brand development and sales.

If brand owners face a game of strategy, convenience stores face direct competition.

Bulk snack stores and convenience stores overlap significantly on multiple dimensions: similar store sizes (about 130 square meters), similar product structures (packaged snacks, beverages), and highly consistent customer bases.

A 2023 industry survey by consulting firm KPMG shows that 89% of convenience store companies reported that snack discount stores have significantly eroded their GMV.

Low-margin Business: Scale Determines Success or Failure

Despite rapid industry expansion, bulk snacks are not a high-profit sector.

The industry generally exhibits a typical "low margin, high sales" model: gross profit margins of about 7%-8% and net profit margins of around 2%. This means that a company's profitability highly depends on scale effects and supply chain efficiency.

Goldman Sachs believes that future industry competition will mainly focus on three aspects:

Store scale: Whoever can establish a national network first will have a better chance of gaining procurement advantages.

Supply chain capabilities: The proportion of direct sourcing, logistics efficiency, and inventory turnover will directly determine the cost structure.

Private label capabilities: Similar to the development path of overseas discount retailers, private labels are expected to become an important source of profit enhancement.

Greater Imagination Space: From Snacks to Community Retail

In Goldman Sachs' view, the true value of bulk snacks is not limited to the snack market itself.

More importantly, this model has validated one thing: offline retail can still achieve low-price competition through efficiency advantages.

Once the supply chain and store system mature, the discount retail model could potentially expand to more categories, such as community food retail, daily consumer goods, and instant consumption products.

This means that bulk snacks may just be the first step in China's discount retail revolution.

According to Goldman Sachs, the main storyline of China's retail industry over the past decade has been the rise of e-commerce. In the next decade, offline channels may undergo a new reconstruction.

Bulk snack companies represented by BUSYMING and Wanchen are challenging the traditional retail pricing system through supply chain efficiency and scale advantages.

If this model can be continuously replicated, the competitive logic of China's retail industry may fundamentally change: from brand premium competition to efficiency and cost competition. This is precisely what Goldman Sachs refers to—discount retail is "structurally changing" Chinese retail