Recently, traditional supermarkets have frequently appeared on hot searches, with Pangdonglai's popularity on one side and the Q1 2024 earnings reports from listed companies Yonghui and Jiajiayue on the other.
Pangdonglai's founder Yu Donglai mentioned at an internal training session for assisting Hunan Bubugao Supermarket that Pangdonglai expected to earn 20 million yuan in 2023 but ended up making 140 million yuan. Yonghui and Jiajiayue also achieved significant profits. According to financial reports, Yonghui's net profit attributable to shareholders reached 736 million yuan, a year-on-year increase of 4.57%, with quarterly profit more than five times Pangdonglai's annual profit; Jiajiayue's net profit attributable to shareholders was 147 million yuan, up 7.10% year-on-year, with quarterly profit exceeding Pangdonglai's annual profit. According to Kantar's statistics on retailer market share, in the year ending March this year, Yonghui held a 5.7% share of China's retail market, becoming the second-largest retailer brand in China, second only to Gaoxin Retail Group's 7.8% and ahead of Walmart Group's 5.6%. These figures suggest that traditional supermarkets seem to be emerging from the shadows and seeing the light. What is driving traditional supermarkets to achieve profitability and revenue growth again, and what efforts have they made?
The macroeconomy is improving, and consumption is recovering
Data released by the National Bureau of Statistics on April 16 showed that in the first quarter, total retail sales of consumer goods reached 12 trillion yuan, a year-on-year increase of 4.7%, with domestic demand contributing 85.5% to economic growth. The first quarter includes major holidays such as New Year's Day and Spring Festival, as well as Valentine's Day on February 14 and Women's Day on March 8, which significantly boosted consumer demand. For example, driven by the Spring Festival effect of returning home and holiday gatherings, food, beverages, and household cleaning products saw higher growth. Additionally, the eight-day super-long holiday for the 2024 Spring Festival boosted travel, driving purchases of tourism-related products in destination supermarkets. The sense of ceremony during the New Year cannot be missed, and mature families and high-income groups showed stable and sustained consumption upgrades. Due to logistics difficulties during the Spring Festival, e-commerce platforms' consumption was somewhat affected. Offline supermarkets leveraged their geographical advantages, and family shopping tended to favor offline supermarkets for purchasing New Year goods and holiday gifts. According to iiMedia Research data, in a 2024 survey on Chinese consumers' New Year plans, 60.44% chose to stay local (same city), 11.60% chose to stay local (different city), 26.80% chose to return to their hometown, and 1.16% chose to travel for the New Year. Among channels for purchasing New Year goods in 2024, as many as 38.53% of consumers chose offline supermarkets, ranking third among all shopping channels, ahead of live-streaming e-commerce platforms. The second-ranked instant retail platforms, chosen by 51.55% of consumers (e.g., Meituan, JD Daojia), are also closely related to offline supermarkets. In addition to the major holidays of New Year's Day and Spring Festival, Valentine's Day, Women's Day, back-to-school gifts, and spring clothing launches all drove consumption growth in categories such as footwear, apparel, cosmetics, jewelry, and snacks. According to the National Bureau of Statistics' category growth data, strong growth in grain, oil, and food (up 9.6%) and tobacco and alcohol (up 12.5%) has always been a strength of traditional supermarkets. Based on consumption habits and trust, most consumers still prefer to buy these categories in traditional supermarkets. These data all indicate that the macroeconomy is improving and consumption is recovering, directly influencing and driving consumption growth in traditional supermarkets. Of course, the self-rescue measures taken by traditional supermarkets in recent years are also beginning to show results.
Closing old stores and opening new ones, developing new business formats
In recent years, traditional supermarkets have indeed experienced a wave of store closures. According to incomplete statistics, in the first quarter of 2024, at least 31 supermarkets nationwide closed, involving well-known brands such as Walmart, RT-Mart, Yonghui, Wumart, Rainbow Supermarket, Hema Fresh, and CP Lotus. Data shows that Yonghui closed 10 stores, Walmart 5, RT-Mart 4, and Hema Fresh and Rainbow Supermarket each 2. As of now, the "store closures" of traditional supermarkets in 2024 are still ongoing. On April 15, two China Resources Vanguard stores in Zengcheng District, Guangzhou, announced they would cease operations. On April 15, according to an announcement at the entrance of Yonghui Quanxiu Store in Quanzhou, the store would stop business from 10 PM on April 15. On April 16, according to a "Notice" shared by insiders, Shanghai City Supermarket had been struggling in recent years, and the company decided to dissolve, ceasing operations of all its stores from April 16, 2024. According to research by the "Zhuang Shuai Retail E-commerce Channel," there are multiple reasons for traditional supermarket closures, including losses from poor management, lease expiration, high rent and labor costs, and insufficient product and price competitiveness to compete with e-commerce. To save themselves, they must close all stores with poor performance, high rent, or poor locations, and then open new stores in locations with lower rent and better positions. Financial report data shows that in the first quarter of 2024, Yonghui opened 3 new stores in Beijing, Yunnan, and Anhui, and signed contracts for 2 new supermarket stores; Jiajiayue opened 12 new directly-operated stores and added 8 franchise stores. In addition to continuing to close and open new stores in the main supermarket format, Yonghui and Jiajiayue are also simultaneously trying to develop new business formats. As early as November 18, 2015, Yonghui opened its first membership store in Shanghai, which sold imported food, but the store was only 200 square meters and did not charge membership fees, so it was not a traditional warehouse membership store. It wasn't until May 2021 that Yonghui opened its first warehouse membership store in Fujian. Financial report data shows that by the end of 2021, 53 warehouse membership stores had opened, achieving a comparable same-store growth of 32.9%. In the following two years, there was no further data or information on membership stores in the financial reports. Yonghui's warehouse membership stores do not require membership fees, but their operating area reaches several thousand square meters, belonging to the warehouse format. This format is more based on the renovation of existing supermarket stores rather than independent expansion through new stores. On January 15, 2024, Yonghui opened its first Yunnan warehouse supermarket flagship store in Kunming, with same-day sales exceeding 2 million yuan across all channels. Compared with Yonghui, Jiajiayue appears more active in opening new stores and developing new formats. It currently has more than six formats, including three supermarket formats, as well as snack stores (specialty store format), discount store format, and convenience store format. In the first quarter of 2024, Jiajiayue opened 12 new directly-operated stores and added 8 franchise stores. Compared with the end of 2023, there was a net increase of 16 stores in Q1 2024, with snack stores increasing by 14 and comprehensive supermarkets by 2. By the end of the reporting period, the company had a total of 1,065 stores, including 999 directly-operated and 66 franchise stores. By format, there were 261 comprehensive supermarkets, 409 community fresh food supermarkets, 227 rural supermarkets, 67 snack stores, 8 Haohuixing discount stores, and 93 convenience stores and other formats. In Q1 2024, revenue from comprehensive supermarkets grew 10.96%, while revenue from other formats, including snack bulk sales and hard discount supermarkets, grew 46.66%. As for the warehouse membership store format, according to public information, as early as December 24, 2021, Jiajiayue opened its first paid membership warehouse supermarket in Jinan, with annual fees set at 198 yuan for individual members and 588 yuan for corporate members. According to Jiajiayue, the store covers 7,000 square meters and offers more than 3,000 SKUs, with over 90% being independently packaged and customized products, half of which are sourced from overseas. On the opening day, more than 10,000 people visited the store. However, like Yonghui, Jiajiayue has not disclosed sales or store data for the warehouse membership store format in subsequent financial reports. According to in-depth research and analysis by the "Zhuang Shuai Retail E-commerce Channel" on the warehouse membership store format, there may still be significant room for optimization and improvement in their operations. With the accelerated expansion of Sam's Club and Costco, they face more intense competition, and whether they can sustain the warehouse membership store format remains uncertain. The exploration of new retail formats faces challenges at multiple levels, including organization, processes, supply chain, and in-store operations. Different formats have huge differences, and consumer habits and behaviors also vary greatly, requiring a longer cycle for adjustment. However, facing fierce competition from e-commerce platforms and new formats, traditional supermarkets must respond directly. In addition to closing old stores, opening new ones, and continuing to explore new formats, accelerating the integrated development of online and offline has become a necessary path.
Accelerating online-offline integration
In the first quarter of 2024, Yonghui's online business revenue reached 4.1 billion yuan, a year-on-year increase of 1.99%, accounting for 18.92% of the company's total revenue. The number of registered members on its self-operated platform "Yonghui Life" APP exceeded 117 million. Yonghui's online business also continues to strengthen cooperation with third-party platform channels, focusing on improving the three core indicators of "traffic, conversion, and frequency." In the second half of 2023, Yonghui's "Douyin Group Buying to Store" continued to rank first in the supermarket industry for group buying; "Douyin Hourly Delivery" ranked first in supermarket industry sales for November and December consecutively. Yonghui's online-offline integration is based on its existing store network, promoting the construction of "store-warehouse integration." This not only applies to the renovation of existing stores but also considers the delivery efficiency and experience of online business when opening new stores. In addition, store optimization is closely linked to online traffic sources. Stores become online traffic entry points. Compared with e-commerce platforms using front-warehouse models, stores can reduce online traffic acquisition costs. Combined with the omnichannel membership system formed with third-party instant retail platforms, they achieve online traffic attraction, member retention, and repeat purchases. Moreover, the "store-warehouse integration" model is highly compatible with Yonghui's core category capabilities in live and fresh products, allowing Yonghui to have a complete operational chain in terms of category selection, product freshness preservation, loss prevention in transportation, and fulfillment and after-sales service during online-offline integration. In terms of omnichannel operations, Jiajiayue integrates online and offline, coordinating store visits and home delivery. In 2023, online sales grew 23.9%, driving 3.06 million offline store visits, with a conversion rate of 35%. By the end of 2023, online sales accounted for 5.98% of supermarket business revenue. In 2023, Jiajiayue also launched a mini-program on Alipay. As of the first quarter of 2024, 250 stores offered home delivery services. While closing old stores, opening new ones, developing new formats, and integrating online and offline, traditional supermarkets are also actively optimizing new and old stores, increasing the introduction of new products, and strengthening the development of private brands.
Increasing new product introductions and strengthening private brand development
While closing some loss-making stores, since December 2023, Yonghui has bucked the trend by opening new optimized store formats with refined management in Shandong, Anhui, Chongqing, Sichuan, Inner Mongolia, Guangdong, Zhejiang, Beijing, and Yunnan. These optimized new stores follow the core logic of upgrading "products, scenes, and services," and while retaining commonalities, they are customized according to regional characteristics with a "one store, one discussion" approach. Based on this, they have created new product incubation zones, genuine discount zones, and freshly prepared food. Financial report data shows that by the end of 2023, Yonghui had cooperated with 101 source factories, established 19 self-owned planting/breeding bases, and set up 27 direct sourcing projects. Each store can launch nearly 400 new products per month, including brands entering offline channels for the first time and new products launched exclusively in Yonghui stores. Although Jiajiayue did not disclose data on new products in its financial report, the "Zhuang Shuai Retail E-commerce Channel" can see from public information that Jiajiayue is also continuously strengthening cooperation with major brands on new products, creating regional specialty products to form differentiated competitiveness. On April 6, 2024, Langege Prairie Yogurt, together with Jiajiayue, held a new product launch for "Zero Sucrose Prairie Set Yogurt" in Weihai, Shandong, and it went on sale in more than 1,000 stores nationwide, covering six provinces including Shandong, Beijing, Hebei, Inner Mongolia, Anhui, and Jiangsu. In addition to continuously introducing new products and collaborating with brands on customized products, traditional supermarkets are also strengthening the development of private brands. Financial report data shows that in 2023, Yonghui's private brand sales reached 3.54 billion yuan, accounting for 5% of operating revenue, a year-on-year increase of 8.26%; focusing on fresh standardized products and the Yonghui Farm brand, fresh private brands grew 41.3% year-on-year. Through continuous adjustment of its supplier structure, Yonghui has built a three-dimensional sunshine supply chain of "national products + regional specialty products + emerging products + private brand products." Relying on a diversified supplier structure, whether it is fresh products with regional characteristics or popular internet-famous products favored by young people, they can appear on Yonghui's shelves in a timely manner to meet consumers' increasingly personalized needs. Jiajiayue sources more than 85% of its products at the source, directly cooperating with bases, and has signed contracts of more than five years with over 200 bases. Jiajiayue has also strengthened its direct sourcing and source development capabilities for fresh bases, improving the R&D and market competitiveness of private brand products, making private brands and customized products account for 13.5%. By introducing new products and strengthening private brand development, traditional supermarkets are becoming more mature in supply chain construction and forming differentiation. On this basis, closing old stores, opening new ones, developing new formats, and accelerating online-offline integration can be more effective, achieving stable, sustained, and certain performance growth. Of course, only by increasing technology investment to accelerate digitalization can traditional supermarkets truly compete and cooperate on an equal footing with new formats and e-commerce platforms that excel in technology, and maintain sustained growth.
Increasing technology investment and accelerating digitalization
Wang Peihuan, chairman of Jiajiayue Group, believes: "Digitalization is not simply about sales methods, but about customer research and efficiency improvement, which is very critical." Specifically, it involves three aspects: first, advanced technology; second, departmental collaboration; third, efficient distribution. In 2023, Jiajiayue established logistics systems in Hebei, Anhui, Jinan, Yantai, Qingdao, and Weihai, among others. Some stores achieved a single-trip replenishment rate of 97%. Relying on single-trip and multi-trip replenishment, labor costs were reduced by at least 20%. Yonghui released its new ten-year plan in 2021, clearly committing to the strategy of "Technology Yonghui" and firmly pursuing omnichannel digital transformation. The full-chain retail digital system "YHDOS" independently developed by Yonghui's technology team is one of the important implementation measures of the Technology Yonghui strategy. According to the 2022 annual report, the system had completed the switch in all stores by the end of that year. Financial report data shows that from 2021 to 2023, Yonghui invested more than 2 billion yuan in technology alone. In 2023, Yonghui basically completed the infrastructure construction for supply chain digitalization, store digitalization, labor digitalization, and management digitalization. In terms of supply chain digitalization, Yonghui focuses on product strength, using tools such as intelligent product selection, intelligent replacement, intelligent clearance, and intelligent pricing to improve product turnover efficiency and price competitiveness. The efficiency of introducing new products increased by 50% year-on-year. In 2023, Yonghui's national logistics operation volume reached 51.63 billion yuan. By the end of 2023, it had 31 logistics centers covering 29 provinces and cities nationwide, with a total operating area of 840,000 square meters. Logistics inventory turnover days decreased by 2.5 days year-on-year. From the beginning of 2023 to the end of Q1 2024, total inventory decreased by 37.31%. Yonghui has built a "three-in-one" logistics guarantee system of ambient logistics, temperature-controlled logistics, and food safety laboratories, creating end-to-end supply chain services such as direct sourcing, factory direct delivery, and customized packaging. In terms of store digitalization, labor digitalization, and management digitalization, it has achieved task-based, process-based, and automated operations in stores nationwide, promoted piece-rate compensation and labor digitalization in core scenarios, and comprehensively improved business operation efficiency. In 2023, store inventory accuracy exceeded 93%, picking efficiency increased by an average of 20%, and average labor cost per order in warehouses decreased by 9.3% year-on-year. Increasing technology investment and accelerating digitalization have obvious effects on reducing costs and increasing efficiency for traditional supermarkets. A comprehensive analysis shows that with multiple self-rescue measures combined with the holiday economy, traditional supermarkets achieved remarkable results in Q1 2024. Although competition in the next three quarters will become increasingly fierce—Q2 has the e-commerce 618 mid-year promotion, Q3 has summer vacation and autumn new arrivals, and Q4 has the e-commerce Double 11 year-end promotion—there is reason to believe that traditional supermarkets, having found their way out and direction, will no longer be passively beaten from this year onward.
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