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The "golden age" of traditional hypermarkets and supermarkets, where market share growth was driven by store expansion, is fading. Why haven't the attempts at "omnichannel," "new retail," and "fresh food strategies" brought substantial operational improvements or reversed the competitive landscape?

As consumer demands and technology evolve, the retail environment has undergone significant changes. The "golden age" of traditional hypermarkets and supermarkets, which relied on store expansion for market share growth, is gradually receding. Why haven't the efforts in "omnichannel," "new retail," and "fresh food strategies" led to substantial operational improvements or a reversal in the competitive landscape?

A deep understanding of the new "people," "goods," and "places" dynamics, along with breakthroughs in traffic, technology, and supply chain, is essential for a smooth transition.

The Turning Point for Traditional Supermarkets

The retail landscape is shifting. On one hand, large supermarket chains' limited category/product coverage and experiential offerings no longer meet changing consumer needs. On the other hand, with the emergence of more new channels, consumer demand and consumption scenarios are diversifying. The retail market is moving from "incremental growth" to "stock competition." The "golden age" of large formats growing market share through store expansion is fading, and the era of format dividends is nearing its end.

In addition to continuous penetration by online retailers, traditional supermarkets are also facing high-speed diversion from "near-field" formats and emerging formats in recent years. It is foreseeable that traditional supermarkets' market share will continue to decline. Online pressure: Online retailers, having largely completed offline penetration of standard categories and improved consumer supply service systems, are actively expanding into daily necessities categories under the pressure of rising traffic costs and performance growth.

Diversion by "near-field" small formats: With the increase in micro-family households, consumers' demand for timely consumption has grown. Near-field small formats, based on a precise understanding of surrounding consumers and a "home delivery + store" model, can gain unique advantages in traffic diversion. Besides community fresh food stores, the rapid development of specialty stores such as light beverages, baby products, and bakeries also diverts traffic from traditional large supermarkets.

Emerging players entering: As consumers become younger and more digitalized, emerging entrants use digital means to interact closely with consumers and build richer, more diverse consumption scenarios to acquire customers and increase loyalty. These players commonly adopt the "home delivery" model to ensure faster order fulfillment. Examples like Hema Fresh and Dingdong Maicai are disrupting the competitive landscape of traditional offline formats.

With technological progress and changes in consumption structure, there have been significant impacts on product demand, shopping needs, shopping paths, and shopping venues.

First, "People": Consumers are changing. Post-80s and post-90s consumers account for 50% of total consumption, with strong growth in spending. They are no longer satisfied with basic product offerings but care more about the added value of products and experiences.

China's overall consumption structure is shifting from basic consumption to service-oriented consumption. The proportion of spending on food, beverages, and clothing will gradually decrease, while spending on healthcare, education, and leisure entertainment will continue to rise.

Second, "Place": Shopping locations are changing. There is a shift from "venues" to "scenes." In higher-tier cities, large communities outside traditional core business districts are forming. In lower-tier cities, while cities develop from single-core to multi-core, community stores and specialty stores are also emerging.

Fully internet-connected consumers are increasingly influenced by content and friend recommendations, leading to proactive searches and orders. The "24-30" cut-off line (24-hour delivery, 30-minute delivery) formed by new formats and home delivery services has a significant impact on urban consumers' mindsets, further promoting the "near-field" trend in retail.

Third, "Goods": Shopping categories are changing. E-commerce is gradually penetrating different categories of physical supermarkets. As category penetration increases, e-commerce is leveling or surpassing traditional supermarkets in product supply capability. Consumer upgrade demands vary significantly across different consumer groups. Consumption is becoming more differentiated and quality-oriented.

Cold Reflections on Transformation: The Overhyped "Omnichannel"

Physical retailers have actively "gone online" to increase traffic and retain customers. This has played a positive role in promoting industry development and understanding target consumers. However, based on past cases, due to category and product limitations, as well as unsatisfactory delivery experiences, most of these attempts merely redistribute existing traffic and rarely bring significant customer growth.

The main reason is that most traditional retailers can only access internal, closed customer data, which is only useful for historical consumption behavior analysis and cannot form effective predictions or guide future business. On the other hand, informatization brings retailers a large amount of data, but retailers lack the ability to integrate, analyze, draw conclusions, and apply this data commercially.

The concept of "new retail" has been hot for several years. Various attempts such as "store renovation upgrades," "self-built APP traffic," "store dining," "conveyor belts and home delivery," "electronic price tags," "scan-to-buy," and "self-checkout and face payment" have been made, but most practices have not brought substantial performance improvements to retailers.

Looking back, this is mainly due to four factors:

First, insufficient innate traffic: China's online traffic, whether in e-commerce, payment, or search, is highly concentrated. Physical retailers find it difficult to gain new customer traffic through natural store promotion and their own online channels. Without new traffic, the "new retail" model is essentially just a redistribution of existing customers.

Second, scene selection bias: To achieve the "appearance" of new retail, some retailers ignore the actual conditions of their store's trade area and create "dining," "large seafood," and "sorting" scenes, resulting in low utilization of some investments.

Third, supply chain mismatch: Retailers lack the product planning and supply chain capabilities to match "online" and "young" customers, making it impossible to compete with online channels on the same level in terms of consumer shopping experience and corporate profit margins.

Fourth, insufficient operational capability: Stores lack the operational capability for new categories and the backend online operational capability and efficiency, making it impossible to effectively enhance customer loyalty. Due to these four constraints, newly renovated stores are not profitable enough, and management cannot accept short-term losses, making it difficult for traditional large supermarkets to succeed in "new retail" attempts.

Fresh food products have high-frequency consumption and natural barriers to online operations, leading retail companies to hope to increase fresh food sales area to attract and retain customers and drive sales of non-fresh categories. However, many traditional retail companies cannot achieve breakthroughs in supply chain models and fresh food operational capabilities. Directly expanding fresh food sales area results in limited profit improvement.

Innovative Responses

Looking to the future, innovation and transformation of traditional supermarkets need to address three aspects: traffic, technology, and supply chain. Traffic breakthroughs solve customer flow and customer tier issues; technology breakthroughs solve personnel and capability issues; supply chain breakthroughs solve cost and structure issues. The right customers, the right employees, and the right profit structure are the path to healthy transformation.

Physical supermarket companies should connect with front-end traffic entrances and back-end delivery and social connections to form a complete customer journey. To this end, supermarket chains need to proactively connect to traffic entrances, including social, payment, and food delivery platforms, and continue to proactively carry out digital store transformations. As the proportion of digital customers gradually increases, supermarkets will provide customers with a more digitalized full-process shopping experience. Integration driven by large online traffic entrance companies will also increase the degree of digitalization. Connecting with modern logistics is also an important means of transformation for traditional supermarkets.

The offline retail industry has a low degree of concentration, which means offline retail companies find it difficult to lead the transformation of new retail formats in terms of business scale and financial strength. The integration of traditional supermarkets and e-commerce companies will produce multiple possible directions. For example, Tencent, JD.com, and Alibaba have more advantages in traffic, technology, data, and supply chain. How to integrate online and offline digital operational capabilities, enrich delivery experiences, and improve overall efficiency per square meter? Several successful integration areas include technology integration, supply chain integration, data integration, and management empowerment. These integrated companies will bring positive changes to the innovation of traditional supermarkets.

Facing diverse and immediate consumer demands, retailers need to build a more diverse customer touchpoint network. Through multi-format layouts, they can form a customer touchpoint network, acquire customers with different channel habits, and form a traffic acquisition network covering "traditional customers" and "new customers." By increasing information exchange and supply efficiency among retailers, brands, and manufacturers, they can meet the demand for efficient consumer response in categories and products.

Source: China Business Network (Yicai)

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