Chinese Retailers Race Toward 30% Private-Label Penetration, Forecast to Triple in Five Years

Author: Li Shi (Shanghai) | Editor-in-Chief: Shao Lele (Shanghai) Originally published by Zhaibo, republished by TMTpost under authorization

Chinese retailers are strengthening their control over the upstream supply chain, shifting from the era of shelf-based retail back to an era of self-operation. What was once a strength of a few retailers is now becoming a standard capability for leading retail enterprises.

Sam's Club, Hema, and others have already developed a range of private-label products familiar to consumers. Walmart has positioned its "Woji Fresh" private label alongside its new community store formats as two sides of the same coin in its exploration of store transformation. Even retailers that only began developing private labels in 2023 now boast a significant proportion of own-brand products.

However, compared to the 20%–50% share seen in Europe and the U.S., China's private-label sector still has substantial room for growth.

According to data released in August 2025 by the China Chain Store & Franchise Association (CCFA) in collaboration with Boston Consulting Group (BCG), the sales penetration rate of private-label products in Chinese supermarkets is approximately 8%, with an omnichannel share of only 1%–2%. Driven by multiple structural forces, China's private-label market is entering a rapid development window, with penetration expected to rise from the current 8% to 20%–30% over the next five years.

Some industry observers believe that a 30% self-operated product ratio could become a new baseline for survival in the retail sector.

Private labels are not a new concept. In the past, traditional supermarkets sold private-label items such as tissues and bottled water, primarily to reduce price markups from brands and distributors, offer low-cost alternatives to consumers, and improve margins for retailers.

What distinguishes the current wave of change is not merely the addition of more retailer-owned brands on shelves, but the fact that, amid an oversupply of both products and channels, retailers are now engaging earlier in demand research, product definition, production organization, and fulfillment management.

We refer to this shift—from operating channels to delving deeper into demand, products, and supply chains—as "New Self-Operation."

Moreover, China's new self-operation model is not simply a replication of the Western approach of increasing private-label share. The development of China's consumer and retail sectors has been highly compressed: low-cost OEM products, differentiated private labels, and platform-defined production standards coexist simultaneously. Online penetration is higher, enabling faster feedback loops between consumption, inventory, reviews, and fulfillment. China's manufacturing and agricultural supply chains are abundant, yet there remains a shortage of commercial entities capable of continuously understanding demand, setting standards, and organizing supply.

Under these conditions, retail platforms are evolving into a new hybrid role—part channel, part platform, and part product company. On one end, they connect increasingly fragmented consumer demand; on the other, they organize China's rich but equally fragmented supply chains, transforming ever-changing demand into quality products that can be produced, delivered, and repurchased consistently.

In other words, old self-operation focused on managing stores and channels; new self-operation focuses on managing products and supply. In the past, retailers competed on whether they had private labels and how high their share was. Going forward, the competition will be about whether they can continuously identify demand, translate that demand into product standards, organize supply chains for production, and rapidly iterate based on sales data and customer reviews.

Why Self-Operation Is Becoming a Standard for Leading Retailers

The emergence of new self-operation is, first and foremost, a response to the question of how retailers can continue to be chosen by consumers.

On one hand, consumption is diversifying. Extreme value-for-money, quality upgrades, interest-driven consumption, and instant gratification all coexist. The same consumer may repeatedly compare prices on basic daily necessities while also being willing to pay a premium for health, time, emotional value, and self-expression.

On the other hand, both products and channels are in oversupply. The 2025 China Shopper Report notes that Chinese consumers purchase fast-moving consumer goods (FMCG) through an average of seven or more channels per year. When the same branded product is available everywhere online and offline, simply providing shelf space and a transaction venue no longer constitutes a sustainable competitive advantage.

This is why private labels are evolving from low-cost alternatives to differentiated product development.

In the early days, supermarket private-label products were mostly concentrated in everyday staples like tissues and bottled water, where "cheap" was the primary purchase driver.

Later, products like Sam's Club's Swiss rolls (which can generate annual sales of 1 billion yuan) and Hema's large seafood, fruit juices, and baked goods made consumers choose a specific channel because of a hit product or a superior category. Retailers thus began to realize the power of "products as traffic," and private labels moved from being a part of procurement to the core of retail operations.

However, while a few hit products can open doors for a channel, it is the ability to manage a range of frequently purchased, repeat-buy products that sustains customer choice during a meal or a routine restock—what is often called "winning the share of the consumer's life" in a stagnant market.

As retailers deepen their understanding of users, products, and supply chain capabilities, leading players are no longer betting solely on the next blockbuster product. Instead, they are systematically building product development and self-operation capabilities.

Aldi has established a product structure dominated by private labels. Dingdong Maicai has developed different private-label brands for scenarios such as ready-to-cook meals, soy products, and quality standard items. The transformation of traditional supermarkets like Yonghui and Bubugao is not limited to store layout and service standards; it also involves streamlining SKUs, strengthening direct sourcing, and enhancing private-label product development.

The value these retailers provide goes beyond creating a batch of exclusive products. They help consumers filter through the oversupply. When consumers trust a channel, they also trust that the channel has already compared quality, price, and usage scenarios on their behalf. The channel thus begins to function as a product curator.

Since 2025, the accelerated development of instant retail has provided a new impetus for retail channels and even e-commerce platforms to increase investment in private labels.

The catalytic effect of instant retail on private labels is, of course, closely tied to the fact that "instant retail has become a definitive consumer demand." More importantly, it is linked to the integration of online and offline channels driven by instant retail. When transactions, searches, reviews, repurchases, inventory, and warehousing are all connected within the same system, retailers can identify demand, test new products, and adjust supply more quickly. Inventory adjustments that were once made quarterly or annually are now becoming higher-frequency, more granular dynamic operations.

This is somewhat similar to the digital supply chain model that SHEIN has perfected in the apparel sector. When production, logistics, and end-user demand all operate on the same real-time retail digital system, sales data can be cross-referenced with inventory, and reviews and repurchases can inform subsequent product development. Over time, the supply chain's response to demand—especially fragmented demand—becomes increasingly precise.

However, this does not mean that established brands will be entirely replaced by private labels. Even in mature Western retail markets, private-label shares hover between 20% and 50%. Consumers still need professional brands for technology, R&D, and cultural value, and retailers need branded products to enrich their shelves and build category awareness.

What has truly changed is the selection criteria: channels will allocate more shelf space and resources to brands and suppliers that truly understand consumers and can offer differentiated products.

New Self-Operation Is a Supply Chain Transformation

If self-operation becoming standard is the visible change in retail, then the deeper impact of new self-operation lies in the transformation of retailer-supplier relationships.

In the past, brands and suppliers made products, and retailers were responsible for selection, shelving, and sales. Now, channels are transmitting consumer data and scenario insights upstream, while suppliers translate these vague demands into raw materials, formulas, processes, and mass-production solutions.

Channels may possess consumer data, but they do not inherently have product development capabilities. Suppliers are familiar with raw materials and production but may not know what is happening in the end market. What new self-operation changes is precisely the translation and collaboration between the two.

In this new model of product development, the relationship between channels and suppliers shifts from purchasing standard products to joint R&D. The product development process evolves from "channel selects products → supplier supplies" to "demand insight → product planning → raw material customization → factory testing → packaging adaptation → sales feedback → continuous iteration."

For supply chain companies, participating in a channel's private-label development also helps them gain a more direct understanding of consumer demand and end-market changes.

Previously, suppliers primarily produced based on brand orders, keeping them distant from consumers. By co-creating with channels, suppliers can see how products perform in different cities, scenarios, and consumer segments, including sales, repurchases, and feedback, and adjust their processes and products accordingly. These insights can also benefit their own independent brands and other clients.

In the broader context of supply chain upgrading, "new self-operation" is not about channels replacing suppliers. Rather, it resembles a capability exchange: channels provide demand understanding, consumption scenarios, and order certainty, while suppliers offer raw material knowledge, process R&D, and stable mass-production capabilities. Through new cooperation models such as "order-based procurement" and "joint R&D," a more closely collaborative retailer-supplier relationship is formed.

This also means that "new self-operation" does not require retailers to produce everything themselves. Private labels, customized products, direct sourcing from origin, contract farming, joint R&D, and in-house processing capabilities can all be different forms of product self-operation.

The criterion for judging new self-operation is not who owns the stores, inventory, or factories, but whether the retailer can continuously identify demand, propose product standards, organize R&D and production, and take responsibility for the delivery outcome.

The share of private labels is merely an external manifestation of this capability—low-cost OEM products can quickly increase SKU count. The real test is whether there is a complete chain behind the product, from demand discovery and standard definition to R&D, production, trial sales, feedback, and continuous iteration.

The scope of product self-operation does not have to be limited to a retailer's own stores. Platforms can establish standards through self-operated channels and private labels, then expand coverage through franchise stores, socialized flash warehouses, and supply chain services.

For example, some常温 (room-temperature) private-label products from Qixian, Hema, Dingdong, and Pangdonglai have already, voluntarily or involuntarily, moved beyond their own channels. Meituan's Squirrel Convenience and Flashbangbang's franchise organization and supply chain services are also attempting to connect a curated selection of products to more outlets. The expansion of Chaohe Suan NB through franchising is essentially a supply chain expansion, and thanks to the brand effect and product competitiveness brought by self-operation, it holds stronger appeal than the new channels or new retail models of the internet era.

In this context, private labels can become a key driver for platforms to push forward supply chain digitalization. China's private-label story is thus not just a channel story; it is a supply chain restructuring that combines channel upgrades, manufacturing C2M (Customer-to-Manufacturer), and platform digital infrastructure. Commercial entities with "matching, rule-setting, and demand-insight capabilities" will be able to efficiently reconnect China's supply chains with its consumers.

New Self-Operation Requires Hard Work and Patience

Private labels eliminate intermediaries such as brand owners and distributors, but they also transfer more responsibilities—demand research, product development, production management, quality control, inventory, and fulfillment—to the retailer.

This is especially true for fresh, chilled, and short-shelf-life foods, which are inherently non-standard. Their yield and quality are easily affected by season, climate, and origin, and their short shelf life means that any fluctuation in any link directly translates into waste.

Therefore, going deep into the upstream has become a必修课 (required course) for new self-operation.

Products that consumers now take for granted—such as "Daily Fresh" items, affordable organic vegetables, various niche fresh products, and fresh milk, seafood, and meat that can go from farm to table within 24 hours—are the result of retailers deeply reshaping and optimizing the entire process from production, transportation, and packaging to distribution, driven by demands for freshness, short shelf life, and efficiency.

Behind this are support systems that retailers have built over years. Hema has established over 180 "Hema Villages" across China, intervening in everything from seeds and planting standards to harvest times, to produce flowers, fruits, and seafood that better meet consumer needs. Dingdong has built multiple central kitchens and food processing plants in East China, with product development teams constantly active at the production source, enabling it to cover quality supply in the Yangtze River Delta and even Beijing and Anhui.

Product delivery also requires a heavier logistics infrastructure. For fresh, chilled, and short-shelf-life products, cold chain, inventory turnover, warehouse network density, and the condition upon arrival all affect the final quality experienced by consumers.

The popularization of affordable fresh dairy products, for example, has benefited from closer collaboration between R&D, production, and instant retail scenarios. Take the recent joint launch of "Xiaoxiang a2 Fresh Milk" and "0-Sucrose Flavored Fermented Milk" by Junlebao and Meituan's Xiaoxiang Supermarket. The two parties not only adjusted specifications, flavors, and packaging but also arranged dedicated factory capacity and logistics routes based on precise product data provided by the terminal. This allowed the delivery method to be upgraded from regional warehousing to direct front-warehouse distribution, ultimately achieving a "Daily Fresh" supply.

After increasing their involvement in the supply chain, retailers also face the risk of new product failures and misjudgments of demand.

Especially when a single product has not yet achieved stable sales and repurchase rates, and inventory turnover efficiency has not been fully improved, retailers often experience a period of profit tug-of-war where investment and returns are mismatched. The high wastage rates that "Daily Fresh" products caused for Hema and Dingdong in their early days are a reflection of this.

Only when orders are stable enough will suppliers have the incentive to adjust raw materials, processes, and capacity for the channel.

Ultimately, making private-label products "cheap and good" cannot rely solely on squeezing factory profits. "Good" comes from more accurate demand understanding and in-depth management of raw materials, processes, quality control, and delivery. "Cheap" comes from reduced blind production due to confirmed orders, shorter supply chains that eliminate inefficient circulation, higher turnover that reduces inventory and waste, and the amortization of R&D and logistics investments as scale expands.

From this perspective, new self-operation is an efficiency upgrade aimed at reducing supply chain uncertainty. Its "heaviness" lies in the increased responsibilities, infrastructure, and operational burdens that retailers must bear. Its "slowness" lies in the fact that origin information sources, supplier technology, product standards, sales scale, and consumer trust all require long-term accumulation.

The real differentiator in self-operation is not just whether a new product can survive its first sales cycle, but whether it can be continuously improved and stably supplied. As the number of products grows, the ability to maintain quality, cost, and waste control is what truly sets retailers apart.

Conclusion

Overall, traditional supermarkets are making up for their lack of digital operations and instant fulfillment capabilities, while platforms are building up their product development and upstream cooperation skills. Both sides are gradually converging toward a "platform-based retail" model: capable of deeply managing products while also organizing a broader range of socialized supply. The more mature a retailer's self-operation capabilities, the better it can judge which categories are worth developing in-house and which demands can be more efficiently met through partners.

China's retail sector moving toward new self-operation means that the center of competition will continue to shift toward products and supply chains. Private labels are the visible result for consumers, but the harder-to-replicate asset is the operational accumulation behind them. In the next phase, the ability to continuously turn customer demand into stable supply and to consistently deliver good quality at reasonable prices will be a stronger indicator of a retailer's competitiveness than the sheer number of private labels or their temporary sales share.

Ultimately, these investments should lead to a simple impression in the customer's mind: "This store has products worth buying, and I'd be happy to come back." For retailers, the long-term value of self-operation lies in transforming recognition of a specific product into trust in the entire channel.