“Basically, we have been contacted by all the main integrating players in the market.” This is what many retail owners told us when we visited the market.
Since the push for integration began, the systems involved in the integration are now too numerous to count. However, upon analyzing the current integration models, we find they can be divided into two core types—
The first type is focused on the supply chain, with the core idea being to group together to stay warm, leveraging more customized products to help stores improve their current profitability. This model might advance more quickly and the effects are more direct.
The second type is reflected at the system empowerment level, which can be further divided into two categories: The first is led by a core head entity, with participants entering mostly in a franchise form, changing store signs, shelves, updating the whole range of products, and undergoing a series of organizational training – essentially a “big fish swallows the small”; the other type implies several leading entities coming together as the main body, assembling multiple core strengths to jointly develop the market, which can be summarized as “the strong join forces with the strong”.
Regarding the advantages of integration, previous discussions have been numerous, but the current differentiated integration models have also left many practitioners dazzled and internally confused: What exactly is the optimal model? What are the issues with the current integration models?
On this issue, we have had in-depth discussions with multiple practitioners and have organized the core points of the discussion.
The supply chain advantage is not the core benefit of integration
Some practitioners think that if the supply chain were the key advantage, then perhaps the “Children’s Kings” would have already taken over. However, the reality is that many maternal and child stores around these “Children’s Kings” are still surviving well.
Additionally, as consumers increasingly demand personalization, the uniformity of products in large chains is already very high. The “same face in a thousand stores” may gradually lose its appeal to mothers.
Since the supply chain is not the core advantage, deeper empowerment may also become an important component of many integration plans, “but behind empowerment usually lies certain costs, and current maternal and child stores no longer have much profit margin to give up.”
Multi-party leadership cooperation may involve IP games, entangled interests
For brand owners, especially those with clear brand advantages, they naturally prefer the integration approach that unifies store signage. But in reality, after some collaborations have been implemented, the store fronts retain 2 to 3 IPs simultaneously, or use a form of suffixes.
For consumers, this inevitably creates a certain cognitive barrier, but it also indirectly reflects that “the current partners are still in a state of game-playing; no one wants to give up the store IP they’ve worked on for years.”
Moreover, for integration models led by two or more equal retail players, the entanglement of interests among the main bodies may be deeper. For instance, in the scenario of developing new markets, developing more targets is a common goal, but once a good target emerges, all teams naturally want to claim it first. In addition, whether each party is willing to share their unique supply chain advantages is also key to this power game.
“Human nature is always complex, and cooperation is predicated on a balance of interests. Once that balance is lost, the partnership might diverge.”
The rapid pace affects the precision of implementation
It is undeniable that since stepping into 2024, the race for territory by integrating entities of the maternal and child sector is accelerating, especially in competitions within the same region. Sichuan, Hunan, Jiangxi, and other places are undoubtedly hot spots for integration.
Thus, “claim territory first, then progress with empowering the ground” has become the core strategy for many integrating bodies.
This leads to two issues: firstly, in the rush to secure more targets, many integrators are not implementing regional protection policies during the “consolidation” phase, leading to an excess of targets in the same region and short distances between them. “When the market capacity can’t digest so many stores, it could end up with internal competition; your own stores competing with each other, eventually closing.”
Secondly, there’s a lack of actions like empowerment, training, and management of local service teams from headquarters. “Some service teams, when visiting stores, might only check the shelves and supplies without offering other operational support or business guidance.”
Maternal and child product integration is difficult to fully benchmark against pharmacy integration
In the process of integrating maternal and child stores, many practitioners habitually benchmark against pharmacies—inferring the future of integration in the maternal and child industry based on the success rate of pharmacy integration.
But integration in the maternal and child sector has its own uniqueness.
Firstly, maternal and child stores branched off from supermarkets primarily to cater to the demand for “slow-moving” items that are scattered, fragmented, and require deep service.
This also means that maternal and child store products do not possess the possibility of modularization and standardized replication, and can only complete the closed loop of supply chain and retail system standardization in the relatively fast-moving domain.
This is why at this stage, most of the integration of maternal and child end-markets is on the supply chain, especially in the milk powder category. In relative terms, pharmacies have a high level of standardization and profit margin compared to the maternal and child industry, which supports the progress of pharmacy integration actions.
Conclusion
Indeed, for the maternal and child retail sector, one of the core paths to good retail points to cost, efficiency, and scale. It is based on this path that the current wave of integration has surged.
But the observant attitude of some retail terminals during the integration process, or the recent divestment actions, also indicate that the road to integration is difficult to travel. The above-organized viewpoints from some retailers also imply that the current integration models are in a state of progression, not a final stage, and there is still room for further refinement of business and cooperation models.
We welcome your views and thoughts on the current integration progress in the comments section for discussion!
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