Soochow: Looking for leading chain enterprises with scale and profit vision.

Soochow releases research reports on the service industry, and the brokerage research team believes that the scale of the domestic social retail market has reached 50 trillion yuan by 2025. On one hand, for leading companies in the chain industry sub-sectors, their scale needs to expand nationwide; on the other hand, a wide customer base, good single store profitability, and the competitive advantage of leading companies are especially important. Recommended attention is given to leading tea drink companies with sinking capabilities, such as MIXUE GROUP (02097) and GUMING (01364); 2) snack discount chains, such as BUSYMING (01768) and Fujian Wanchen Food Group (300972.SZ); 3) other sectors: leading supermarkets, department stores with reform genes and capabilities, hotel leaders, MNSO(09896), etc. The following is a summary: We first proposed the concept of commercial ground fulfillment. In developed countries, such as Japan's convenience stores, their sales have been comparable to large supermarkets for many years, about twice the size of department store formats, and maintain steady growth. The top companies have scale and achieved good revenue/profitability. For example, according to company announcements, in 2024, Japan's 7-Eleven had approximately 20,000 stores, with total sales/operating income of 256.57/42.94 billion yuan, and net income exceeded 10 billion yuan. Similarly, Mexico, North America, and Europe all have characteristic similar formats. The main reasons behind this are: 1) meeting the needs of a wide consumer base; 2) the format's products, supply chain, operations, and other capabilities form a good single store profitability structure; 3) high-quality companies have competitive advantages and can expand in a standardized manner. The domestic consumer base is huge, and there are opportunities for products/services, as terminal formats cannot be replaced by immediacy and experiential senses. On one hand, by 2025, the total social retail amount in China has reached 50.12 trillion yuan, with a high share and fast growth rate in the sinking market. For leading companies in the chain industry sub-sectors, their scale expansion requires a nationwide layout. On the other hand, in addition to product consumption, service domination is an inevitable result of economic development maturity. Domestic policies are frequently implemented to improve supply and optimization, and service businesses with scale capabilities are benefiting companies, promoting employment and consumer consumption. Changes in domestic retail channels and the development of e-commerce have somewhat weakened the demand for one-stop purchases. The development of immediate retail in the take-out industry confirms the multiple needs of terminal fulfillment and presents a greater challenge to achieving profitability in small-size stores with all categories, highlighting that terminal formats cannot be replaced by immediacy and experiential senses. Exploration of scaled service businesses 1tea drink leaders with sinking capabilities. The tea drink industry has high demand and strong addiction, with a market size of approximately 350 billion yuan by 2025, and a compound annual growth rate of nearly 20% in the past five years. Compared to fast food and braised product industries, the tea drink industry has relatively smaller regional demand differences, higher thresholds for individual operations, and stronger scale advantages from standardized store models. The tea drink industry's single-store model exhibits higher gross profit margins, net profit margins, and relatively shorter investment payback periods, and leading franchisees have stronger pricing or profit advantages. High-quality leading companies expand into sinking markets, where MIXUE GROUP has competitive capabilities in procurement, production, logistics, R&D, quality control, digitization, marketing, suppliers, and membership, still with room to double in scale; and GUMING is competitive, with operations expected to surpass peers by 2025, and plans to reshape single-store operation by 2026, with room for 30,000 to 40,000 stores. Exploration of scaled service businesses 2snack discount chains with core advantages. From 2020 to 2025, the scale of the snack retail industry in China increased from 10.9 billion yuan to 214 billion yuan, with a compound annual growth rate of 81.5%, driven by category consumption and demand for high-quality cost-effectiveness, as well as the competitive advantages of leading companies. High-quality leading companies build consumer awareness through product and brand capabilities, enjoy cost advantages from scale and upstream customization capability, and continuously deepen in various aspects such as warehousing, distribution and fulfillment, franchise system operation, and management capabilities, as well as a fully digitized process. According to company announcements, in 2025, the market share of Zhao Yiming/Busy Snacking/Want to Come GMV was 23.6%/19.0%/30.3%; in the long term, both the industry and leading company store sizes have room to double. Others: leading supermarkets and department stores with reform genes and capabilities. The one-stop shopping demand in the supermarket and department store industry has slowed down, but leading companies in this industry are upgrading service businesses in various ways: 1) Product/service/business model transformation. By adjusting profit models and changes in products, services, employees, environmental layout, improving consumer scenarios, and achieving single-store growth; 2) Contentization, adapting to the growth trend of grains, companies like Shanghai Bailian Group Incorporated and Wangfujing Group rely on their original locations and customer flow to do scene transformation, brand introduction, and event operations, using second-dimensional content to turn shopping into an experience; 3) Innovation in the format of value, experience, and other aspects, such as outlets/brand-building for younger audiences, with leading companies' outlet stores consistently performing higher than other formats, and focusing more on improving existing store efficiency and upgrading the format. Investment recommendation: By 2025, the scale of the domestic retail market has reached 50 trillion yuan. For leading companies in the chain industry sub-sectors, their scale needs to expand nationwide; also, a wide customer base, good single-store profitability, and the competitive advantage of leading companies are especially important. We propose the concept of service business in this article, aiming to find leading chain companies with scale and profit visions. Core recommendations: 1) Leading tea drink companies with sinking capabilities, such as MIXUE GROUP and GUMING, etc; 2) Snack discount chains, such as BUSYMING, Fujian Wanchen Food Group, etc; 3) Others: leading supermarkets, department stores with reform genes and capabilities, hotel leaders, MNSO, etc. Risk warning: 1) Consumer growth rate falls significantly below expectations; 2) Industry competition intensifies significantly; 3) Leading companies' expansion and cost control do not meet expectations.