---
title: "The Decline of Hypermarkets: Not Community Group Buying's Fault"
description: "Hypermarkets continue to decline, with recent financial reports showing losses at Renrenle, Jingkelong, and Yonghui. While community group buying is often blamed, the real issues are structural changes and long-term industry challenges, including competition from e-commerce and changing consumer habits."
author: "谢康玉"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2021-11-08"
language: "en"
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# The Decline of Hypermarkets: Not Community Group Buying's Fault

> Hypermarkets continue to decline, with recent financial reports showing losses at Renrenle, Jingkelong, and Yonghui. While community group buying is often blamed, the real issues are structural changes and long-term industry challenges, including competition from e-commerce and changing consumer habits.

Source: Future Consumption APP (ID: lslb168) Author: Xie Kangyu

**The starting point of the past is also the predicament of today.**

The "downhill" path for hypermarkets continues.

Recently, several hypermarket chains released their financial reports. Renrenle's net loss in the first three quarters expanded by 120% year-on-year to 638 million yuan; Jingkelong turned from profit to loss, recording a net loss of 2.03 million yuan; Yonghui, which had reported its first huge loss in eleven years in the previous half-year report, still recorded a net loss of 1.095 billion yuan in the third quarter, with both revenue and gross margin declining in the first three quarters.

In this quarter's report, Yonghui still attributed the decline in performance to: **the pandemic, community group buying, and the impact of proactive structural adjustments and inventory reduction in the first half of the year.**

In our article about the half-year report, we mentioned that many accusations in the industry blaming community group buying for hypermarket performance declines are largely influenced by statements in financial reports.

The reality is that community group buying, which had its subsidies curtailed by regulators in the first half of the year, has already entered competition on the same starting line as traditional retail.

Furthermore, Yonghui's decline in revenue and net profit this quarter is still related to a drop in gross margin. A large part of the reason for the gross margin decline may be Yonghui's proactive reduction, because fresh produce and other essential goods, which are the mainstay of hypermarkets, did not experience significant price drops in a short period.

Over the past period, Yonghui has devoted a lot of energy to transforming warehouse stores. The model of Yonghui's warehouse stores is more about proactively lowering product gross margins to attract consumers to the store, binding consumers at the price level, then driving traffic, and finally achieving small profits but quick turnover. So the gross margin decline was expected.

Additionally, an objective factor to consider for the performance decline in the first three quarters is that during the worst half of last year's pandemic, hypermarkets with relatively stable supply had a period of booming business. As the pandemic gradually stabilized and supply from various channels caught up, it naturally created a stark contrast between this year's performance and last year's.

However, the decline of the hypermarket format is not a problem that has only existed in the past two years. **The current data decline in hypermarkets should be seen more as an ongoing structural adjustment of the entire format and a long-standing industry challenge.** If we trace back to the root, this industry-wide recession dates back more than a decade.

**The Retreat Began a Decade Ago**

As early as around 2015, hypermarkets experienced a wave of store closures. Around 2019, the industry saw another massive retreat of foreign retail, with Carrefour selling to Suning and Metro selling to Wumart...

Before them, many foreign retail hypermarkets had already chosen to exit: France's Auchan and Tesco, the UK's Marks & Spencer, South Korea's Lotte Mart and E-Mart, and Spain's Dia, among others, had all gradually withdrawn from the Chinese market, almost all around 2018 and 2019.

As a format that reshaped China's retail environment in the 1990s, hypermarkets experienced their first negative growth in 2015 and have not stopped their decline since.

This industry-wide recession actually began as early as 2009, or even earlier, with seeds planted in 2001.

From 1994 to 1999, hypermarkets were in their golden age. With the convenience of one-stop shopping and abundant merchandise, they integrated the fragmented offline retail of the time and became the most thriving platform-based format, with a glory not inferior to today's e-commerce.

Later, having tasted success, hypermarkets began aggressively expanding across the country. But as stores multiplied, a cruel reality emerged: there weren't enough consumers.

In fact, from 2001 onward, the growth rate of domestic hypermarkets began to slow. By 2010, supermarkets ranging from 400 to 2,500 square meters had become saturated in mainland China, with the supermarket area per 10,000 people exceeding that of Hong Kong and Taiwan.

The bigger crisis was not just competition among hypermarkets; online formats also began to compete for consumers' wallets.

In 2009, the global financial crisis affected all aspects of China's economy, and the national consumer price index saw its first decline since 2003, which had a significant impact on offline retail entities.

At the same time, e-commerce's influence on traditional supermarkets grew increasingly strong. Although online shopping accounted for less than 2% of total retail sales of consumer goods that year, consumers purchasing communication devices, computers, and home appliances online already accounted for nearly a quarter of all online shoppers. From that year on, offline retail began to gradually decline.

**The Predicament Stems from Within**

The recent wave of hypermarket performance declines is more a continuation of previous problems.

Of course, we cannot ignore that the overall consumption environment is not great. According to data from the National Bureau of Statistics, **in September, total retail sales of consumer goods grew 4.4% year-on-year, an acceleration of 1.9 percentage points from the previous month, but still below the average growth rate of the past decade.**

Additionally, many hypermarkets showed significant data declines in their half-year and third-quarter reports. One reason is that during the worst half of last year's pandemic, hypermarkets with relatively stable supply gained many consumers who shifted from wet markets and e-commerce platforms (many wet markets were closed, and fresh e-commerce either ran out of stock or had extended delivery times), providing a short-term boost in performance.

As the pandemic stabilized and short-term benefits faded, consumers returned to their original consumption paths, naturally creating a contrast with last year's performance.

But setting aside short-term factors, the fundamental reason for the continued decline of the hypermarket format is what we have repeatedly mentioned: the starting point of hypermarkets' rise and the corresponding business model have become misaligned with the current market environment and consumer demands.

Before hypermarkets entered China, i.e., before 1995, people were more familiar with department stores with three-foot counters and salesclerks. They bought clothing and appliances at department stores, and food at wet markets and grocery stores.

At that time, the domestic market was characterized by a shortage of goods and limited distribution channels. Hypermarkets, which offered one-stop shopping for a variety of goods, quickly won over domestic consumers.

However, this platform-based format that once integrated offline retail later faced a more adept platform economy competitor—e-commerce.

Online platforms are naturally easier to scale and adjust in real-time than offline. Moreover, beyond platform e-commerce, more vertical formats are diverting consumers. In today's overly competitive retail environment in China, it is indeed difficult for hypermarkets that emerged in the 1990s to cope.

In addition, times are changing, and so are consumers. In fact, even before the last wave of foreign retail retreat from China, they had already withdrawn from multiple Asian markets outside China, especially East Asia. The fundamental reason is that the market environment there began to show significant differences from North America and Europe, where the hypermarket model originated.

Take the current domestic market: in the first-tier markets where hypermarkets are most deeply rooted, family units are shrinking, time costs are rising, and people are no longer enthusiastic about stocking up once a week. With a phone, various home delivery platforms can deliver within an hour.

Online, consumers can also find a wider variety of goods and lower prices (due to scale advantages and intense price competition), making hypermarkets, which lack product differentiation, less advantageous.

**Hypermarkets' Self-Rescue**

Under fierce competition, gross margins and sales have already declined, yet they still have to support stores of thousands or even tens of thousands of square meters, while rent and labor costs continue to rise. The small number of users left after being diverted by various channels can barely support a store's profitability.

This problem is particularly acute in high-cost first-tier cities. In past exchanges with industry insiders, many believed that high-cost first-tier cities are no longer suitable for the hypermarket format, or that this format needs to be updated and iterated.

Over the past few years, we have seen a series of attempts by hypermarkets, from "small stores," "community stores," and "new species" to the recent warehouse stores. Almost all hypermarkets have rushed into warehouse stores, while Walmart, which owns Sam's Club, has begun trying to convert some hypermarket stores into Sam's Club city center stores in first-tier cities.

Hypermarkets' exploration of online channels has never stopped, from the earliest self-built e-commerce to later cooperation with e-commerce partners. Currently, online growth for each company is quite good, but online sales still account for a relatively small proportion of total revenue.

Take Yonghui as an example: in the first three quarters of 2021, revenue was 69.835 billion yuan, with online sales reaching 9.97 billion yuan, a year-on-year increase of 52.56%, accounting for 13.9%; the self-operated "Yonghui Life" home delivery business covered 962 stores, achieving sales of 5.37 billion yuan, a year-on-year increase of 19.5%, with daily orders of 271,000 and a monthly average repurchase rate of 48.25%; third-party platform home delivery covered 897 stores, achieving sales of 4.6 billion yuan, with daily orders of 176,000.

At the same time, hypermarkets that "accuse" community group buying are also involved in it. Although they have not publicly disclosed their community group buying business, as early as the end of 2018, media discovered that Yonghui began testing community group buying in Shenzhen, Guangzhou, and other places. Similarly, RT-Mart is also participating in community group buying as a supplier for Taocaicai. However, currently, almost no company has disclosed data on this business.

**According to data from the "Chain Supermarket Operation Report (2020)," 60% of enterprises have carried out community group buying business, with group buying sales accounting for 0.7% of total sales, and overall performance contribution is not significant.**

However, it is more effective in boosting performance for hypermarkets in lower-tier cities, which also aligns with the initial positioning of community group buying. Data shows that community group buying has a huge driving effect on online sales for enterprises with sales below 1 billion yuan, accounting for more than 30% of such enterprises' online sales.

For higher-tier markets, the effectiveness of hypermarkets' attempts at warehouse stores remains to be seen, and we believe the answer will come soon.

**Are you "watching" me?**


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