Introduction: From a business logic perspective, community fresh food stores can be profitable; the focus should be on improving operational techniques such as store standards, scale control, and product mix. For most regional retail enterprises, the community format's profit model has not yet been proven, and the inability to sustain profitability remains a challenge for supermarket operators. Xia Zhiqiu, General Manager of Hunan Xiangjiang Department Store, shares this sentiment. Xiangjiang Department Store's dozen-plus hypermarkets and standard supermarkets have long been profitable, but its community fresh food format, after opening seven or eight stores, has yet to achieve profitability and is still in the exploratory stage. Similarly, Qinghai Yijiaqin, which primarily operates large stores, has also encountered difficulties in developing community fresh food stores. "Opening a good community store is not easy because community stores have inherent flaws: first, limited space means incomplete categories; second, as physical stores, their online presence is weak," said Jia Jianquan, Chairman of Qinghai Yijiaqin. Based on interviews with multiple retail enterprises, Longshang.com & Supermarket Weekly found that in recent years, driven by the COVID-19 pandemic's catalysis of community commerce and low investment thresholds, many regional retail enterprises have been deepening their presence in trading areas, boosting this track. Although fresh food-enhanced community stores have huge development potential, the expansion process is not smooth sailing. Enterprises encounter obstacles such as product selection positioning, product configuration, store layout, pricing, and staffing, falling into a vicious cycle of "working with great enthusiasm but losing money and failing to sustain profitability." Song, a senior retail expert with years of practical experience and a special lecturer for Longshang.com & Supermarket Weekly, believes the difficulties stem from two aspects: first, regional retail enterprises have long focused on large stores, with community formats either occupying a small part of their plans or serving as supplementary formats, leading to insufficient attention or lack of capacity; second, community stores have their own characteristics, and their profit models differ significantly from large stores. If enterprises continue to use the mindset of opening large stores to open small stores, they are prone to making the mistake of sticking to old ways. "Therefore, to achieve profitability in community stores, it is essential to fundamentally change thinking, and a fresh food and grain & oil-enhanced community store is a good solution. While retaining some practices from large stores, by creating fresh food-enhanced community stores, we can comprehensively upgrade and improve category management, pricing, staffing, and quality standards," Song said.
01 Profitability Challenges Xiangjiang Department Store has been rooted in Hengyang, Hunan for 26 years, gradually forming its competitive advantages and brand image, becoming a regional retail leader. To date, Xiangjiang Department Store still focuses on large stores, with 14 Xiangjiang-brand supermarkets in Hengyang city, 2 Jingcai Shenghuo large fashion lifestyle supermarkets, and 2 large lifestyle supermarkets in Changsha. In recent years, to cater to community commerce trends, Xiangjiang Department Store has opened seven or eight community stores, each around 500 square meters, with the oldest being over 6 years old. However, the community format model has not been fully proven. "We temporarily treat community stores as supplements to hypermarkets, making it convenient for customers farther away to shop nearby, but as a truly independent profit model, we are still exploring," Xia Zhiqiu said. Regarding the difficulty in making community fresh food stores profitable, Xia believes, "Many enterprises have always focused on standard supermarkets and hypermarkets, and may not fully understand small formats like community stores. They still use a hypermarket mindset, such as in product selection, procurement, product structure, pricing models, and staffing, which are not fully clarified." For example, in store management, managing a community store as a store manager may be more difficult than a standard supermarket because large stores have tight staffing and workflows, with one person per role, but community stores often require the store manager to do everything themselves. Additionally, if community stores' product and pricing systems are the same as hypermarkets, they lose their differentiation advantage. As a leading retailer in Qinghai, Qinghai Yijiaqin has traditionally focused on large stores, including 10,000-square-meter hypermarkets, and is now also expanding into lower-tier formats. According to Jia Jianquan, the company plans to open 50 community stores in Xining within three years, each 300-500 square meters, to improve network coverage. In Jia's view, community stores have natural location advantages and are closer to consumers, which hypermarkets cannot match; but their disadvantages are also obvious: due to limited space, they have fewer categories and less variety compared to hypermarkets. At the same time, as physical stores, community stores have shortcomings in online capabilities. How to compensate for these deficiencies? Qinghai Yijiaqin's approach is to use its logistics distribution center and central kitchen to solve the problem of incomplete product assortment, thereby improving product power. "Community stores lack processing rooms, so some products cannot be produced in-store, but through central kitchen production and logistics center distribution, we can effectively improve product completeness, including some deep-processed fresh products, and raise the standardization level of fresh products in community stores." For the key to operating community stores well, Jia believes at least the following two points are essential: First, distribution: "Through reasonable profit distribution, stimulate employee enthusiasm, combined with excellent corporate culture, so that from store managers to employees all have a sense of ownership. This ensures good customer service and builds consumer loyalty." Second, pricing: "Online shopping is increasingly common, and price comparison is frequent. If customers think your products are more expensive than online, why would they buy from you? So you must ensure cost-effectiveness." Additionally, Qinghai Yijiaqin adopts a model where customers order online, the headquarters delivers to the store, and customers pick up in-store, compensating for the physical store's online shortcomings. This not only expands online consumption but also increases offline consumption stickiness. Based on feedback from multiple retail enterprises, Longshang.com & Supermarket Weekly found that currently, several types of enterprises are entering the community fresh food format: first, capital-backed new retail enterprises such as Hema, Fresh Legend, and Qian Dama; second, regional retail enterprises that have long focused on large stores and, sensing the trend in community commerce and to improve regional network coverage, are deepening their presence in this format; third, national traditional retail giants like Yonghui and RT-Mart, with small and medium-sized community stores as new format experiments.
02 Solutions How to break the vicious cycle of community stores "working with great enthusiasm but losing money and failing to sustain profitability"? Especially, how should regional retail enterprises correctly expand this format? Song has summarized a systematic solution. He believes that under the new retail development situation, large domestic and international stores are experiencing a "wave of closures," and more enterprises are entering the community store field. The decline of large supermarkets and the rise of small supermarkets is a foregone conclusion. Against the backdrop of consumers' increasing demand for convenience, new formats serving the last mile are emerging. Coupled with the low investment and low entry barriers of community stores, which seem easy to open, and the fact that fresh food categories are relatively weak in online shopping, fresh food-enhanced community stores have huge development space. For example, Hefei Fresh Legend, some 300-400 square meter stores achieve daily sales of around 50,000 yuan; Anhui Lianjia Supermarket, a 500 square meter store has daily sales of about 80,000 yuan. However, Song reminds that community stores are not easy to open; they may be harder than large stores. First, from the format's own perspective, community stores have small areas and limited product capacity, increasing the difficulty of product selection. "Large stores can easily accommodate tens of thousands of SKUs, but small stores also need to be complete in all aspects while highlighting their own characteristics. For example, how to lay out the space? Which categories to exclude? How to select products based on the trading area? This requires high technical skill." Second, from external factors, on one hand, many retail enterprises, especially regional ones, are accustomed to using large-store thinking to open small stores. "They originally opened large stores, and now they are moving toward smaller formats, but they often make the mistake of 'small store, large store approach,' retaining all the categories from large stores, just reducing the variety in each category, without any distinctiveness." On the other hand, community stores are small and receive little attention; for example, it's hard to find designers. "I've encountered enterprises that still draw blueprints by hand for small stores. Because the store is small, many design companies are unwilling to take such small orders." There is also unprofessional operation, laying hidden dangers for store opening. For example, not equipping cold storage leads to reduced fresh product storage capacity, resulting in lower-grade fresh products, such as no high-end fruits, frozen meat, or frozen fish, thus losing many high-margin fresh products. Moreover, not equipping cold storage also restricts quality. "If the meat in your store is the same as that in the wet market, what competitiveness do you have? What differentiation can you talk about? Only by improving quality can you serve mid-to-high-end customers." It may even fail quarantine inspections, "because pre-cooled meat is the meat that has been inspected and meets national standards." "So we must fundamentally change. A 300-500 square meter fresh food and grain & oil-enhanced community store is the solution to this problem," Song told Longshang.com & Supermarket Weekly. It's not simply about being "fresh" or just opening a community store; it's about setting higher requirements for the fresh food section, comprehensively surpassing wet markets or small vendors. A fresh food and grain & oil-enhanced community store pays special attention to fresh food and grain & oil, both in quantity and quality. For example, the number of related shelves and the richness of SKUs may be similar to large stores. In this way, customers don't need to go to large stores for fresh food and grain & oil; small stores can meet their needs. "Specifically, as long as it's a product needed in the kitchen of ordinary people, a fresh food and grain & oil-enhanced community store should be equipped with it. For example, daily necessities are also matched according to kitchen standards, not other standards. But unrelated items, such as personal care products like shampoo and body wash, are not equipped." Then, reasonable matching and optimizing the overall layout. For example, how to configure shelves? How many sections for grain & oil, how many for beverages, how many for non-food, and even more detailed: how many SKUs per category, how many kilograms of fresh products, how many shelves for fruits, how many shelves for daily distribution, how much area for vegetables, how long the cold display cabinets, how many milk stacks, etc. "The goal is to use the entire area to its fullest." Song told Longshang.com & Supermarket Weekly that the fresh food and grain & oil-enhanced community store has a strong target: based on the community store, strictly select products, carefully match, strengthen what should be strengthened, and not do what shouldn't be done, thereby driving the overall store performance. Source: Longshang.com Supermarket Weekly (ID: cacszk) Author: Li Xiaojing
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