Although Metro was the first foreign supermarket to enter China, it remains relatively unfamiliar to ordinary consumers compared to other foreign supermarkets like Carrefour, Walmart, and Costco. If not for the acquisition that became a hot topic in 2019, this unfamiliarity might have persisted. The main reason is that Metro has always prioritized the B2B market over the B2C market.

Now, after being acquired by Wumart and undergoing major strategic adjustments, Metro seems to have found a new direction, opening 24 membership stores in less than two years. However, the competition in the warehouse membership store sector in China remains fierce.

In addition to early entrants like Costco, Sam's Club, and Hema, Gaoxin Retail joined this competitive sector in April this year, planning to open three more M membership stores in the Yangtze River Delta region this year. Earlier, Sam's Club announced six new stores this year, and Costco's fourth store (Ningbo) is scheduled to open on the 20th of this month. Clearly, in this highly competitive market environment, Metro's future development still faces significant challenges.

A Revolution in the Traditional Wholesale Market

Metro was founded in 1964 as Germany's first comprehensive "cash and carry" wholesale store. The so-called cash and carry means cash transactions, self-selection, and self-transport, where restaurants, hotels, and retail stores can pick up goods themselves and pay immediately.

According to "Retail Circle," this business model first appeared in the United States. In the 1960s, Metro founder Otto Beisheim saw this new model during a trip to the U.S., which inspired him to establish Metro in Germany.

This model may seem ordinary, but it is actually a highly efficient business model. Compared to traditional delivery wholesale, the "cash and carry" model combines supermarket and warehouse functions, conducting wholesale business in a retail manner. This not only eliminates the need for separate warehouses and distribution centers but also avoids the pressure of advancing funds for large customers. While ensuring low-cost and high-efficiency operations, it also enriches product variety and meets the one-stop immediate shopping needs of professional users.

Just as the emergence of department stores revolutionized small grocery stores, and supermarkets revolutionized department stores, the "cash and carry" model was also a revolution against the traditional wholesale market. After the first Metro store opened, it became highly popular in Germany. Otto Beisheim quickly expanded Metro's business across Europe, and through mergers and acquisitions, by the 1990s, it became the largest retail wholesale supermarket group in Germany, second in Europe, and third globally. Later, in 2008, when the financial crisis hit Europe and the U.S., Metro achieved its highest revenue of 65.529 billion euros. However, there are no successful enterprises, only enterprises of their times. By 2017, Metro's revenue had fallen to around 22 billion euros, a two-thirds decrease from its peak (approximately 430 billion RMB). This decline was partly due to store closures and business divestitures. But the main reason was that Metro failed to grasp the trends of the times, stuck to the B2B market, and was gradually abandoned by the times in fierce competition. Retail Circle noted that after reaching its revenue peak in 2008, Metro's business growth slowed significantly and began to decline. In October 2015, Metro sold its domestic department store subsidiary Kaufhof for $3.2 billion. In 2017, Metro Group announced the spin-off of its electronics and appliance businesses Saturn and MediaMarkt into a separate holding company, Ceconomy. By 2018, Metro's Germany-only supermarket chain Real was also put up for sale. In 2022, Metro became one of the most loss-making companies on the Fortune 500, with an annual loss of $66.9 million, dropping from 329th to 482nd in the rankings.

Focusing on B2B, Missing Opportunities

In 1995, Metro formed a joint venture with Jinjiang International (Group) with a 90% stake, establishing Jinjiang Metro Cash and Carry in Shanghai. In 1996, Metro's first store in China opened in Putuo District, Shanghai. At a time when small shops, grocery stores, wholesale markets, and department stores dominated China's retail landscape, Metro's arrival was undoubtedly a significant market advantage. Retail Circle learned that Metro not only offered a wide variety of products (over 20,000 items) but also ensured high quality. Generally, only well-known domestic enterprises and joint ventures could become Metro suppliers, and Metro also sourced many products directly from abroad, with fresh food coming from nationally recognized institutions. As a result, Metro quickly succeeded in the Chinese market, opening stores in Shanghai, Wuxi, Ningbo, Nanjing, Fuzhou, Dongguan, and other cities in subsequent years. By 2003, Metro had 18 stores in China and became the most trusted food supplier in the Chinese market. Later, Metro became a major food supplier for events like the Beijing Olympics and the Shanghai World Expo. Although Metro was popular in China at the time, it was mainly in the B2B market. Another difference between Metro and other supermarkets was its unique membership system, where only customers who applied and held a "membership card" could enter and shop. However, Metro's membership system was based on its positioning, serving only units, corporate legal persons, small retailers, restaurants, and other group or institutional members. Clearly, Metro's B2B-only model, isolated from the mass consumer market, was not suitable for China, where the retail market is primarily driven by the general public. Although Metro occasionally relaxed entry conditions for general customers during its development, such as introducing electronic payments, financial credit terms, and delivery services, and experimenting with convenience stores and O2O e-commerce, the opening to C-end consumers still had a long way to go. Later, due to the failure of convenience stores and changes in Metro China's senior management, Metro eventually shifted its focus back to the B2B market. As a result, Metro gradually missed the demographic dividend of China's rapid internet development. Ultimately, it had to reluctantly sell its business in China. On October 11, 2019, Wumart acquired 80% of Metro China's equity for approximately 1.5 billion euros (about 11.9 billion RMB).

Transforming into Membership Stores, Seeking Breakthroughs

Retail Circle noted that after being acquired by Wumart, Metro primarily served B2B customers for the first year or so. However, as the Chinese market changed, Metro made a strategic adjustment in 2021. In November 2021, Metro underwent a comprehensive transformation, upgrading from primarily serving B2B customers to serving both B2B customers and C-end members. Shifting from B2B membership stores to serving C-end customers was indeed a major "change" for Metro. Of course, this change was not without reason. According to research reports from Tianfeng Securities, with China's economic development in recent years, middle- and high-income groups have rapidly become the main consumer force. They are more willing to pay a premium for product quality, and the proportion of spending on non-essential goods is increasing. Additionally, research data shows that there are approximately 33 million new middle-class families in China. Furthermore, changing consumer preferences are driving the industry from a retail model that meets mass needs to a new retail model that meets segmented and niche needs.

Consumers determine the rise and fall of retail formats. As consumer behavior changes, traditional supermarkets that once thrived are now under pressure, while warehouse membership stores are growing significantly. Affected by this, Costco and Sam's Club began accelerating expansion, and domestic traditional large stores also announced their entry into transformation.

In this context, Metro's shift from B2B to the C-end membership store track is not only following the trend but also has clear advantages. Compared to other players transforming into membership stores, Metro has more experience.

Retail Circle learned that to better serve C-end customers, Metro has also upgraded and adjusted its product structure.

First, it has curated SKUs. In new membership stores, Metro reduced SKUs to between 4,000 and 8,000. Compared to the previous 10,000-20,000 SKUs with a "people find goods" shopping approach, the current curated selection is more conducive to C-end member consumption.

Second, it offers "smaller packages." Previously, Metro mainly served B2B customers and used large packaging. However, in new membership stores, considering the typical Chinese family structure of 3-4 people, Metro adopted a "smaller quantity, better price" format.

Finally, it enhances product "differentiation." In Metro membership stores, consumers can buy 40% of products that are not available elsewhere. This is because over 40% of Metro's products are imported or private label, and this proportion is expected to rise to 50% in the future. Moreover, some private label products are developed based on the actual needs of consumers in different regions.

Of course, while Metro has been making efforts in the C-end market in recent years, it has not abandoned its B2B business. Instead, while doing well in B2B, it has gradually leveraged the experience and advantages gained from serving B2B members to enhance C-end member services.

Retail Circle learned that since announcing the full transformation to membership stores, Metro has opened 24 membership stores in less than two years. As of the end of 2022, the number of paid members exceeded 3 million, with a growth rate of over 50%. Clearly, among current players in the domestic membership store sector, Metro has already entered the "first tier."

However, given the intense competition in the warehouse membership store sector, Metro still faces significant challenges ahead.