As a prelude: "If you can't beat them, join them." This is what Elon Musk said to Chinese entrepreneurs at the 2019 World Artificial Intelligence Conference. It aptly describes the current situation of traditional supermarket chains, both domestic and international, such as Bubugao, Yonghui, RT-Mart, Wumart, and Walmart, as they struggle with home-delivery services or instant retail.
The Pain of Transitioning from In-Store to Home Delivery
Ten years ago, many post-80s women had only two favorite shopping websites: Taobao and Yihaodian. The former catered to their beauty needs, the latter to their stomachs. However, this website, once adored by post-80s women, was later acquired by Walmart for various reasons, then resold to JD.com, and eventually faded silently from the historical stage. Although Yihaodian's website and app still exist, it no longer has any voice in the industry. But while Yihaodian faded away, a host of supermarket-like apps have emerged, including JD Daojia, Hema, Meituan, Ele.me, Dingdong Maicai, and Pumu Supermarket.
Looking back, Walmart's acquisition of Yihaodian seems like a case of "if you can't beat them, buy them." But it turned out that Walmart could only eliminate one app; it couldn't stop the trend of nearly 600 million young people increasingly preferring to shop in the cloud from home. Now, with the prevalence of instant consumption, Walmart, Yonghui, and others can only watch as a host of supermarket-like apps snatch away young consumers, with no other recourse.
From Yihaodian's online shopping to the instant consumption of apps like JD Daojia, Hema, Meituan, and Ele.me, these represent two eras and two trends, but unfortunately, traditional supermarkets including Walmart, Yonghui, RT-Mart, Lianhua, and Wumart all missed out.
Reviewing the development history of domestic and international supermarket giants, it becomes clear that their past success was largely due to enjoying various dividends, including policy support, overcapacity, and demographic dividends. In the past, traditional supermarkets, benefiting from various preferential treatments, only needed to standardize their supply chains and daily operations to ensure decent development. But now, with slowing social retail growth and multiple diversions from e-commerce and food delivery, coupled with the failure of their original three pillars—policy incentives (tax, rent, property), supply chain standardization, and a traditional management model centered on goods—traditional supermarket chains are experiencing unprecedented pain in transitioning from in-store to home delivery.
Currently, facing this frog-in-boiling-water pain, traditional supermarket chains are showing two self-rescue approaches: either selling out to internet giants and becoming test fields for online-offline integration, or cutting losses by closing many offline stores, especially large ones, and pivoting to near-field retail formats closer to the community's last mile, such as store-warehouse integration. But whether it's the former or the latter, on the surface it's "if you can't beat them, join them," but in reality, it's an awkward passive joining.
The Awkwardness of Store-Warehouse Integration
In fact, the current pain should have been heeded when Yihaodian appeared, but ten years ago, traditional supermarket chains were still in a self-satisfied phase of "my turf, my rules," severely underestimating the impact of rapid mobile internet development on the industry, ultimately leading to today's awkward situation.
Community Super Chain found that, based on the development history of traditional supermarkets' passive online engagement, the earliest wave of traditional supermarkets going online can be traced back to around 2010. Unfortunately, the first batch of companies only tested the waters with a wait-and-see attitude, resulting in wasted time and missed opportunities to build a successful online presence.
For example, Bubugao, recently mired in debt and liquidity crises and known as the "first stock of private supermarkets," initially declared it would never touch e-commerce. But after seeing Taobao and other platforms thrive, it quickly jumped into e-commerce and launched Bubugao Mall that same year. The next year, the mall was renamed Yunhong.com and promoted across offline stores. Soon, hundreds of thousands of users flocked to the site, crashing it.
Moreover, many consumers who managed to grab discounted items had to wait days for delivery, and worse, upon receipt, they found the goods severely damaged, leading to widespread complaints. Eventually, the Yunhong project was halted at the end of 2017. In the end, the project had burned through about 1 billion yuan of the company's funds.
Later, Bubugao's CTO reflected that the internal systems of traditional supermarkets lagged behind pure internet companies by "at least five years" in technology application. Subsequently, Bubugao changed its approach: since building its own website for traffic was troublesome, it decided to cooperate directly with Tencent and JD.com. This time, there was no surprise—just like with Yunhong.com, traffic increased, but the supermarket operation model and consumer service experience remained essentially unchanged, let alone value addition. Finally, in 2022, Tencent and JD.com exited at a loss, determined to leave. Thus, Bubugao's online journey returned to a crossroads.
Like Bubugao's difficult transition online, other traditional supermarket chains, including Yonghui, RT-Mart, and Wumart, also experienced various twists and turns in their online layouts. Compared to Bubugao's official online debut, Yonghui Supermarket didn't start much earlier. Although there were small-scale attempts earlier, it wasn't until 2015 that it officially launched its Yonghui Life app. Four years later, in 2019, Yonghui launched another app, Yonghui Caicai. Although the two apps initially operated in different regional markets, they were essentially based on offline stores, directing store traffic online. This operation was not only incomprehensible to outsiders but also to some partner customers at the time. Fortunately, after a few months of trials, the company integrated the two apps' businesses, and the Yonghui Caicai app was hastily taken down after only a few months, quietly disappearing.
Since then, the Yonghui Life app has become the sole hope for Yonghui's online transition. In recent years, with the rise of instant retail, Yonghui's management decisively bet all its national stores on the instant retail wave, and now "store-warehouse integration" has become a major feature of the company.
According to Yonghui's Q1 2023 financial report, as of April this year, Yonghui had 966 e-commerce warehouses nationwide (compared to 1,033 supermarket stores as of the end of 2022), including 156 full warehouses (covering 22 cities), 161 high-standard semi-warehouses (covering 44 cities), 22 satellite warehouses, and 627 store-warehouses (covering 150 cities). With the company going all-in, according to Yonghui's financial data, online business revenue in 2022 reached 15.936 billion yuan, a year-on-year increase of 21.37%. In Q1 2023, online business revenue was 4.02 billion yuan, with an average daily order volume of 469,000 orders. During the reporting period, the self-operated home delivery business of "Yonghui Life" covered 952 stores, achieving sales of 1.95 billion yuan, while third-party platform home delivery covered 942 stores, achieving sales of 2.07 billion yuan.
Although Yonghui's online scale is growing, we cannot ignore two important facts: on one hand, according to publicly available information, Yonghui's cumulative technology investment over the past two years has exceeded 1 billion yuan, far surpassing the total of the top 10 listed supermarket companies; on the other hand, in 2021 and 2022, Yonghui's cumulative net loss reached 6.707 billion yuan, also far exceeding its peers, making it the industry's veritable "loss leader."
Community Super Chain believes that, according to mainstream internet business logic, short-term losses are not scary; what's scary is not only losses but also a high debt ratio. According to public data, Yonghui has been severely short of funds in the past two years, with a debt ratio of 85.58% at the end of Q1 2023, 87.68% at the end of 2022, and 84.47% at the end of 2021. On one hand, the company's aggressive layout of "store-warehouse integration" requires continued substantial capital investment; on the other hand, the company's extreme "thirst" for funds is unlikely to be fundamentally resolved in the short term. It can be said that Yonghui is currently enduring an exceptionally tough time.
Dependence Under the Painful Self-Rescue
From the above, we can simply summarize the path of traditional supermarket chains' online layout as follows:
Phase 1: Traditional supermarkets/department stores insisted on self-reliance, confidently building their own online malls, but found that after building the mall, no one came to order. So they began to believe in traffic thinking, such as Dashang.com, Guangbai Online Shopping, Bianli Tong Online Mall, Intime.com, Sanjiang Shopping Net, Beiguo Ruyi Gou, New World Department Store Online Mall, Online Xinglong, Shimao Plaza Online Mall, Baida Easy Mall, Lianhua Yigou, etc. These traditional supermarket malls were abandoned after a few years due to lack of user visits, or converted into official websites for information disclosure.
Phase 2: After discovering that self-built websites were ineffective, traditional supermarket chains began to boldly embrace several internet giants, launching their own apps and official flagship stores, but found that traffic alone wasn't enough, leading to a dilemma of left-hand-right-hand self-competition between online and offline.
Phase 3: Many supermarket chains found that rather than spending too much time and money promoting their own apps, it was faster to invest the team's energy and budget into third-party platform flagship stores. Although it still costs money, third-party platform flagship stores at least help the company realize cash flow immediately.
As mentioned earlier, in Q1 2023, "Yonghui Life" self-operated home delivery covered 952 stores, with sales growing to 1.95 billion yuan and an average daily order volume of 273,000 orders; meanwhile, third-party platform home delivery covered 942 stores, achieving sales of 2.07 billion yuan and an average daily order volume of 196,000 orders. Currently, Yonghui's online push seems to have achieved phased results, but this data actually exposes a problem: Yonghui's aggressive home delivery layout has become heavily dependent on third-party platforms. Whether from sales or average daily order volume, Yonghui cannot easily stop cooperating with third-party platforms.
But we must understand that Yonghui, which used to be a landlord collecting rent, has suddenly become a tenant paying rent. This model is bound to be unsustainable, given the vast difference in status between landlord and tenant. Moreover, for platforms like JD Daojia, Ele.me, and Meituan, to develop their platforms, they are currently subsidizing major supermarkets to grow sales on their platforms. For example, JD Daojia (Dada) has been in severe losses since 2017, with cumulative losses exceeding 10 billion yuan. Annual losses of several billion yuan would be unbearable for any small or medium-sized enterprise. Imagine, even if JD.com has money now, how many more years can it subsidize? Even if JD.com is willing to continue subsidizing this game, we can look at the current state of the restaurant industry: most merchants are choked by platforms, wanting to break free but unable to do so.
Therefore, for all traditional supermarket chains, how to balance the relationship between self-built online channels and dependence on third-party platforms will determine how far they can go. Yonghui's continuous investment in technology R&D under financial pressure is enough to demonstrate how difficult it is for traditional supermarket chains today.
For traditional supermarket chains, relying on third-party platforms can certainly alleviate current revenue growth pressure, but in the long run, they still need to build their own bargaining power, which is not easy to achieve. After all, building a home delivery app with an 80-point experience today would require a research and development team of at least 200-300 people and over a year of time. More importantly, after spending a fortune to build the app, it still requires several million yuan annually for maintenance and operation. Such high costs are unaffordable for most companies.
Currently, the external impression Yonghui gives is that the company has fallen into a vicious cycle: on one hand, Yonghui wants to find a path that fits its business model in home delivery, so it is willing to bear enormous financial pressure and invest heavily to improve its software and hardware; on the other hand, Yonghui wants to break free from dependence on third-party platforms like JD Daojia, Ele.me, and Meituan, but it is extremely difficult, as these platforms provide not only the precise traffic it wants but also mature operating systems and last-mile delivery support. These are indispensable for the company, and it is particularly difficult to fill these gaps in the short term. So whether to break free from third-party platforms is currently an unsolvable problem.
Anxiety Under the Awkward Experiment
In fact, besides Yonghui's aggressive home delivery layout, other leading traditional supermarket chains such as China Resources Vanguard, Zhongbai Group, Lianhua Supermarket, Wumart, Jiajiayue, Renrenle, Tianhong Supermarket, and Chongqing Department Store are also exploring while anxious. Among them, China Resources Vanguard, a representative of state-owned supermarket chains, has launched online reservation services in over 2,200 stores nationwide. Another state-owned supermarket representative, Zhongbai Group, has not only launched its self-developed platform Zhongbai Linli Gou but also established cooperation with third-party platforms like Duodian, Meituan, Ele.me, and JD Daojia.
Similarly, as of now, Jiajiayue provides home delivery services through Meituan, JD, and other third-party platforms, as well as its own Jiajiayue Youxian platform, in 511 stores (out of a total of 960 stores at the end of the period), with more than half of its stores offering home delivery services.
In addition to the above, several other companies, including Lianhua Supermarket, Renrenle, Liqun, Tianhong Supermarket, and Chongqing Department Store, have achieved phased results in home delivery. Among them, Lianhua Supermarket's "home delivery" business currently accounts for 10% of its overall business, and it plans to reach a GMV of 30 billion yuan on e-commerce platforms within the next five years, with 100% digital coverage of its stores. In the first half of 2022, Renrenle achieved online sales of 191 million yuan, Liqun Online achieved GMV of 294 million yuan, and Tianhong Supermarket's home delivery order volume increased by 67% year-on-year, with sales growing 29% year-on-year, accounting for over 20% of sales.
Currently, although most supermarkets nationwide have passively launched home delivery services for self-rescue, Community Super Chain believes that simply moving offline supermarkets online is relatively easy; the difficulty lies in how to operate home delivery or instant retail services well, continuously providing consumers with more convenient and efficient quality life.
In fact, home delivery and instant retail are two different concepts. Currently, for most supermarket chains, they have just set up their home delivery models, but now instant retail is becoming popular. In the past, home delivery offered next-day, overnight, or half-day delivery, but now instant retail offers hourly or even 30-minute delivery. The acceleration of service speed requires a doubling of the entire operational efficiency of supermarkets. Obviously, most supermarket chains cannot achieve this at present.
Facing such new trends and situations, the pressure to break through naturally falls on the operators of all supermarket chains. According to public information, from the early days when Yonghui's two co-founders, the Zhang brothers, each launched Yonghui Life and Yonghui Caicai apps, to the departure of senior executives since 2021, including former CEO Li Guo, former board secretary Zhang Jingyi, former vice presidents Jin Bin, Li Jing, and Yan Haiyun, the departure of five senior executives in three years at Yonghui fully demonstrates that traditional supermarkets still have a long way to go to truly open up under the new trend of instant retail.