---
title: "Lianhua Supermarket's Self-Initiated Renovation: Can It Transform After 10 Years of Losses?"
description: "Pangdonglai, which started in a fourth-tier city, has sparked a 'rural surrounds the city' renovation trend in retail, where its business philosophy is subtly integrated into retail enterprises in first-tier and even super first-tier cities through 'assisted renovation' or 'self-initiated renovation'. On September 5, Lianhua Supermarket's Shanghai Huinan store officially reopened after a half-month self-initiated renovation. Our reporter's visit found that this community store is full of 'Pangdonglai flavor', such as 'direct sourcing from origin', 'silver-haired service station', and 'internet-famous mooncakes'."
author: "乾行"
publisher: "New Distribution"
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published: "2024-10-04"
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# Lianhua Supermarket's Self-Initiated Renovation: Can It Transform After 10 Years of Losses?

> Pangdonglai, which started in a fourth-tier city, has sparked a 'rural surrounds the city' renovation trend in retail, where its business philosophy is subtly integrated into retail enterprises in first-tier and even super first-tier cities through 'assisted renovation' or 'self-initiated renovation'. On September 5, Lianhua Supermarket's Shanghai Huinan store officially reopened after a half-month self-initiated renovation. Our reporter's visit found that this community store is full of 'Pangdonglai flavor', such as 'direct sourcing from origin', 'silver-haired service station', and 'internet-famous mooncakes'.

Pangdonglai, which started in a fourth-tier city, has sparked a 'rural surrounds the city' renovation trend in the retail industry, that is, through Pangdonglai's 'assisted renovation' or enterprises imitating 'self-initiated renovation', its business philosophy is subtly integrated into retail enterprises in first-tier and even super first-tier cities.
On September 5, Lianhua Supermarket's Shanghai Huinan store officially reopened after a half-month self-initiated renovation. Our reporter's visit found that **this self-initiated renovated community store is full of 'Pangdonglai flavor'**, such as 'direct sourcing from origin', 'silver-haired service station', and 'internet-famous mooncakes'.
Image: Internet-famous mooncakes, silver-haired service station
This 'self-initiated renovation' is clearly a self-rescue move by Lianhua Supermarket in response to its weak performance. Although Lianhua Supermarket has ranked in the 'top ten' of the China Chain Store & Franchise Association (CCFA) top 100 chain supermarket list for many years, it has suffered losses for ten consecutive years, with cumulative losses exceeding 3.5 billion yuan. Its hypermarkets and Century Lianhua supermarkets are all experiencing varying degrees of impact.
It is clear that if it can leverage the current hot 'renovation trend' to complete the transformation from losses to a fresh start, it would be a good choice. In fact, **Lianhua Supermarket had already signaled this as early as May this year when it completed a new round of financing, with the funds to be used for business format transformation.**
But can 'renovation' truly solve Lianhua Supermarket's performance anxiety at its core?
Based on our reporter's actual visits and research, Lianhua Supermarket's renovation measures are more about superficial changes or enhancing the 'Pangdonglai content'. Its core highlights of service, employee care, and product strength have not yet formed differentiated competitive capabilities, nor can they truly transform it.
Seeking change requires burning one's boats. If it cannot learn the 'intrinsic value' and cannot provide consumers with a comprehensive experience that makes them feel they must visit and buy, this 'self-initiated renovation' may not achieve the long-term performance boost Lianhua Supermarket desires.
**Front-end 'drastic measures'**
**Back-end 'stretched thin'**
Lianhua Supermarket's first self-initiated renovated store in Shanghai (Huinan store) is located in Huinan Town, Pudong, on the outskirts, about 45 kilometers from People's Square in the city center. The surrounding area within 1 kilometer is mainly residential with high population density. Besides mom-and-pop vegetable shops, there are also many professional fresh food and supermarket players, such as Qingmei Fresh Food, Hema Pickup, and RT-Mart.
Image: Surrounding commercial situation of Lianhua Supermarket Shanghai Huinan store
This store is Lianhua Supermarket's 'supermarket' format (community supermarket), with a business area of about 1,000 square meters. It has three storefronts along the street, one of which is 'Maishang Baozi' - Lianhua's new self-operated breakfast business. The store has about 10 employees (around 7 PM on Saturday).
Image: 'Maishang Baozi' next to Lianhua Supermarket
The store's products cover fruits and vegetables, fresh-cut meat, bakery and milk, prepared dishes, daily groceries, snacks, beverages, kitchen and bathroom supplies, stationery, children's toys, cigarettes, etc., with over 7,000 SKUs, meeting the shopping needs of all ages and scenarios.
**In addition to 'completeness', Lianhua Supermarket has also created 'newness' and 'specialty' in product strength**, such as the presence of trendy internet-famous products like Lian Coffee Espresso and Pangdonglai mooncakes, as well as its own brand 'Youxiang' focusing on grocery categories, highlighting specialty product strength.
Image: Lianhua Supermarket own brand products
After this renovation, Lianhua Supermarket used five types of 'tag cards': new product launch, selected low price, internet-famous hit, own brand, and imported products. Among them, 'selected low price' has the highest proportion, covering multiple categories, with over 300 SKUs according to incomplete statistics. Some bakery products also launched buy-one-get-one-free promotions.
Image source: Retail Business Finance
From the proportion of 'selected low price' and the buy-one-get-one-free bakery items, Lianhua Supermarket's renovation highlights 'price competitiveness'. This can also be seen in the fresh produce area, which emphasizes 'direct sourcing from origin' and special promotions on some individual items.
**Behind the lower terminal prices is Lianhua Supermarket's adjustment and efforts on the supply chain side.** The traditional procurement chain involves purchasing from urban agricultural wholesale markets. Due to markups at each layer, fresh products reach consumers at naturally high prices, and quality is also difficult to guarantee.
By directly connecting with upstream sources and bypassing distributors, Lianhua Supermarket can maximize cost reduction and gain 'say' in quality assurance, thereby enhancing core competitiveness through 'low prices'.
Image source: Retail Business Finance
From a scenario perspective, compared to other stores, the Huinan store has richer overall display props, with hanging signs, jump signs, posters, balloons, and other devices enhancing the atmosphere. Some areas also have dolls and green plants, providing consumers with humanistic care beyond products while shopping.
Image source: Retail Business Finance
In terms of service convenience, near the exit of the Huinan store, there is a 'Bailian Daoda Pickup Point', which allows online ordering via mini-program and uses third-party platforms Meituan and Ele.me to achieve 30-minute delivery. According to store staff, the daily order volume can reach nearly 100 orders.
Image: Bailian Daoda Pickup Point
In addition, during our reporter's checkout experience, because the total was 1.5 yuan short of the 'spend 58 yuan to get a free box of taro' promotion, the cashier kindly reminded us.
In summary, the overall experience after the renovation is much better than non-renovated stores, but compared to 'Pangdonglai-style renovation', it can only be said to be lackluster.
**First, the overall traffic flow planning is unreasonable.**
The entrance and exit are in the same area. Consumers habitually shop counterclockwise with their right hand, but the checkout area and cigarette sales are both at the entrance, which can easily cause congestion during peak hours.
Image: Lianhua Supermarket checkout area
**Second, the layout is compact, resulting in a poor shopping experience.**
The spacing between shelves is narrow, less than one meter, basically allowing only one person to pass. The shelf height exceeds 1.8 meters, limiting consumers' sightlines and creating a sense of oppression from the products. Some main aisles also serve other functions, such as the 'silver-haired service station', which would basically occupy the aisle if in normal service. Lianhua Supermarket, which wants service, experience, and product completeness, is not yet a top performer in consumers' eyes.
Image source: Retail Business Finance
**Third, the shelf rental model remains unchanged.**
Lianhua Supermarket still displays products from the merchant's perspective, cramming in as many products as possible. Although it looks dazzling, product categories are highly homogeneous, or a single category has multiple SKUs that differ only in style/model/color. KA suppliers have completed their display tasks, but consumers cannot make efficient choices. How to demonstrate more efficient product selection in a limited space remains a challenge for Lianhua.
Image source: Retail Business Finance
**Fourth, product management needs improvement.**
On one hand, there is supply management. On the first day of reopening on September 5, many products were out of stock.
Image source: Retail Business Finance
On the other hand, there is the control of product tag cards. The same type of product can have different tags, such as both 'selected low price' and 'new product launch', or both 'selected low price' and 'internet-famous hit'. For 'selected low price' items, there is also a 'yellow background special price' tag. Does this mean that 'selected low price' is not truly low, and only the original 'yellow tag price' is the lowest? This is bound to confuse consumers when making choices.
Image source: Retail Business Finance
**Fifth, product price competitiveness is insufficient.**
Even for 'selected low price' items, compared to fresh food e-commerce, it is hard to be attractive. For example, 17.5 yuan for Xiao Lang Jiu (a liquor) and 5.9 yuan for coconut water are more than 10% higher than prices on certain e-commerce platforms, and the latter also offers its own delivery service.
Image source: Retail Business Finance
Lianhua Supermarket's core focus on product strength and price competitiveness faces difficulties in different dimensions. It is clear that this renovation has not brought much fundamental change.
The core reason for this phenomenon is that the organizational management capability behind it has not been matched. In the short term, the natural traffic from the new store plus promotional activities can boost performance, but in the long run, if the current business approach is maintained, performance will eventually return to pre-renovation levels.
**Four Major Problems to Solve**
**Sustainability in Question**
'Renovation' is one of the hottest words in the retail industry in 2024. The reason is that offline traffic decline has led to a sharp drop in revenue, but the 'Pangdonglai-style renovation' by retail peers has brought real performance surges.
**The former is pressure from 'fear', the latter is motivation from 'desire'.**
In fact, 'renovation' is not unfamiliar to most retail enterprises; previously, it was called 'old store renovation/optimization'. From the perspective of retail enterprises, they hope to use 'renovation' to improve revenue, but the results seem ineffective. The main reasons are the following four points.
**First, there is a lack of insight into the historical customer base.**
The core of renovation is 'product adjustment', which requires sufficient understanding of consumer preferences in the area covered by the renovated store. Most retail supermarkets lack CRM (Customer Relationship Management) and have low digitalization levels, making it difficult to effectively analyze POS data and thus hard to gain insight into the consumption characteristics of the target consumer group. Therefore, product adjustment is difficult to be targeted, often resulting in 'copying blindly' or 'self-righteousness', and the results are predictable.
**Second, supply chain sourcing and private brand capabilities are insufficient to meet changing consumer needs.**
'Supply-demand matching' is the foundation of the retail model. After gaining consumer insight, there must be products that meet consumer needs. The traditional 'shelf' model of retail supermarkets requires low professional product sourcing capabilities from their own buyers, relying more on KA suppliers' 'product pushing' and then 'selection', rather than actively 'seeking products' or even creating private brand products to match consumer needs.
Once dependent on KA suppliers, category traceability and innovation capabilities are further weakened, making it difficult to form systematic product selection logic and losing control over categories.
**Third, the operational side cannot sustain continuous improvement.**
Physical retail operations consist of heavy manual tasks, including daily receiving and shelving, opening and welcoming customers, facing and replenishing, secondary restocking, discounting and clearing, checkout and packing, etc.
Ensuring consistent work efficiency and service levels from store employees is already a significant challenge. Avoiding organizational entropy is a mountain that any enterprise finds difficult to climb. For physical retail, maintaining is the basic requirement; continuous improvement is what allows consumers to have expectations before repeat visits, surprises during visits, and aftertaste after leaving.
**Finally, 'renovation' becomes a formality.**
Without specific renovation goals and paths, renovating for the sake of renovating ultimately leads to 'panic-stricken measures'. Even if the results are not ideal, it is better than 'doing nothing'.
But for a thing to have good results, the prerequisite must be well-defined goals, specific action items, and the expected changes from those actions. 'Renovation' is a systematic project that requires organizational system changes to support it; otherwise, it is just a formality, wasting resources and bringing 'fleeting' popularity that may fall back to pre-renovation levels after three months.
For Lianhua Supermarket, if it fails to do the above four points, coupled with Shanghai's employee costs being much higher than in third- and fourth-tier cities, and lacking the dedication of frontline employees, the renovation results as mentioned above are likely to 'return to the past'.
**Performance Pressure, Forced to Change**
The superficial 'self-initiated renovation' has made Lianhua Supermarket's performance pressure 'public'.
On August 29, Lianhua Supermarket Holdings released its first-half 2024 performance data: revenue was 10.897 billion yuan, down 7.4% year-on-year; gross profit was 1.252 billion yuan, down 1.15% year-on-year; net profit was -55 million yuan, with losses narrowing by 0.48%, showing an overall improving trend in profitability.
Image: Lianhua Supermarket financial report
**But a careful review of Lianhua Supermarket's revenue and profit over the past decade reveals no positive signals.**
From 2014 to 2023, Lianhua Supermarket has been unprofitable, with 2023 setting a record high for losses, nearly 800 million yuan. Gross margin has also hit new lows, with only 11.49% in the first half of 2024. The improvement in net margin is more due to cost budget control rather than operational revenue growth.
Lianhua Supermarket revenue and profit performance Chart: Qianxing
Even more astonishing is that Lianhua Supermarket Holdings' asset-liability ratio has repeatedly hit new highs, rising from 85.69% in 2018 to 97.92% in the first half of 2024. This means that nearly 98% of its assets are financed through liabilities, with only about 2% shareholder equity, indicating significant financial risk.
Lianhua Supermarket asset-liability ratio Chart: Qianxing
**With an extremely high asset-liability ratio and no end in sight for losses, Lianhua Supermarket's core anxiety stems from cash flow.** Only by getting more people to shop at Lianhua Supermarket again can it 'turn the tide'. Therefore, to break through the current situation, innovation and change are urgent.
Since 2023, Lianhua Supermarket has been making changes:
> In May 2023, its subsidiary Hangzhou Lianhua Huashang launched its first 'large community + small warehouse' format store in Hangzhou - the premium supermarket Green&Health.
>
> On November 8, 2023, it launched its first community quality life premium supermarket, CITY LIFE, in Shanghai.
>
> In July 2024, it initiated a 90-day renovation in Shanghai, focusing on the 'Shanghai Century Lianhua Zhonghuan store as a model store' as a key project.
>
> On September 5, 2024, the Shanghai Huinan store officially reopened after a half-month self-initiated renovation.
Warehouse, community, membership, Pangdonglai-style renovation - Lianhua Supermarket is precisely following the pulse of the times with each step. However, based on current performance, the transformation results have not yet been reflected in financial data.
Looking at Lianhua Supermarket's plans for key tasks this year, it will mainly implement changes through five major initiatives: 'procurement model reform, fresh supply chain breakthrough, store digital innovation, employee satisfaction improvement, and customer shopping experience optimization'. These are actions that need time to be tested. How much Lianhua Supermarket can boost remains a question mark. Image: Lianhua Supermarket Shanghai Huinan store fresh area
However, it is certain that whether in terms of market or cash flow, time is running out for Lianhua Supermarket. The existing diverse business formats and store scale are Lianhua Supermarket Holdings' advantages. Relying on the 'near-field advantage' of physical stores compared to e-commerce, coupled with its continuous digital investment in recent years, it may be possible to attract consumers within a 3-kilometer radius to shop again through format innovation or 'renovation', ultimately leading to improved operating results. Therefore, how to proceed in the future will be a significant challenge for Chong Xiaobing, who joined Lianhua Supermarket Holdings in 2019 and is the current general manager. At the same time, 2024 is likely to be the last year of his term. As a veteran in the retail industry, it is believed that in his final year, he will deliver a final masterpiece.


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