Click to read the original article for details. A McKinsey report in 2007 stated that China's retail market was the fastest-growing in the world, with hypermarkets growing at an impressive 47%. It predicted that hypermarkets would double in number over the next five years, expanding not only in first-tier cities like Beijing and Shanghai but also into second- and third-tier cities such as provincial capitals and prefecture-level cities. Traditional formats would be cannibalized by hypermarkets. Recently, a team from Longshang.com & Supermarket Weekly visited Professor Liu Xiangdong at the School of Business, Renmin University of China, to discuss the hypermarket format in China's retail industry. Professor Liu hit the nail on the head: as a major retail format, hypermarkets are in a state of "old soldiers never die, they just fade away." That is, this format will not disappear but will gradually lose its luster and decline in China. The latest news: There are rumors that Metro is up for sale, with potential bidders including Alibaba, Walmart, and Yonghui. Also, Walmart has begun closing stores frequently. According to statistics, on May 21, Walmart's store on Jiefang Road in Xuzhou, Jiangsu, officially closed. This hypermarket, with an investment of 380 million yuan and a business area of 11,000 square meters, could not escape closure after nine years of operation. On May 7, Walmart closed its Fengcheng store in Jiangxi. That store, opened in 2010 with a business area of 11,000 square meters, had once made the county-level city of Fengcheng excited about being favored by a Fortune 500 company. Since March this year, Walmart, the leading foreign hypermarket, has announced the closure of 8 stores, with 4 closed in April alone, withdrawing from cities such as Qingdao, Haining, Lishui, Weifang, Zhenjiang, and Fengcheng. Behind Walmart's frequent store closures is the dilemma of sluggish performance growth. Data from the 2018 China Chain 100 released in early May showed that Walmart's sales last year were 80.49 billion yuan, a year-on-year increase of only 0.3%. China Resources Vanguard, another "veteran" of China's retail industry, is also closing or selling its hypermarket business: after transferring its Shandong operations to Jiajiayue, recent information disclosed by the Shanghai United Assets and Equity Exchange shows that China Resources Vanguard has listed for transfer all equity in 7 hypermarkets in Shandong. Combined with the handover of 5 hypermarket stores in Beijing to Wumei for operation in March, this means that China Resources Vanguard, the traditionally low-key "leader of Chinese supermarkets," has begun to shrink its front line. In response, China Resources Vanguard stated that its Beijing market business will focus on high-end formats and small formats, and the Shandong region will focus on high-end formats. Currently, the Shandong market still has Ole精品超市, and the Beijing market still has convenience supermarkets, convenience stores, and Ole supermarkets under China Resources Vanguard. Auchan China has made major adjustments, closing Nanchang Second Store and Taizhou Second Store, and adjusting multiple other stores. This move mainly cuts stores with poor performance that, after evaluation, show no signs of improvement or future profitability. This is the largest store adjustment since Auchan entered China 22 years ago. Carrefour has also been exposed to being "sold": Carrefour intends to sell a minority stake in its China business and has begun to sound out potential buyers. Sources say Carrefour's China business is valued at about $1 billion, and the company is working with BNP Paribas on the matter. Old Soldiers According to records, France's Carrefour Group, founded in 1959, was the pioneer of the hypermarket format and is Europe's largest retailer and the world's second-largest international retail chain group. Another claim is that Walmart, founded in 1962, was the creator of the hypermarket. Sam Walton decided to try a larger-scale Ben Franklin model, opening a 13,000-square-foot store in St. Robert, Missouri—the Walton Family Center. Regardless of its origins, hypermarkets have a development history of over fifty years. In 1995, Carrefour entered China and opened its first hypermarket in Beijing; In 1996, Walmart opened its first hypermarket in Shenzhen; In April 1997, RT-Mart entered the Chinese mainland market. They are undeniably the leaders of China's hypermarkets, leading China's retail industry into a new era. Foreign hypermarkets, represented by Carrefour, were ambitious about the Chinese market. The year after opening its first store, Carrefour expanded into Shanghai and Shenzhen, and a year later opened the Tianjin market. In 1998, it successfully entered Chongqing, Zhuhai, Wuhan, and Dongguan. By 2005, Carrefour had laid out 60 stores in China in ten years, covering the whole country. Walmart was not to be outdone. After testing the waters in Guangdong for three years, it stepped out of Guangdong in 1999, with its fifth store officially opening in Kunming, Yunnan. The following year, it marched north into the Dalian market. Subsequently, it blossomed across the country, opening 11 stores in 2004 alone. Soon, the golden age of hypermarkets officially began. Seeing foreign hypermarkets reaping huge profits, local enterprises were eager to try. In 1999, China's first wholly domestic-invested hypermarket—Shanghai Nonggongshang Supermarket's Jinshajiang Road Hypermarket—opened, shaking up Shanghai and the entire retail industry. Its opening slogan, "Chinese people's own hypermarket," has since spread. On the opening day of "Chinese people's own hypermarket," nearly 100,000 people came, and sales exceeded 4 million yuan. Seeing Nonggongshang's success, its old rival Shanghai Lianhua Supermarket quickly decided, "Hypermarkets are the trend; we must do it." In July 2001, the "Century Lianhua" hypermarket was launched. Previously, after careful consideration, it had decided to abandon hypermarkets. At that time, Carrefour had formed a joint venture with Lianhua Supermarket in Shanghai to open hypermarkets, and Lianhua thought that was enough. Historical witnesses recall that when discussing whether to open hypermarkets, Lianhua's shareholders' meeting had debated it. Shareholders and directors asked: the money for one hypermarket could open 100 small supermarkets; why open a hypermarket? So it was rejected. To expand coverage and quickly go national, hypermarkets also adopted merger and acquisition strategies. In 2004, China Resources Vanguard acquired Jiangsu's Suguo Supermarket, entering the Jiangsu market; in February 2007, Walmart invested $264 million to acquire 35% of Trust-Mart, and later spent $376 million to buy another 30%; in December 2009, Lotte Mart successively acquired 68 stores of China Times Retail TIMES. A McKinsey report in 2007 stated that China's retail market was the fastest-growing in the world, with hypermarkets growing at an impressive 47%. It predicted that hypermarkets would double in number over the next five years, expanding not only in first-tier cities like Beijing and Shanghai but also into second- and third-tier cities such as provincial capitals and prefecture-level cities. Traditional formats would be cannibalized by hypermarkets. But the good times did not last long. With the rise of e-commerce and the continuous encroachment of small formats, hypermarkets began to "fade." Fading Professor Liu Xiangdong vividly said: The first floor of a hypermarket mainly sells food and fresh produce, and the second floor is usually general merchandise. Now the second floor is almost occupied by e-commerce, and the first floor is being eroded by small formats. Some experts believe that the decline of hypermarkets is mainly due to three reasons: First, the rise of e-commerce. The rise of e-commerce has turned traditional department stores into an aging old man, and it has also impacted hypermarkets. With the rise of e-commerce, consumers' demand for these formats that pursue large areas and complete product ranges has declined. Instead, the problem of wasting too much time going to hypermarkets has become prominent. So consumers, except for fresh produce, buy most daily necessities online. As a result, consumers no longer have so many complex choices in the store; they just buy meat, vegetables, and fresh items. And the more convenient "small formats" of community commerce, which are closer to consumers' living environments, have begun to rise as "category killers." Consumers come to the store, buy, and leave. Whether the store has other items that can be bought online doesn't matter. Conversely, for "small formats," because the area is smaller, there are fewer SKUs, and they display only the best-selling products. Compared to hypermarkets, although the number of consumers is reduced, the sales per square meter has increased. Many "small formats" also highlight their freshness and uniqueness, with good quality and price competitiveness. For example: 7-Eleven convenience stores' fast food is better than outside boxed lunches; "Yonghui Preferred" fresh produce attracts consumers; Miniso stores, focusing on unique designs, are also popular. Third, the "sit-back" mentality of China's hypermarket operators is the root cause of their downfall. That is, they have very few self-operated products, and like second landlords, they are accustomed to "collecting rent to survive," which has worsened relations with suppliers. Recently, the famous economist and researcher at the Chinese Academy of Social Sciences' Institute of Finance and Economics, Song Ze, published an article titled "Analysis of the Truth in the Hard-Hit Areas of the Commercial Circulation Field and Solutions," which deeply interpreted the supply-retail relationship in China's supermarkets. He believes that supermarket companies have weak self-operated product capabilities and exploit distributors, worsening the business environment and weakening their own operational capabilities. This is the main reason for the decline of a format. In 2015, daily chemical companies Blue Moon and Walch successively announced their withdrawal from RT-Mart and China Resources retail outlets, respectively. Over the years, retailers and suppliers have been in constant games. In the past, because hypermarkets held a key position in offline channels, suppliers were in a weak position. But the rise of e-commerce provided the latter with an opportunity to fight back, and powerful suppliers began to tilt toward online channels. "Although supermarkets and hypermarkets are still the most important sales channels for most consumer goods in China, with the improvement of logistics systems, online channels have begun to touch the so-called 'supermarket categories,' that is, categories that were previously considered low-margin and high-logistics-cost online. There is basically no difference in category coverage between online and offline channels," said an industry insider. Offline retailers, whose gross margins were already low, endure online erosion and cost pressures, often shifting the pressure onto suppliers. Channel fees such as entry fees, barcode fees, and display fees account for nearly 20-30%. Brand owners also need to participate in frequent and irregular price reductions and promotions in stores. If they go through e-commerce channels or do their own e-commerce, brand owners have more freedom in promotional choices. Not Dying In Professor Liu Xiangdong's view, the different living patterns of residents also make hypermarkets, led by foreign companies, gradually unsuitable for the Chinese market. He believes that in the United States, most families live in suburbs and independently, with low community population density, so they drive to hypermarkets for shopping. In China, communities are high-rise buildings with high resident density, making it increasingly inconvenient to go to hypermarkets. The rise of community commerce precisely caters to Chinese residents' consumption. In the industry's view, foreign retail enterprises represented by Walmart and Carrefour have long used extremely low land costs and strong supply chain control to reduce product costs, thereby providing consumers with low-priced goods. However, this model is gradually losing its advantage in China. Taking Walmart as an example, the rapid changes in Chinese city scales have turned Walmart's previous locations on the urban fringe into core urban areas in a short time. Subsequently, gradually rising store rents have invisibly increased operating costs for Walmart and others, turning traditional advantages into disadvantages. In addition, there are differences in consumption habits between Chinese people and European and American consumers, which also "troubles" foreign supermarkets. An analyst said: "Take the United States, for example. Large supermarkets face a consumer group of middle and lower classes. Walmart's private brands, though not well-known, are low-priced and basically meet the consumption needs of these people. But with China's consumption upgrade, consumption demands are more diversified. A single large supermarket often cannot meet consumers' needs. The current trend is that supermarkets are moving toward comprehensive supermarkets; if categories are insufficient, friends come to fill the gap." Store upgrades and improving the shopping experience are among the limited means available in the stock reform of offline retail. Walmart alone invested nearly 1 billion yuan between 2014 and 2015 to renovate more than 140 stores. According to the "2015 China Shopper Report" released by Bain & Company and Kantar Worldpanel, since 2013, most retailers have reduced the number of new store openings and closed a batch of stores with oversupply and poor performance. At the same time, hypermarkets have also begun to actively develop private brand products and cooperate with imported brands for exclusive sales to cope with pressure from brand owners. For retailers, private brands have low costs, high profits, and strong controllability. Sun Art Retail, which owns RT-Mart and Auchan, has set up Oufa Consulting Management Company, specifically responsible for the procurement and development of private brands, with different product lines to meet differentiated needs. Metro China President Claude Sarrailh told Interface News reporters that currently, in Metro's cash-and-carry stores, private brand sales account for about 25%, and imported goods contribute about 20%. In addition, hypermarkets, caught between convenience stores and e-commerce, are also trying to make arrangements in these two formats, responding to moves as they come. In addition to improving product strength, hypermarket operators have also begun to change their thinking and develop small formats. Foreign retail enterprises such as Walmart, Carrefour, and Metro are not unaware. Executives of these companies have mentioned at various public occasions that they need to transform and upgrade, cooperate more with local players, and increase digitalization to attract customers and increase revenue. Indeed, in the past two years, companies have been practicing this. In 2018, Carrefour began exploring new formats, opening its first global smart store "Le Marche" in Shanghai, with over 25,000 product varieties, focusing on catering, fresh produce, imported goods, and private brands; in April this year, Carrefour opened a store in Wangfu Central, its first attempt at a small convenience store format. Walmart is also trying small format layouts. In April 2018, Walmart opened a trial "Walmart Huixuan Store" in Shenzhen, with an area of only about 1,000 square meters, far less than the traditional Walmart store's nearly 8,000 products. Professor Liu Xiangdong repeatedly emphasized that hypermarkets are not dying but fading, meaning that through transformation, hypermarket operators still have room to survive. Source: Supermarket Weekly (ID: cacszk)