---
title: "Shadows Loom Over Supermarkets"
description: "Traditional supermarket channels are facing increasingly severe diversion of customers and sales. Especially this year, supermarkets have truly experienced what it means to be in an 'era of stock': from front warehouses and online supermarkets that continuously expand categories, which are already 'invisible killers', to the expanding membership stores that pose the biggest potential threat. Additionally, new small-format stores focusing on vertical categories, mostly dealing in fresh produce and FMCG, are cutting into supermarkets' core strengths, further eroding their sales. Market concerns over supermarket performance have amplified, with talk of a 'wave of closures' rising and falling, and the market's attitude towards supermarket stocks seems overly pessimistic."
author: "十里"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2023-11-15"
language: "en"
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---

# Shadows Loom Over Supermarkets

> Traditional supermarket channels are facing increasingly severe diversion of customers and sales. Especially this year, supermarkets have truly experienced what it means to be in an 'era of stock': from front warehouses and online supermarkets that continuously expand categories, which are already 'invisible killers', to the expanding membership stores that pose the biggest potential threat. Additionally, new small-format stores focusing on vertical categories, mostly dealing in fresh produce and FMCG, are cutting into supermarkets' core strengths, further eroding their sales. Market concerns over supermarket performance have amplified, with talk of a 'wave of closures' rising and falling, and the market's attitude towards supermarket stocks seems overly pessimistic.

**Traditional supermarket channels are facing increasingly severe diversion of customers and sales.**
**Especially this year, supermarkets have truly felt what it means to be in an 'era of stock':**
From front warehouses and online supermarkets that continuously expand categories, which have long been 'invisible killers', to the expanding membership stores that pose the biggest potential threat. Additionally, new small-format stores focusing on vertical categories, mostly dealing in fresh produce and FMCG, are cutting into supermarkets' core strengths, targeting their strong categories, and repeatedly eroding supermarket sales.
Market concerns over supermarket performance have also amplified, with talk of a 'wave of closures' rising and falling, and the market's attitude towards supermarket stocks seems overly pessimistic.
Stocks of companies like Jiajiayue and Bubugao have been declining since the second half of the year. Recently, listed retail companies released their third-quarter financial reports, and indeed most are experiencing declines in revenue or net profit.
**Competitors are becoming stronger and more numerous, diversion is increasingly severe, casting a shadow over the future of traditional supermarkets.**
**Supermarkets' Q3 revenue and net profit decline**
From a macro perspective, the third quarter 'results' exceeded expectations.
In the first three quarters, total retail sales of consumer goods reached 34.2107 trillion yuan, a year-on-year increase of 6.8%.
By retail format, from January to September, retail sales of convenience stores, specialty stores, brand专卖 stores, and department stores above designated size increased by 7.5%, 4.3%, 3.1%, and 7.7% year-on-year respectively, while supermarket retail sales decreased by 0.4% year-on-year. **Amid the overall stabilization of social consumption recovery, supermarkets are the only retail format to see a decline.**
Looking specifically at the financial data of listed supermarkets, only Jiajiayue saw a year-on-year revenue increase of 4.46% in the third quarter, with most experiencing revenue declines. Renrenle saw a sharp decline of 35.19%, while Liqun and Shunkelong declined by around 5%.
In terms of net profit, only Jiajiayue, Hongqi Chain, and Liqun were profitable, while the rest were in losses. 'Congratulations' are in order as the overall supermarket performance narrowed losses in the third quarter, which is also one of the 'improving' trends.
While various industries enter a phase of recovery and growth, supermarkets see declining revenue and narrowing but still negative profit margins. Facing this situation of reduced revenue and increased profit, it is not entirely possible to infer that business capabilities have improved.
**Analyzing the specific reasons: First, looking back at the same period last year, many supermarkets became guarantee supply enterprises due to the pandemic, and despite facing insufficient supply of goods, their revenue maintained growth.** However, as the pandemic risk decreased, this temporary advantage disappeared, and supermarkets returned to normal market competition, leading to revenue declines.
**Second, the three pillars of operating profit are core profit, government subsidies, and miscellaneous income. Besides improvements in gross margin, there is also a reduction in period expenses.** To cut costs, many supermarkets closed stores. Financial reports show that Yonghui closed 4 stores; Jiajiayue closed 16 stores, which inevitably directly impacts revenue.
With the closure of a large number of stores, total costs in areas such as rent and labor have also been reduced. In financial reports, despite the overall revenue decline, net losses have relatively narrowed.
Furthermore, the increase in net profit is influenced by the Consumer Price Index (CPI) and the comprehensive effect of companies vigorously developing online business and expanding new revenue channels.
**Third, the decline in revenue is due to severe diversion from multiple channels.**
"The main issue is that foot traffic isn't increasing. The third quarter is supposed to be the peak season, with summer vacation and before the double festivals, but this year's overall business still isn't picking up," said a supermarket executive. The rise of vertical discount formats, offline wet markets, e-commerce, community group buying, and other formats have all had a significant impact on supermarket stores. Currently, categories such as dairy, meat, and snacks are all declining.
Previously, articles have reported that in recent years, distributors have been sinking down and entering retail market competition. From alcohol, dairy products to snack stores, standardized product retailers are increasing.
Compared to supermarkets, vertical community stores have much lower operating costs and can provide consumers with more vertical category products. Combined with the decline of the supermarket industry, this undoubtedly has a certain impact on their performance and foot traffic.
After all, the categories in vertical community stores are still mainly fresh produce, dairy, and snacks, which are exactly the strong categories of supermarkets, so sales diversion is inevitable.
**Macro factors**
Let's talk about consumption.
In September, total retail sales of consumer goods reached 3.9826 trillion yuan, a year-on-year increase of 5.5%. From January to September, total retail sales of consumer goods reached 34.2107 trillion yuan, a year-on-year increase of 6.8%.
Consumption remains the most important force for stable growth this year.
However, further interpretation of consumption, the latest released price data gives complex signals. The year-on-year CPI increase in September returned to 0, reflecting that the low price level did not rise as expected. If prices don't rise, the market won't see inflation, and such a situation may prompt consumers to prefer saving over spending.
**Insufficient consumption naturally makes retail formats suffer.**
At the same time, from January to September, the growth of the catering industry was close to 20%. Catering is the fastest-growing and also the best-rebounding industry, and this growth has to some extent adversely affected the supermarket industry.
There has always been a 'seesaw' effect between catering and supermarkets. When the catering industry is restricted, supermarkets gain growth, but with the recovery of catering and the evolution of consumer demand, the performance of supermarkets has been significantly impacted.
Specifically, in the first three quarters, the national consumer price index (CPI) rose only 0.4% year-on-year, while food prices generally rose.
Among them, for food, tobacco, and alcohol prices, pork prices fell 6.8%, fresh vegetable prices fell 3.1%, grain prices rose 1.2%, and fresh fruit prices rose 6.0%. Core CPI, excluding food and energy prices, rose 0.7% year-on-year. In September, the national consumer price index was flat year-on-year and rose 0.2% month-on-month.
"Some people may think that the decline in meat and vegetable prices is good for residents, but it doesn't stimulate supermarket performance much," said the regional supermarket executive mentioned above.
Since the beginning of this year, pork prices have continued to fall, returning to 2017 levels. But price declines do not necessarily lead to increased sales; consumers' willingness to buy may decrease, affecting supermarket revenue.
In the context of economic downturn, the phenomenon of consumption downgrading may not directly reflect consumers' purchasing power, but rather their conservative expectations about the economic outlook driving behavioral changes, which in turn affects supermarket performance. As a barometer of people's livelihood, the supermarket industry is particularly sensitive to such changes.
"In the first three quarters, it wasn't very obvious, but by October, supermarket performance worsened, which can be described as a cliff-like decline," said an industry insider. "In October, especially in this transitional period, greenhouse vegetables haven't come up yet, and open-air vegetables have basically gone down. This is the time when the entire store needs to optimize the quality and freshness of vegetables."
**There is a saying: In peak season, focus on sales; in off-season, focus on management.**
"In October, most will 'lie flat', tidy up the store internally, and prepare for the peak season in December and January," said the insider.
**The future situation is more severe**
**"We didn't see the expected recovery; instead, the environment has become more difficult," said the retail insider.**
He believes that supermarkets have accepted this fact, but the scale is too large, and turning around takes time. In the second half of this year, it can be clearly seen that most supermarket companies are making changes.
**First, format innovation, by upgrading past stores and formats to attract and retain consumers.**
Under performance pressure, major supermarket companies have adjusted their development strategies, shifting from pursuing scale to focusing on operational quality and profitability. On one hand, they are more cautious about opening new stores, even not opening at all; on the other hand, they are optimizing existing stores, closing long-term loss-making stores to stop losses in time.
**Second, since the beginning of this year, major supermarkets across the country have focused on rounds of deep 'self-rescue'.**
First, to counter discount snack stores, they learn from discount stores' categories and prices, leveraging their supply chain advantages to deepen categories. Yonghui has opened 'store-in-store' models, making changes in product display and store layout, planning more convenient product areas, including local specialty product areas, new product incubation areas, and discount areas; Hema stores have directly opened 'offline exclusive price' areas, concentrating low-priced products.
Not long ago, Jiajiayue closed 16 traditional loss-making stores and directly opened 31 new community stores, laying out discount snack stores; Zhongbai Group opened 'Xiaobai Snack Shop' discount stores, which are still in the trial exploration stage.
Behind the large supermarket chains shouting 'low prices' is not just the start of a price war, but also defending their position in the face of a new economic cycle and consumption environment.
Perhaps price wars can bring short-term foot traffic and 'recovery' to supermarkets, but to have the confidence to fight long-term, they must rely on strength and return to operations.
**First, adjust product structure to improve overall gross margin;**
**Second, strengthen refined management, optimize some stores, reduce costs and increase efficiency;**
**Third, build private domain traffic, develop business income beyond offline stores, such as online platforms, export agency, etc., so that rent and labor costs can be invested in these, opening new channels.**
Overall, as of now this year, the performance of traditional supermarkets has generally been unsatisfactory. Only a few companies have turned losses into profits through business improvements and innovations, but how long this profitability can last is unknown.
Facing the upcoming 'off-season', supermarkets may face a colder environment than in previous years. How to break free from the shackles of diversion is a required course.


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