High-end supermarkets are currently in an awkward position. The news that Shanghai City Supermarket has closed all its stores has put premium supermarkets in the spotlight, and the timing is symbolically significant. As the discount trend sweeps the industry, many supermarket chains are pivoting to price competitiveness. In an era that emphasizes value for money and quality for price, has the high-end format, especially premium supermarkets, become merely a gimmick with no practical relevance? This is a question the entire industry is pondering. By normal logic, in a time of accelerating consumption segmentation, as a standalone format, there is a customer base for quality and high-end consumption, so development space must exist. But from actual performance, whether it's the complete closure of Shanghai City Supermarket, or CR Vanguard's Ole' premium strategy, or Hong Kong's City Super, the high-end premium format has not performed well in the domestic market. Is it a problem with the consumer market or with the format itself? Who Can Make It Work? The closure of Shanghai City Supermarket is not an isolated case of high-end supermarket difficulties. As one of the earliest pioneers in the high-end supermarket sector in China, Shanghai City Supermarket was founded in 1995. Leveraging Shanghai's strong "Shanghai-style" culture and mature, advanced commercial development environment, it took the lead and successfully established its banner in the high-end supermarket format. Entering the 21st century, with the rapid development of the supermarket industry, high-end supermarkets gradually became a strategic choice for many chain retail enterprises, such as Yonghui Bravo YH, CR Vanguard's Ole' premium, RT-Mart super, and later Hema's black-label stores. To date, domestic premium supermarkets have a history of nearly 30 years, initially serving expatriates and returnees, all following a high-end route. With the rise of middle-class consumers, the customer base of premium supermarkets has gradually expanded, but competition has also become increasingly fierce. Hong Kong's premium supermarket City Super entered the mainland market as early as 2010, but after various store openings and closures, it now has only 4 stores in Shanghai and has been acquired by a fund under China Resources Group. Another high-end supermarket that started almost simultaneously with City Super is Beijing Hualian's high-end supermarket brand BHG, but now BHG has only 8 stores left in Beijing, and its equity has long been sold by Hualian. Ole', which is relatively large among premium supermarkets, had only about 68 stores by 2023 after nearly 20 years of development. The complete closure of Shanghai City Supermarket, to a certain extent, represents the "difficult path" of the high-end premium route in the current physical retail industry. Some turn away, some fade out, and some persist. CR Vanguard, which still has full confidence in this format, has even further segmented the high-end market: it has begun to derive a younger, more fashionable sub-brand BLT based on Ole', forming a high-end dual-brand recognition, and also expanded in 2020 with "Vanguard CITY" targeting mid-range customers. The period from 2004 to 2014 is considered the "golden decade" of China's supermarket development, and CR Vanguard reached revenue exceeding 100 billion yuan in 2013. But here we must clarify a development logic: during the rapid growth period of CR Vanguard's overall business, high-end supermarkets were also actively expanding and developing rapidly, but this does not mean that high-end supermarkets became the main driver of CR Vanguard's high-speed growth. The most obvious sign is that after years of focusing on high-end, CR Vanguard's revenue, which peaked at over 100 billion yuan, has now been halved. As a new entrant, in Shanghai, known as "China's retail experimental field," Hema opened its first black-label store last year, focusing on high-end imported goods, but this move is more of a gimmick than practical significance. Hou Yi's exploration of high-end supermarkets seems more like "playing around." Lagging Behind the Market and Consumption Why is the development of high-end supermarkets generally hindered now? Because the domestic development environment has led to a serious decline in their competitiveness, and the market development space has been greatly squeezed. First, this type of format mainly features imported goods as its category characteristic, forming its own differentiated market competitiveness. However, with the rapid development of domestic e-commerce, especially cross-border e-commerce, the acquisition of many imported goods no longer relies on a single special channel. The richness of channels and diversity of products have led to a rapid decline in the market competitiveness of high-end supermarkets that mainly operate imported goods. At the same time, another important impact factor is that in the physical format, the rapid rise of warehouse membership stores has strongly diverted the customer base of high-end supermarkets. The most obvious is Sam's Club. Warehouse membership stores represented by Sam's Club currently focus on white-collar middle-class customers in first- and second-tier cities, and these are also the main consumers of high-end supermarkets. Taking Shanghai as an example, the emergence of Sam's Club and Costco has significantly diverted the main consumer group of CR Vanguard Ole'. The most important thing here is that in terms of product strength, Sam's Club and Costco are a dimensionality reduction attack on the traditional domestic retail industry. Their mature supply chain systems cultivated internationally for many years, strong bargaining power, and product development based on membership consumption data and continuous innovation have created excellent product quality, price competitiveness, and differentiated product strength. Traditional domestic high-end supermarkets are powerless in the face of such competition. Finally, changes in the economic development environment and shifts in consumption habits have further eroded the market foundation of traditional high-end supermarkets. Two fundamental factors in the current retail market changes are profoundly changing and reshaping the development of the physical retail industry. The most obvious is consumers are more rational and pay more attention to "cost-performance ratio" and "quality-price ratio" , that is, pursuing lower prices for the same quality and brand (national standard products), and pursuing higher quality at the same price level. As consumers become increasingly rational and focus more on products, they are no longer blindly following high-end supermarkets. Another more important change in the consumer market is that the new generation of consumers no longer blindly pursues international big brands and first-line brands. Young people's confidence in domestic products is giving rise to many new formats and also changing the retail market. In the future, this change will be even more profound. Where Is the Way Out for High-End Formats? There is no doubt that the demand for quality consumption has always existed and is growing stronger. So, for retail business operators, the high-end market is definitely a piece of fat meat, but how to eat it is now a challenge. In my opinion, in the increasingly fierce market competition, high-end supermarkets need to deeply understand the current consumer market, actively change, and follow the trend. From the product side, whether operating imported goods or so-called quality goods, pursuing differentiated competitiveness becomes a key factor. Whether it's supply chain building or product category layout, it must align with the quality positioning. Among these, the key foundation is supply chain building. From the perspective of market changes, whether it's discount supermarkets or high-end supermarkets, price power has become an important part of product strength. Adjusting the price system has become a necessary strategy for store adjustments. This price system adjustment includes bargaining on the supply side and price comparison on the retail side, requiring both supply chain adjustments and management-level adjustments. From the perspective of market development environment and format competition, high-end supermarkets have indeed encountered great difficulties. How to re-establish the logic of format development and find core competitiveness is the key to breaking the deadlock. Recommended Reading