---
title: "The Turbulent Traditional Retail Landscape of 2019"
description: "Yonghui's acquisition of Zhongbai Group has hit a new snag as the National Development and Reform Commission initiates a special review, expected to conclude within 60 working days. With just over a month left in 2019, the traditional retail landscape has shifted dramatically: Carrefour China sold to Suning, Metro China to Wumart, China Resources Vanguard exited Shandong, Costco entered China, and Aldi tested physical stores."
author: "Ann"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2019-11-20"
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citation: "Ann. “The Turbulent Traditional Retail Landscape of 2019.” New Distribution, 2019-11-20. https://xinjignxiao.com/en/articles/the-turbulent-traditional-retail-landscape-of-2019-760cc06c/"
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# The Turbulent Traditional Retail Landscape of 2019

> Yonghui's acquisition of Zhongbai Group has hit a new snag as the National Development and Reform Commission initiates a special review, expected to conclude within 60 working days. With just over a month left in 2019, the traditional retail landscape has shifted dramatically: Carrefour China sold to Suning, Metro China to Wumart, China Resources Vanguard exited Shandong, Costco entered China, and Aldi tested physical stores.

Yonghui's acquisition of Zhongbai Group has hit a new snag as the National Development and Reform Commission initiates a special review, expected to conclude within 60 working days. This means the acquisition is still in progress.
With just over a month left in 2019, the traditional retail landscape has shifted dramatically: Carrefour China sold to Suning, Metro China to Wumart, China Resources Vanguard exited Shandong, Costco entered China, and Aldi tested physical stores.

**-01-**
**Market Changes**
**This year, traditional retail saw foreign retailers decline, top players slide, and mid-tier players rise.**
According to the latest report from Kantar Worldpanel, in the third quarter of this year (the 12 weeks ending September 6, 2019), the modern trade channel (including hypermarkets, supermarkets, and convenience stores) continued its recovery, though at a slower pace, with a year-on-year growth of 1.7%. Hypermarkets performed poorly in the third quarter, with penetration down 3.3 percentage points year-on-year. E-commerce channels maintained a high growth rate of 36.2%.
Looking at market share data for the year, as of the third quarter of 2019, the top three retailers by market share were Gaoxin Retail Group, China Resources Vanguard Group, and Walmart Group, with Gaoxin Retail holding 8.3%, China Resources Vanguard 6.7%, and Walmart 5.0%.
Yonghui Group, Wushang Lian Group, and Wumart Group all increased their shares compared to the previous year. Yonghui's market share grew from 3.7% to 4.2%; Wushang Lian from 1.9% to 2.1%; and Wumart from 1.9% to 2.0%.
Walmart Group and Carrefour saw significant declines in market share: Walmart dropped from 5.4% to 5.0%, and Carrefour from 3.1% to 2.8%.

**Change 1: Foreign Retailers Face a Shakeout**
**Carrefour, which once led a generation of Chinese supermarkets, sold to Suning Group mid-year.** On June 23, Suning.com announced that its wholly-owned subsidiary Suning International planned to invest 4.8 billion yuan to acquire 80% of Carrefour China. Suning.com became the controlling shareholder, with Carrefour Group's stake reduced to 20%.
Carrefour entered China in 1995, pioneering the hypermarket model and holding the top position for many years. Starting in 2012, its market share began to decline. In 2017 and 2018, Carrefour China recorded net losses of 1.099 billion yuan and 578 million yuan respectively, and its total assets were less than its total liabilities, making it insolvent.
After the sale to Suning, Carrefour underwent integration and transformation. During this year's Double 11, Carrefour officially debuted as a new member of Suning's "one-hour scenario life circle" and participated in Suning's Double 11 for the first time. Carrefour China's Vice President of Merchandising, Gong Wenrui, announced that within the next year, Carrefour would launch 1,000 community fulfillment centers to fully upgrade its home delivery services. These centers will upgrade the front-warehouse model, integrating with Carrefour's mini-program, Suning's Xiaodian app, and third-party platforms. Orders placed through these online channels will be fulfilled by Carrefour's fulfillment centers.
What other changes Carrefour will undergo under Suning, and what fate these changes will bring, remains to be seen.
This year, another established foreign retailer chose to sell. On October 11, Metro, Wumart, and Dmall jointly announced that Wumart had signed a final agreement with Metro Group to acquire controlling stakes in Metro China. After the transaction, Wumart would hold 80% of the joint venture, with Metro retaining 20%. The total enterprise value of Metro China was valued at 1.9 billion euros, and the transaction is expected to close by the second quarter of 2020 at the latest.
Metro, the second-largest European wholesale retailer, entered China in 1996. Its performance has also been lackluster: in 2014, Metro China achieved sales of 18.9 billion yuan, with year-on-year growth narrowing to 8%; in 2015 and 2016, growth was only 1% each year.
Since signing the agreement, Metro and Wumart have not made major moves. According to the agreement, Metro China will continue to operate independently under the "Metro" brand, led by CEO Claude Sarrailh. This means that after the sale, Metro's management team will remain. Meanwhile, **Wumart plans to use Dmall to digitize its stores and C-end members, accelerating Metro's digital transformation.**
While established foreign supermarkets like Carrefour and Metro are retreating, discount retailers such as Aldi and Costco are entering the market.
On June 7, German supermarket chain Aldi opened two physical stores in Shanghai's Jing'an and Gumei business districts, each about 500 square meters. This marked its first foray into physical retail after opening an online store in China in 2017.
Founded in 1913, Aldi has over 10,000 stores globally and is one of the most well-known retailers. Aldi has been cautious about the Chinese market, conducting over five years of research before opening its first physical stores. Two years ago, it launched on Tmall Global to gain "China experience," and this year it opened its first physical store, also its first pilot stores in Asia.
In October, Aldi opened three more pilot stores in Shanghai's Putuo, Baoshan, and Xuhui districts, expanding its service coverage. To date, Aldi has opened five pilot physical stores.
Another world-renowned retailer, Costco, also arrived in China with much fanfare. On August 27, Costco opened its first store in mainland China in Shanghai's Minhang District, and on the first day, it was forced to suspend business due to overwhelming customer demand.
Founded in 1983, Costco is the largest membership warehouse club in the U.S. and the world's second-largest retailer after Walmart. Currently, Costco operates over 700 stores in 9 countries, with annual sales exceeding $110 billion and over 88 million members (as of 2017). Despite the pressure from e-commerce giants, Costco has maintained 4-6% annual revenue growth.
Since its opening, Costco has been a hot topic on Weibo, with stories ranging from customers queuing overnight to buy Moutai and beef, to suspending business after 5 hours, to a $7 billion surge in stock value, and later to queues for membership cancellations. In October, Costco announced that within 37 days of entering China, it had registered 200,000 members, surpassing the average of 68,000 and setting a record in its 35-year history.
Despite the buzz, many remain concerned about the long-term sustainability of Aldi and Costco in China. Whether these new foreign brands can adapt to the complex Chinese market remains to be seen.

**Change 2: Top Retailers Struggle with Adjustments**
In the past two years, top retailers have also faced difficulties. Despite high market share, they suffer from the disadvantage of being too large to pivot quickly. In the transformation to new retail, the top three players—Gaoxin Retail, China Resources Vanguard, and Walmart—have all experienced adjustment pains.
Gaoxin Retail, the market share leader, accepted investment from Alibaba at the end of 2017. On November 20, 2017, Alibaba announced it would invest approximately HK$22.4 billion (about $2.88 billion) to directly and indirectly hold 36.16% of Gaoxin Retail.
Behind Gaoxin Retail are Taiwanese retailer RT-Mart and French retailer Auchan. Auchan, the second-largest French retail group, entered China in 1997. In 2000, Auchan and RT-Mart's parent company, Ruentex Group, formed a joint venture and established Gaoxin Retail in Hong Kong to operate hypermarkets under the Auchan and RT-Mart brands.
In 2016, RT-Mart experienced its first store closures, and its e-commerce business Feiniu.com was loss-making for a long time. Amid the downturn in traditional retail, Gaoxin Retail's revenue growth declined year by year. With no progress online and increasing difficulty offline, Gaoxin Retail accepted Alibaba's investment at the end of 2017.
After partnering with Alibaba, Gaoxin Retail proposed restructuring its hypermarkets in 2018. This brought pain: in 2018, Gaoxin Retail's revenue fell below 100 billion yuan, and net profit shrank to about 2.5 billion yuan. This was the first time since 2016 that Gaoxin Retail saw both revenue and profit decline.
Gaoxin Retail attributed the decline to handing over its in-store home appliance business to Suning.com. Additionally, same-store sales declined more sharply, from -0.26% in 2017 to -1.72% in 2018.
After more than a year of adjustments, according to Gaoxin Retail's 2019 interim report, the initial integration of the Auchan and RT-Mart brands was completed, including operating systems and supply chains. The company also adjusted Auchan's product mix, display areas, and store organization, cleared inventory, and integrated logistics centers. According to its official website, Auchan currently has 72 stores in China, down from 76 mentioned in the interim report. According to Kantar Worldpanel, Gaoxin Retail's market share for the year ending September 6, 2019, declined 0.1% year-on-year.
Another retail giant, China Resources Vanguard, has also been undergoing difficult adjustments.
In 2013, China Resources Vanguard had 4,637 stores and was once the largest supermarket chain in China. That year, it acquired Tesco's business in China. Before the acquisition, China Resources Vanguard's profit was HK$84 million; the year after, it suffered a huge loss of HK$702 million. Subsequently, it experienced a wave of store closures, dropping from 4,637 stores in 2013 to 3,192 stores in 2018.
Last year, China Resources Vanguard closed stores in Qingdao, Yantai, Zibo, Weifang, Jining, and Jinan. In September 2019, regional retail leader Jiajiayue announced that China Resources Vanguard would transfer its remaining 7 supermarket stores in Shandong to Jiajiayue. With this, China Resources Vanguard completely exited the Shandong market.
As early as March this year, media reported that China Resources Vanguard had entrusted 5 of its 6 large supermarkets in Beijing to Wumart, and in August it listed 3 Beijing subsidiaries for sale. However, its 6 blt premium supermarkets and 3 Ole' premium supermarkets were not transferred.
While closing hypermarkets, China Resources Vanguard is increasing its focus on premium and small-format formats. Currently, besides hypermarkets, it operates brands such as Suguo, Ole', blt, V+, Tesco Express, and VanGO, with Ole' and blt positioned as premium formats, and Tesco Express and VanGO as small-format formats.
Walmart, the world's largest retailer, is also struggling in China. With Carrefour and Metro exiting, Walmart is the only established foreign retailer left fighting.
According to Lianshang.com, in the first half of this year, Walmart closed over a dozen stores nationwide, including in Qingdao, Nanchang, Haining, Lishui, Weifang, Zhenjiang, Fengcheng, Xuzhou, Rugao, Tongxiang, Jinan, Dongguan, Hangzhou, Ningbo, and Zibo. Walmart has also frequently changed its China CEO, with four changes in six years.
While other foreign retailers are exiting, Walmart continues to invest heavily and seek transformation in new formats.
In early July, Ryan McDaniel, Senior Vice President of Supply Chain at Walmart China, said in an interview that Walmart would continue to increase investment in logistics and supply chain in China. Besides the first customized fresh food distribution center in South China, which opened at the end of March, Walmart plans to invest about 8 billion yuan over the next decade to upgrade its logistics supply chain, building or upgrading over ten distribution centers nationwide. Additionally, Sam's Club plans to open 40 new stores in China over the next five years.
Walmart China President and CEO Chen Wenyuan also announced plans to add 100 new stores in Guangdong over the next five years, including Sam's Club, shopping malls, community stores, and cloud warehouses.
Recently, Walmart China announced the performance of its community store brand, Huixuan Supermarket, with sales and traffic growth exceeding 20% in the third quarter of 2019.

**Change 3: Mid-Tier Retailers Expand Aggressively**
**While top retailers face adjustment pains, mid-tier retailers like Yonghui and Wumart are advancing rapidly.**
On October 29, Yonghui Superstores released its third-quarter 2019 report. In the first three quarters, Yonghui achieved operating revenue of 63.543 billion yuan, up 20.59% year-on-year, and net profit attributable to shareholders of 1.538 billion yuan, up 51.14%. The improvement in net profit is mainly due to rapid store expansion.
In the third quarter, Yonghui opened 34 new stores, higher than 21 in Q1 and 25 in Q2. As of the end of October 2019, Yonghui had 833 stores nationwide, an increase of 125 from the end of last year, and net store additions for the year are expected to hit a record high.
Meanwhile, its mini format (focusing on "community + fresh" small supermarkets) is expanding rapidly. According to the interim report, by the first half of the year, MINI stores covered 50 cities in 19 provinces, with 398 opened, generating total revenue of 550 million yuan. Home delivery services covered 518 stores, with sales of 1.33 billion yuan, monthly average growth of 7.1%, and online sales accounting for 3.4%.
Additionally, after missing out on acquisitions of Carrefour and Metro, Yonghui is pushing forward with its plan to acquire Zhongbai Group.
In the past two years, Wumart has also expanded aggressively.
On October 11, Metro Group, Wumart Group, and Dmall jointly announced that Wumart had signed a final agreement with Metro Group to acquire controlling stakes in Metro China. After the transaction, Wumart would hold 80% of the joint venture, with Metro retaining 20%.
Metro China has 97 stores in 59 cities, maintaining stable performance and growth. Food distribution, product quality, membership services, and strong supply chain procurement are Metro's competitive advantages. With the acquisition, Wumart's territory has expanded further.
In addition to Metro, in March this year, Wumart took over five hypermarkets from China Resources Vanguard in Beijing, and later joined with Bubugao to invest 2.7 billion yuan in the mixed-ownership reform of Chongqing Department Store. In 2018, Wumart acquired 21 stores from Lotte Mart for 1.42 billion yuan and took over over 70 stores from Linjia.
According to public data, Wumart currently operates 1,500 stores of various formats nationwide, with annual sales exceeding 50 billion yuan. In 2019, it opened 359 new stores, including 265 in North China, and plans to open 300 new stores in 2020. In terms of annual sales, Wumart's scale is close to that of Yonghui Superstores.
As various retail players contract and expand, the industry is reshuffling: foreign retailers no longer dominate, and local retailers are expanding rapidly. The current landscape features competition among regional players like Shenzhen's China Resources Vanguard, Fujian's Yonghui, Shanghai's Gaoxin Retail, Jiangsu's Suning, Beijing's Wumart, and U.S.-based Walmart.
At the same time, internet giants have become the biggest "dealers." Among the top ten retailers in China, six—China Resources Vanguard, Walmart, Yonghui Superstores, Carrefour, Wushang Lian Group, and Bubugao—have aligned with Tencent, while Gaoxin Retail and Bailian Group have aligned with Alibaba. Only Wumart Group and SPAR Group remain unaligned.

**-02-**
**Industry Changes**
Amid technological advancements and changing consumption habits, the entire offline retail industry is undergoing profound reshaping and adjustment. Currently, digitalization, small-format stores, and increasing fresh food share have become industry trends.

**Change 1: Digitalization**
Whether it's Gaoxin Retail partnering with Alibaba or Yonghui and Walmart actively cooperating with Tencent and JD.com, these moves reflect the urgent need for digitalization among retail giants.
The digitalization roadmap for retail enterprises includes ERP systems, POS systems, e-commerce, omnichannel sales, omnichannel big data systems, and omnichannel digital marketing.
After partnering with Alibaba, Gaoxin Retail introduced Alibaba's systems to digitally transform its stores, connecting physical stores to Taobao and leveraging Alibaba's traffic to increase online exposure. All stores were connected to the Taoxianda platform, with daily orders reaching 700 and a punctuality rate of 99.9% as of H1 2019.
Walmart and JD.com launched the "Three Connections" strategy, integrating users, stores, and inventory to achieve online-offline cooperation. Walmart also entered a strategic partnership with Tencent, focusing on shopping experience enhancement, precision marketing, comprehensive payment services, and membership benefits, among other areas of digital and smart retail cooperation.
After Carrefour China was sold to Suning, Zhang Jindong stated that Suning and Carrefour China would achieve full-chain digital transformation, not only internal digitalization but also digitalization of the supply chain and ecosystem, to improve industry efficiency. Over the next five years, Carrefour China plans to open 300 new internet-based stores in tier 1-3 markets, launch home delivery services in conjunction with Suning Xiaodian, and use retail cloud to expand into township markets.
Suning has built a smart retail technology system covering smart retail brain, unmanned technology, digital store technology, and smart logistics, and has developed numerous black technologies such as AR fitting, Style Wall, self-checkout machines, product heat maps, mechanical exoskeletons, the "Wolong No.1" unmanned delivery vehicle, and facial recognition payment, creating favorable conditions for Carrefour China's digital upgrade.
Wumart, which has not aligned with internet giants, has achieved considerable success in digitalization. In April 2015, Zhang Wenzhong founded Dmall, an omnichannel retail platform, to find digital transformation solutions for physical retail with Wumart's cooperation.
Based on new technologies such as IoT, big data, AI, and cloud computing, Dmall developed 15 major systems and over 500 subsystems, and in 2018 launched Dmall OS, a comprehensive digital middle-platform operating system for retail. Currently, Dmall OS has achieved over 70% digitalization for Wumart, meaning 70% of online and offline sales are realized through the Dmall app.
According to iResearch data, in the fresh food e-commerce sector, Dmall's app ranks first in monthly active device scale. As of June 2019, Dmall had over 70 million registered members and 12 million monthly active users. Recently, Zhang Wenzhong stated that Dmall has 80 retail supermarket partners nationwide.

**Change 2: Small-Format Stores**
**With the decline of hypermarkets, small premium supermarkets and community convenience stores are gaining favor.**
In 2015, China Resources Vanguard proposed expanding small-format stores. Of the nearly 300 new stores opened since then, only 25 were hypermarkets, while its small-format brands, community supermarket Tesco Express and convenience store VanGO, grew rapidly. In 2019, China Resources Vanguard launched a new brand, "Vanguard MART," with a sales area nearly halved.
Similarly, Walmart, which has closed many hypermarkets, is also developing premium and community supermarkets. Sam's Club is accelerating store openings, with three new stores in Beijing, Ningbo, and Shanghai in the first half of this year, and a second store in Guangzhou under construction. Sam's Club currently has 26 stores in China, with plans to reach 40-45 by 2022. In community supermarkets, the first Walmart community store, Huixuan Supermarket, opened in 2018, and in Q3 2019, its sales and traffic grew over 20%.
Yonghui's mini format is expanding rapidly this year, with 510 new mini stores added in the first three quarters, and continued rapid expansion expected in Q4. Yonghui founder Zhang Xuansong stated at the shareholders' meeting in May that mini stores would become an important module, with confidence in reaching 1,000 stores by year-end.

**Change 3: Fresh Food Focus**
**In offline retail squeezed by e-commerce, fresh food has become a key section for attracting customers.** According to Qianzhan Industry Research Institute, fresh food accounts for 90%, 87%, and 70% of supermarket sales in the U.S., Germany, and Japan, respectively, leaving significant room for growth in Chinese supermarkets.
In China, modern fresh food supply chain models represented by Yonghui and Jiajiayue are emerging. According to the 2018 annual report, fresh food accounted for approximately 48% of Yonghui's revenue. In 2019, Yonghui accelerated the expansion of MINI stores and launched the "Yonghui Maicai" app, entering the community grocery delivery sector.
Ping An Securities research notes that compared to peers, Yonghui's counter-cyclical store expansion is attributed to its high proportion of fresh food business. First, fresh food creates a stable and high-frequency traffic entry point. Second, years of fresh food operation experience and a robust supply chain help maintain stable gross and net margins during expansion.
Walmart is also increasing its fresh food efforts. In March, Walmart's South China fresh food distribution center began operations, covering over 100 stores in Guangdong and Guangxi (including Sam's Club). The center cost 700 million yuan, Walmart's largest single investment since entering China 23 years ago.
In July, Walmart announced plans to spend 8 billion yuan over the next 10-20 years to upgrade its supply chain, building or upgrading over ten distribution centers nationwide.
Two years ago, Gaoxin Retail launched its B2B business "RT-Mart e-Lufa," a full-category B2B platform including fresh food, offering 20,000 SKUs, with fresh food (including frozen and chilled) accounting for over 27% of revenue. In recent years, Gaoxin Retail restructured its fresh food categories and displays, significantly increasing the number of SKUs for fruits, vegetables, seafood, frozen products, and prepared foods, and strengthening products suitable for mid-to-high-end customers and online sales.
Carrefour has also been exploring fresh food. In January 2018, Carrefour opened its first fresh food supermarket, "Jixian Gongfang," in Wuhan, adopting a "store-in-store" format within a Carrefour store, mainly selling seafood.
In May 2018, Carrefour launched a new brand, Le Marché (French for "market"), in Shanghai, focusing on dining, fresh food, imported goods, and private labels, emphasizing freshness and health. Le Marché offers over 25,000 products, with food accounting for over 78%. At this year's CIIE, Carrefour's direct procurement of 150 million yuan in goods was over half fresh food, which will gradually enter its physical stores nationwide.
Metro's fresh food sales account for nearly 60% of total sales. After acquiring Metro, Zhang Wenzhong said one reason for the acquisition was Metro's advantages in food safety, and Wumart would learn from Metro's higher food safety standards. With the support of Dmall, Wumart's push into fresh food may be easier.
Digitalization, small-format stores, and increasing fresh food share are current industry trends. Whether it's premium stores or higher fresh food share, both require upgrading the entire system's digitalization, transforming the supply chain, and enhancing overall efficiency.

Source: iResearch (ID: iresearch21cn)
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## Citation metadata

- Publisher: New Distribution
- Author: Ann
- Published: 2019-11-20
- Canonical: https://xinjignxiao.com/en/articles/the-turbulent-traditional-retail-landscape-of-2019-760cc06c/
- Original source: https://mp.weixin.qq.com/s/JQSyQeKxvrTRm5qVipzPiQ

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