From macro data, the overall offline retail sector, especially supermarkets, remains under pressure. In Q1 2023, most listed supermarket companies saw improved net profits compared to the same period last year. This is a certain improvement compared to 2022 when over 60% of listed supermarket companies were loss-making, but the overall situation for 2023 remains not optimistic. In Q1 2023, the performance of listed supermarket companies improved significantly. Taking Yonghui Superstores as an example, in Q1 2023 it achieved operating revenue of 23.802 billion yuan, down 12.63% year-on-year; net profit attributable to shareholders was 704 million yuan, up 40.24% year-on-year. Hongqi Chain achieved revenue of 2.555 billion yuan in the same period, up 4.68% year-on-year; net profit attributable to shareholders was 141 million yuan, up 15.39% year-on-year. Meanwhile, Zhongbai Group, after large-scale store closures, saw net profit increase by 424.72% year-on-year. From the perspective of individual companies, supermarket performance recovered in Q1, but from macro data, the entire offline retail sector, especially supermarkets, remains under pressure. The National Bureau of Statistics released the latest social consumer goods retail data. In Q1 2023, total retail sales of consumer goods reached 11.49 trillion yuan, a nominal year-on-year increase of 5.8%. For offline channels, from January to March 2023, retail sales of entities above designated size increased by 3.6% year-on-year. By format, supermarkets, convenience stores, department stores, and specialty stores saw retail sales increases of 1.4%, 8.8%, 9.2%, and 5.7% respectively. Overall, the growth rate of the supermarket format is far lower than other formats. During the three years from 2020 to 2022, the supermarket format was described as being at "dusk." Although performance improved in Q1 2023, the full year remains under pressure, with many small and medium-sized supermarkets barely surviving. Over the past three years, signs of recovery have been weak. 2020 became a turning point for all industries, and the supermarket industry was no exception. Taking RT-Mart as an example, although it still ranked second on the China Supermarket Top 100 list in 2019, its parent company, Sun Art Retail Group, experienced a brief surge in stock price during the pandemic, followed by a continuous decline. Since its peak, its market value has shrunk by 62%. Yonghui Superstores, ranked third on the China Supermarket Top 100 list, experienced a very similar situation to Sun Art Retail. Its stock price peaked in April 2020 and then, like a stalled aircraft, declined sharply, with market value falling from a peak of over 100 billion yuan to only 40 billion yuan. The past three years have been turbulent for the supermarket industry. The rise and fall of major supermarket companies happened in an instant, like a real-life business drama. In the early stages of the pandemic, due to the severity of COVID-19, traditional wet markets and farmers' markets were forced to close, and large retail supermarkets took on the important task of stabilizing food supply and ensuring social stability. As a result, supermarket business actually showed new vitality and performed very well. However, as the pandemic stabilized, several companies' businesses entered a cliff-like decline. For example, Yonghui Superstores' net profit in Q1 2021 fell by 98.51% year-on-year, causing strong market shock. Faced with this situation, investment institutions began to selectively divest risk, and Sun Art Retail and Yonghui Superstores became targets for "cutting losses." Yonghui is not an isolated case; the cruel reality of market competition is evident from the revenue and net profit of supermarkets over the past three years. Among the 13 listed supermarket companies mentioned above, only Jiajiayue and Hongqi Chain achieved continuous revenue growth, and the growth rate also shrank from over 10% in the past to around 5%. In contrast, the remaining 11 companies saw varying degrees of revenue decline, with Better Life and Renrenle experiencing the most significant declines, nearly 50%. This reflects the severe impact of the pandemic on the supermarket industry, with factors such as reduced customer traffic, increased operating costs, and intensified competition leading to declining industry revenue. In terms of net profit, Hongqi Chain, Sanjiang Shopping, and New Huadu maintained stable profitability during this period. Most of the remaining supermarket companies suffered declines in net profit, with losses being common. Among them, Yonghui Superstores and Better Life saw the most prominent declines in net profit. This also reveals the profitability pressure faced by the supermarket industry during the pandemic, with factors such as increased product loss, difficulties in online business, and store closures leading to declining net profit. In summary, over the past three years, the competitive environment for the supermarket format has become increasingly fierce, and the operating conditions of listed companies have been difficult, with a worrying situation and weak signs of recovery. Influencing Factors Behind the overall pressure on supermarket performance, in addition to their own reasons, there are some external factors driven by general trends. From the financial reports of various companies, factors such as weak consumption, intensified competitive pressure, impact from other formats, and rising costs have been widely mentioned over the past three years. First, the impact of the macro economy. In the past three years, the significant weakening of consumption has had a considerable impact on the economy, with total retail sales of consumer goods shrinking after 2020. Specifically, in 2020, total retail sales of consumer goods were 39.1981 trillion yuan, down 3.9% from the previous year; in 2021, total retail sales of consumer goods reached 44.0823 trillion yuan, up 12.5% year-on-year; but in 2022, total retail sales of consumer goods slightly decreased to 43.9733 trillion yuan, down 0.2% year-on-year. These data confirm the volatility of the consumer market, which directly affected the performance of retail industries such as supermarkets. Additionally, by product category, only essential goods such as grain, oil, food, beverages, and pharmaceuticals maintained sales growth, while sales of other categories continued to decline. Despite various policies aimed at boosting consumption, the growth in consumption still lags behind the overall socio-economic development. If there were any illusions of "revenge spending," the latest data have dealt a heavy blow. In April this year, total retail sales of consumer goods reached 3.491 trillion yuan, up 18.4% year-on-year. However, this data hides the base effect of the poor data from the same period last year; compared with 2021 data, April's total retail sales actually increased by only 5.3% year-on-year. Combined with the impact of price factors, the performance of the consumer market is not optimistic. A chain reaction affects the whole; with overall weak consumption, supermarkets naturally cannot have an easy time. Although the proportion of online retail sales is increasing, before 2020, the supermarket format did not feel excessive concern. Fresh supermarkets have been able to maintain self-sufficiency under the long-term impact of e-commerce, and even have the capacity to expand and develop other formats. The reason is that fresh products are often difficult to sell entirely online. Whether it is the aggressively expanding Hema or the hidden front warehouses, behind the apparent land grabbing, they all struggle to solve the problems of deep supply chain and distribution costs. Therefore, when these formats impacted, supermarkets did not feel an urgent threat and were still able to stably control the market. The fundamental reason behind this is the special nature of the fresh category; the core of its strategy is not to rapidly expand scale to control market share, but how to improve operational efficiency and profitability in the current market environment. In other words, the essence of the fresh business is to find more efficient operating models and higher profit margins from existing market share, such as optimizing supply chain management to reduce costs and improving sales strategies to increase gross margins. Therefore, although traditional supermarkets remained stable in dealing with "home delivery business," the sudden rise of community group buying during the pandemic posed a substantial threat. Due to the pandemic, offline retail formats were largely shut down. Although supermarkets were the most important format for ensuring residents' consumption, the "home delivery business" was wildly popularized and educated during the pandemic, saving front warehouses from dire straits, listing them on the stock market, and intensifying the frenzy of the community group buying business model. After gaining consumer recognition, community group buying told investors a new story of "bypassing intermediate links and reshaping the circulation of goods," which is exactly what fresh supermarkets pursue. Similar to the logic of fresh supermarkets, community group buying first attracts consumers with popular fresh products, then gradually introduces full categories to increase profits. As the variety of products gradually increases, the platform will be able to fully control the value chain, thereby completely changing the long-standing zero-supply relationship in the market. Fortunately, last year the "national team" stepped in to rescue, which faded the craze of community group buying and ended this war. Nevertheless, the gathered group leaders gradually developed into forms such as scattered groups, group wholesale, and group stores, which remain active in lower-tier cities, posing an "invisible" threat to supermarkets. Finally, cost increases are also a major source of pressure. In recent years, physical retail has had to cope with continuous increases in rent, labor, utilities, promotions, and other expenses, which undoubtedly raises the cost of store operations. In addition, affected by the dual impact of the pandemic and the economic environment, the cost of opening new stores has also increased accordingly. Not to mention the additional costs of epidemic prevention, such as extra manpower and materials, due to the normalization of the pandemic. In general, physical retail stores face the dilemma of rising hard costs. Of course, in addition to these common issues, major companies also have their own challenges. For example, Yonghui's long-term equity investment impairment loss reached 326 million yuan, and the fair value of financial assets decreased by 283 million yuan from the beginning of the year; Better Life closed 52 stores in 2021, incurring significant closure costs; Jiajiayue incurred losses in the initial period of expanding into new regions and new stores in the past two years due to relatively low gross margins and high operating costs. These external threats and internal difficulties are gradually pushing the supermarket format to a "turning point." Supermarket Counterattack? It is hard to say where the key node of the traditional supermarket counterattack is. It may be hidden in the contradictory behavior of claiming "online business is useless" while actively laying out online operations; it may also be in the innovative actions of closing hypermarkets that have been open for decades and turning to small formats and membership stores; or in efforts to build supply chains and product selection teams to meet challenges from other formats. In short, traditional supermarkets are learning from the "younger generation" to respond to challenges and declining performance. Taking home delivery business as an example, traditional supermarkets' offline fresh products are sold in bulk; once transferred online, they need to be weighed and repackaged, which often makes it difficult to meet both online and offline demand during peak periods. In addition, when integrating offline supermarket POS systems and inventory management systems into home delivery business, it is necessary to synchronize online and offline inventory to the online trading system, making simultaneous management of online and offline operations a daunting task. Many traditional supermarkets are helpless in the face of these problems, spending a lot of cost on learning and trial and error. Yonghui even spent 480 million yuan on R&D expenses in 2022 alone to lay out digitalization. Those supermarkets without sufficient strength can only "painfully wait for lease contracts to expire," and consumers lament that "supermarkets at their doorstep are disappearing one by one." In the past three years, traditional supermarkets have closed many stores. Taking 2022 as an example, according to statistics from the Lianshang.com Retail Research Center, 12 listed supermarket companies opened 481 new stores in 2022 but closed 646 stores; as of the end of 2022, the total number of stores of these 12 listed supermarket companies was 9,043. The unified explanation behind this is that hypermarkets have been loss-making for a long time and cannot reverse the situation, so they decided to close stores. The purpose of closing some hypermarkets is to further optimize the store structure and improve overall operational quality, which is beneficial to reducing the impact of loss-making stores on the company's long-term development. Closing stores is also the last resort. Due to changes in consumer habits and declining customer traffic in traditional supermarkets, even distributors no longer favor them. In Yonghui's 2022 financial report, there is an interesting phenomenon: among the top ten revenue-generating stores, most are located outside the Fifth Ring Road in Beijing, and the ninth-ranked store is in a county in Guizhou. It is reported that Yonghui will focus on laying out lower-tier markets in the future. The reason behind this is to "avoid" competition with front warehouses and fresh e-commerce, and also because rent and labor costs are relatively low. For national supermarkets like Yonghui, the fresh supply chain is an eternal moat. Only by finding ways to lower upstream costs, through equity participation and self-built distribution centers, can they minimize various losses in the fresh segment. Then use low prices to attract more people to buy fresh products at Yonghui, and larger sales volume will further compress upstream costs. This operational logic is very similar to the development story that community group buying showed to the capital market. Therefore, in the past logic, continuing to open stores, increasing scale, attracting more consumers, and further compressing upstream costs were one of the survival and development strategies for national traditional supermarket companies represented by Yonghui. However, times have changed. Compared with making revenue scale and data bigger, the key is how to achieve positive net profit. Returning to the essence of business, the biggest challenge does not come from the market competition pattern or the macroeconomic environment, but from the gradual shift in the consumption patterns of the new generation of consumers. Regardless of the city level where the store is located, only when its business model conforms to consumption habits and adapts to changes in consumer behavior can it have lasting vitality. This is undoubtedly the biggest challenge facing the entire retail industry and a problem that all retail enterprises must jointly address.