This article is from Wumian Finance (ID: wumiancaijing)
Yonghui Superstores is divesting its loss-making new retail segment, Hema Fresh is slowing its expansion, and traditional supermarkets are showing signs of recovery. Is returning to offline operations the way out? How will new retail develop?
Yonghui Superstores is returning to offline supermarkets.
On December 13, Yonghui Superstores issued another announcement: founders Zhang Xuanning and Zhang Xuansong officially "split up," dissolving their concerted action relationship, with the former receiving 20% equity in the new retail segment Yonghui Yunchuang.
According to the announcement, Zhang Xuanning and Zhang Xuansong had long disagreed on the development direction of Yonghui Yunchuang. Data shows that this segment accumulated losses of nearly 1 billion yuan over the past three years, indicating to some extent that Yonghui Superstores' new retail exploration has failed.
In addition to the transfer of control over Yonghui Yunchuang, Yonghui Superstores previously announced it would invest 3.5 billion yuan to acquire a 1.5% stake in Dalian Wanda Commercial Management Group, China's largest commercial property company. These signs indicate that Yonghui Superstores is shifting its focus back to traditional supermarket operations.
Looking across the new retail sector, although Hema Fresh still maintains high per-store profitability, after a period of rapid expansion, it has gradually slowed its pace. For traditional supermarkets, is shifting to traditional offline business the way out?
Yonghui's New Retail Encounters Obstacles
Yonghui Yunchuang, which has been in a state of loss, has become the biggest stumbling block for Yonghui Superstores.
"In the first nine months of this year, Yonghui Yunchuang lost 600 million yuan. If sales continue to increase in the future, losses will further expand. This differs from the board's definition of the Yunchuang segment and does not align with the interests of the overall shareholders of the listed company," explained Zhang Jingyi, secretary of the board of Yonghui Superstores, on why the company is divesting the Yunchuang business.
Financial data from Yonghui Superstores shows that in 2016 and 2017, Yonghui Yunchuang's losses were 116 million yuan and 267 million yuan respectively. In the first three quarters of this year, its losses reached 617 million yuan, dragging down Yonghui Superstores' net profit by 26.9%, marking the first performance decline in seven years.
▲ Performance of Yonghui Superstores and Yonghui Yunchuang.
Looking back, Yonghui Superstores once had high hopes for the Yunchuang segment and was firmly pushing it forward.
Yonghui Yunchuang was established in 2015, mainly including community stores Yonghui Life and its app, positioned as "fresh + convenience," as well as Super Species, which focuses on "high-end supermarket + fresh food dining."
As a new retail format, Yonghui Yunchuang had big ambitions. Since Capital Today's investment in September 2016, Yonghui Yunchuang began accelerating its expansion. Especially after tasting the sweetness of exceeding targets in 2017, by 2018 it had even more aggressive store-opening plans, expecting to open 100 Super Species stores and 1,000 Yonghui Life stores in the year.
Expansion did not go smoothly. Data shows that the completion rate for Yonghui Life stores was less than 20%, and Super Species only completed 31%. "We didn't expect the environmental pressure this year to be so great," a Yonghui Superstores executive responded when failing to meet the annual targets.
▲ Yonghui Superstores' stores.
The decline of the Yunchuang segment is more due to Super Species' development falling short of expectations.
From the announcement of Yonghui Yunchuang, it can be seen that the Zhang brothers had differences in the business philosophy of Super Species, from "Internet + dining" to "to-home," without concentrating their efforts on the aspect they were better at.
Initially, Super Species' delivery was completed through access to JD Daojia. It wasn't until September this year that Yonghui officially launched its self-operated delivery business "satellite warehouse," running in parallel with JD Daojia. However, due to insufficient traffic and limited delivery volume, delivery costs remained high.
Due to a lack of online operations foundation, Super Species took nearly a year from establishing its online product and technology team in 2016 to develop a new retail system. However, the huge investment did not translate into significant online share growth. According to Yonghui's data, as of March this year, online transactions accounted for only 27.4% of Super Species' total, indicating that Super Species still relies more on offline retail.
Apart from these reasons, Super Species is also constrained by Yonghui Superstores' traditional supermarket genes. Super Species shares the supply chain with Yonghui Life and Yonghui Superstores, and sells standardized products in stores, giving an impression of high-end positioning but mediocre products. Over time, user consumption becomes a one-off transaction.
Where is the Industry Headed?
Yonghui Superstores divesting its Yunchuang business—does it mean that the once-hot new retail cannot compete with traditional offline business?
According to data from the Ministry of Commerce, in 2017, sales growth accelerated in major formats such as specialty stores, professional stores, supermarkets, and department stores, with the retail industry showing an overall recovery. Supermarket sales growth was 3.8%, up 1.9 percentage points year-on-year.
In contrast, traditional supermarkets that entered the "fresh supermarket + dining" format similar to Hema Fresh saw profitability decline rather than rise, entering a painful transition period. In terms of expansion, except for Hema Fresh completing its plan to open 100 stores in 2018 ahead of schedule, other Hema-like formats have gradually slowed their expansion.
For traditional supermarkets seeking to transform into new retail, is it necessary to return to the old hypermarket model? If we look at Yonghui Superstores' exploration of new formats in recent years, the answer may be different.
With the rise of e-commerce retail platforms such as JD Supermarket and Tmall Supermarket, Yonghui Superstores, as a representative of traditional supermarkets, has seen its main business under pressure. From 2010 to 2014, Yonghui Superstores' revenue maintained a growth track, but in 2015 the situation reversed, with continued expansion encountering slowing revenue growth and declining net profit.
At that time, Yonghui Superstores chose to use its offline store and supply chain management advantages to counter new formats. In 2017, Yonghui Superstores launched the new retail brand "Super Species," using "fresh food" as a fortress to fully benchmark against Hema Fresh.
After setting clear goals, Yonghui Superstores did successfully reverse the net profit decline in 2015. But the reality is that the integration of Yonghui Superstores' new retail business did not go as smoothly as expected. Yonghui Yunchuang not only failed to increase profits for Yonghui Superstores but also caused operating profit to decline again by as much as 22.65%.
Super Species, born from traditional supermarkets, is stumbling along the new retail path, but Hema Fresh, created by Alibaba, presents a different picture.
Hema Fresh relies on Alibaba's big data and technology, using offline supermarkets as an entry point for mobile e-commerce traffic. This huge traffic advantage has allowed Hema Fresh to sprint forward.
In September this year, Hema Fresh CEO Hou Yi released the first report card after three years of operation at Alibaba's Global Investor Conference. Mature stores achieved sales per square meter of 50,000 yuan, stores over 1.5 years old had average daily sales exceeding 800,000 yuan, online sales accounted for over 60%, and operating efficiency was 2-3 times that of similar hypermarkets.
Zhang Jian, an industry expert at the China Electronic Commerce Association and new retail expert, believes that the layout of new retail is built around scenarios, so consumer experience is very high. In terms of sales per square meter, new retail enterprises have improved efficiency several times or even more than ten times compared to traditional supermarkets, with obvious advantages.
▲ Overview of major new retail brands in China, image from Interface News.
In fact, traditional supermarkets have long followed Yonghui Superstores' footsteps in exploring new retail, such as RT-Mart's Feiniu Youxian, Bailian Group's RISO, and Century Lianhua's Jingxuan, all adopting the "supermarket + dining" model upgrade.
Among them, RT-Mart, which cooperates with Alibaba, has shown a different form of new retail transformation. By launching the Taoxianda entrance, RT-Mart obtains customer needs through data exchange with Alibaba. On the other hand, RT-Mart also relies on Hema Fresh's hanging chain system to achieve rapid distribution. From traffic to delivery technology, RT-Mart is using new retail methods to compensate for its online shortcomings.
In October this year, JD.com, together with Walmart, JD Daojia, and Tencent, released the "Annual Report on Omni-channel Integration Development of Chinese Retailers and Supermarkets." The data on consumer purchase channels shows that only 5% of people completely understand and purchase goods online, 16% only offline, and the remaining 79% combine online and offline. Among these, 48% prefer to purchase offline after comprehensive online and offline research.
There is no doubt that with changes in consumer habits, traditional supermarkets and hypermarkets will cooperate more closely with online platforms, and new retail thinking will also help traditional supermarkets transform.
Regarding future trends, Zhang Jian analyzed for Wumian Finance that new retail is still in the early stages of development. Yonghui Superstores' Super Species is currently just an attempt to break the deadlock, and expecting to revitalize Yonghui Superstores in a short time is unrealistic. The future retail industry will form a market pattern where the Jingdong-Tencent system and the Alibaba system coexist. The large retail group will accept new retail transformation and gradually shift from pursuing turnover to pursuing profit.
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