Over the past few years, China’s consumer sector has ridden a wave of highs and lows. The once-popular promise of “Internet + Consumer” now feels like a myth, as many fast-rising brands failed to sustain momentum, proving that traffic alone doesn’t build lasting consumer brands.
At the same time, structural shifts are quietly reshaping the industry: Sam’s Club’s customized, high-value products are gaining mainstream attention; Discount snack chains are shaking up traditional supermarkets; Pang Donglai, a local retailer from Xuchang, has unexpectedly become a role model in Chinese retail.
In every industry reset, new opportunities emerge, but only a few are able to spot and seize them.
In a recent exclusive interview with Caijing Magazine, Robert Chang, Founding Partner of GenBridge Capital, shared his latest thinking on how to invest in the next generation of China's consumer champions.
The "Internet Plus"-empowered consumption disproven by capital
Consumption is not an industry known for dramatic fluctuations, but over the past six or seven years, consumption-related investments have experienced a roller-coaster cycle.
According to statistics from ITjuzi, from 2015 to 2020, the consumer industry saw around 300 financing deals annually. In 2021, this number skyrocketed to 742, a 78% yoy increase, with total funding reaching 115.8 billion yuan.
However, the fervor took a sharp downturn in 2022, with only 334 deals recorded that year and total funding shrinking to 31.3 billion yuan—less than a third of the previous year’s figure.
This slump persisted into 2024. Through exchanges with multiple consumer investment institutions, Caijing found that many firms that had been aggressively investing and boasting impressive portfolios in prior years chose to "retreat" during this period. Some made no investments at all for an entire year.
Amid this post-storm restructuring phase, both the consumer industry peers and investors have engaged in deep reflection.
Robert Chang identifies two key factors that fueled the earlier investment boom in consumer sector.
On one hand, the enhancement and improvement of internet infrastructure had already given rise to dominant platforms like Taobao, JD.com, Meituan, and Pinduoduo. Players inside and outside the industry sought to leverage the e-commerce boom to expand into newer categories, such as front-end warehouses and community group buying, intending to build new business platforms.
Meanwhile, platforms like Dingdong Maicai and Missfresh rapidly expanded with capital backing, while convenience store chain Bianlifeng, with its "Internet Plus" DNA, emerged as a dark horse in the convenience store sector.
On the other hand, with the rise of short videos, live-streaming commerce, and other new models, people explored ways to harness these channels to seize the dividends of online traffic and ride the wave of consumption upgrades to nurture new brands.
During those years, a wide array of consumer products permeating daily life gained favor, with some investors even proclaiming that "every category is worth reinventing." Startups at the time often emphasized their internet backgrounds, aiming to challenge "traditional" businesses through internet-driven innovation.
An "internet background" typically implied business models designed around traffic. Many brands fell into the trap of pouring vast sums into marketing and buying traffic, then relying on China’s mature OEM ecosystem to quickly produce goods and acquire users. Scaling up sales and improving ROI became their bargaining chips for securing venture capital.
However, this also meant that as soon as a promising product or business model emerged, a flood of competitors would follow suit. New brands had no choice but to double down on marketing, driving up traffic costs until the financial burden became unsustainable.
"As we often say, it starts with traffic, but success hinges on the supply chain," Robert Chang notes. After securing traffic, companies must continuously enhance product value-for-money and build core competitiveness—ultimately, it all comes back to optimizing the supply chain.
In the case of "Internet Plus"-enabled offline consumption platforms, investors and entrepreneurs suddenly realized that these models lacked strong substitutive power and struggled to disrupt existing industry structures. The frenzy around community group buying was unique to that era; front-end warehouses, when expanded to lower-tier cities, failed to displace small supermarkets and wet markets. As subsidies from major group-buying platforms dwindled, users quickly churned.
Looking back, neither front-end warehouses nor community group buying—nor the plethora of new consumer brands that rose rapidly—lived up to the lofty expectations set by venture capital during their high-profile entries.
Meanwhile, publicly listed consumer companies saw their market valuations decline in the secondary market, while many others found themselves stuck in limbo just before going public. Even among the few that successfully went public, the rate of stock price decline after listing remains high.
The chill in the secondary market further accelerated the retreat of consumption investments in the primary market. "People no longer view consumption as a critical sector," says Robert Chang. "The entire consumer investment space has reached a fairly frosty state."
Dead ends and new opportunities
After the whirlwind of VC swept through, the consumer industry was left with lessons that took two years to reflect on and digest.
When capital swarmed the sector, money chased people, not the other way around. During those years, a ramen chain with just a few outlets could see each store valued at 100 million yuan. Some startups raced from angel rounds to Series B or C in just six months. Even in niche sectors like chain coffee shops, where only the top five brands used to attract investment, the top 50 suddenly found themselves in the spotlight at the peak of the frenzy...
But the flood of capital also led many entrepreneurs to mistake the halo of funding for their own competence.
In mid-2021, the founder of a noodle chain had just closed a Series B round. At the time, his brand had fewer than 150 stores but was already valued at 3 billion yuan. Confidently, he told me he aimed to become the "McDonald's of noodles," using fast-food and central kitchen models to scale past 1,000 stores by 2024. Three years later, data from Narrow Gate Eye shows the chain operates just over 300 locations—far short of its grand ambition.
Back then, many shared his dream of revolutionizing industries through business model innovation. Bubble tea chains, coffee shops, and toast specialty stores alike vowed to hit 1,000, even 10,000 stores. Even traditionally conservative consumer companies turned aggressive.
"In hindsight, it was alarming," reflects Robert Chang. "Many companies were barely making 100 million yuan in annual revenue, then suddenly got handed hundreds of millions—or more—in funding."
He notes that in internet investing, capital fuels rapid scaling to harness network effects—the bigger the network, the stronger the business. But consumer sectors lack such dynamics. Blind expansion without solid supply chain foundations is like building castles on sand: they collapse just as quickly.
Over the past two years, countless new brands have proven this lesson through their struggles. The fall of Chicecream, once a viral ice cream sensation, seemed due to backlash over "price-gouging," but its core issue was uncompetitive pricing and lack of differentiation. "New Chinese-style" bakery brands like Tiger Snack and Momo Dimsum—the former now bankrupt, the latter retreating to its Hunan base—met similar fates.
China’s consumer market is vast, but not every niche or chain can realistically scale to thousands of stores. Capital can be a hidden trap, and so can blind pursuit of scale. In the end, efficient models devour inefficient ones. For entrepreneurs, lasting success means surviving this Darwinian contest to build enduring businesses.
During these quiet years, the industry has been fighting that very battle. Yet some bright spots have emerged.
Membership warehouses like Sam’s Club and Costco, targeting middle-class families in top-tier cities, have thrived through curated selections, extreme value, and operational efficiency—earning loyal followings, strong sales, and even supplier credibility.
Discount snack chains like Snack Is Busy and Zhao Yiming have rapidly captured markets with rock-bottom prices, flooding streets and malls with franchises that pressure traditional retailers. Even giants like Hema are now testing discount models in response.
In 2024, Pang Donglai’s explosive popularity sent shockwaves through retail. With just 13 stores in Xuchang, this regional supermarket chain has outperformed national giants by obsessing over customers—curating exceptional products, developing private labels, and delivering unmatched service. Now, struggling retailers nationwide are scrambling to replicate its model.
Looking back, the much-hyped "internet-driven innovation" failed to deliver structural change for consumer industries. Instead, membership stores, discount chains, and operators like Pang Donglai succeeded by focusing on fundamentals: better products, leaner supply chains, and sharper operations that create real value for users.
Where future opportunities lie
For consumer investment institutions and businesses, where do the current and future opportunities lie?
Many in the industry look to Japan for answers—precisely why Robert Chang led a delegation there for research.
Japan’s retail sector also faced upheavals in the 1990s, yet over the next three decades, it gave rise to many outstanding chain retail models.
Some, like 7-Eleven, became ubiquitous convenience stores offering 24/7 services. Others, like Uniqlo, redefined apparel retail with affordable quality. Discount giants like Don Quijote thrived alongside drugstores and secondhand markets. The food and beverage sector, too, saw steady expansion among chains.
These models share key traits: superior service, unbeatable value, or deep specialization in niche categories.
Many Japanese brands adopt OEM (original equipment manufacturing) or ODM (original design manufacturing) approaches—designing products based on consumer needs, outsourcing production to upstream partners, enforcing strict quality control, and selling through their own channels.
This has birthed iconic private labels. For example, 7-Eleven’s collaboration with manufacturers has produced hits like onigiri (rice balls), with annual sales exceeding 2 billion units in Japan alone. Such scale allows 7-Eleven to negotiate lower material costs and achieve highly efficient mass production, delivering quality at low prices.
Uniqlo, meanwhile, outsources over 80% of its garment production to China while focusing on branding, store operations, design, and customer service.
Robert Chang notes that the Japan trip proved enlightening for many participants. Convenience store chain Xinjiayi, inspired by 7-Eleven’s private-label success, launched several best-selling products within six months of returning. Founders of Snack Is Busy and Zhao Yiming exchanged ideas with Don Quijote executives and later debuted two experimental stores in Changsha—Snack Spicy and Snack Jumbo—to instant buzz.
“It was a eureka moment for many founders,” says Chang Bin. “Before, they passively waited for consumption upgrades. Now, they’re proactively pivoting toward value-driven strategies.”
Similar evolution is already underway in China.
Sam’s Club China and Hema are aggressively expanding private labels. One investor told Caijing that some top-selling Sam’s exclusives generate annual sales of 1 billion yuan per SKU. A juice supplier for Hema reported multimillion-yuan quarterly sales for certain beverages.
Even Pang Donglai’s craft beer—priced at just 2.5 yuan per can, rivaling mass-market lagers—is going viral, with annual sales projected to exceed 1 billion yuan, per retail expert Wang Guoping.
Robert Chang observes that as China shifts from growth to maturity, and from seller’s to buyer’s markets, structural opportunities are emerging. Businesses can adapt by exploring discount stores, community shops, or entirely new formats. Private-label partnerships with upstream suppliers represent another promising avenue.
In recent years, Sam’s, Hema, and Pang Donglai have set stringent product standards, driving upstream manufacturers to elevate quality. As these benchmarks gain recognition, entire supply chains improve, transforming retailer-supplier relationships from adversarial to collaborative.
While capital once chased “category killers” with thousand-store potential, Robert Chang believes the next wave will crown retail champions like Pang Donglai—with ample room for new contenders.
Investment opportunities also persist upstream. Suppliers behind Sam’s star products—like Enxi Village (durian mille crepe cake), Lihe Flavors (cheesy beef rolls), and Shanggutang (pork bone ramen with char siu)—continue attracting funding.
The industry and investors no longer buy into marketing-first brands or “Internet Plus” myths. But high standards, robust channels, and exceptional products remain perennially scarce—and perennially prized.