Source: Carrefour Membership Store Weibo, National Business Daily, Reading and Innovation Comprehensive As the pioneer of the hypermarket format, Carrefour's start in the membership store "track" has been somewhat bumpy. Following Sam's Club, Costco, and Hema, Carrefour, a forerunner in the hypermarket model, has also joined the membership store "track." Its first membership store, converted from the Pudong Chengshan Road store, opened on October 22. However, as the pioneer of the hypermarket format, Carrefour's start in the membership store "track" has been somewhat bumpy. Late-Night Outcry!
Carrefour Membership Store Faces Collective Brand 'Withdrawal' on Opening Day
@Carrefour Membership Store issued an apology letter on the evening of October 22, stating that on the opening day of Carrefour China's first membership store, competitors pressured suppliers to buy back and clear their products, preventing many member consumers from making purchases. Carrefour Membership Store stated that from the preparation to the opening of the membership store, competitors continuously pressured some brands, threatening to remove their products from competitors' shelves if they supplied to Carrefour Membership Store. "Even on the opening day, some brands, unable to withstand the pressure from competitors, had to come to the scene to buy out all their products. We also frequently received messages from brands saying they would no longer cooperate." Carrefour Membership Store stated that it firmly opposes unfair competition in the commercial field, opposes forcing merchants to make an 'either-or' choice based on market position, and has reported the matter to relevant authorities. This apology letter reflects that, with changing consumer demands and the continuous emergence of new retail formats, offline retail is entering a period of deep transformation. Hypermarkets, once bustling with customers, are now in decline. Against the backdrop of the downturn in hypermarkets, foreign retailers have successively left the Chinese market. In 2019, Suning.com acquired 80% of Carrefour China for 4.8 billion yuan. In the wave of foreign retailers exiting, even Walmart has frequently heard rumors of its imminent departure. Meanwhile, RT-Mart, after seeking change, was acquired by Alibaba, marking the end of the hypermarket era's glory. Not to mention that in recent years, retail format innovation has become increasingly diverse. New formats such as community fresh food supermarkets, front-warehouse fresh food e-commerce, and community group buying have emerged one after another. Against the backdrop of long-distance e-commerce impacting hypermarkets, they have also intercepted hypermarket customer flow at the community level. Compared with the decreasing foot traffic in hypermarkets, warehouse membership stores originating from Europe and the United States are becoming increasingly popular. In August 2019, Costco, the second-largest retailer in the United States, opened its first store in China in Minhang District, Shanghai. On the opening day, the store was crowded, and in the afternoon, due to the huge flow of people, Costco even suspended operations. Currently, transforming into membership stores may become the profit code for many traditional retail supermarkets to save their declining performance, and competition in the membership store track is becoming increasingly fierce. Walmart's Sam's Club is accelerating its expansion. On September 26, the first Sam's flagship store in China officially opened in Shanghai, with a building area of 70,000 square meters. Andrew Miles, President of Sam's Club China, stated that in the next 2-3 years, about 23 Sam's Club stores will be under construction. Walmart China President and CEO Zhu Xiaojing once revealed that they will try to build new or convert some eligible Walmart hypermarkets in first- and second-tier cities into Sam's Club city center stores. According to Walmart's latest financial report, its Q2 2021 performance exceeded market expectations. Walmart's Q2 total revenue was $141.028 billion, a year-on-year increase of 2.4%. Among them, Sam's Club's comparable sales increased by 7.7%, e-commerce net sales increased by 27%, membership fee income increased by 12.2%, and total membership reached a record high. Prior to this, Walmart's performance in China was on a decline, and the expansion of Sam's Club seems to have become Walmart's profit code. In addition to Sam's Club's preparations, retailers such as Hema, Yonghui, and Hualian are also exploring warehouse membership store formats. Declining Performance for Years
Carrefour CEO Plans to Open 100 Membership Stores in 3 Years
Facing the surging wave of new formats, Carrefour, which has been deeply rooted in the Chinese market for 6 years, has also decided to take a bold gamble. Before being acquired by Suning, Carrefour's performance in China had been declining for years. According to Carrefour China's financial data, in 2018, its operating revenue, operating profit, and net profit attributable to the parent company all declined significantly. Among them, operating profit was 412 million yuan, a decrease of nearly 61% compared with 1.044 billion yuan in 2017. On September 27, 2019, Suning acquired 80% of Carrefour China's business for 4.8 billion yuan, becoming its largest shareholder. After announcing in August 2021 that it would open more than 30 paid stores in the Chinese market within five years, Carrefour quickly updated its membership store plan. On October 22, Carrefour's first membership store in Shanghai officially opened. On the 15th, at the membership store open day, Carrefour China CEO Tian Rui stated that Carrefour plans to fully upgrade and transform 100 of its 200 hypermarkets into paid membership stores within the next three years. The scale-oriented development route may also be the reason why Carrefour Membership Store dares to plan for '100 stores in three years.' Wen Zhihong, partner of Hejun Consulting and head of chain operations, said that the domestic membership store development is just starting and still faces many difficulties. The core competitiveness of membership stores lies in product and supply chain construction. Cost-effective products and differentiated services can, to a certain extent, resist the impact of e-commerce on membership supermarkets, which is also the reason for the rapid development of membership stores in the past two years. For local brands, product planning and management, and supply chain construction still need to be explored. Foreign brands, although having mature management experience and supply chain systems, lack understanding of the domestic market. "For example, Metro, acquired by Wumart, is still facing tests. If it wants to further develop in China, it still needs to adjust its strategy and adapt to the Chinese market." As a membership store, Carrefour Membership Store naturally maintains the tradition of serving members. A reporter from the National Business Daily learned that the annual fee for Carrefour Membership Store is 258 yuan/year, and each main card comes with a free family card. In addition to the fact that the stores will be converted from old Carrefour hypermarkets, and because the old hypermarkets were previously located more in city centers, Carrefour Membership Store is also positioned as a 'membership store around residents.' In addition, due to the insufficient ceiling height of hypermarket venues, Carrefour Membership Store has abandoned high shelves. This also means that Carrefour Membership Store will not be able to continue the low-cost single-store model of 'warehouse-store integration' common in membership stores. It is worth mentioning that, in addition to the reason of dispersed American consumer housing, the warehouse membership store format brought to China by Sam's Club chose non-city-center locations and a warehouse-store integration model, mostly for cost control considerations. Low property costs, warehousing costs, low SKU strategy, and strict cost control together constitute the realistic possibility foundation for the 'low price and high quality' slogan of Sam's Club and Costco. Now, Carrefour Membership Store has abandoned the warehouse-store integration model and non-city-center locations, retaining the membership store convention of selected SKUs. Li Xinlin, deputy general manager of Carrefour Membership Store, said that the current SKU count for Carrefour Membership Store is positioned at 3000+. In addition, at the product level, the overlap between Carrefour Membership Store and hypermarkets is currently no more than 1%. Except for famous liquors like Moutai and Wuliangye, which cannot be differentiated, there are basically no overlapping products with hypermarkets. However, when reporters visited Carrefour Membership Store, they found that, unlike traditional membership stores, because Carrefour Membership Store is located in the main urban area, to meet consumer needs, Carrefour Membership Store has retained the 'live fresh' category. As for the results and future of Carrefour's self-transformation, it is clearly not possible to draw definitive conclusions yet. Lai Yang believes that although the membership store format is currently booming, for new entrants, from a cost-benefit perspective, profitability will be a challenge. "Whether new entrants can create distinctive features in the membership store format and build a good fresh supply chain system is also a challenge." On the issue of how to control membership store costs, Carrefour has given its own answer. Li Xinlin believes that Carrefour Membership Store does not necessarily need to strengthen warehousing. "Carrefour has its own unique logistics and distribution system. When our store count is large enough, it can greatly reduce logistics costs." Li Xinlin revealed that because Carrefour has a complete logistics and distribution system in the Yangtze River Delta, Carrefour Membership Store will also focus on the Yangtze River Delta in its early expansion. Fighting a Community Sniper War: Hypermarkets Are Getting Smaller In Hu Chuncai's view, the decline of the hypermarket format is also related to 'large stores encountering small trade areas.' Hu Chuncai said that due to intensified market competition, the convenience and price advantages provided by e-commerce companies, the breakthroughs in fresh food operations and convenience provided by community supermarkets, and the increasing density of e-commerce, various physical stores, and new retail stores (front warehouses), customer flow diversion is intensifying. Coupled with increasingly congested urban traffic, the trade area of hypermarkets has shrunk from 3-5 kilometers ten years ago to the current 1-2 kilometers. 'The annual shrinkage of the trade area means a significant reduction in the number of customers, and there are no corresponding measures to increase the average transaction value, which means a continuous decline in sales.' Hu Chuncai said that consumers within a 1-2 kilometer trade area can no longer support the previous scale of hypermarkets. At the same time, community commerce is rising. Physical retailers are not unaware of this problem, and shifting to small and medium formats is their response. However, retailers' previous attempts in small and medium formats have not been very successful. Yonghui Superstores, which was the first to try small formats, is gradually giving up. As early as 2018, Yonghui Superstores began vigorously promoting the Yonghui mini format. By the end of 2019, it had opened 573 Yonghui mini stores throughout the year. By the mid-2020 report, Yonghui Superstores disclosed 458 Yonghui mini stores. However, in its 2020 annual report, Yonghui Superstores stated that due to strategic adjustments, it closed some mini stores. As of the end of 2020, the company had 156 mini stores. RT-Mart, with Alibaba's support, is still determined to vigorously develop the mini format. At the 2020 annual report conference call of Gaoxin Retail, CEO Lin Xiaohai said that Zhongrunfa will accelerate development nationwide, expecting to expand 30-50 stores in the next fiscal year. Xiaorunfa has 30 stores so far, and it is expected to continue focusing on second- and third-tier cities, with expectations of more than 200 stores by the next fiscal year. Gaoxin Retail has high hopes for small and medium formats in its financial report: in the future, medium-sized supermarkets and small supermarkets will become one of the core drivers of the group's revenue growth. It is worth mentioning that, in addition to focusing on small and medium formats, Gaoxin Retail is also carrying out self-transformation of hypermarkets. According to the performance report previously released by Gaoxin Retail, as of the end of March 2021, 38 hypermarkets had been renovated. In the future, the number of reconstructed hypermarkets will advance at a rate of 40-50 per year. In addition, Gaoxin Retail has also established a 'warehouse-store' function to support B2B and community group buying businesses. Furthermore, through in-depth cooperation with Alibaba, RT-Mart's online traffic mainly comes from Taoxianda, Ele.me, and its self-built RT-Mart APP. 'Fresh e-commerce one-hour delivery' has achieved profitability. RT-Mart also shares inventory with Tmall Supermarket and vigorously expands B2B business. RT-Mart has also begun to provide supply chain services for Alibaba's newly established community group buying business group. However, so far, various self-transformation measures have not had much effect on boosting the stock prices of physical retailers. Taking Yonghui Superstores as an example, as of the close on October 21, Yonghui Superstores closed at 3.93 yuan. From January 4 to October 21, Yonghui Superstores' stock price has fallen by 45%. Whether turning left or right, the core for physical retailers is to carry out self-innovation and transformation of hypermarkets, achieve a turnaround in performance, and gain a brighter prospect. Hu Chuncai believes that so far, the self-transformation of physical retailers is still in the exploration period. "Physical retailers need to understand that their biggest competitor is no longer other physical retailers, but e-commerce." Regarding the direction of hypermarket transformation, Hu Chuncai suggested that hypermarkets first need to transform their positioning and cannot continue to stick to marketing methods centered on cooked products, low prices, and price wars. 'They must carry out value marketing activities around high-value customer groups who have a desire for the store and strong purchasing power, only then can there be a way out.' Are you 'watching' me?