Click to read the original article for details. Source: Motie's World (ID: jiangpeiyu0916) Key Points:

  1. A series of shining examples told Carrefour that entering the Chinese market sooner rather than later was wise.
  2. Foreign retail giants discovered that as long as a hypermarket was located in a major city's commercial district, two long queues would form: one at the entrance before opening, and one at the checkout after opening.
  3. In April 2015, newly appointed Walmart CEO Doug McMillon assigned his executives homework: to read Jeff Bezos's biography "The Everything Store" carefully, hoping they would grasp the essence of e-commerce and help Walmart embrace it.

Main Text: On the evening of June 23, Suning.com announced it would acquire 80% of Carrefour China for 4.8 billion yuan, becoming its controlling shareholder, while French group Carrefour's stake would drop to 20%, relegating it to second place. This sent shockwaves through the industry and beyond. Why did the former champion of Chinese supermarkets fall from the pinnacle of admiration to selling itself? Why did foreign retail giants such as Walmart, Tesco, Best Buy, Home Depot, ASOS, and Marks and Spencer, which once rushed to seize the Chinese market, now collectively retreat? Why are market competition stars like RT-Mart and Yonghui Superstores embracing internet companies? A simple phrase like "not adapting to local conditions" clearly cannot explain the root causes of these foreign giants' failures, nor can it reveal the ebb and flow of gold-mining opportunities in China's retail market. It all started 24 years ago when foreign retail giants began to seize the Chinese market.

The "Illegal Entry" 24 Years Ago In 1995, at the China International Exhibition Center in Jing'anli, Chaoyang District, Beijing, a large supermarket called "Chuangyijia Supermarket" opened. Local Beijingers from nearby Jing'anzhuang and Zuojiazhuang communities thought it was another state-owned supermarket, but it was actually the first store of Carrefour, the world's second-largest retailer, in China—the Chuangyijia store. Carrefour's first store in China, Chuangyijia. Image/Internet Strictly speaking, Carrefour's entry into the Chinese market was not a dignified landing; the process was more like a carefully planned "illegal entry." The answer is simple: at that time, only Yansha had a Sino-foreign joint venture retail license, making it difficult for Carrefour to obtain one, but it was eager to test the potential of the Chinese market. So, Carrefour and the then Zhongchuang Commercial Management Company jointly registered Lejiachuang Commercial Management Company and also registered Chuangyijia Supermarket. The cooperation was positioned as Carrefour exporting advanced foreign management technology, responsible for managing Chuangyijia Supermarket, collecting only management fees, and showcasing the Carrefour brand. The supermarket's owner was the Chinese side, receiving the vast majority of revenue. Carrefour's patience was because many multinational companies had already made fortunes in the Chinese market, even reviving from the brink. "KFC" was one of many American fast-food brands, with influence incomparable to McDonald's, but after entering China first in 1987, it successfully transformed into an international brand, seemingly on par with McDonald's. Volkswagen, because it entered China earliest, became the national car by the mid-1990s, with the outdated Santana selling at premium car profits, providing a solid profit pillar when Volkswagen was being beaten by Japanese cars. A series of shining examples told Carrefour that entering the Chinese market sooner rather than later was wise. Moreover, Carrefour was also facing development bottlenecks at that time. After Marcel Fournier and Louis Defforey founded Carrefour in 1959, the hypermarket model they pioneered was a great success. Behind Carrefour's happy counting of money were many small and medium-sized retailers in France who were impacted. They pressured the government, which in 1972 legislated a special tax of 0.15% on hypermarket sales, used as pension subsidies for small and medium-sized retail owners. As a result, Carrefour carried a heavy burden in France.

Striking Gold in China Under pressure, Carrefour had to leave France. Across the Atlantic, the United States had fertile land and wealthy people, seeming like a good choice. After testing in neighboring countries, Carrefour finally landed in the U.S. in 1988, with its first store in Philadelphia. But in the U.S., Carrefour faced strong competitors like Walmart. After five years of struggle, Carrefour conceded defeat, closed its two U.S. stores, and completely exited the U.S. market. In disappointment, Carrefour shifted its international strategic focus from the Americas to Asia, making China its first choice for landing. This time, Carrefour finally struck gold. Before foreign retail giants entered the Chinese market, ordinary Chinese people had the most contact with farmers' markets and small supermarkets like the one in the picture, which had limited daily necessities and represented a primitive commercial form. Through the Chuangyijia store experiment, Carrefour discovered that the Chinese market had high potential. Chinese people, with gradually increasing wealth, loved Carrefour's hypermarket model. The stores were packed, and families pushing shopping carts through Carrefour had become a lifestyle. Every morning before the store opened, long queues of people holding cash were already waiting outside. This was absolutely impossible in Europe or America, where hypermarkets were saturated. Having tasted success, Carrefour China's senior executives began flying around China, precisely replicating the Chuangyijia model in major cities across the country, continuously expanding their territory. In retrospect, 1995 was a magical year, seemingly with some divine providence. In July of that year, Jeff Bezos, who had resigned from financial services company D.E. Shaw less than a year earlier, founded Amazon, planning to try his luck on the internet. Also that year, in Minhou County, Fujian Province, a small businessman named Zhang Xuansong used 1 million yuan earned from beer wholesale to open a small supermarket called "Gule Weili Supermarket" (renamed Yonghui Superstores three years later) on a bustling street in Fuzhou. As the name suggests, he wasn't aiming for huge profits, and the store was small, only 100 square meters. As for RT-Mart, now familiar to everyone, it hadn't even been conceived yet. It would be two more years before it came to the mainland to seek gold, and its initial hypermarket operations were at a kindergarten level. In short, Carrefour's competitors were either not yet born or still in infancy, unable to make waves or even stir a ripple. The real competitor was Walmart, founded by American Sam Walton, which entered China a year later. And China's market of 1.3 billion people could easily accommodate foreign retail giants like Carrefour and Walmart to race side by side. The giants soon enjoyed the comfortable time of making money while lying down.

Easy Money In the 1990s, foreign enterprises had a bright halo. More importantly, foreign retail giants like Carrefour, with their mature management and advanced technology, brought a disruptive experience to Chinese people: an incredibly rich variety of daily necessities, one-stop shopping for food, drink, use, and entertainment, prices cheaper than surrounding small supermarkets, and free scheduled shuttle buses solving transportation problems. In short, foreign hypermarkets were an irresistible temptation for Chinese people who had just crossed the period of commodity shortage. The hypermarket model brought by foreign retail giants, with extremely rich daily necessities, subverted ordinary Chinese people's cognition, ushering in an era of easy money for foreign retail giants. Today's young people are glued to their phones, but back then, people flocked to foreign hypermarkets. "I used to regard the days of shopping at Carrefour with my family as 'Family Day,' from daily necessities to cleaning supplies, from fresh milk and fruit to snacks. Almost every week, we returned fully loaded. That was my happy childhood memory," one interviewee recalled in an interview by Beijing Daily. Foreign retail giants discovered that as long as a hypermarket was located in a major city's commercial district, two long queues would form: one at the entrance before opening, and one at the checkout after opening. On August 12, 1996, Walmart opened two stores in Shenzhen, immediately setting Shenzhen records: within a month of opening, the two stores had average daily sales exceeding 1 million yuan, with the highest over 2 million yuan. The profit effect attracted foreign retail giants to frantically seize the Chinese market. In the four years after 1995, besides Carrefour and Walmart, Metro, Makro, Lotus, Trust-Mart, Auchan, and Tesco swarmed in, settling in first-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen, with business formats covering hypermarkets and warehouse clubs. Among them, the early bird Carrefour was more aggressive, opening 56 stores in China in just five years, with its red and blue cross logo planted in 14 provinces. Walmart followed closely with 43 stores. Carrefour ranked below Walmart globally, but in China, it surpassed Walmart, being the undisputed champion of supermarkets. In terms of net profit margin, foreign retail giants represented by Carrefour and Walmart averaged 2.22%, 1.68 times the industry average and 2.44 times that of domestic retail enterprises. But this was still performance without fully opening the retail market to foreign investment. So, when China fully opened its retail market in 2004, foreign retail giants began an even larger wave of land grabbing. From 2004 to 2010, Carrefour opened 141 stores, almost three times the total number opened in the previous nine years. Walmart took even bigger strides. Before 2004, it had only 27 stores in 10 provinces, but by 2010, the number had surged to 219, covering 24 provinces. Foreign retail giants had laid out their plans, filled their glasses with champagne, and prepared to celebrate a second victory of easy money. However, this time they faced a fierce attack from Chinese local enterprises.

The Supermarket Champion Suffers the First Blow While Carrefour and Walmart were happily counting money, two people were watching closely from behind: Zhang Xuansong of Yonghui Superstores and Huang Mingduan of RT-Mart. Zhang Xuansong, starting from grassroots, was constrained by weak strength. In 1999, when foreign retail giants were conquering cities and bustling commercial districts, he adjusted Yonghui's business direction to the fresh food market to avoid their锋芒. At that time, Yonghui Superstores, with its new retail format of "fresh food supermarket," opened new growth space. In 2009, when giants like Carrefour and Walmart were at their peak, Zhang Xuansong expanded Yonghui's store count to 107, with total sales exceeding 10 billion yuan. The 10 billion yuan in sales seemed small, but it was enough for Yonghui to block the transformation channels of giants like Carrefour. This will be mentioned later. Although starting at the same time as Zhang, unlike Zhang's "well water does not intrude into river water" differentiation strategy, RT-Mart's Huang Mingduan directly confronted giants like Carrefour and Walmart. In the early days of entrepreneurship, Huang Mingduan and other RT-Mart executives had no retail experience, completely copying the giants' business models. Initially, they copied Makro's warehouse business model. When they opened their third store on the mainland, Huang Mingduan discovered that Carrefour was far more popular than Makro, so he immediately directed RT-Mart to switch from warehouse to hypermarket model. Once Carrefour was set as RT-Mart's benchmark, its bad days began, because Huang Mingduan discovered a fatal weakness in its supply chain. Walmart's profit mainly came from buying goods outright and earning the price difference. Carrefour was different; retail price difference was only one of its profit channels, with the bulk coming from various forms of squeezing suppliers. According to media reports, Carrefour's numerous fee items made suppliers deeply fearful and anxious, including nearly 20 types of fees such as consulting services, distribution, barcodes, and new product shelf placement (see image for details). Media summary of fees Carrefour charged suppliers. The numerous fees led suppliers to subsidize Carrefour. A Beijing manufacturer supplied goods worth 250,000 yuan to Carrefour from May 2001 to June 2002, but only received 90,000 yuan, losing 160,000 yuan. More exaggeratedly, a supplier supplied 200,000 yuan of goods to a Carrefour store in Beijing, and after deducting various fees, received only about 300 yuan, essentially earning nothing. This extreme exploitation caused suppliers to suffer, and it handed RT-Mart an opportunity to catch up. RT-Mart also charged suppliers entry fees, but unlike giants like Carrefour, Huang Mingduan treated suppliers as partners, not objects to be squeezed. RT-Mart's cooperation model with suppliers typically involved signing a joint growth plan-style purchase and sales contract, with close cooperation (including joint efforts in consumer demand research, product design, raw material procurement, quality management, production control, logistics distribution, and distribution promotion) to jointly create low-price crazy products to attract traffic, while ensuring a certain gross margin so both sides could make money. The good relationship with suppliers became a trump card for RT-Mart, coupled with efficient store execution, and Carrefour's champion status in the Chinese market finally collapsed in 2009, with its store count surpassed by the rookie RT-Mart. By 2016, RT-Mart's average sales per store were 264 million yuan, 1.67 times that of Carrefour. Just one year after being left behind by RT-Mart, Carrefour closed its Xi'an Xiaozhai store, its first store closure in China, marking the beginning of the former supermarket champion's decline after suffering the first blow.

Walmart Executives' Homework Carrefour began closing stores in China in 2009, while Walmart followed three years later, but with fierce closure actions, closing 68 stores in China in just six years by 2017. In fact, starting in 2012, regardless of retail formats like hypermarkets or department stores, foreign retail giants experienced a wave of store closures. This highly coincided with the rise of domestic e-commerce giants like Alibaba and JD.com. The driving force behind e-commerce's rise was 4G. 2013 was the first year of 4G, and China's internet focus began shifting from PC to mobile. Online shopping went from marginal to mainstream, while offline hypermarkets moved from protagonist to supporting role. Under the impact of e-commerce, Carrefour, Walmart, and even RT-Mart began their online transformation, trying to move offline stores online. The most sincere in this regard was Walmart. In April 2015, newly appointed Walmart CEO Doug McMillon assigned his executives homework: to carefully read Jeff Bezos's biography "The Everything Store," hoping they would grasp the essence of e-commerce and help Walmart embrace it. Ironically, more than twenty years earlier, when Bezos founded Amazon, he had also carefully read Sam Walton's autobiography "Made in America," hoping to learn retail secrets. Walton's saying "Retail is about finding your position and then doing it to the extreme" clearly benefited Bezos. Amazon's positioning, no matter how it changed, was closely linked to "extreme": the largest bookstore on earth; the largest comprehensive online retailer; the most customer-centric enterprise. In the U.S., Walmart was serious about learning from Amazon. It successively acquired comprehensive e-commerce platform Jet.com, shoe e-commerce site ShoeBuy, outdoor goods brand Moosejaw, menswear e-commerce Bonobos, furniture e-commerce Hayneedle, and fashion womenswear brand ModCloth, among other vertical e-commerce companies. Walmart's transformation to e-commerce at home was relatively successful, but in China, its achievements were lackluster. In China, Walmart also used acquisitions to open up e-commerce channels. As early as August 2012, Walmart increased its stake in the comprehensive online supermarket "Yihaodian" from 17.7% to 51.3%, becoming its controlling shareholder. But by then, the e-commerce landscape was increasingly dominated by Alibaba and JD.com, so Walmart clearly bet on the wrong horse. Carrefour was two beats slower than Walmart, only launching its online mall in 2015. But whether fast or slow, foreign retail giants' e-commerce transformations ended in varying degrees of failure. Among them, Carrefour and Walmart hoped to break through in fresh food, a weakness of e-commerce, but unfortunately, Yonghui Superstores had become a force, opening 60-70 stores per year in 2013, reaching 487 stores by 2016, leaving no market gap for Carrefour and others. Moreover, what made the giants' blood run cold was that high fresh food loss rates had always been a pain for supermarket operators, but Yonghui achieved the lowest in the industry, just over 2%. This alone declared to Carrefour and others that the fresh food path was not viable. After successive transformation setbacks, selling off assets and withdrawing from the Chinese market became the final choice for foreign retail giants like Trust-Mart, Makro, and Carrefour.

Walton's Law of Extremes Analyzing why foreign retail giants went from easy money to fleeing in defeat, the common view is that they were either slow to react or failed to adapt to local conditions, hence their fall. But that's not the whole answer. Foreign retail giants essentially lost due to inefficient supply chains. We all know that high efficiency leads to lower prices and faster shelf restocking, which is the competitive high ground for supermarkets mainly selling fresh food and daily necessities. The reason Chinese competitors like RT-Mart and Yonghui were able to overtake them lies in higher supply chain efficiency. Among them, Yonghui's fresh food supply chain was so efficient that its fresh products were cheaper than those in farmers' markets, yet it still made money. After online shopping emerged, the super-rich product categories that traditional hypermarkets like Carrefour and Walmart prided themselves on were easily surpassed by e-commerce, and their supply chain efficiency couldn't beat e-commerce, even being left behind by domestic RT-Mart and Yonghui. Defeat was inevitable. Now, domestic retail has entered a new retail format integrating online and offline. Winners of traditional retail competition like RT-Mart and Yonghui have begun embracing internet companies: RT-Mart sided with Alibaba, and Yonghui introduced JD.com. But no matter how the retail format changes, it has never deviated from Walton's law of extremes: "Retail is about finding your position and then doing it to the extreme." Extreme means efficiency management, including extreme category richness, extreme supply chain efficiency, extreme price advantages, and extreme user experience, to build competitiveness. From traditional stores to e-commerce to new retail, no matter how colorful the format evolution, the driving force behind it remains the same: do it to the extreme. Walmart founder Sam Walton's interpretation of retail, "Retail is about finding your position and then doing it to the extreme," is hailed as the law of extremes. In pursuit of extreme efficiency, foreign retail giants are also actively seeking transformation. Carrefour, while upgrading and renovating stores, is vigorously enhancing its digital capabilities, integrating new technologies such as "self-checkout," "facial recognition payment," "mini-program code scanning," and "electronic price tags" to connect multi-dimensional consumption scenarios. Walmart, leveraging its years of accumulated supply chain resources, is betting on the new retail format of "Huixuan Community Stores." The store area of "Huixuan Community Stores" is between convenience stores and standard supermarkets. Walmart planned to open 1,000 "Huixuan Community Stores" in five years, but this plan has not been fully realized. In short, for China's trillion-yuan retail market, foreign retail giants with strategic vision will not easily give up.