Li Ming, general manager of a trading company primarily engaged in aquatic product wholesale, revealed in an interview with Longshang.com & Supermarket Weekly that his company had previously supplied more than 50 supermarket enterprises, but later only 10-plus remained, with business focus shifting to new channels such as community group buying, vertical e-commerce, and livestreaming. In fact, Li Ming is not alone; surveys by Longshang.com & Supermarket Weekly found that in recent years, suppliers have increasingly abandoned supermarkets or reduced their weight, turning to other emerging channels, and this trend is intensifying. For example, Zhang Cheng, a peach supplier, recently revealed that he had previously focused on supplying supermarkets and chain fruit stores, but this year, besides e-commerce platforms, he began trying to supply C-end channels like community group buying, and will continue next year. This is not hard to understand; business cooperation follows mutual benefit, and suppliers withdraw from supermarkets simply because there is no profit. From the supermarkets' own perspective, their attractiveness to suppliers is declining. During the heyday of hypermarkets, supermarkets were the main distribution channel and held a strong position in supplier-retailer relations, but due to large procurement volumes, suppliers could accept harsh requirements and bear high fees. However, in recent years, supermarket performance has been sluggish, procurement volumes have shrunk, making it difficult to meet suppliers' shipping needs, while suppliers still have to bear various fees, with rising costs and increasing difficulty in making profits. Meanwhile, the diversion from emerging channels such as e-commerce platforms, community group buying, and livestreaming cannot be ignored, and they have formed comparative advantages in certain aspects. Compared with traditional supermarkets, emerging channels: first, grow rapidly with large procurement volumes, attracting suppliers by scale; second, have low loss rates, simple processes, and high efficiency; third, have short payment cycles and fast collection, making them more attractive to suppliers overall. For example, in Li Ming's view, compared with new platforms like community group buying, supermarket channels not only have fewer orders, making it hard to cover supply costs, but also have many entry barriers and high requirements, along with significant cash flow pressure. Conversely, community group buying and livestreaming platforms rarely have these "troubles." However, the "defection" of suppliers, especially the exit of quality suppliers, is a significant loss for traditional supermarkets that are already struggling and need upstream empowerment. Therefore, supermarkets should next think about how to improve supplier-retailer relations by restructuring supply chains, build a new supplier system, truly organize products around customers, and thereby boost store performance.
Community Group Buying Becomes a Hot Commodity
Li Ming's aquatic company mainly deals in frozen products, cold-fresh group meals, cooked marinated products, etc., with monthly sales once reaching 12 million yuan. The company's focus was once on traditional retail channels. Later, realizing changes in the consumer market and that supermarkets were being diverted by new channels, the company began adjusting its business, venturing into community group buying, group meals, and livestreaming. For example, after discovering that prepared dishes were not suitable for supermarket channels, the company decided to completely abandon supermarket channels. Initially, the company did community group buying in Chengdu and Hangzhou. Although profits were low—for instance, a kilogram of small seafood sourced directly from the origin retailed at 6.9 yuan with a profit of 2-3 mao—order volumes were huge, once reaching 10,000 orders per day with sales of about 60,000 yuan and gross profit of about 3,000 yuan. In contrast, among supermarket customers, the largest order volume was less than 300,000 yuan per month, averaging less than 10,000 yuan per day. According to Li Ming, within just three months, the company's monthly sales from community group buying in one province exceeded 2 million yuan, with month-on-month growth still above 30%, and community group buying once accounted for a quarter of the company's revenue. Livestreaming platform sales were also impressive. Generally, a single livestream with a top influencer would bring at least 30,000 orders. To this end, the company established a livestreaming and short-video department to enter livestreaming. Additionally, in the group meal business, the company supplies two SKUs to a school daily, and this single channel's sales already exceed the total sales of more than 15 supermarket customers. "The company's focus has shifted from supermarkets to new channels like community group buying, livestreaming, and private domain e-commerce, with traditional retail channels ranking after community group buying and livestreaming," Li Ming said. Similarly, a pickled vegetable company with sales exceeding 1 billion yuan has dealt with supermarkets across the country for 30 years, but has few collaborations; instead, it cooperates more with mom-and-pop stores, comprehensive e-commerce platforms like Tmall and JD.com, and community group buying platforms. Zhao Xiaolin, head of the pickled vegetable company, explained that in a fast-paced era, community stores and community group buying have won over a large number of consumers with their convenience; wherever people go, the company focuses its efforts. Additionally, Zhang Cheng, a peach supplier, has supplied supermarkets for many years. This year, after noticing that "fruit prices for supermarkets are particularly low, and shipment volumes are lower than previous years" and sensing the rapid growth of community group buying, he shifted his business focus from B-end to C-end. "Mainly after trying Shanghai community group buying in June this year, I found that order volumes were relatively large, and the average order value was double that of supplying supermarkets, and I could also control losses myself," Zhang Cheng explained. Furthermore, in recent years, due to fruit price wars affecting origin prices and purchase prices, fruit farmers have been forced to transition to C-end, such as selling via livestreaming, which not only increases profits but also helps sell seasonal fruits through multiple channels, minimizing losses. The above suppliers' shifts in supply targets have reduced supply to supermarkets, changing the scale and structure of supermarket suppliers. As a long-time FMCG supplier deeply involved in the Beijing supermarket market revealed, the number of suppliers in one department of a local chain supermarket has been reduced from over 100 to just over 40, cutting nearly 60%.
Supermarkets Change from "Must-Have" to "Optional"
Why do suppliers withdraw from supermarkets and turn to other channels? Longshang.com & Supermarket Weekly believes that many factors determine whether suppliers stay or leave, including procurement scale, supply prices, logistics costs, entry fees, loss rates, process complexity, collection efficiency, and payment cycle risks, but ultimately it comes down to profit; suppliers consider leaving when they feel there is no hope of profitability. First, on the supermarket side, they have changed from a "must-have" to an "optional." In traditional supplier-retailer relations, supermarkets commonly adopt an entry fee model, charging suppliers a certain entry fee, for example, charging 10 yuan for product B from supplier A, regardless of how many units are sold. Obviously, in such cases, the larger the sales volume, the lower the unit cost. In the early days of supermarket glory, business was booming with large orders, and products would sell out as soon as they hit the shelves, making them highly attractive to upstream suppliers. So even with entry fees, suppliers flocked to them. But with channel diversification and the impact of the COVID-19 pandemic, traditional supermarkets have performed poorly. In the first three quarters of this year, among 15 listed supermarket companies, 6 saw revenue declines and 9 suffered losses. Other statistics show that in 2021, only 2 of 14 listed supermarket companies saw revenue growth, with net profits all declining significantly year-on-year, and 9 suffered losses. Meanwhile, store openings have become conservative, and closures frequent. As supermarket operations deteriorate and inventory turnover slows, order volumes naturally shrink, making it difficult to meet suppliers' scale needs. Once scale advantages are lost, suppliers' unit supply costs increase. At the same time, most supermarkets still insist on charging various fees such as entry fees, barcode fees, new product promotion fees, activity fees, and ground promotion fees, all of which suppliers must bear. With no sales guarantee, rising costs, increasing difficulty in making profits, and the burden of bad debt risks and cumbersome processes, suppliers have to seriously consider whether to continue sticking with supermarkets. According to Li Ming's observation, in the supermarket channel, first, order volumes are small, and profits cannot cover the cold-chain logistics costs. For example, marinated products have a short shelf life and require cold-chain transportation; to meet supermarkets' 0-4°C receiving standards, they often have to use dedicated cold-chain trucks, making logistics costs extremely high. Calculations show that only when daily sales exceed 2,000 boxes in a region can they break even. Moreover, entering supermarkets involves many steps and high requirements, and they also bear collection risks and cash flow pressure, all of which prompted Li Ming to exit. "If supermarkets no longer trust us, and there is mutual suspicion and conflict—for instance, many retailers switch suppliers over a 5-mao price difference—we have no reason to provide the expected stock, stable products and prices, and meet flexible demand. If there are better options, we will inevitably abandon this channel," Li Ming said. Another industry insider said that community group buying mainly targets fresh produce, and fresh produce circulation severely tests retailers' operational capabilities. However, a considerable number of supermarkets still have poor fresh produce management, making it difficult to achieve volume breakthroughs in an increasingly diverse channel environment, exhausting suppliers' patience over time. Some supermarkets, under operational pressure, have not reduced fees but have instead increased them, charging high entry fees to make up for profit gaps. This kind of "killing the goose that lays the golden eggs" exploitation has pushed the already fragile supplier-retailer relationship to the brink! "It is very inappropriate for supermarkets to charge various fees; it is tantamount to exploiting suppliers. Moreover, when supermarkets are facing declining customer traffic and reduced supplier desire to enter stores due to the impact of emerging channels like e-commerce and community group buying, insisting on charging various fees is like digging their own graves," Zhao Xiaolin revealed. Some regional retailers have also approached the company for cooperation, but the key is how they negotiate; if they charge entry fees, barcode fees, and other fees, the company will not consider it. For suppliers, supermarkets have changed from a "must-have" to an "optional," so withdrawal is not surprising. On the other hand, emerging channels such as community group buying, private domain e-commerce, and livestreaming: first, they grow rapidly with promising prospects. Since 2020, China's community group buying has developed rapidly. Data shows that in 2021, the industry still maintained a growth rate of over 60%, with a market size of 120.51 billion yuan; per capita consumption increased from 25.37 yuan in 2018 to 186.55 yuan in 2021; financing scale also rose from 1.801 billion yuan in 2014 to 28.59 billion yuan. Under rapid growth, compared with traditional supermarkets, emerging channels have scale advantages in procurement volume. As Li Ming said, although the unit profit of community group buying is low, the huge order volume is enough to compensate for this disadvantage. The company continues to expand community group buying business to surrounding provinces and cities, and increase livestreaming. Additionally, in cooperation with supermarkets, suppliers not only bear various fees like entry fees but also suffer from high logistics costs, difficulty in controlling losses, cumbersome processes, long payment cycles, slow collection, and unstable demand. In contrast, new channels like community group buying and livestreaming adopt a "sell-first, buy-after" model that accurately predicts demand, does not require inventory in the retail link, and reaches consumers directly, with advantages such as high efficiency and low loss rates. Li Ming reported that both community group buying and livestreaming, with their sell-first model, largely solve the loss problem. For example, in fulfillment, community group buying only requires delivery to a collaborative warehouse, while for livestreaming sales, the company only needs to ship directly from the factory. Compared with supermarket channels, there are fewer and simpler process steps, while ensuring profits. The payment cycle issues encountered in supermarkets are also avoided in community group buying. "Considering raw material procurement, factory processing, and retail-end payment cycles, to sell 1 million yuan of goods, we usually need to prepare more than 2 million yuan in funds, putting significant cash flow pressure. In contrast, community group buying and private domain e-commerce offer immediate payment upon order or withdrawal within a few working days, which is a huge advantage," Li Ming said. Moreover, these problems have not been substantively resolved in supermarkets for a long time, coupled with declining performance and reduced orders, making suppliers like Li Ming see no hope and thus consider leaving.
Supermarkets Urgently Need to Restructure Supply Chains
To some extent, supply chains determine retail survival. When traditional supermarkets face internal and external troubles, the exit of quality suppliers is a significant loss that will affect normal operations. Therefore, Longshang.com & Supermarket Weekly believes that the urgent task is to reflect on the causes of the problems and, on that basis, reform and restructure supply chains: upward, deeply bind with suppliers for win-win cooperation; downward, organize products around customers to enhance competitiveness. First, looking "upward," supermarkets need to shift from simply collecting shelf fees to building differentiated advantages and enhancing the ability to earn purchase-sale price differences. On one hand, they need to "loosen" suppliers, reduce unreasonable "exorbitant taxes and levies," streamline business processes, aggregate scale demand, speed up collection, control and shorten payment cycles, change the price-only approach, and form sustained and stable demand. On this basis, they should shift from confrontation to cooperation with suppliers, truly pulling in the same direction and thinking alike. In the view of aquatic supplier Li Ming, "Retailers and quality suppliers should have a relationship of interdependence, with cooperation depth, long-term commitment, and tolerance; with aligned goals to jointly serve customers, create value for consumers, and obtain and fairly distribute common benefits." Hema, known as the "new retail showroom," has been continuously reforming traditional supplier-retailer relations since first proposing "new supply-retail" in 2018. On August 9 this year, at a supplier conference, Hema CEO Hou Yi announced that Hema would not charge suppliers any entry fees, promotion fees, new product fees, or other traditional wholesale industry single-item channel fees. Instead, it assesses turnover rate. According to a distributor supplying Hema, Hema implements a 3-month elimination system; those ranking at the bottom are eliminated. Although seemingly harsh, this new cooperative relationship is more transparent, efficient, and fair, allowing truly good products and their suppliers to stand out. Second, in terms of "downward," supermarkets should truly organize products and select suppliers around customers, looking at the entire industry chain, not just procurement and price. For example, "new life supermarkets" like Yuelihuo and Yasi, facing consumption upgrade demands, purchase the best goods from agricultural product bases rather than the lowest prices. This is the foundation of their fresh produce quality and one of the reasons they can stand firm despite severe online impact. In practice, they should adhere to efficiency and benefit first, reduce intermediate links, lower circulation losses, improve communication efficiency, strengthen industrial linkage, match demand promptly, and enhance store product power. The above industry insider said that local supermarkets can gradually establish distinctive localized supply chains: first, establish and rely on production bases, shifting from multiple links in the circulation field to "direct production-sales connection"; second, implement order bidding, gradually shifting from "post-production procurement" to "pre-production bidding and ordering"; third, break through traditional business management systems, shifting from "single retail operations" to "integrated production, processing, and sales." Li Ming believes that from a supplier's perspective, retailers should break old mindsets, embrace quality suppliers, and not only focus on price; based on local consumer demand, bind with quality suppliers, do good product selection, and create unique value and services for consumers. As a supplier, what he most expects from retailers is to solve core problems such as small order volumes, high loss rates, insufficient logistics capabilities, and high labor costs. (At the request of interviewees, names used in the article are pseudonyms.)