Performance Pressure Revenue declines, performance pressure, shifts in the retail market, and seeking transformation are among the future directions for many supermarket companies. This is the conclusion drawn from the 2023 annual reports recently released by several supermarket companies. According to relevant data, in 2023, Lianhua Supermarket's turnover was approximately RMB 21.836 billion, down about 11.5% year-on-year, with its large comprehensive supermarket format down about 22.2%; Jiajiayue achieved revenue of approximately RMB 17.763 billion, down 2.31%; Renrenle's operating revenue in 2023 was RMB 2.853 billion, down 28.15% from the same period last year... Among them, Renrenle stated in its financial report that the change in annual revenue was mainly due to a decrease in the number of stores and a decline in sales. As of December 31, 2023, Renrenle operated 91 physical stores. During the reporting period, the company closed 22 stores and did not open any new ones. Of the 22 closed stores, 4 had contracts expiring without renewal, 5 were transferred to other merchants, and the remaining 13 were closed due to long-term operating losses or failure to meet transformation needs. Similar to Renrenle, Jiajiayue also intensified store closures, shutting down poorly performing stores. Notably, in 2023, although Jiajiayue's operating revenue decreased by 2.31% year-on-year, net profit attributable to shareholders of the listed company was RMB 136 million, up 127.04% year-on-year. Jiajiayue stated that the changes in revenue and net profit were due to enhancing regional density and scale advantages while following the principle of "optimizing and eliminating," decisively closing stores that were continuously loss-making and difficult to improve, thereby reducing future profit pressure. During the reporting period, the company increased efforts to close loss-making stores that were unlikely to improve, reducing losses and enhancing overall profitability. In 2023, the company opened 81 directly operated stores and closed 57 stores. The year-on-year decline in revenue was mostly due to the closure of loss-making stores leading to fewer offline stores and reduced overall store sales. Industry insiders believe that supermarket companies have encountered bottlenecks in development, and the original one-stop shopping advantage of hypermarkets is gradually disappearing. Store transformation and optimization have become the theme for hypermarkets this year. Comparing the 2024 first-quarter reports, among 12 companies that released Q1 2024 reports, 9 saw year-on-year revenue declines, and only 3 achieved revenue growth. In terms of net profit, although 7 supermarkets were profitable, 8 saw year-on-year declines in net profit. Among them, Zhongbai Group saw the largest decline of 619.18%, turning from profit to loss. Renrenle also faced delisting again, being subject to "delisting risk warning." If Renrenle's net assets remain non-positive by the end of 2024, it will be forcibly delisted, which is regrettable.

Closing Stores to Stop Losses, Upgrading and Optimizing In recent years, hypermarkets have frequently seen a "wave of store closures." Since the beginning of this year, China Resources Vanguard has closed at least 11 stores, including Zengcheng, Tanzhou, Shenyang Hunnan Zhong, Jiashan Sports South Road, Ninghai Xingning Zhong, Dahua, Xingyuan North Road, Shijiaqiao, Jinniu, as well as Qingxiu on April 21 and Xiayuan on April 22. According to data from the China Chain Store & Franchise Association (CCFA) on the top 100 supermarkets in China, the number of China Resources Vanguard stores has been decreasing year by year: 3,261 in 2020, 3,245 in 2021, and 3,130 in 2022, with 131 stores closed over three years. Additionally, at the beginning of this year, RT-Mart reported store closures in Jiangsu, Sichuan, Hunan, and other places. According to incomplete statistics, RT-Mart has closed more than a dozen stores since 2023. Furthermore, media reports have counted that in the first quarter of 2024, at least 31 supermarket brands closed over 140 stores nationwide, involving well-known brands such as Walmart, RT-Mart, Yonghui, Wumart, Rainbow, Hema Fresh, and Lotus. Some of these were city or regional first stores, such as Walmart's first store in Nanjing (Xinjiekou), Yonghui's first store nationwide (Fuzhou Pingxi), and Zhuji's first Wumart supermarket. In fact, the decline of traditional supermarkets is an indisputable fact. Over the past decade, traditional supermarkets such as Carrefour, Walmart, Jiajiayue, Renrenle, and RT-Mart have been hit hardest by the changes of the times. According to data from the National Bureau of Statistics, since 2017, the number of supermarket stores in China has continued to decline, from a peak of 38,554 to 24,082, a drop of 37.5%. Among them, large chain supermarkets have closed stores faster, from 11,947 in 2012 to 5,340 in 2020, a decline of over 55%. The operational difficulties faced by traditional supermarket giants have long been an obvious fact in the industry. Many listed veteran supermarkets pointed out in their financial reports that due to the severe impact of online retail on physical stores, coupled with the challenges brought by the pandemic to the development of physical supermarket formats, the performance of many domestic veteran supermarkets has been mixed. However, closing stores is not the only way out for supermarkets. Some traditional supermarkets and hypermarkets are actively exploring new tracks, accelerating transformation, optimizing stores, and continuing to open new ones. Many supermarkets mentioned in their financial reports that the retail market is changing, and seeking transformation is one of the future directions for enterprises. Jiajiayue revealed in its financial report that while increasing store closures, it is also promoting store renovation and upgrading, strengthening product management capabilities, and better empowering stores through improved supply chain efficiency. The renovated stores have also received positive performance feedback. "Continuously optimizing traditional formats, promoting store upgrades, and renovated stores have achieved good performance growth." In addition, Jiajiayue is also accelerating the cultivation of new formats. In 2023, it launched Yuedi Snack Stores and Haohuixing Discount Stores, while focusing on promoting franchise business. During the reporting period, it opened 110 stores of various formats, including 81 directly operated and 29 franchised; among them, 56 Yuedi Snack Stores and 7 Haohuixing Discount Stores were developed. Renrenle also mentioned in its financial report that its business model mainly includes physical formats such as hypermarkets (Le supermarket), premium supermarkets (Le super), community life supermarkets (Le life), and department stores, combined with the "Renrenle Daole" mini-program and APP (mobile application) services, forming an online-offline integrated multi-format development model. The business model is continuously adjusted and innovated according to market demand and consumption upgrades. At the same time, Renrenle attempted to expand live-streaming business in 2023, seeking transformation.

Can "Extreme Renovation" and Transformation Models Save Themselves? According to industry research data, in 2019, the total net profit of 62 A-share retail enterprises was RMB 24.463 billion, but by 2023, it had shrunk to only RMB 5.127 billion, a decrease of nearly 80%. Among them, a report released by the China Chain Store & Franchise Association mentioned that traditional supermarket enterprises face three core challenges: continuous loss of in-store customer groups, gradual loss of product differentiation competition, and continuously rising store operating costs. According to a report by Dahe Caifang, the report explained that due to the coexistence of consumption upgrading and downgrading trends in China, in addition to the original mainstream customer groups of traditional supermarkets such as well-off families and silver-haired people, elite middle class, urban white-collar workers, and small-town youth now have their own consumption preferences. Demands for "more, faster, better, and cheaper" related product strength, convenience, service and experience, and cost-effectiveness are increasingly prominent, attracting O2O platforms, e-commerce platforms, convenience stores, and other formats to actively layout, causing continuous loss of in-store customer groups for traditional supermarkets. Traditional supermarkets have introduced too many homogeneous products, lacking differentiation, leading to price wars; supermarkets focus on promotions, hoping to change consumption habits through promotions, resulting in "no promotion, no sales," leading to gradual loss of product differentiation competition. At the same time, continuously rising store operating costs are also one of the reasons for the operational challenges faced by traditional supermarkets. Currently, the single-store sales of traditional supermarkets and hypermarkets generally decline year by year. Meanwhile, under the impact of community group buying and fresh food e-commerce, prices and gross margins are difficult to increase against the trend. Instead, total single-store costs such as rent, store renovation fees, labor costs, and utility bills continue to rise, further compressing single-store profit margins. Industry insiders believe that even though traditional supermarkets are currently challenged, they still have some room to survive. Offline supermarkets remain one of the main battlefields for commodity retail, and Sam's Club is a good example. As the "top student" in the industry, Pangdonglai recently started the pace of "extreme renovation" of retail veterans. During the just-passed May Day holiday, some stores of Bubugao, assisted by Pangdonglai, delivered good performance data. Some industry insiders told Ling Shou that from last year to this year, department stores, supermarkets, and convenience stores closed nationwide almost all have problems such as outdated products and models, and lack of cost-effectiveness. Of course, there are also those with broken capital chains, but the break in capital chains is also related to poor sales and overall poor turnover. From an industry perspective, Pangdonglai's advantages are indeed worth learning, but Pangdonglai itself has only about a dozen regional stores, mostly concentrated in Xuchang. The retail market conditions in different regions are quite different, and the way to manage a dozen stores may not be suitable for retail enterprises with hundreds or even thousands of stores. For example, Pangdonglai can give frontline employees high salaries to improve service. But for listed supermarkets with nearly a thousand stores or other supermarkets with hundreds of stores, the number of employees is huge. If all adopt high salaries, the enterprise cost would be unbearable. From the supply chain perspective, the regional product supply chain system is different from the national chain supply chain. Regional products have consistency, but cross-regional differences exist, and some products are difficult to move across regions. National warehousing management is also complex. Of course, traditional supermarket enterprises face many challenges in transformation, related to their fixed business models and chain factors. Reversing the situation is by no means easy.

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