Introduction: The warehouse membership store track looks booming, but succeeding in it is not easy.
Warehouse membership stores have welcomed another heavyweight player! Recently, news of RT-Mart entering the warehouse membership store segment dominated retail industry media headlines. As the former "King of Chinese Chain Supermarkets," RT-Mart's entry into warehouse stores carries significant meaning and impact. This not only indicates that traditional supermarket enterprises have hit growth bottlenecks under new era and consumption environments, but also signals to many "followers" in the industry: warehouse membership stores may become an important transformation path for traditional supermarket outlets. So, why is RT-Mart entering warehouse membership stores? What business attempts have traditional supermarkets made in recent years? Can warehouse membership stores, which many leading enterprises have high hopes for, become a lifeline for traditional supermarket companies?
Traditional Supermarkets Show Clear Decline Amidst the Waves
Facing internal pressures from new channels like comprehensive e-commerce platforms, live-stream e-commerce, community group buying, and social e-commerce, and external impacts from the pandemic leading to declining foot traffic, the decline of traditional supermarket businesses is an undeniable fact. Public data shows that from 2020 to 2022, the compound annual growth rate of total retail sales of consumer goods nationwide was 4.4%. In stark contrast, in 2021, the total operating revenue of ten leading chain supermarkets declined by 2% year-on-year, with 9 of them showing significant profit margin declines, and 5 falling into losses. In terms of store numbers, the net increase in stores for these ten leading chains turned negative for the first time in the first half of 2022, with a reduction of 130 stores. Average revenue per store has been negative since 2019.
Take industry leader Yonghui as an example: affected by the pandemic and other internal and external factors, Yonghui has closed over 380 stores nationwide since 2019, reducing its store count from 1,440 in 2019 to the current 1,060. Better Life (Bubugao) also recently announced major strategic adjustments, closing some regional supermarket operations and fully exiting the Sichuan market, while shrinking its Jiangxi market to just Xinyu, Pingxiang, and Yichun. Even in its home base of Hunan, Better Life will close underperforming and loss-making stores. Even state-owned listed company Lianhua Supermarket has faced huge losses every year since 2017. Public data shows that from 2017 to 2021, Lianhua's annual losses were 283 million yuan, 219 million yuan, 378 million yuan, 319 million yuan, and 434 million yuan, respectively. Additionally, regional supermarket leaders like Lotus Supermarket, Hongqi Chain, and Zhongbai Group have each closed over 100 stores in recent years due to operational pressure, highlighting the severity of the industry's challenges.
In this context, RT-Mart cannot remain unaffected. Recently, Gaoxin Retail (RT-Mart's parent company) released its interim results, showing that as of September 30, RT-Mart's revenue fell 2.2% compared to the same period in 2021, with profits down 159%. More notably, despite having over 400 offline stores, RT-Mart's market value is less than HK$30 billion, even lower than some new consumer brands established just a few years ago. The reason is that in the eyes of capital, the business model of selling "commercial real estate" and using rent to support rent no longer has much imagination space, making transformation an inevitable choice for RT-Mart.
Image source: Yangzhou Business Report
The Transformation Path of Traditional Supermarkets
It is undeniable that with the nationwide easing of pandemic restrictions, foot traffic in traditional supermarkets will gradually recover, and the operating environment will improve. However, this cannot fundamentally reverse the trend of decline in traditional supermarket retail formats in recent years. The major supermarket leaders cannot turn a blind eye to this decline. In fact, in recent years, the model transformation efforts of major supermarket enterprises have never stopped.
Building Own E-commerce Platforms As early as 2013, to counter the impact of rapidly developing e-commerce, RT-Mart launched its own B2C e-commerce platform, Feiniu.com, beginning its e-commerce exploration. However, high warehousing costs, high traffic acquisition costs, and low delivery efficiency eventually led Feiniu.com into continuous losses, forcing a transformation three years later. Similarly, Yonghui, Better Life, and Lianhua also started building their own e-commerce platforms around 2013, but they have remained lukewarm to date.
Fresh Food Supermarkets In 2016, the first Hema Fresh store emerged. This new retail model, centered around stores, leveraging high-frequency traffic from fresh food and dining, and integrating online and offline, attracted the attention of many traditional supermarket enterprises. Backed by Alibaba, Hema once became a model for traditional retail transformation. In January 2017, Yonghui followed suit, launching Super Species to benchmark against Hema Fresh. According to its official website, "Super Species" aimed to create a hybrid new format of "premium supermarket + fresh food dining + O2O," offering delivery within a 3-kilometer radius from the store, attempting to find a path for traditional supermarket model innovation. However, according to public data, "Super Species" opened a total of 88 stores but faced a wave of closures after 2019, leaving only 6 stores today. Additionally, Better Life launched Fresh Food Yanyi, Tianhong launched SPACE, and Lianhua launched Jingxuan, all of which ended in failure. Except for Hema and Yonghui's Super Species, traditional supermarkets' new retail transformation attempts ultimately failed.
Mini Stores Public data shows that RT-Mart began laying out small community supermarkets called Xiaorunfa in 2019 and attempted to cooperate with Hema to launch Hema Xiaoma, but neither succeeded. In the latest financial report, Xiaorunfa's store count shrank from 103 in March 2022 to 99, with no further expansion. Yonghui also laid out small stores called "Yonghui mini" in 2020, positioned as "Yonghui at your doorstep," mostly opened near communities, aiming to create high-frequency, low-to-mid price point consumption venues. However, according to its 2021 financial report, "Yonghui mini" stores incurred losses of 130 million yuan.
Will Warehouse Membership Stores Become a "Lifeline" for Traditional Supermarket Giants?
When discussing the reasons for domestic supermarkets entering warehouse membership stores, one company that cannot be ignored is Costco. As the world's second-largest retailer, Costco operates in 13 countries and regions globally, with nearly 800 stores. In August 2019, Costco officially entered China, opening its first store in Shanghai. Within four hours of opening, it had to suspend operations due to excessive consumer traffic, with queues lasting hours. This popularity brought the membership store model into the spotlight, sparking widespread discussion. Meanwhile, domestic supermarket peers began to imitate the warehouse membership store model, attempting to replicate Costco's success.
In October 2020, Hema opened its first warehouse-style X Membership Store in Shanghai, considered the first project in China to benchmark against Costco and Sam's Club. Notably, according to Hema's official disclosure, the first Hema X Membership Store achieved profitability within two months of opening. To date, Hema has opened 8 stores in Shanghai, Beijing, Suzhou, Nanjing, and other cities, with paid membership exceeding 3 million.
In December 2021, Jiajiayue opened its first warehouse-style membership supermarket in Jinan, covering 7,000 square meters.
In May 2021, Yonghui officially entered the warehouse membership store segment, characterized by "warehouse + membership" and the integration of online and offline. To date, Yonghui has over 50 warehouse membership stores nationwide.
In May 2021, fudi Membership Store officially opened. As a warehouse membership store under Beijing-based Yaodi Agriculture, fudi has strong supply chain and operational advantages in fresh food retail.
In July 2021, Hebei supermarket leader Beiguo Supermarket tested warehouse membership stores, with its first store opening in Shijiazhuang on July 30.
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With RT-Mart's entry, the warehouse membership store track has become even more crowded. Unlike paid warehouse membership stores like Costco, Sam's Club, and Metro, domestic warehouse membership stores currently fall into two categories: one is the paid membership model represented by Hema X Membership and fudi; the other is the "free" warehouse membership store model represented by Yonghui, Jiajiayue, and Beiguo Supermarket, which do not charge membership fees. Although both are warehouse membership stores, whether membership is paid directly determines the target customers, operational focus, and primary profit sources.
Public data shows that the minimum annual membership fee for domestic paid warehouse membership stores is nearly 200 yuan (Costco's annual fee is 299 yuan; Sam's Club's ordinary membership is 260 yuan and卓越 membership is 680 yuan; Metro's PLUS annual card is 199 yuan; Hema X Membership Store's annual fee is 258 yuan; fudi's ordinary membership is 365 yuan and Fuxing membership is 680 yuan; Carrefour Membership Store's annual fee is 258 yuan). This is enough to exclude a large portion of consumers from the target service group of warehouse membership stores. Paid warehouse membership store members are mostly families with cars, who can purchase 1-2 weeks of household needs in one trip, characterized by "high price, low frequency," with single shopping amounts often reaching hundreds or even thousands of yuan. Membership fees become the main profit source for such stores, which also focus more on member services and operations.
As the name suggests, non-paid warehouse membership stores focus on warehouse-style selling, such as Yonghui and Beiguo Supermarket. Their selling point is cost-effectiveness, relying on supply chain capabilities to lower product gross margins through procurement power, passing savings to consumers while achieving thin margins and high volume. They attract everyday consumers, are more平民化 and down-to-earth, and their main profit comes from product sales margins, with a greater focus on product operations.
Outsiders watch the excitement, while insiders understand the nuances. The warehouse membership store track may look booming, but succeeding in it is not easy. A retail industry expert told the author: "Under the dual impact of economic downturn and the pandemic, people's spending on food, clothing, and daily necessities increases, but their demands for food quality and safety do not decline. This has stimulated the development of warehouse membership stores to some extent. As life returns to normal, high-quality, cost-effective, practical, and value-for-money hit products become the core factor determining whether consumers shop at warehouse membership stores."
On the surface, limited SKU counts, family packs, and bulk packaging are standard for warehouse membership stores. However, the core logic lies in inventory turnover speed, supply chain, product selection, and target customer positioning, not simply adjusting the supply chain and packaging from the hypermarket era. In today's consumption-driven and increasingly fragmented channel environment, whether they can continuously provide high-value-added products and services to members and amplify member value has become a question warehouse membership stores must consider.
Undoubtedly, warehouse membership stores offer consumers a new consumption experience and shopping choice. Because of the membership fee, consumers have higher stickiness and expectations. Whether warehouse membership stores can provide more value-added services and cost-effective products remains a significant challenge and uncertainty for many local warehouse membership stores. Meanwhile, whether RT-Mart and others can achieve localization and differentiation while learning from Costco, and thus reverse the decline of traditional supermarkets in the new era, remains to be seen over time.
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