Why China’s supermarkets pose a growing threat to beauty brands

For a mass-market beauty brand in China, one of the more uncomfortable competitors on the shelf may no longer be another cosmetics company. At Sam’s Club (山姆会员商店) — Walmart’s membership-only warehouse retailer, which has built a large and fast-growing business in China around bulk products, imported goods and private labels — a shopper can put a Member’s Mark body lotion into the same trolley as groceries and household supplies. She may buy it not because she has followed the brand on Xiaohongshu (also known as RedNote), watched its livestreams or studied its hero ingredient, but because she already trusts Sam’s to have made the choice for her. That seemingly normal transaction cuts against much of the machinery on which China’s beauty industry has been built. Brands spend heavily acquiring traffic, recruiting influencers, explaining formulations and manufacturing desire around products that may ultimately be produced by the same contract manufacturers supplying retailer-owned alternatives. Sam’s, Hema (盒马鲜生), RT-Mart (大润发) and regional chains such as Xinyulou (信誉楼) can start from the other end: they already have the shopper, the shelf, the purchasing data and increasingly the manufacturing relationships. Chinese supermarkets are consequently moving beyond their traditional role as distributors and becoming product owners themselves. Across the sector, private-label beauty assortments are expanding from hand creams and body lotions into masks, moisturizers, cleansers and, cautiously, sunscreen and serums. Sam’s and Hema tend to position their ranges around quality and value, while traditional and regional supermarket groups concentrate more heavily on standardized, family-oriented personal care. Industry estimates cited by China beauty industry analyst Lisa Zhang suggest private-label beauty can generate gross margins around 15 to 30 percentage points higher than distributing third-party brands. China’s mature cosmetics manufacturing ecosystem has also stripped away much of the upfront infrastructure once required to enter the category: leading ODMs can handle formulation, production, packaging and regulatory support, allowing relatively standardized products to move from concept toward launch within months. “Supermarkets haven’t suddenly got better at beauty. What happened is that beauty became much easier to walk into,” says Ashley Dudarenok, founder of China consultancy Chozan and a Jing Daily contributing writer. Retailers spent years learning how to develop private labels in categories such as dairy, eggs and frozen food, she says, giving them capabilities they can now deploy in categories with considerably more attractive margins. Sam’s does not have to build a beauty audience The deeper advantage is that a supermarket does not need to behave like a conventional beauty company to sell beauty successfully. For independent skincare brands, customer acquisition has become one of the defining costs of doing business in China. Getting a product in front of consumers can mean paying for platform traffic, livestream commissions, key opinion leaders and discounts before a company begins to establish repeat purchasing. Sam’s has already solved that problem. Its customer is standing in the aisle, membership card in hand, looking for products that justify the annual fee. Dudarenok estimates that Sam’s China collects close to 3 billion RMB ($421 million) annually from more than 10 million paying members. That membership model creates an unusual incentive around product quality: a disappointing private-label lotion risks not just losing one beauty purchase but weakening a consumer’s perception of the membership itself. “If they sell you a disappointing body lotion, they don’t lose one sale, they risk renewal,” she said. Member’s Mark does not necessarily need consumers to fall in love with its body lotion, follow a founder or identify with a campaign. The product can succeed simply by reinforcing a broader belief that Sam’s has selected something good at a sensible price. That trust can become particularly powerful in categories consumers see as functional rather than aspirational. Melissa Gan, an independent beauty and wellness researcher and former Euromonitor analyst, argues that supermarket private labels have benefited from increasingly value-conscious shoppers as well as concerns around product authenticity. “For basics like sunscreen and moisturizer, many shoppers would rather buy the store’s own label than risk a branded product that might be fake,” she said. “If the store does the basics well and cheaply, there is little reason to take the risk.” China beauty analyst Lisa Zhang describes consumer access as retailers’ most important advantage. Supermarkets can monitor what sells, how frequently shoppers return and which products appear together in the same basket, then use their own stores to test new launches and adjust assortments. Beauty brands, by comparison, often have a narrower view of their customers, particularly when selling through third-party platforms. But owning the customer does not mean owning beauty authority. “Retailers can control the shelf and the customer relationship, but they do not automatically control the consumer’s imagination,” said Zhang. Body lotions, hand creams, masks, body washes, cleansers and basic moisturizers are repeat-purchase categories where shoppers understand the function and can make decisions based on price, texture, fragrance, pack size and familiar claims. The less consumers need a brand to explain why a category matters, the easier it becomes for a retailer to replace branding with trust. Sam’s has taken that logic into format as well as formulation, selling products such as hand cream in multipacks that conventional beauty brands may struggle to offer without disrupting their existing price architecture. Dudarenok argues that bulk sizes and refills sit naturally within a warehouse club’s territory. The factory behind the label China’s contract-manufacturing industry makes the competition more pointed. Sam’s breakout Member’s Mark body lotion is produced by Nox Bellcow, while its beauty assortment includes products made by major manufacturers such as Cosmax China and Guangzhou Avon Manufacturing. Hema draws on both large ODMs and smaller specialists, enabling it to cover established skincare categories while testing more niche products. For consumers, those manufacturing relationships can help reassure them that a supermarket label does not necessarily mean a lower technical standard. For mass brands, however, they raise an awkward question: What exactly justifies the premium when a cheaper private-label product comes from a supplier capable of manufacturing for established beauty companies, too? That pressure is more acute at the mass end than in prestige beauty. A luxury serum still sells scientific authority, proprietary technology, packaging, service, aspiration and cultural meaning. A functional body lotion or hand cream has far fewer places to hide if consumers decide the formula on the neighboring shelf is good enough. Retailers may even find ways to develop propositions that conventional beauty companies cannot easily reproduce. Dudarenok points to Hema’s camellia supply chain: the retailer can press camellia fruit for cooking oil and use part of the same raw-material ecosystem for skincare-grade ingredients in products such as hand cream and body lotion. Its food business becomes part of its beauty product development rather than merely another category in the store. Where the supermarket advantage stops None of this means Sam’s is about to become the next Proya. Whitening, anti-hair-loss and sunscreen products face more demanding regulatory requirements in China, while efficacy claims increasingly require substantiation and, in some areas, human testing. Anti-aging raises an additional problem: shoppers purchasing a high-performance serum are buying not only formulation but evidence, specialist expertise and confidence that the company understands skin. Melissa Gan said private labels are strongest in categories with limited differentiation, where established brands have often done the work of educating consumers first. Watsons’ Target Pro, for example, can participate in barrier-repair skincare after specialist brands such as CeraVe helped establish consumer understanding of the category. Retailers, she said, tend to “follow rather than lead.” “The mass tier is where the pressure builds,” Gan said. Retailers control both shelf space and pricing, while also holding the sales data that tells them where demand is moving next. Contract manufacturers may simultaneously supply traditional brands and retailers, further weakening the exclusivity that mass-market beauty companies once relied on. Companies that compete through proprietary technology, specialist efficacy, cultural cachet or strong communities offer something a retailer-owned label still struggles to reproduce. Gan argues that “the brands that hold their ground will do so on innovation, proven efficacy and community” — attributes that cannot be replicated simply by commissioning another formula from an ODM. The same constraint makes it unlikely that most supermarket private labels will evolve into fully independent beauty brands, although that may not matter. Costco’s Kirkland Signature shows how powerful a retailer-owned label can become without attempting to recreate the emotional apparatus of a prestige beauty house. In China, Member’s Mark beauty can perform a similar job: strengthening trust in the retailer, encouraging repeat visits and making membership feel more valuable. This leaves established beauty companies facing a more nuanced threat than straightforward substitution. Prestige players with proprietary technology, strong communities or cultural cachet remain difficult for supermarkets to imitate. At the mass end, however, retailers are beginning to expose which premiums consumers still consider meaningful. As supermarkets become larger beauty customers, ODMs gain another source of volume and leverage, potentially encouraging traditional brands to seek exclusive formulations or lock up manufacturing capacity. Retailers also retain something their suppliers and many brands cannot replicate: visibility across the whole shopping basket and actual repurchase behavior. China’s supermarkets therefore do not have to become great beauty storytellers to reshape the category. They only have to convince consumers that certain products never required much storytelling in the first place.

How China’s supermarkets pose a growing threat to beauty brands

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How China’s supermarkets pose a growing threat to beauty brands