Tightening hypermarkets, opening new formats. Recently, netizens discovered that a "women's clothing size suggestion chart" in Auchan stores showed size L corresponding to "rotten," XL to "terribly rotten," and XXL to "completely rotten." The topic quickly trended on Weibo, with over 270 million reads. Despite an official apology, netizens were not appeased. Auchan faced accusations of age, body, and gender discrimination, potentially losing a large number of female consumers. We cannot verify whether Auchan intended to gain attention through this marketing stunt, but it was clearly unwise. As public awareness of brand image grows, this incident has left an indelible stain on Auchan. Moreover, the apologizing Auchan's mistakes go beyond the poster. In fact, with the rise of new consumption trends, the former retail giant seems increasingly irrelevant. Where exactly is the problem? -01- From "No Store Closed in 19 Years" to "Losing to the Times"? Auchan officially entered China in 1997, later than Walmart and Carrefour, but quickly became a dark horse by 2010. At that time, foreign companies like Walmart and Carrefour focused on first- and second-tier cities, aiming to capitalize on high foot traffic and income. Auchan, however, targeted third- and fourth-tier cities, adopting a "rural encirclement of the cities" strategy. Moreover, recognizing that consumers in lower-tier cities were less brand-sensitive than those in first-tier cities, Auchan lowered prices through direct sourcing. To control prices, Auchan even set up a dedicated "price-check team" to ensure its prices were always lower than competitors. As Pinduoduo's success shows, consumers in lower-tier markets are price-sensitive. Auchan's grassroots strategy worked. In 2010, Auchan achieved revenue of 40.4 billion RMB, surpassing Walmart and Carrefour to become the champion of China's retail department store industry. "As long as we open a store, we ensure it maximizes market value in that region." Under founder Huang Mingduan's almost stubborn insistence, Auchan built a myth envied by peers: "never closing a store." But Auchan's reign on the pedestal was short-lived, as a new force emerged online: e-commerce. Impacted by Alibaba and JD.com, from 2013, Auchan's offline customers were gradually diverted to online retail. Meanwhile, rising store operating and labor costs became new hidden dangers. (Image source: Auchan 2013 annual results announcement) Thus, Huang Mingduan, initially skeptical of money-burning e-commerce, began to waver. That year, a slow-to-react Auchan launched its own e-commerce platform, Feiniu.com, finally embracing the internet. But clearly, to compete with Alibaba and JD.com, which had long been in e-commerce, this "cow" was too young. From its official operation in 2014 to 2017, Feiniu.com suffered losses almost every year. With offline retail declining and online e-commerce unable to catch up with pioneers, in 2017, after consecutive losses, Auchan met its new fate: being acquired by Alibaba. The same year, news broke that Auchan closed a store in Weifang, Shandong. Thus, the myth of "no store closed in 19 years" was shattered. After the acquisition, founder Huang Mingduan's quote, "I defeated all competitors but lost to the times," went viral. But did Auchan really lose to the times? The answer is: yes, but not entirely. The impact of e-commerce on offline supermarkets affected not only Auchan; Walmart, Carrefour, Yonghui, and others all faced declining growth rates. From this perspective, Auchan's decline is indeed related to the times. But the bigger reason lies with Auchan itself. It not only failed to recognize the e-commerce trend in time but also did not react early to the new retail era and embrace transformation. A positive example is Yonghui. In early 2017, Yonghui launched a new format, "Super Species," combining fresh e-commerce and retail, and quickly expanded. By the end of 2017, while Auchan, after being acquired by Alibaba, was lamenting being abandoned by the times, Yonghui's Super Species had added 27 stores in seven major cities including Shanghai, Fuzhou, Beijing, Shenzhen, Nanjing, Xiamen, and Chengdu. That year, Yonghui Group's revenue reached 58.591 billion RMB, a year-on-year increase of 19%, 3 percentage points higher than in 2016, and "Super Species" became a notable new retail force after Hema Fresh. (Data source: Wind financial terminal) Currently, although Auchan has Alibaba's support in cloud computing, data storage, and warehousing logistics, and its digital transformation has yielded results, one step slow means every step slow. As Tencent, JD.com, Suning, and other giants successively increase their investment in large supermarkets, Auchan's competitive advantage is clearly not what it used to be. More noteworthy is Yonghui Superstores. According to Yonghui's 2020 interim report, the company achieved operating revenue of 50.516 billion RMB in the first half of the year, a year-on-year increase of 22.68%. According to Auchan's parent company Sun Art Retail Group's interim results for 2020 released in August, Sun Art achieved revenue of 53.170 billion RMB in the first half, a year-on-year increase of only 5.1%. Clearly, although Auchan, backed by Alibaba, is not yet falling behind in the new era, given the significant difference in growth rates, compared with Yonghui, which embraced new retail early, Auchan is struggling more on the new track. -02- The Fourth Consumption Era Approaches: Is This the Future for Auchan and Others? A bigger challenge comes from the difficult survival environment of hypermarkets. According to the latest report from Kantar Worldpanel, compared with last year, small supermarkets continued to grow at a high rate of 7.3% in sales, while hypermarkets suffered a serious challenge, with sales declining by 7.1% year-on-year. The market's preference for different retail formats reflects changes in overall social consumption demand. In the book "The Fourth Consumption Era," Japanese consumption researcher Mr. Miura Nobuaki divided Japan's consumption eras into four stages: First Consumption Era (1912-1941): Westernized consumption tendencies of the wealthy class centered in large cities; Second Consumption Era (1945-1974): Mainly characterized by post-war population migration to the Tokyo metropolitan area, and the rise of family consumption due to "settling down." Third Consumption Era (1975-2004): Consumption upgraded from material to service consumption, family consumption shifted to individual consumption, and social consumption showed characteristics of personalization and diversification. Fourth Consumption Era (2005-present): Consumers are unwilling to pay excessive brand premiums and focus on consumption experience, characterized by de-branded rational consumption. Given the differences in national conditions between China and Japan, and the fact that Japan's wealth gap was much smaller than China's during the same period, China has not entered the fourth consumption era. More precisely, China is in a transition period from the third to the fourth consumption era. In the third consumption era, characterized by "personalized and diversified social consumption," smaller supermarkets with higher flexibility are clearly more composed and competitive in responding to changing consumer demands than hypermarkets. This is also an important reason why convenience store sales in Japan maintained an annual growth rate of over 20% from 1977 to 1985. Before the new retail era, the challenge for Auchan and others was that despite a wide range of categories, they could not solve the last-mile problem and were less convenient than online e-commerce. But with the rise of fresh e-commerce and community group buying, large supermarkets like Auchan, Walmart, and Yonghui have all gone online, achieving resonance between online and offline businesses. However, as mentioned earlier, compared with small supermarkets, the differences in scale bring higher storage, logistics, labor, and operating costs, making hypermarkets somewhat cramped when facing new consumption demands. For example, hypermarkets generally face the problem of losing young consumers. Mumu, who lives in Ningxiang, told Tanglang Finance that she usually goes to Auchan with her mother when she visits home. According to her observation, those who go to Auchan are mostly middle-aged people in their 40s and 50s. For small supermarkets, whether in product structure or store style, they can quickly keep up with young consumers' needs, but for hypermarkets, it takes significantly longer. So, what should Auchan and others facing challenges do in the future? Based on the fact that small supermarkets are far less rich in product variety than hypermarkets, and the offline market will not completely disappear in the short term, Tanglang Finance believes that hypermarkets are still necessary, but their numbers can be gradually reduced. What can be done with the money saved from tightening hypermarkets? Develop "new formats." Therefore, for Auchan and others, a more likely transformation direction is: tighten hypermarkets and open new formats. New formats can be distinguished by scale and field. 1. From the scale perspective: both bigger and smaller are possible. In fact, some supermarkets have already begun to experiment with "multi-format" strategies, though they differ in scale. On one hand, Hema Fresh has started incubating smaller new formats like Hema Mini and Hema F2. Auchan also officially launched its mini version, "Xiao Run Fa," this year, positioned as a community fresh supermarket. On the other hand, Yonghui's Super Species, which focuses on small stores, opened a 2,000-square-meter large store in Shanghai. In addition, besides community small stores, Auchan opened its first medium-sized supermarket in Changzhou this year, presumably to test new formats for further strategic adjustments. New formats of different scales carry different business functions. Small stores may still focus on fresh produce, while large stores focus more on multi-category retail. Since large and small stores differ in warehousing costs, labor costs, and operational flexibility, and these new formats have been on the market for too short a time, it is still difficult to assert which scale will be more competitive; we must wait for market verification. As for how much effort to invest in which scale of new format, each hypermarket needs to adjust in time after weighing overall business and understanding market demand changes. 2. From the field perspective: there are blue oceans beyond fresh produce. Although the pandemic has revived fresh e-commerce, the fresh business of hypermarkets is gradually entering a "bottleneck period." On one hand, industry competition has intensified. Giants like JD.com, Alibaba, and even Didi have entered the "buy groceries" arena. At the same time, provinces such as Fujian and Hunan are forming local fresh e-commerce forces, such as Fujian's Pupu and Hunan's Xingsheng Youxuan. On the other hand, some consumers in lower-tier markets remain "conservative" about buying fresh produce online. Kiki, a middle school teacher in Sanming, Fujian, told Tanglang Finance that when buying fresh vegetables, fish, and shrimp, she only uses online platforms like "Auchan Youxian" when she is busy; otherwise, she goes to the wet market because she thinks the produce there is fresher. Therefore, how to more comprehensively cultivate the consumption mindset of lower-tier market users for fresh e-commerce, and how to seize new markets beyond local fresh e-commerce forces, are key issues that Auchan and others need to focus on next. In fact, the saturation of the fresh business is also forcing Auchan and others to explore new consumption areas. Beyond fresh produce, there are many fields worth imagining. From a category perspective, snacks, small appliances, and daily necessities have largely moved to online stores like Tmall and JD.com, but categories that require strong on-site experience, such as apparel, beauty, and various internet-famous products, still have room for imagination. While waiting for fresh produce, customers may be more willing to browse these stores they usually buy from online, especially new consumer brands like Perfect Diary, which is quite popular. This could help increase foot traffic and activity in hypermarkets. But it is worth noting that whether it is large or small formats, fresh or other formats, how to cultivate customers' consumption habits in this "multi-format coexistence" model remains to be explored. Introducing new brand partnerships, differentiated regional operations, and refined store management will become new challenges for Auchan and others. In this new battle, who will break through faster among the "single" Auchan and others? Source: Tanglang Finance (ID: TanglangFin), Author: Tu Lin Tips will be paid 400-2000 yuan upon adoption.