The retail sector has vast potential. GTHT estimates that China's broad hard discount market will reach approximately 584 billion yuan in 2025, with a compound annual growth rate of 23% over the next three years, and community hard discounting is projected to grow at a CAGR of 29%. A new wave of hard discounting is emerging: clear positioning, enhanced private labels, streamlined supply chains, and extreme operational efficiency to achieve low terminal prices. Low penetration, high growth, and a fragmented landscape characterize the market. Product strength and expansion capability are key competitive factors.

GTHT's main insights are as follows: Low penetration, high growth, and rapid expansion across hard discount formats. China's broad hard discount model has a penetration rate of only 8% in grocery retail, compared to 42% in Germany and 31% in Japan, remaining at a low level. China's retail landscape is dominated by small local grocery stores and supermarkets, accounting for 63% and 26% respectively, which could become a potential market for hard discounting. The firm estimates that China's broad hard discount market will reach approximately 584 billion yuan in 2025, with a CAGR of 23% over the next three years, and community hard discounting is projected to grow at a CAGR of 29%.

Hard discounting will enter a golden development period, with community stores offering significant potential. 1) Drawing from U.S. and Japanese experiences, both stagflation and deflation drive consumer habits toward discounting and rationalization, while inventory accumulation often acts as a catalyst. Currently, China's capacity utilization rates for food manufacturing, textiles, electrical machinery and equipment, and automotive industries are 70.0%, 76.5%, 71.6%, and 70.3% respectively, with 10-year percentiles at 20%, 20%, 2.8%, and 8.5%, indicating continued price competition and promotional pressure. 2) China's high-density communities, low labor costs, high frequency of fresh food consumption, and smaller household structures collectively drive the development space for community stores. 3) By category, China's hard discount penetration rates for alcoholic beverages, fresh food, essential goods, snacks, and daily necessities (general merchandise stores) are expected to reach 3.2%, 0.9%, 2.0%, 45.0%, and 44.0% respectively in 2025. The former category offers substantial room for growth, while the latter has a more mature model.

Deconstructing the community hard discount model: Enhanced bargaining power in the channel, with product strength and expansion capability as competitive focuses. 1) Starting in 2025, major brands are initiating scale expansion, with Jiangsu, Zhejiang, and Shanghai becoming key competitive areas. In the short term, store models are clashing, with product strength as the core of competition. As brands later expand nationwide, supply chain capabilities may limit the expansion radius. 2) The current landscape features brands like 超盒算NB and 奥乐齐中国 as leaders, with 550 and 108 stores respectively, forming a two-leader structure. 超盒算NB leverages its shared supply chain for stronger expansion capability, while 奥乐齐中国, after years of refinement, excels in product strength and per-store efficiency. 3) The firm believes that the current community hard discount model is characterized by high private label penetration, low margins, strong turnover, and a wide category with narrow product selection. The essence is enhanced bargaining power in the channel, achieving product quality-price ratio by directly connecting with factories and eliminating brand premiums, attracting consumers to repeat purchases through product strength, building economies of scale per SKU, further consolidating bargaining power, and supporting profitability through scale expansion.

Risk warnings: Macroeconomic fluctuation risk; intensified industry competition risk; changes in consumer demand risk; policy and regulatory risk.