The era of hypermarkets is over "Sometimes, despair comes not only from the pandemic itself, but more from the drastic changes it triggered." This is the profound experience of Lin Feng, an individual operator who has run a supermarket in Beijing's southern Fifth Ring area for nearly a decade. Back then, he paid a transfer fee of 1.8 million yuan to open an 800-square-meter supermarket. "I caught the right timing; the environment was quite good then." Recalling this decision, Lin Feng still feels gratified. Ten years ago, the annual rent was 550,000 yuan, daily turnover reached 30,000 yuan, and customer traffic was over 1,000 per day. Although the per capita consumption was only 20 yuan, the surrounding residents highly recognized the supermarket. But who would have thought that just ten years later, everything would change? Now, the annual rent has risen to 700,000 yuan. Although per capita consumption has increased to over 40 yuan, daily turnover has plummeted to 4,000 yuan, and customer traffic has dropped to about 100. The rent increase and the decline in sales and customer traffic that Lin Feng's supermarket faces are not isolated phenomena but a microcosm of the common predicament facing the traditional supermarket industry. Take Carrefour, for example. This supermarket giant, which has operated in the Chinese market for 27 years, has accelerated store closures this year. According to its public financial reports, Carrefour closed as many as 106 stores in the first half of this year alone. However, Carrefour is just the tip of the iceberg. According to data released by listed supermarket companies in the first half of this year, among 13 listed supermarket companies, 8 saw a year-on-year decline in revenue, accounting for nearly 60% of the total. More shockingly, Better Life (步步高) saw its revenue decline by as much as 69.29%. Other well-known supermarket brands, such as Beijing Jingkelong and Renrenle, also faced double-digit revenue declines. During this half-year period, these listed supermarket companies closed a total of 322 stores. In this environment, even giants cannot escape misfortune, let alone individual operators. According to data from the National Bureau of Statistics, although the consumer market showed a recovery trend in the first half of this year, the supermarket segment, impacted by e-commerce, still faces heavy pressure. In 2021, supermarket retail sales in units above the designated size grew by 6.0% year-on-year, but by 2022, this growth rate was only 3.0%, and even declined by 0.4% in the first half of this year. Lin Feng attributes the underlying reason to the interception of customers for offline stores. The rise of online e-commerce and the prosperity of community small stores have seriously affected his customer base. Especially in fresh produce and daily necessities, his supermarket can hardly compete with online platforms and community stores. Moreover, more stores have adopted group-buying models, and even products that are poorly displayed or inconvenient for offline sales can achieve good sales through group-buying operations. However, facing such drastic changes in the industry and consumption patterns, Lin Feng has to admit a cruel fact: although he once seized a good historical opportunity, in this rapidly changing era, he has begun to be eliminated and marginalized by the times. Change When hypermarkets encounter difficulties and discount stores rise, there are always people who jump out to "think the supermarket industry may face extinction." However, Lin Feng is not so pessimistic. He has delved into how to optimize the operating efficiency per unit area of the store and firmly believes that supermarkets still have their irreplaceability, especially in meeting the "one-stop" shopping experience. To continuously optimize store operations, Lin Feng's notebook is filled with densely handwritten notes, which are contents he has learned from various channels in the past two years, such as: store saturation determines sales, the eight major models of the fruit industry, stored value plans, and various formulas. Based on these studies and learning, Lin Feng has been motivated to renovate his store or open a new one. First, improving efficiency is crucial. Change the poor layout and customer flow that previously required customers to walk for more than ten minutes to buy an item, to meet customers' needs for quick purchases, reduce the area, and streamline product offerings. In addition, improve the efficiency of the entire supply chain, cooperate with suppliers to establish new zero-supply relationships, and reduce costs in the intermediate chain. However, a comprehensive renovation of the store faces many difficulties. For example, the floor, walls, and shelves in the store have aged, and a renovation would require a budget of over 2 million yuan for an 800-square-meter store, and many construction works cannot be carried out. Moreover, the narrow storefront of less than two square meters makes it difficult to attract public attention; the location is in the basement, and to make it more convenient for surrounding residents to come down, only an escalator would work, but due to beam issues, it cannot be done. Compared with supermarkets at the entrance of the community, survival is very difficult. Therefore, after careful consideration, Lin Feng finally decided to suspend the renovation and instead look for a new store location. Second, product differentiation is also a key point. Although Lin Feng tried to learn from the operating models of Sam's Club and Costco, he found that they were not fully applicable to his store. He plans to attract more purpose-driven consumers by increasing the proportion of imported goods and local specialty products. Finally, diversifying income sources is also an aspect Lin Feng considers. Although he prominently marked "increase membership fees" in his notebook, due to a lack of courage to implement it, he instead chose to develop more online sales channels. Fortunately, group-buying activities with surrounding enterprises have provided him with a breathing opportunity. Overall, although the supermarket industry is facing unprecedented challenges, Lin Feng remains optimistic about its prospects. He believes that as long as continuous adjustments and optimizations are made, traditional supermarkets still have a chance to occupy a place in the fiercely competitive market environment. In fact, even large retail giants like Yonghui Superstores and Better Life have to face similar challenges. Especially as these traditional hypermarkets gradually exit the market, new supermarket brands quickly fill the gap. After Carrefour and Walmart stores closed in Beijing, Hema and Qixian supermarkets "took over." Last month, Hema's 48th store in Beijing, Wangjing Guangshun North Street store, officially opened, which was formerly a Carrefour supermarket; a few days ago, Beijing's second Hema X membership store opened in an area formerly occupied by Walmart. Additionally, it is reported that by next year at the latest, Qixian Supermarket will replace Carrefour Majiapu store and start new operations after renovation; after AEON Chaoyang Joy City closed a year ago, China Resources' Olé supermarket will move in. Although traditional hypermarkets are full of changes and uncertainties, emerging supermarkets have gained more development opportunities due to the decline of traditional hypermarkets. In fact, the entry of new brands reflects the reshuffling and upgrading of the supermarket industry, and also reflects the evolution of species, which is lamentable. This is naturally related to the business model of hypermarkets. The essence of the hypermarket business is to operate shelves, not customers, because the core logic is to charge suppliers entry fees, display fees, and various fees during holidays, with product commissions and other miscellaneous fees accounting for 40% of product costs, ultimately passed on to the product prices. Moreover, the past hypermarket model could neither compete with the experience brought by new retail formats like Hema, nor with discount supermarkets that have achieved "extreme" prices, such as the advantages of Costco and Sam's Club, which many supermarkets cannot match. Therefore, the prelude to supermarket transformation has begun. Direction of transformation If we must say the reason, the last straw that broke Lin Feng's back was the rent. Before the development of e-commerce and front warehouses, Lin Feng's store was one of the driving forces of surrounding consumer traffic. Although he may not have made as much money as chain supermarkets, he still bought a house and a car with the income from this supermarket. However, under the changes of the times, this market advantage no longer exists. Therefore, Lin Feng considers returning to his hometown in Hebei and opening a large supermarket in a relatively underdeveloped township market. He believes that due to the scattered population distribution in townships, it is difficult to support various segmented small stores, and large supermarkets may still have a place. In first-tier cities, high rent, labor costs, and competitive pressure from e-commerce constitute the three major reasons for Lin Feng's departure, coupled with the gradual decline of traditional large supermarkets in the current business environment. Additionally, if possible, he would prefer to transform his store into a discount store. It is undeniable that the discount store format is gradually becoming a lifeline for traditional supermarket transformation. In the current macroeconomic context, price wars are no longer just a marketing tool but more like a prolonged competitive battle. In this battle, discount stores seem to be the only model that can stand firm. But successfully operating a discount store is also full of challenges, especially in supply chain management and talent teams. Take retail giant Sam's Club as an example. Its successful business model largely benefits from a procurement team with nearly 40 years of history, which has not only accumulated rich experience but also continuously optimized the supply chain. Secondly, Yonghui has also begun to venture into the discount retail field, not only adding discount areas in physical stores but also launching discount zones on its online platform. A relevant person in charge of Yonghui said that discounting is a major trend in the retail industry now, and this move can help Yonghui sell more products, provide consumers with more cost-effective products, and at the same time reduce the price difference caused by online and offline marketing activities. As early as October 2021, Jiajiayue opened its first discount store at Wanda Plaza in Shouguang, Weifang. It is reported that the prices of products in this store are 10%-15% lower than those in regular stores. Even Pangdonglai launched a "wholesale market" in June last year, which involves setting aside a specific area in existing stores for low-price sales of selected categories. A large number of retail giants are targeting the discount store market. However, while discounted prices can attract a large influx of consumers, if there is no corresponding supply chain support, and instead sales and traffic are gained by sacrificing profits, then for an industry with already low profit margins, it will only be "drinking poison to quench thirst." But it must be noted that successfully operating a discount store not only requires leveraging the existing retail system, but more importantly, improving the efficiency of the entire chain and product competitiveness. As a saying once circulated in the industry: "It's easy to make it big, hard to make it small; easy to make it complete, hard to make it refined." Yonghui and Hema have both tried various formats in the past, but with mixed results. There are multiple reasons behind this, including the limitations of the corporate system and the difficulty of quickly adjusting strategies due to their large scale. In addition, Jiajiayue's recently launched Yueji Haosnacks also performed mediocrely, further verifying that entering the discount retail market is not easy. The development and transformation of the supermarket industry have long been inevitable. Enterprises must find a development model that suits them, whether it is shifting to a discount model, product differentiation, optimizing the supply chain, or other strategies. Only in this way can they find their foothold in the fierce market competition. Otherwise, like Lin Feng, cutting losses in time has become a helpless but necessary choice.