Just recently, Sun Art Retail (06808.HK) released its interim report for FY2022 for the six months ended September 30, 2021. According to the financial report, Sun Art Retail's revenue was RMB 41.534 billion, down 5.0% year-on-year, and net profit was RMB 112 million, down 87.6%. The company's hypermarket brand RT-Mart has 497 stores covering 236 cities nationwide. Net profit fell over 15%, Sun Art changes leadership mid-year In May this year, due to the adjustment of the fiscal year end date, Sun Art Retail released its 15-month financial report for the period ended March 31, 2021. The report showed that Sun Art Retail's revenue during the reporting period was RMB 124.334 billion, and net profit decreased by 15.42% year-on-year to RMB 3.572 billion. Affected by the decline in performance, on May 11, Sun Art Retail's Hong Kong stock price closed down 7.86% at HKD 6.33 per share, with a market value of HKD 60.386 billion (approximately RMB 49.959 billion). On the same day, Sun Art Retail announced a change of CEO and director re-designation, announcing that the original CEO Huang Mingduan retired due to age, resigned as CEO, and continued to serve as Chairman of the Board. Lin Xiaohai will succeed as CEO of Sun Art Retail. (Lin Xiaohai) Lin Xiaohai joined Sun Art Retail in May 2020 and officially took over from Huang Mingduan to lead RT-Mart on December 1. Before joining Sun Art Retail, Lin Xiaohai served as Vice President of Alibaba Group, responsible for the Retail Link business. Previously, he served as Vice President of Sales for Greater China at Procter & Gamble (China) Marketing Co., Ltd., with 25 years of experience in the retail and internet industries. Subsequently, on May 10, Sun Art Retail held an analyst conference on its FY2021 performance. According to Lin Xiaohai, fresh food is one of the core categories that RT-Mart is focusing on now and in the future. Continuously building fresh food product strength and enhancing fresh food processing capabilities will enable RT-Mart's fresh food e-commerce business to achieve more scaled growth. Community group buying steals customers, traditional supermarkets reluctantly transform Sun Art Retail stated in its financial report that physical retail was adversely affected by community group buying, CPI, and the pandemic this year, and revenue and net profit did not meet expectations. Nowadays, traditional supermarkets are not doing well. On one hand, fresh food e-commerce companies in sub-categories such as Qian Dama and Bai Guoyuan are entering residential communities; on the other hand, foreign warehouse-style wholesale supermarkets such as Sam's Club and Costco are grabbing market share. In the first quarter of this year, more than 10 traditional supermarket companies, including Sun Art and Yonghui, saw revenue declines, and nearly 5 companies saw declines of double digits. Sun Art Retail's executive director Huang Mingduan once publicly stated: "The loss of offline store traffic in traditional hypermarkets is an irreversible process." From a business perspective, in the first half of the fiscal year, revenue from sales of goods was RMB 39.761 billion, a decrease of 5.3% year-on-year. Same-store sales decreased by 7.4% year-on-year. Sun Art Retail stated that its offline business sales (mainly contributed by hypermarket revenue) were challenging due to fierce market competition. Under the heavy pressure of offline traffic loss, traditional supermarkets are transforming and seeking new survival methods. Sun Art's survival method is to develop online business. In the past, visiting RT-Mart required offline shopping; now, you can order through Taobao's Taoxianda, Ele.me, or download RT-Mart's own app. The significant growth of the B2C business compensated for the group's sales business. Online orders from RT-Mart Youxian APP, Taoxianda, Ele.me, and Tmall Supermarket increased by 25% year-on-year, and average daily orders per store increased to 1,400. In addition, Sun Art Retail also mentioned that the B2B business was impacted by community group buying, and the group actively adjusted its customer structure, expecting the B2B business to return to growth in FY2023. In addition to the expansion of online business, during the reporting period, Sun Art Retail opened 3 new RT-Mart stores nationwide and 36 new innovative format stores under the small RT-Mart brand. The number of signed medium-sized supermarket RT-Mart Super stores reached 16. The company's hypermarket brand RT-Mart has 497 stores covering 236 cities nationwide. CEO Lin Xiaohai said, "Challenges remain, but we believe in the value of long-termism and are confident in future growth." Partnering with Alibaba to open up supply chain, focusing on small and medium-sized supermarkets Based on the group's solid offline store layout, Sun Art has become one of the core suppliers for Alibaba's community group buying project. As of the end of September, Sun Art Retail had 491 hypermarkets, 6 medium-sized supermarkets, 68 small supermarkets, and 3 fresh food processing warehouses in China. The group stated that during the cooperation, the two parties mainly focused on opening up the supply chain, building a procurement and sales system, and sharing warehouse network resources. In the short term, the group quickly established logistics warehouse shipping capabilities, shared warehouse capabilities, and fresh food processing warehouse capabilities for this business, helping Alibaba's community group buying business achieve high revenue growth. Sun Art also recently announced that all 497 stores will participate in Double 11 this year, during which fresh fruits, bakery and cooked food, rice, flour and oil, daily household cleaning, clothing and general merchandise will be 50% off. Consumers can enjoy Double 11 discounts both online and offline, and can directly go to stores to "stock up" or place orders through RT-Mart Youxian APP, Tmall Supermarket, Taoxianda, Ele.me, etc., and experience one-hour delivery to home. In addition to stimulating consumption during Double 11, Sun Art Retail plans to focus on store remodeling and the construction of small and medium-sized supermarkets. As of June 30, 2020, more than 20 stores had started renovation, of which 9 were in East China. 5 stores had completed renovation by the end of June. The company plans to open 2 to 3 medium-sized supermarkets and 30 small supermarkets in the second half of the year. Sun Art Retail stated that in recent years, physical hypermarkets have been severely impacted by e-commerce, and consumers have increasingly higher requirements for shopping convenience. Therefore, in the future, medium-sized and small supermarkets will become the company's main direction for store openings. Are you "watching" me?