Source: Lianshang.com (ID: linkshop2012) Author: Liu Erbai
The retail wind keeps blowing. In the past two years, small formats were in vogue, but this year the wind has shifted, and large formats have become popular again.
In May, Yonghui quietly opened its first warehouse supermarket, and two months later, its warehouse stores have exceeded 30.
Warehouse stores are suddenly bustling. Besides the well-known Sam's Club and Costco, Hema and Metro have also opened membership stores. Recently, a local retailer opened a membership store called Fudi in Beijing, with an annual membership fee as high as 365 yuan.
The strong wind is blowing fiercely, and the scene is splendid. For a time, warehouse membership stores have a unique charm. In addition to existing stores, all major retailers are planning to open more branches. It is certain that in the next one or two years, warehouse membership stores will see significant progress and development, serving more consumers, but competition will be much fiercer than now.
Among all warehouse membership stores, Yonghui's warehouse stores are unique, embodying the essence of warehouse stores but differing from traditional warehouse membership stores.
Yonghui does not charge membership fees; consumers can shop without any threshold. Other membership stores charge fees to better serve target customer groups and as a profit-making tool: Sam's Club personal membership is 260 yuan per year, Costco is 299 yuan per year, Hema X membership is 258 yuan per year, Metro PLUS membership is 199 yuan per year, and Fudi is 365 yuan per year.
Except for the newly opened Fudi, for which no data is available, many membership stores have memberships ranging from hundreds of thousands to millions.
To enhance the value of membership, retailers offer additional benefits such as shopping rebates, member-day discounts, card-opening gifts, and 5x points on member days, which strengthen the connection between consumers and retailers.
While maintaining the low-price feature of warehouse stores, Yonghui has waived membership fees, lowering the threshold and broadening the target customer base. Other retailers' warehouse stores focus more on mid-to-high-end consumers, but Yonghui continues its previous retail style—people-friendly and low-priced.
Currently, Yonghui's warehouse stores are all converted from old stores. Compared to other retailers' membership stores, Yonghui makes the most of existing properties. Having experienced the glory days of hypermarkets, which now show signs of fatigue, many of Yonghui's large-format stores face numerous issues.
Most hypermarket leases are long-term. According to Yonghui's Q1 2021 report, newly signed large-format store leases are generally 15-20 years, indicating that existing store leases are not short.
If frequent store closures are used to stop losses, it not only loses market share and sales but also faces compensation. If existing stores can be renovated to create a new style that appeals to consumers, it could be a good approach.
After opening its first warehouse store, Yonghui quickly opened more than 30 more, at a surprisingly fast pace.
On one hand, this shows Yonghui's thorough preparation and groundwork in the warehouse format, leading to this momentum; on the other hand, it indicates that the transformation of Yonghui's hypermarket format is urgent, and further delay could have dire consequences.
At the same time, as a listed company, Yonghui urgently needs to regain its advantages and former glory, as it cannot keep submitting poor reports. Having come from the era of "fresh food as king," Yonghui needs to rebuild its advantages and rediscover its characteristics in the current context of online competition and community group buying.
Yonghui's warehouse store slogan is "Everyday low prices, always consistent." A promotional board outside one store reads, "Don't ask how many days the promotion lasts; every day is low-priced." It is clear that low prices are a key keyword for Yonghui's warehouse stores.
To highlight low prices, most products in the store display both "current price" and "regular price," allowing consumers to perceive the extent of the discount through comparison.
Price undoubtedly resonates most directly with consumers and is a powerful tool to attract them. To achieve low prices, Yonghui's warehouse stores have reduced SKU counts from 10,000 to several thousand.
This is similar to other warehouse membership stores, which adopt a "wide category, narrow product" approach: categories are broad, but within each category, SKUs are carefully selected, retaining only selected brands and varieties.
For example, the first store in Fuzhou reduced its product count to 6,000, and the Beijing Longqi Plaza store reduced from 10,000 to 4,000 after renovation, significantly cutting product numbers. This strategy changes the hypermarket's approach of wide categories and wide products, no longer offering consumers more choices but only limited options.
Judging from Yonghui's first store, it has basically gained consumer recognition. After transforming into a warehouse store, its June sales reached 20 million yuan, ten times the sales before the transformation.
"Wide category, narrow product" requires retailers to improve their operational capabilities. The selected products must not only be recognized by consumers and sell well at low margins, but also receive support from manufacturers. Many manufacturers have long product lines, and retailers must persuade them to operate only their flagship products.
To achieve this goal, Yonghui's warehouse stores likely make many concessions, such as buying out products to obtain low prices. However, if product selection fails, it can lead to inventory backlog and significant risks. Therefore, behind low prices lies both abandonment and improvement.
A notable feature of Yonghui's warehouse store transformation is the integration of store and warehouse: the back warehouse is converted into sales space, expanding the store's operating area after the transformation. This provides wider aisles and allows each SKU to be displayed more fully, leading to better sales.
Store-warehouse integration also effectively utilizes existing store space and saves labor costs. This approach may become a template for hypermarket renovation, effectively using resources, expanding operating area, enriching store content, and providing consumers with a better experience.
Yonghui is rapidly entering the warehouse store format, showing their determination and speed in this transformation.
Yonghui's warehouse store innovation is a case worth pondering. Compared to their previous rapid entry into new retail stores represented by Super Species and mini stores, this transformation is closer to consumers and more likely to gain their approval. However, some issues need consideration:
First, where does profit come from? Other warehouse membership stores rely on membership fees as a significant source of income. According to reports, Costco's profits mainly come from membership fees. Where is the profit point for Yonghui's warehouse stores without membership fees?
Traditional retailers' profit models mainly come from front-end and back-end income. Back-end income includes various fees, which are often criticized both inside and outside the industry. These fees provide retailers with profits and create dependency, while also losing their ability to operate independently, as each fee is pure profit.
If Yonghui completely abandons the traditional retail model and relies solely on front-end income for profit, it undoubtedly places higher demands on operations. If it does not fully abandon it and makes compromises, it may not achieve retailer-led selection for some brands' products, and these products may eventually drag down the development of warehouse stores.
Therefore, no matter which choice is made, it will not be an easy problem to solve. Yonghui's warehouse stores need to find a profit model quickly; without profit, there is no future. Or perhaps Yonghui has already determined a profit model, but it needs to show results soon. If results are not seen, Yonghui may find it difficult to invest as much energy and financial resources into this model as it did with Super Species and mini stores.
Second, are there enough differentiated products? Warehouse membership stores strive for differentiated operations, with a high proportion of private labels and exclusive brands. Differentiated products are a unique feature of membership stores and also demonstrate the value of membership.
According to reports, Hema X membership store's private label products account for 40%, and other membership stores' private label ratios range from 20% to 40%. These differentiated products are an important source of profit and a key means of attracting traffic.
According to Yonghui's 2020 annual report, total sales of Yonghui's private labels reached 2.846 billion yuan in 2020, a year-on-year increase of 45.9%, with double-digit private label penetration in 17 major categories of core products.
Yonghui's private labels have taken a solid step forward. In warehouse stores, the proportion of Yonghui's private labels and differentiated products is not publicly available. Price and differentiated products are like the left and right hands of warehouse membership stores; losing either side cannot be perfect.
Other membership stores' products mostly target mid-to-high-end consumers, while Yonghui's warehouse stores are closer to daily life, mostly high-frequency consumer goods, and also operate wholesale and retail simultaneously. Yonghui's warehouse stores target a more general audience.
This also poses a hidden danger: will warehouse stores gradually become discount supermarkets, losing the advantages and characteristics of warehouse stores, leading to another mess?
Now that warehouse membership stores are a trend, the format itself has high barriers, such as needing a more efficient supply chain, ample financial support, the ability to develop and exclusively source products, and suitable property locations. Therefore, warehouse membership stores will not attract a swarm of suppliers like small stores do.
The wind of warehouse membership stores will certainly blow for a while, as it gives many retailers renewed hope and infinite possibilities.
Yonghui's exploration of warehouse stores has a positive demonstration effect, both for itself and the industry. Hypermarkets today are like a staggering old man, lacking vitality in the face of the times and consumers.
How hypermarkets should develop has become a topic of industry concern. Some retailers have tried to shrink hypermarkets and add external business projects, but the results have not been satisfactory.
Now Yonghui offers a solution. The hardest part of this solution is not expanding the area or transforming into an industrial-style store, but having an efficient supply chain and procurement R&D system, carefully polishing products, and seeking profits from products.
For hypermarkets that rely on charging channel fees and depending on suppliers, this is undoubtedly a revolutionary change.
"The wise do not follow the beaten path." Only those who constantly challenge themselves can avoid being challenged by others.
This article represents the author's views only and does not represent the position of Lianshang.
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