Introduction: KA supermarkets must adapt to market changes to avoid being eliminated in the current industry reshuffle.

Author | Gou Gou Review | Gou Gou Layout | He Wen

The continuous development of online e-commerce, community group buying, and snack discount stores is inevitable, and competition in the retail industry has entered a white-hot stage. Compared with the dismal performance in 2022, KA supermarkets have seen a slight improvement in the first half of 2023. According to the released 2023 performance reports or forecasts, Yonghui Superstores and Zhongbai Group have turned losses into profits, but companies such as Better Life, Renrenle, and Suning.com are still in a loss-making state.

Better Life Loss Better Life reported a loss of 360 million to 490 million yuan in the first half of 2023, a decrease of 1752.48% to 2349.22% compared with the same period last year, when it had a profit of 21.7854 million yuan. During the reporting period, the non-GAAP net loss was 490 million to 660 million yuan, a decrease of 1290.40% to 1772.78% compared with the same period last year, when the loss was 35.2417 million yuan. Better Life stated that due to factors such as slow consumption recovery and intense channel competition, the company, as a physical retail enterprise, encountered significant operational challenges. In addition, the company's liquidity shortage has not been fundamentally resolved, leading to severe out-of-stock situations in its supermarket stores, which significantly impacted current operations. Data shows that from 2020 to 2022, Better Life's performance declined year by year, with revenue of 15.638 billion yuan, 13.26 billion yuan, and 8.686 billion yuan, respectively; net profits were approximately 111 million yuan, -184 million yuan, and -2.544 billion yuan, respectively. Previously, Better Life had triggered a financial crisis due to its long-term construction of real estate business. Now, with losses again, Better Life's operations have flashed a red light.

Renrenle Loss Renrenle reported a loss of 270 million to 310 million yuan in the first half of 2023, compared with a loss of 230 million yuan in the same period last year; the non-GAAP net loss was 275 million to 315 million yuan, compared with a loss of 254 million yuan in the same period last year. Renrenle stated that during the reporting period, due to the continuous diversion of online retail and new retail formats, intensified competition from offline entities and cross-industry players, and changes in consumer habits towards online shopping, physical store traffic continued to decline, sales kept falling, and operating income fell short of expectations. According to previous financial reports, Renrenle implemented a store closure strategy in the past two years. In 2021, it closed 37 stores and opened 5 new ones; in 2022, it closed 4 stores and opened no new stores, bringing the total number of stores to 113 by the end of that year. Media reports have noted that compared with other peers, Renrenle has higher rents and lower sales per square foot, and there may be management issues. In February 2023, Yongle Commercial Management, an affiliate of Xi'an Qujiang Culture under Shaanxi state-owned assets, acquired 107 million shares of Renrenle and became the controlling shareholder. Can state-owned capital lead Renrenle out of losses?

Suning.com Narrows Losses Suning.com reported a loss of 1.5 billion to 2 billion yuan in the first half of 2023, compared with a loss of 2.7 billion yuan in the same period last year; the non-GAAP net loss was 1.6 billion to 2.1 billion yuan, compared with a loss of 2.7 billion yuan in the same period last year, narrowing the loss. The loss also includes the impact of the acquisition of Carrefour China.

Suning.com stated that during the reporting period, the company firmly implemented its retail service provider development strategy, focused on the development of its core 3C business, and achieved sequential quarterly sales growth. In county and town markets, Suning.com's retail cloud business developed rapidly, opening 862 new stores in the first half of the year. As of June 30, the total number of Suning.com retail cloud franchise stores exceeded 10,000, and the total sales of goods through the retail cloud channel increased by 42.5% year-on-year. Suning.com founder Zhang Jindong once said in a letter to employees: "Retail is a marathon without an end; the future is far away." Although the company is still loss-making, focusing on its main business and expanding into lower-tier markets through franchise stores has produced some results. Suning.com is still on the marathon.

Yonghui Superstores Turns Loss into Profit Yonghui Superstores expects a net profit of 390 million yuan for the first half of 2023, an increase of 500 million yuan compared with a net loss of 110 million yuan in the same period last year; the non-GAAP net profit is expected to be 100 million yuan, an increase of 10 million yuan compared with 90 million yuan in the same period last year. The company stated that in terms of main business, it actively promoted store optimization, closed some long-term loss-making stores, advanced digitalization, and achieved cost reduction and efficiency improvement through internal assessment and publicity. In terms of non-recurring gains and losses, it was mainly due to government subsidies, asset disposal gains, and changes in fair value. In 2021, Yonghui Superstores began to comprehensively promote the "Technology Yonghui, Digital Empowerment" strategy, driving organizational rejuvenation and the development of its home delivery business. That year, Yonghui Superstores suffered a loss of 3.944 billion yuan, and in 2022, the net profit was -2.763 billion yuan, a year-on-year loss reduction of 29.94%. In the first half of 2023, it turned losses into profits again, sending a positive signal overall. Yonghui Superstores, which originated from the "agriculture-to-supermarket" model, has an absolute advantage in fresh produce. After the wave of new retail, Yonghui Superstores has been actively responding. Although it took detours in business formats, its strategic direction is becoming clearer, and its home delivery business is currently developing relatively well.

Zhongbai Group Turns Loss into Profit In addition to Yonghui Superstores, Zhongbai Group also turned losses into profits in the first half of 2023.

During the reporting period, the company achieved a net profit of 10.6 million to 13.6 million yuan, an increase of 126.73% to 134.29% compared with the same period last year, when it had a loss of 39.6628 million yuan; the non-GAAP net profit was 5.2 million to 6.7 million yuan, an increase of 109.63% to 112.4% compared with the same period last year, when it had a loss of 54.0161 million yuan. Zhongbai Group stated that the domestic economy showed a trend of stabilization and recovery. The company adhered to the principle of quality first, steadily optimized its store network layout, strengthened omni-channel expansion, enhanced core competitiveness, and accelerated transformation. During the period, the company's operating revenue increased year-on-year, expenses decreased, and it is expected to turn losses into profits. From the 2022 financial report, it can also be seen that in addition to optimizing store layout, the company is also advancing supply chain construction, building advantages in fresh agricultural products, and developing multiple formats including warehouse hypermarkets, community supermarkets, convenience stores, electrical appliance specialty stores, and department store shopping centers. Among them, the community store Zhongbai Kitchen mainly offers ready-to-eat categories such as soy products, Chinese and Western pastries, fresh food group meals, and clean vegetables. It can be seen that Zhongbai Group has made new attempts in scenarios, focusing on residents' three meals a day. As of the end of 2022, its community supermarkets generated annual revenue of over 2 billion yuan, but it also closed a relatively large number of stores, closing 40 stores in one year. The specific development is not yet known.

Sanjiang Shopping Club Profitable, Revenue Declines In the first half of 2023, Sanjiang Shopping Club achieved operating revenue of 1.952 billion yuan, a year-on-year decrease of 6.57%, of which main business revenue was 1.902 billion yuan, a year-on-year decrease of 4.82%; net profit was 86.442 million yuan, a year-on-year increase of 10.13%; non-GAAP net profit was 68.5399 million yuan, a year-on-year increase of 23.75%. Although the company's revenue declined during the reporting period, profits increased, and operating efficiency improved. Backed by Alibaba, Sanjiang Shopping Club mainly operates community stores, Hema stores, and neighborhood stores, with food and fresh produce as its main revenue sources. From previous financial reports, it is known that it is further building fresh and cold chain logistics, and its performance is relatively stable, making its future development worth expecting.

Liqun Group Profitable, Non-GAAP Net Profit Turns Positive Liqun Group expects a net profit of 22 million to 27 million yuan for the first half of 2023, an increase of 9.1566 million to 14.1566 million yuan compared with the same period last year, a year-on-year increase of 71.29% to 110.22%; it expects a non-GAAP net profit of 400,000 to 1 million yuan, an increase of 9.6025 million to 10.2025 million yuan compared with the same period last year, turning from loss to profit. The company stated that the performance improvement is mainly due to strengthening refined management, improving gross margin levels to enhance overall profitability; the logistics supply chain segment continued to expand its business scale, maintaining a relatively fast growth rate; and the food industry and other business formats accelerated market expansion, maintaining a good development trend. According to previous financial reports, Liqun Group is developing online and prepared food businesses, and is integrating its logistics system to support O2O and B2B online platform full-category goods and the storage, picking, and delivery of household appliances and fresh products from physical stores. The growth in the first half of 2023 demonstrates Liqun Group's development potential.

Final Thoughts Currently, KA supermarkets face a series of challenges. Nowadays, people's demand for convenience and experience is growing, and emerging formats such as community group buying, online e-commerce, and convenience stores are catering to this trend. In contrast, KA supermarkets are large in scale, with advantages in a wide variety of categories and mature supply chain construction, but this is far from meeting the needs of the new generation of consumers. To cope with this situation, KA supermarkets have begun to make some changes. First, the number of stores is no longer the key to profitability. With the decline in customer traffic, some underperforming stores have been closed to reduce losses, and KA supermarkets have shifted their focus to exploring new formats, such as warehouse stores or community stores, or strengthening refined operations. Second, some KA supermarkets have adjusted their product mix to maintain competitive advantage. They have leveraged their supply chain advantages to increase the proportion of fresh products with high spoilage rates, or increased the proportion of private label products to meet consumer demand for quality and personalization. In addition, KA supermarkets have improved customer service experience by developing home delivery services and integrating online and offline channels. In summary, changes in channels in recent years require KA supermarkets to upgrade in all aspects, including service, quality, and efficiency. They must adapt to market changes to avoid being eliminated in this round of industry reshuffle.