Metro is accelerating the conversion of its hypermarkets back into warehouse club stores. With an 8,000-square-meter footprint and a three-story design, the store will sell not only fresh produce and daily groceries but also iPhones and luxury goods, Metro promoter Xiao Qin tells us as we walk. To get us to sign up for a Metro membership card at this store, which is still under renovation, Xiao Qin gives us a tour of the "members-only" store, and by the time we finish, it's past noon. The protective glass stacked at the entrance for renovation reflects the light, but Xiao Qin is worried—she hasn't signed up a new member in three days. She has been transferred from Guiyang to Beijing and then to Wuhan, moving across three cities, all to promote Metro's membership cards. Photo by Jiou Pai "Sam's Club is a foreign company, but after Metro was acquired by domestic Wumart, it became a Chinese company. Both are membership-based stores, so why don't people support Metro?" Xiao Qin starts introducing Metro's background to me right after I get off the subway and she stops me. Clearly, Sam's Club, which also operates a warehouse club model, is more popular than Metro, which requires promoters to work hard to recruit members. Metro is undergoing a massive renovation, while the Walmart Xudong store, just two subway stops away, remains unchanged. Like Carrefour, Walmart's hypermarket still has plenty of promotional displays, with phrases like "amazing promotional prices" that are outdated but still attract a few shoppers. Photo by Jiou Pai If you pause for a moment, a middle-aged woman next to the display will seize the opportunity to enthusiastically introduce today's deals, saying they're only available for a limited time. On a Thursday afternoon at the Walmart store, even though it's located at a subway entrance with heavy foot traffic, you can see at a glance that there are more salespeople in uniforms and badges than customers. Recently, news spread that Walmart closed three stores in one day, and at the end of last month, Carrefour closed a store in Zhongguancun, Beijing, that had been operating for 18 years. In 2012, the O2O model emerged, and online shopping became the mainstream shopping method. From large supermarkets and hypermarkets to small convenience stores and even mom-and-pop shops, all have been continuously influenced by the internet. The decline of hypermarkets is a special mark of the times, but in the supermarket industry, there is no distinction between old and new. Traditional supermarkets urgently need to transform, and the outdated business model of hypermarkets needs to be refreshed. Amid these changes, which model is better, and who has the chance to enter the game? The Decline of Hypermarkets, Sam's Club Saves Walmart Walmart and Carrefour are mired in store closures and sell-offs; local supermarket chains Renrenle and Lianhua Supermarket have started closing stores; Yonghui Superstores, Sichuan Hongqi, and Hubei Zhongbai are experiencing declining performance. From hypermarkets to small and medium-sized stores, the industry's decline is hard to hide, and it clearly signals that traditional supermarkets seem to have gradually completed their historical mission. The chill doesn't come from an overnight autumn; store closures, sell-offs, business divestitures... these actions have been frequently reported by traditional supermarkets of various sizes in recent years, and now they hardly stir the industry's nerves. Traditional supermarkets, which rely on low gross margins and economies of scale, have seen their supply chains disrupted by the dual impact of e-commerce and the pandemic. Traditional supermarkets lacking self-sustaining ability are entering a midlife crisis. However, a lean camel is still bigger than a horse; traditional supermarkets still have time to react. Walmart entered China in 1996 and over more than two decades has gone through rapid expansion, cautious contraction, and now large-scale store closures. The golden age of hypermarkets is over, but the large traditional hypermarkets have always been prepared for adversity, and Walmart has a backup plan. Photo by Jiou Pai For Walmart, which has multiple business formats, while its main hypermarket business is under pressure, it has taken the lead in holding onto the membership store "trump card" to save itself, bringing Walmart China back from winter to spring. Although hypermarkets remain Walmart's main business, the steadily growing Sam's Club model has become a mainstay amid overall performance decline. In the fourth quarter of fiscal 2022, Sam's Club members helped Walmart's overall financial report turn from loss to profit thanks to the new membership model. In fact, before the success of Sam's Club, the membership model had a long period of acclimatization in China. Metro, one of the pioneers of paid membership warehouse clubs in China, entered China in 1995 and has repeatedly wavered between the "hypermarket-membership store" model. In September 2009, Beijing Metro began to relax the "members-only" entry threshold; in December, Beijing Metro quietly canceled temporary membership cards; in 2010, it directly canceled the membership system and transformed into a hypermarket. By 2019, Metro, which had gradually lost its presence, had its China business acquired by local retail company Wumart. After being acquired, Metro began the transformation from traditional hypermarkets back to warehouse club stores. Photo by Jiou Pai "Beijing has basically completed the renovation, and several stores in Wuhan are also undergoing renovation one after another," says promoter Xiao Qin, who has been in Wuhan for two weeks, fully devoted to Metro's promotional work. But from her disappointed tone, I can sense the lack of progress. Nearly 60% of the products are imported from abroad, and there are also many private-label products. In Xiao Qin's view, Metro's average consumption level is not yet suitable for Wuhan, so signing up for a membership card is quite difficult. In Beijing, however, just mentioning it a bit is enough for people to sign up voluntarily. Photo by Jiou Pai Re-embracing the membership system and renovating hypermarkets, Metro has turned back on the road to warehouse club stores. The result of this repeated back-and-forth is unknown to Xiao Qin, but it is well known that it is Sam's Club that truly popularized the warehouse club model in China. This September, the Metro store at Wuhan Hongshan Mall will complete its membership store renovation and open first, with several other stores also accelerating their renovations. Meanwhile, Carrefour, acquired by Suning, is not to be outdone. In October last year, it opened its first membership store in Shanghai, but then got into a "war of words" with Sam's Club over "either-or" choices, adding fuel to the already heated warehouse club track. Foreign brands are accelerating their layout, and 2021 is the "first year of warehouse club stores" for local leading supermarkets, with Hema and Yonghui also entering this field. In 2021, Hema announced that Hema X Membership Store would welcome four new stores, using warehouse-style shelves, directly benchmarking Costco and Sam's Club. Unlike Sam's Club's membership model, Yonghui has opened warehouse stores with a different logic, focusing on the concept of "everyday low prices," which has also been dubbed "Yonghui wholesale stores" by outsiders. The golden age of hypermarkets may be drawing to a close amid the sound of store closures, but some say that the hypermarket model may coexist with the membership model in the future. Currently, hypermarket closures indicate that the supermarket industry is entering a reshuffling period. Before a more mature business model emerges, traditional supermarkets turning to membership warehouse models is an inevitable trend. New retail has brought new species, giving birth to new business models like community fresh food supermarkets. New retail companies such as Dingdong Maicai, Pupun Supermarket, and Miss Fresh are making aggressive moves in the industry, and the "front warehouse" is a warehousing and distribution model that cannot be ignored. "Covering the last mile," the front warehouse is a core element of warehouse stores, and some of its concepts are being transferred to smaller mini-store formats. After a year of trial and error, mini stores are ebbing from the race A warehouse club like Sam's Club or Costco, covering about 20,000 square meters, only requires a regular membership card worth 260 yuan to bring the whole family and enjoy a supermarket experience that combines warehousing, retail, and leisure. But creating this seemingly simple consumer experience is not easy. For supermarket brands without experience, if they dive into membership warehouse stores without any preparation, the challenges they face are far more than just product strength. How to position users and how to build brand loyalty are the lifelines related to "renewals" and are all tests. As the hypermarket model declines and traditional supermarkets collectively turn to warehouse club stores, in this "chaotic" state of the industry, becoming "smaller" has become another choice. In 2019, Yonghui opened 573 mini stores in one year; Hema stepped down from the altar of new retail, and its new business formats collectively developed "small" (except for the shopping mall-style Hema Li), with Hema mini branching out on street corners; RT-Mart also increased its "miniaturization" retail layout, targeting the last mile, launching RT-Mart mini, and opening 24 stores in 2020. Image/Internet "The future of retail is online, miniaturized, convenient, and community-oriented," RT-Mart CEO Lin Xiaohai previously expressed support for the "miniaturization" transformation trend. Communities and suburban counties quickly became battlegrounds for many retailers. Hema opened mini stores in suburbs and county towns, streamlining its supply chain, focusing on bulk non-standard products, abandoning the eye-catching and traffic-generating large seafood, retaining only a portion of low-priced, easy-to-cook live seafood, while increasing the proportion of ready-to-eat items like staples and cooked food. Unlike Hema Fresh, Hema mini stores have a smaller footprint, making the picking route shorter, so there are no hanging chains, and one person can complete the entire store's picking. Yonghui mini is different, positioned as a community fresh food store, targeting community residents' consumption, as "Yonghui at your doorstep," with an average operating area of about 516 square meters. Relying on Yonghui's huge supply chain, fresh products can account for nearly 60%; Xiaorunfa overlaps with Yonghui mini in positioning, with similar area, also focusing on new retail community fresh food supermarkets, with fresh and daily products contributing up to about 75% of performance. It was expected that mini stores would have high sales per square meter, low costs, flexible site selection, strong replicability, and reduce inventory and warehousing costs, allowing inventory to spend more time on the road, thus shortening the payback period. But shortly after opening, how these small stores would recoup their investment became a problem, and achieving scale profitability is still a long way off. On the mini store path, Yonghui has borne the highest trial-and-error costs. After opening nearly 600 mini stores in one year, in the first half of the following year, Yonghui's financial report showed a loss of 130 million yuan and closed 88 stores to stop losses. By the end of 2020, Yonghui mini stores had shrunk from 573 in 2019 to 156. Image/Internet Hema, which has always been in the spotlight, also made a lot of noise but produced little. In July 2020, a person in charge of the Hema Mini project publicly stated that after one year of exploration, Hema Mini had achieved full profitability. However, due to an excessive number of SKUs and pricing that didn't match the location, Hema mini stores couldn't achieve an effective balance between customer traffic and costs, and store openings slowed significantly. The goal of opening 100 Hema mini stores in 2020 was only met with 14 by the end of the year. These supermarkets opened at the doorstep, initially positioned as "small hypermarkets," ultimately only briefly filled the market gap left by the retreat of hypermarkets. Yonghui mini suffered a major defeat, Hema mini didn't amount to much, Xiaorunfa was barely satisfactory, and the mini store race came on strong but receded fiercely. A practitioner with years of deep experience in the retail industry also said, "Small stores, like hypermarkets and convenience stores, are separate business formats. If you want to make them work, it's quite difficult, and making a profit from them is even harder." Warehouse club stores are hard to replicate, and mini store operating models haven't been proven and have become money burners. The market gap left by hypermarkets cannot be filled by the aggressive mini stores. If small stores don't work, will discount stores be the future? Hema's claim that Mini stores are the best business model was a misjudgment. RT-Mart, known for its zero store closure rate, has become cautious about the development of Xiaorunfa. After two years of rapid expansion, the enthusiasm for making supermarkets smaller has cooled, and the mini store race has been paused. Always trying, always correcting, the transformation trend has shifted to "discount stores." At the end of November last year, Hema opened its first Hema Fresh Outlet store in Shanghai, with discounted fresh food and frozen products as the main selling points. "Front-runner and trial-and-error player" Yonghui started a new warehouse model in 2021, and by the end of September last year, it had opened 55 "civilian warehouse stores" focusing on daily necessities. Large packaging, bulk sales, but also single-item purchases, Yonghui's warehouse stores have shifted from traditional retail to wholesale and retail, trying to leave consumers with the impression of "everyday low prices." Suning's discount supermarket opened around the Spring Festival and plans to open 100 stores in 2022. In addition to Suning, Jiajiayue, Huaguan, and Renrenle have all rushed into discount stores. Image/Internet Whether it's Hema's Outlet store, Yonghui's civilian warehouse stores, or the discount stores opened by various local supermarkets, "low price" is the core selling point, but is cheap really the essence of discount stores? Looking at the successful discount store ALDI, the core of discount stores is the low comprehensive cost brought by streamlined SKUs, large-scale procurement, and efficient inventory turnover. This is similar to the logic of membership stores and is also the reason why consumers can see the warehouse-style layout in stores. Like warehouse club stores, is the spring for discount stores coming? There's nothing new under the sun. Discount stores are not a new retail format. Besides ALDI, there are many foreign discount supermarkets that have entered China, but due to the influence of domestic supply chains and product structures, they have all failed to adapt and disappeared. In contrast, in China, treating discount stores as a processor for excess inventory is a common mistake. Carrefour tried this approach in 2017 and stopped the following year. Hema Fresh Outlet seems to have a similar idea. Hema CEO Hou Yi once explained to the media that the purpose of opening fresh food outlet stores is to help Hema reduce losses in stores and processing centers, so prices are basically less than half of those in surrounding fresh food supermarkets. Image/Internet From this perspective, Yonghui, with its deep supply chain, may have a better chance of winning this competition. According to Yonghui Superstores' 2021 semi-annual report, daily customer traffic of 6,181 person-times and sales of 150 million yuan both grew at around 130%. The warehouse stores seem to be showing initial results. However, a reporter from "Red Weekly" found that in the same time period, whether in terms of customer traffic, sales, or average transaction value, Yonghui warehouse stores were lower than Yonghui's hypermarkets. At the same time, industry insiders say that Yonghui warehouse stores are still following the old path of attracting customers with low prices. The decline of hypermarkets is a common dilemma faced by supermarkets both at home and abroad. Transformation is unstoppable. Walmart temporarily found Sam's Club, but relying on its own strength, the industry's decline is hard to reverse. Recently, Carrefour, acquired by Suning, has again heard news of store closures. The industry is silently declining as large traditional hypermarkets close one by one. The hypermarket model needs to be refreshed. This is a challenge for Walmart, and equally for domestic Yonghui, which is in a midlife crisis, and the new-generation Hema. But challenges are also opportunities. **Final Thoughts: The supermarket industry has remained unchanged for decades, but suddenly changed overnight, and the industry is entering a reshuffling period. Sam's Club and Costco hold the trump card of warehouse membership and stay at the table. Local supermarkets want to follow suit, but the model is easy to copy, yet difficult to paste. Is making stores smaller the future of retail? Everyone is calling for online, miniaturized, convenient, and community-oriented approaches. In one year, Yonghui took the lead and opened nearly 600 mini stores, but in less than a year, it closed down to just over a hundred, leaving billions in losses on the books. Mini stores came on strong and left quickly, and soon the trend shifted to discount stores, which are harder to crack. Yonghui opened dozens of "non-membership warehouse stores," Hema opened fresh food outlet stores, and a host of local supermarkets joined the trial. For this not-so-new retail format, whether at home or abroad, few have succeeded. Whether to follow the example of predecessor ALDI or have a newer understanding remains unknown. Source: Jiou Pai (ID: jioupai) References:

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