Recently, the retail industry has been most concerned and discussed about Fudi Supermarket, which closed all its stores overnight. The author learned that Fudi Supermarket's first store opened in Xiantao city, Hubei, in early 1993. In 2003, Fudi expanded beyond Xiantao, gradually opening outlets in towns and villages across more than ten cities and counties, including Jianli, Jingzhou, Honghu, Hanchuan, Qianjiang, and Tianmen. In 2012, Fudi reached its peak, with over 550 supermarket chain stores, warehouse and business area of 680,000 square meters, nearly 5,000 employees, and sales revenue exceeding 7 billion yuan. After that, it went into decline. According to the "2021 Hubei Private Enterprises Top 100 List" released by the Hubei Federation of Industry and Commerce, Fudi Industrial ranked 90th, but its annual revenue was only over 3 billion yuan, less than half of what it was a decade earlier. This year, it closed all its stores. As for the reason for Fudi's store closures, the author noticed that in the announcement jointly issued with the Xiantao Municipal Bureau of Commerce, no specific reason was given, only stating that the company's transformation and development did not meet expectations and it encountered operational difficulties. However, judging from Fudi's business expansion in recent years, besides supermarkets, it also explored new areas such as lifestyle plaza projects, fashion plaza projects, fast-food chains, and Fudi handheld supermarkets. From the response that "transformation and development did not meet expectations," Fudi's crisis may be closely related to these business formats. In fact, looking at the overall development of the traditional supermarket industry in recent years, it's not just regional supermarkets facing difficulties; almost all offline supermarkets are facing operational challenges, and Fudi may just be the first among many traditional supermarket brands to "fall." The Declining Traditional Supermarket Industry Besides Fudi, China Resources Vanguard (CR Vanguard) is also closing stores on a large scale. The author learned that since the beginning of this year, CR Vanguard has closed at least 11 stores, including Zengcheng store, Tanzhou store, Shenyang Hunnan Central store, Jiashan Sports South Road store, Ninghai Xingning Central store, Dahua store, Xingyuan North Road store, Shijiaqiao store, Jinniu store, as well as Qingxiu store closed on April 21 and Xiayuan store closed on April 22. In addition, according to the China Chain Store & Franchise Association (CCFA) China Supermarket Top 100 data, CR Vanguard's store count has been decreasing year by year: 3,261 stores in 2020, 3,245 in 2021, and 3,130 in 2022, closing 131 stores in three years. Not only Fudi and CR Vanguard, but also RT-Mart, once known as the "King of Supermarket Warfare," has seen store closures. Early this year, news of RT-Mart closures emerged in Jiangsu, Sichuan, Hunan, and other places. According to incomplete statistics, RT-Mart has closed more than ten stores since 2023. Furthermore, according to incomplete statistics from "Lianshang.com," in the first quarter of 2024, at least 31 supermarket brands closed over 140 stores nationwide, involving well-known brands such as Walmart, RT-Mart, Yonghui, Wumart, Rainbow Supermarket, Hema Fresh, and CP Lotus. Among them were also some city or regional first stores, such as Walmart's first store in Nanjing (Xinjiekou store), Yonghui's first store nationwide (Fuzhou Pingxi store), and Zhuji's first Wumart store. In fact, it is an indisputable fact that traditional supermarkets are on the decline. The author learned that over the past decade, traditional supermarkets such as Carrefour, Walmart, Jiajiayue, Renrenle, and RT-Mart have been hit hardest and have declined most noticeably. Some have even predicted that traditional supermarkets have less than five years left. According to data from the National Bureau of Statistics, since 2017, the number of supermarket stores in China has been continuously declining, from a peak of 38,554 to 24,082, a drop of 37.5%. Among them, large chain supermarkets have seen faster store closures, from 11,947 in 2012 to 5,340 in 2020, a decline of over 55%. Although the traditional supermarket industry is now in a sorry state, it must be admitted that it once had its glory days. For example, RT-Mart's revenue reached 40.431 billion yuan in 2010, and Yonghui Supermarket, which has been loss-making in recent years, once achieved performance of over 10 billion yuan at its peak. However, these are all in the past. Judging from the current development of China's traditional supermarket industry, it is clear that the decline will continue. Reasons Behind the Decline The author believes that the decline of the traditional supermarket industry is caused by a complex interplay of internal and external factors. Generally, supermarket leases are typically 15 years, some only 10 years, and the longest is 20 years. Around 2000 was the peak of hypermarket expansion, and around 2011-2012 there was a wave of hypermarket closures due to lease expirations. Currently, many supermarkets are also facing lease expirations. Although they could choose to renew leases, the root of the problem lies in the unsustainable nature of the hypermarket model, coupled with sluggish consumption and fierce price competition, making it difficult to improve store profitability. Property costs have soared, rents have doubled, and low-margin hypermarkets can no longer afford them, so many companies have to close stores to reduce losses. On the other hand, with the rise of online delivery platforms such as JD Daojia, Taoxianda, Meituan, and Ele.me, consumers can purchase goods without leaving home. The emergence of more and more retail models has gradually eroded the advantages of traditional supermarkets, diverting consumers and making declining sales inevitable. Additionally, enterprises' own adjustments are also at play. Some companies adjust their store structures due to strategic changes or simply choose to close stores and exit the market. For example, after Walmart's Beijing Jianguo Road store closed last year, it was taken over by Hema and transformed into a popular membership store model. However, the most important factor is the impact on the underlying profit model. For a long time, traditional hypermarkets and small and medium-sized supermarkets have charged suppliers a series of fees, which is another profit model for them. In the fierce market competition, this profit model has become unsustainable. Leveraging their market dominance, Walmart and Carrefour were the first to charge suppliers entry fees, shelf fees, display fees, and end-cap fees in the Chinese market, and local Chinese supermarkets basically followed this fee structure. This model of charging suppliers, brand owners, and manufacturers is also called the "upstream profit model." Regardless of whether products sell, fees are charged first, and unsold inventory is eventually returned to suppliers. Various fees increase dealers' costs by nearly 50%, making offline prices uncompetitive compared to online, so consumers naturally shift to online. Corresponding to the "upstream profit model" is the "downstream profit model," also known as the buyer model. This model is currently mostly applied in membership-based warehouse supermarkets such as Sam's Club and Costco. They purchase goods from dealers and brand owners without charging entry fees or shelf fees. Of course, supermarket brands adopting the buyer model tend to be more stringent in product selection and have higher requirements for products. This is because their main income comes from customer membership fees, not from dealers or brand owners. For example, Costco's average gross margin on goods is generally no higher than 14%, with main income relying on membership fees. Since traditional supermarkets do not adopt the buyer model and are merely shelf managers, their advantages disappear when facing impacts from e-commerce, discount stores, and membership stores, making decline only a matter of time. Where Is the Way Out Under the Dilemma? From the current market development, the decline of traditional supermarkets is a foregone conclusion. Retail expert Bao Yuezhong once said that the current domestic retail market is highly competitive, with not only an increasing number of offline stores of various models but also increasingly diverse online retail formats. The moat that hypermarkets built through channel advantages in the past has been broken. Of course, in the face of severe conditions, many enterprises are not sitting idly by but have made some new changes and attempts. At present, there are mainly two forms of exploration: First, exploring different store types or business formats, such as premium supermarkets, with representative companies including CR Vanguard, Rainbow Holdings, and Renrenle. The author learned that CR Vanguard currently has two main premium supermarket brands: Ole' and blt. In 2004, CR Vanguard opened its first Ole' store in Shenzhen MixC. To date, it has laid out over 120 stores in high-tier cities such as Shanghai, Beijing, Changsha, Chengdu, and Xiamen. This year, it plans to open more than 20 new stores, significantly accelerating its expansion pace, compared to an average of about 6 stores per year previously. In February this year, Ole' Beijing Chaoyang Joy City store opened. It is understood that the store has a business area of 2,300 square meters and carries 15,000 SKUs, covering categories such as fruits, bakery, vegetables, low-temperature milk, meat, aquatic products, household food (breakfast, infant food, seasonings, etc.), snacks, and personal care products. In terms of target customers, it is similar to other Ole' stores, targeting high-end family customers and fashion-conscious young customers, accounting for 60% and 40%, respectively. Blt is a premium supermarket under CR Vanguard's Ole' brand, catering to the lifestyle needs of fashionable white-collar workers. Its first store opened in Shenzhen in 2009, and it has now entered multiple core cities nationwide, including Beijing, Shanghai, Shenzhen, Tianjin, and Chengdu, with about 40 stores. Blt stores have a business area of 1,000-3,000 square meters, with approximately 10,000 SKUs, and imported goods account for more than half, covering Southeast Asia, Japan, South Korea, Europe, and the Americas. Besides CR Vanguard, Rainbow Holdings' sp@ce supermarket also follows a "premium" route. sp@ce is a "Metropolitan Life Supermarket" pioneered by Rainbow in China, aiming to create a living space based on "Life-style" and share the connotation of metropolitan life with customers seeking quality living, jointly creating a "Natural Lifestyle." Currently, Rainbow sp@ce supermarkets have nearly 50 stores nationwide, mainly concentrated in Guangdong, Jiangxi, Hunan, Fujian, and Jiangsu provinces. By densely deploying in advantageous regions, it will continue to develop steadily in the future. In addition to premium supermarkets, warehouse membership supermarkets are also one of the formats that many traditional supermarket enterprises are trying. Domestic warehouse-style supermarkets can currently be divided into two categories: one is membership-based warehouse supermarkets that charge membership fees, such as Sam's Club, Costco, Hema X Membership Store, and fudi; the other is non-membership warehouse supermarkets that do not charge membership fees, such as Yonghui and Renrenle's warehouse stores. Generally speaking, membership-based warehouse supermarkets use the membership system to encourage users to actively shop in stores due to the privileged identity of being a "member," creating a strong dependence on the store. Non-membership warehouse supermarkets mainly focus on affordable products, with no tricks, just low prices. According to incomplete statistics, there are currently at least 13 warehouse supermarket brands in China, including both membership and non-membership types, with over 160 stores. Second, developing new online channels. For example, betting on instant retail. Thanks to the rapid development of instant retail in the past two years, more and more supermarkets, chain stores, and convenience stores are finding new growth points through instant retail. For example, Yonghui Supermarket. According to statistics, in the first half of 2023, Yonghui's online business sales reached 7.92 billion yuan, a year-on-year increase of 4.4%, and its proportion of total omni-channel main business revenue increased from 15.7% in the same period last year to 18.7%, up 3 percentage points, with the gross margin of goods reaching a three-year high. Another example is Sam's Club, which achieved sales of about 80 billion yuan in 2023, with online sales accounting for 47%. In fact, in recent years, instant delivery has become a new high ground for traditional supermarkets to compete for. In 2018, Sam's Club partnered with JD.com to join JD Daojia, setting up cloud warehouses to increase penetration in cities where it operates. In July last year, Sam's Club took the lead in Suzhou Industrial Park, piloting "on-site experience, online ordering, and ultra-fast delivery" to give consumers a faster shopping experience. In the same month, RT-Mart's M Membership Store, following its 1-hour express delivery service, upgraded its online services again, with its first store nationwide officially launching half-day delivery, expanding delivery coverage to Yangzhou's central urban area and the core area of Jiangdu, serving nearly 1,000 communities. Currently, RT-Mart's M Membership Store has opened three stores in Yangzhou, Changzhou, and Nanjing, all providing "hourly delivery" services within 7 kilometers of the stores. In summary, despite the decline, traditional supermarkets are actively exploring innovative and transformative methods to seek their second growth curve. However, based on past experience, reversing this trend in the short term is not an easy task. Recommended Reading