Click 'Read Original' for details Source: New Retail Business Review (ID: xinlingshou1001) Author: Beifang In the eyes of Beijing's elderly, "warehouse stores" are becoming hard to understand. Previously, it was the "Beijing Urban-Rural Warehouse Supermarket" near the west gate of Renmin University, with a long history, cheap vegetables, and if lucky, you could buy a jin of butterfly crisps from Laomo Bakery without queuing. Now, warehouse stores have become "fudi" in Nanmofang, a name you can't pronounce, where you can no longer buy fresh vegetables for a few yuan, and paper products, rice, and milk must be bought in bulk. Most importantly, you have to pay for a membership to enter. Warehouse stores are proliferating in Beijing. In the past two months, Metro Plus membership store, fudi, Hema X membership store, and Yonghui warehouse store have opened one after another, plus the foreign brand Sam's Club that was already operating, Beijing has entered a boom period for warehouse stores. In this process, local supermarket chains are officially competing with foreign brands. In 2019, Costco's opening in Shanghai triggered a shopping frenzy, and Beijing's Sam's Club became a popular check-in spot, all indicating that warehouse membership stores are pulling users back offline from online retail. Local supermarket chains, which have been losing ground, can hardly resist the temptation. However, the popularity of Costco and Sam's Club relies on their well-established membership systems, strong supply chain capabilities, and successful private brand operations. This means that the two major features of warehouse stores—bulk retail and membership—are easy to imitate on the surface but difficult to execute in practice. Traditional supermarkets need to be well-prepared if they want to learn from them. The challenges facing traditional supermarkets go far beyond these. New retail formats such as online retail, community group buying, and front-warehouse fresh e-commerce have already accustomed consumers in first- and second-tier cities to the habit of "ordering online, delivering to home or self-pickup." How will traditional warehouse stores bring consumers back offline? The Surging Wave of Store Openings On May 18, fudi's first warehouse membership store opened in Nanmofang, Beijing; a month later, Hema opened its first X membership store in Beijing; then on June 25, Yonghui's first warehouse supermarket officially opened at Longqi Plaza; two days later, Metro Plus paid membership store opened grandly in Caoqiao. Including the three Sam's Club stores in Shunyi, Shijingshan, and Yizhuang, Beijing is now surrounded by five warehouse store brands, and this pace of opening even surpasses Shanghai, which has a richer retail landscape. The source of the boom is Sam's Club. In fact, unlike the buzz generated by Costco's trial operation in Shanghai in 2019, Sam's Club has been quietly cultivating the Beijing market for years without truly entering the public eye, as its China president Andrew Miles said, "Sam's Club is committed to serving middle- and high-income families." The turning point came in 2020. The price of Moutai soared, with the direct-sale price of 1499 yuan for 53-degree Feitian Moutai being hyped to 3000 yuan. Sam's Club seized the moment by offering its members a limited purchase benefit at 1499 yuan, which instantly ignited the internet. Since this year, influencers on Xiaohongshu and Douyin have popularized Sam's Club's private-label mochi bread and Swiss rolls, and even purchasing agents have appeared on Xianyu. Since then, Sam's Club has completely broken out. A wave of local warehouse stores followed. It can be seen that unlike foreign companies like Costco and Sam's Club, local warehouse stores have made localized adaptations based on their own advantages, including location, categories, and membership systems. In terms of location, Sam's Club stores are distributed in Shunyi, Yizhuang, and Shijingshan, all in the Sixth Ring Road area away from the city center, with inconvenient public transportation, but this aligns with Sam's Club's positioning to serve middle- and high-end consumers, suitable for families with cars to stock up on weekends. In stark contrast, fudi's membership store is directly inside the East Fourth Ring Road, only 600 meters from the nearest subway station, surrounded by office buildings, shopping centers, and multiple large residential communities. Metro Plus membership store on South Third Ring Road was renovated from the Wumart Caoqiao store. Hema X membership store also has the advantage of convenient transportation and proximity to residential areas, and it relies on the World Flower Holiday Plaza shopping center, attracting considerable foot traffic. Yonghui's Longqi Plaza warehouse store is also a renovation of an old store, leveraging the location advantages of traditional supermarkets. In Beijing, the location and transportation differences inside and outside the Fifth Ring Road have the most direct impact on large warehouse stores of tens of thousands of square meters: rent and labor costs. This has allowed Sam's Club, located away from the city center, to grow rapidly under its low-frequency, high-ticket, and membership fee model. In the first quarter of this year, Sam's Club's same-store sales grew 7.2%, and membership revenue grew 12.7%. The differentiated locations of local warehouse stores have also led to different operational strategies, simply put, adapting to local conditions. fudi, dubbed the "knockoff Sam's Club," resembles Sam's Club in its tens of thousands of square meters store size and membership model, but up to 70% of fudi's categories are fresh produce. The reason is that its parent company, Beijing Yaodi Agricultural Technology Development Co., Ltd., focuses on fruit, vegetable, and fresh food retail, and its mature product bases and supply chain can be directly grafted onto fudi. Metro and Yonghui, both upgraded from old stores, have reduced product specifications to cater to China's small family model, for example, changing rice, flour, and oil from dozens of kilograms to family bulk packs. The former has already made the supermarket's ceiling height and shelving similar to ordinary supermarkets, and the space has been reduced to 4,000 square meters; Yonghui, on the other hand, has abolished membership fees to lower the consumption threshold. For users, it's just an ordinary supermarket with "wholesale prices." After Hema X membership store opened, it directly advertised "If more expensive than Sam's Club, refund the difference within 7 days." However, this store's more competitive feature is that, relying on Hema's delivery team, it can achieve "half-day delivery" within a 20-kilometer radius. Moreover, Hema's own supply chain system and private brands have a better user base. Warehouse Stores as a Hope for Transformation Admittedly, the business models of Costco and Sam's Club have been validated, and the current buzz has given traditional supermarket chains a tailwind, but essentially, it's still a product of their confusion and exploration. Traditional supermarkets have been struggling with offline retail for a long time. Take Yonghui Superstores. Its Q1 2021 financial report shows revenue declined 9.99% year-on-year, and net profit fell 98.51% year-on-year. The main reason is the failure of its "new retail" experiment—"Super Species," which is now facing store closures, and its parent Yonghui Yunchuang has been sluggish since its establishment, with cumulative losses exceeding 2.6 billion yuan from 2016 to 2019. Wumart, dubbed "China's Walmart," hasn't fared much better. At the end of March this year, Wumart submitted a listing application to the Hong Kong Stock Exchange. According to the prospectus, its revenue in 2019 and 2020 reached 22.747 billion yuan and 39.064 billion yuan, respectively, showing rapid growth, but mainly due to the acquisition of Metro, which provided over one-third of Wumart's revenue in 2020. Looking at Wumart's own performance, single-store efficiency has been declining from 2018 to 2020. Giant Walmart is having an even harder time. Since 2016, this foreign brand has closed more than 80 stores in China, most of which were hypermarkets. Currently, Sam's Club carries its new hope for stabilizing its position in the Chinese market. The increasing difficulty of traditional supermarkets' survival is a cliché. The internet's transformation of local life services has made online retail more efficient and mature, and today it has become a formidable opponent to offline traditional enterprises, an irreversible trend. Beijing Yaodi Agriculture, fudi's parent company, opened its first "Caixian Guomei" premium community supermarket in 2014, and in seven years, it has only expanded to over a dozen stores in Beijing. In contrast, Miss Fresh, founded in the same year, based on the front-warehouse model in fresh e-commerce, has successfully landed on the capital market seven years later, with total financing of up to $900 million. Fresh e-commerce, community group buying, errand purchasing, and even livestream e-commerce—the internet giants behind them are spending lavishly, entering the track at breakneck speed, transforming the industry. Traditional enterprises not only have no chance to catch their breath but also suffered a fatal blow from the COVID-19 pandemic last year. According to iiMedia Research's "2021 China Post-Epidemic Fresh E-commerce Operation Big Data and Development Prospects Research Report," the pandemic has further cultivated users' consumption habits, with over 40% of respondents purchasing from fresh food platforms 2-3 times a week, and nearly 20% purchasing 4-5 times. In 2021, the market size of fresh e-commerce will exceed 300 billion yuan. Online and offline are staging a drama of ice and fire. And the most successful experiment in new retail, characterized by online-offline integration, is Hema Fresh. Data shows that after Hema's initial establishment, a mature store operating for one and a half years had an average daily sales of over 800,000 yuan, and sales per square meter exceeded 50,000 yuan, 2-3 times that of similar hypermarkets; meanwhile, online sales accounted for over 60%. The Wavering Business Model Hema CEO Hou Yi has unabashedly stated that Hema X membership store has borrowed from Costco in many aspects, "Learn the business model, learn the operational processes, and finally surpass it." Beijing's Hema X membership store not only learns from Costco but also directly compares prices with Sam's Club, and fudi has also touted the "knockoff Sam's Club" label. Clearly, in this warehouse store boom, on the surface, the imitators have all succeeded. However, as mentioned earlier—easy to imitate on the surface, difficult to execute in practice. Take Costco as an example. Its success lies precisely in the precision, clarity, and interlocking nature of its business model. First, the essence lies in the membership system. By serving the middle-class consumer group, Costco has streamlined its product count to just 3,700 SKUs; Second, fewer but better SKUs ensure high turnover—Costco's inventory turnover days are 20% lower than JD.com's self-operated—and the huge purchase volume gives Costco high bargaining power, reducing procurement costs; Third, based on the first two points, Costco can strictly control gross margins. Compared to the 15%-25% gross margins of ordinary supermarkets, Costco can keep its gross margin at 12%-13%, thereby maintaining its image of high quality and high cost-performance. It is precisely because it only serves middle- and high-end consumers that Costco can choose to open stores away from urban areas, saving considerable rent costs and making the sale of large-packaged goods possible. Sam's Club, with the same positioning, has always been known as a "thousand-yuan store," because middle- and high-end consumers are generally families with cars, who don't need to consider public transportation costs, and although consumption frequency is low, the average transaction value is astonishing. When the warehouse membership store model is applied to local enterprises, it has been more or less modified. For example, most local warehouse stores have reduced product packaging specifications or quantities to cater to China's prevalent single-person or two-to-three-person small family structures; a bigger change is Yonghui's warehouse supermarket, which simply abolished membership fees to lower the shopping threshold. However, these detailed changes often affect the overall business model, as the saying goes, "a single move can affect the whole situation." Large packaging and low prices, low frequency and high transaction value are complementary; any change requires careful consideration of how to maintain balance. Take Yonghui's warehouse store: without the important revenue from membership fees, how will it guarantee price advantages? In addition to the need for comprehensive planning of their own business models, local warehouse membership stores also face severe homogeneous competition. As is well known, the core of warehouse stores' ability to maintain membership growth and renewals is, first, the attractiveness of private-label products, and second, membership benefits. Private-label products test a company's product selection ability and supply chain control. From the current situation, besides the most competitive fresh produce category, various warehouse stores are also "colliding" in bakery and prepared foods, making consumers unable to distinguish which is better between "signature roast chicken" and "Swiss rolls." In terms of membership benefits, what each offers is nothing more than traditional services like car washing, dental care, and children's playgrounds. In addition, under the strong "offensive" of various online retail formats, "going online" has become an inevitable choice for traditional warehouse stores. For example, even the high-end Sam's Club has already opened "one-hour delivery" service in Beijing's core membership areas via JD.com, covering fresh produce, mother and baby, and other high-frequency daily items; Metro, Yonghui, and fudi have also launched home delivery services. Regardless of the results, when online has become an irreversible trend, the atmosphere of traditional warehouse stores being "forced to operate" is increasingly strong. The track continues to heat up. Hema X membership store announced it will open 10 stores this year, fudi plans to open 20 stores within 3 years, Metro Plus's large-scale replication is already underway, and Carrefour, Hualian, and others are also eager to try... Clearly, this fresh trend is already "involution" at the start of competition, making people sigh: middle-class consumers are almost running out. Recall that six years ago, Wumart first explored warehouse membership stores and optimistically estimated it would expand to 5 stores within the next two years, but due to supply chain issues, it collapsed within just one year. Now, online retail has become an indispensable part of public life. For current entrants, only by building their own core competitiveness and being fully prepared in human, material, and financial resources can they possibly succeed. After all, this retail war is also a protracted battle of patience and perseverance. 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