As 2022 draws to a close, physical retail has faced its most complex and difficult circumstances, enduring the most severe impacts and challenges. The supermarket sector, in particular, is mired in a cyclical downturn, with the industry full of uncertainty. Supermarket companies have generally seen performance pressure, forcing them to undertake strategic contraction, close stores to stop losses, and make major personnel adjustments, with some even facing capital reductions. Meanwhile, some listed companies, based on strategic transformation needs, have proactively divested retail businesses in a 'cage-clearing to welcome new birds' move... At the end of the year, Lianshang.com has specially compiled a review of major events in the supermarket industry in 2022 in the form of keywords for industry peers to review and reflect on.
Performance Pressure According to the latest financial reports from listed supermarket companies, in the first three quarters of 2022, more than half of the companies reported losses, and over 60% saw net profit declines. Among them, Yonghui Superstores suffered the largest loss, reaching 887 million yuan. At the same time, Lianhua Supermarket, Zhongbai Group, Hualian Comprehensive Supermarket, and Renrenle all reported losses exceeding 100 million yuan. Sun Art Retail, the parent company of RT-Mart, the former 'No. 1 supermarket,' also saw both revenue and net profit decline. As of September 30, 2022, interim results showed Sun Art Retail's revenue of 40.611 billion yuan, down 2.22% year-on-year; net profit attributable to shareholders was -69 million yuan, down 158.97% year-on-year. This was also the first interim loss since Sun Art Retail's listing. Moreover, some regional retail enterprises also faced performance pressure. In the third quarter, comparable store sales at Puyang Green City Supermarket in Henan fell 10%, and gross profit fell 17%. In October, customer traffic at Xinyang Xiya and Hemei fell about 20% year-on-year, and sales fell 10% year-on-year. The reasons for poor performance are generally the repeated COVID-19 outbreaks, economic pressure, weakened consumer spending power and demand, and the impact of new channels such as community group buying and livestream e-commerce. However, despite these common factors, supermarket companies such as Hongqi Chain, Jiajiayue, and Sanjiang Shopping still achieved year-on-year revenue growth and managed to achieve net profits exceeding 100 million yuan despite widespread losses among peers. As Pei Liang, president of the China Chain Store & Franchise Association, said, what has a decisive impact on enterprises is the enterprise itself; continuously maintaining value creation capability, especially product strength, is the foundation for physical retail enterprises to achieve long-term stability.
Store Closures and Contraction Under the adverse situation of performance pressure, physical supermarkets have begun strategic contraction and store closures to stop losses. In the first three quarters of this year, Carrefour China closed 54 stores, Jiajiayue closed 37, Beijing Jingkelong closed 34, and Yonghui closed 17... In the first half of this year alone, Better Life closed 23 stores, Zhongbai Group closed 58, and Lianhua Supermarket closed 146... Just recently, Better Life announced a major strategic adjustment, with its supermarket business starting from Q4 2022 to fully exit the Sichuan market through closures, suspensions, mergers, and transfers, and significantly shrink its Jiangxi market to Xinyu, Pingxiang, and Yichun; Hunan and Guangxi provinces will also close, suspend, merge, and transfer underperforming loss-making stores. Earlier, at the end of November, JD Seven Fresh was also reported to be undergoing strategic contraction. It is reported that Seven Fresh currently only retains operations in the Beijing-Tianjin-Hebei region and the Greater Bay Area, with non-core areas such as Changsha and Xi'an closed and exited. In the future, Seven Fresh will focus on deepening its presence in the Beijing-Tianjin-Hebei region and the Greater Bay Area. Meanwhile, Greenland G-Super was also reported to be closing stores on a large scale. Currently, only 8 stores remain open: 5 in Shanghai, and 1 each in Beijing, Chongqing, and Jinan. At its peak, Greenland G-Super had laid out nearly 100 stores across 23 key cities nationwide. Earlier, in early October, Hema Neighborhood closed its operations in Hangzhou and Nanjing, retaining only some stores in Shanghai. This was another major move for Hema Neighborhood after it withdrew from Beijing, Xi'an, Chengdu, and Wuhan in April. At this point, Hema Neighborhood, which Hema CEO Hou Yi once regarded as 'the most important business for Hema in the next decade,' has completely collapsed. For the supermarket sector, the era of burning money to scale is over; the prudent and pragmatic strategy of 'controlling losses and pursuing operational efficiency' has become industry consensus. In addition, the closure of Chengdu Ito Yokado Chunxi Store was also a major industry news this year. Due to failure to reach an agreement with the property owner on renewal, the Chunxi store will cease operations after December 31 this year. As the first store of Ito Yokado in China, the Chunxi store had been operating for 25 years and had consistently performed well. Its impending closure is quite lamentable.
Capital Reduction Facing industry difficulties, capital, which has always been profit-seeking and aggressive, will not sit idly by, and reducing holdings has become an expected move. In April this year, Tencent and JD capital successively reduced their holdings in Better Life after its stock price reached recent highs. Although both still suffered losses compared to their purchase prices, considering the subsequent huge loss announcement and stock price plunge, their high-level reduction moves were 'precise,' which has also been questioned by the public. Shortly thereafter, Better Life was exposed to cash flow problems, and had it not been for the rescue by Hunan state-owned capital, Better Life would have been in grave danger. Meanwhile, Yonghui Superstores, as a leading physical supermarket, also made peer investments, taking stakes in Zhongbai Group and Hongqi Chain. After September, Zhongbai Group saw six limit-up boards in less than half a month, with its stock price soaring to a two-year high. At that moment, Yonghui, the second-largest shareholder, acted, reducing its stake in Zhongbai Group by 3.69% within a week. Since then, Yonghui's reduction has continued. As of December 9, Yonghui Superstores had cumulatively reduced its stake in Zhongbai Group by 14.87%. Under its own performance pressure, Yonghui's reduction move is intended to shed the burden of long-term equity investment, which is undoubtedly a form of 'self-rescue.' In addition, on October 10, Shanghai Baoyin's fund also reduced its stake in Xinhua Commercial by 1.01%. From the perspective of capital's tendency to avoid harm, the pessimistic view of supermarket companies' future earnings expectations is the real reason for capital exit.
Leadership Changes Since the beginning of this year, many supermarket companies have undergone leadership changes. Besides normal succession, more personnel changes are proactive adjustments due to underperformance. Recently, Zhongbai Group officially changed its leadership, with Wang Meifang as chairman and Zhang Jun as general manager. Previously, Wang Meifang and Zhang Jun were general manager and deputy general manager of Zhongbai Group, respectively. Their appointments are at a critical moment: Zhongbai Group is under performance pressure and facing continuous stake reductions by the second-largest shareholder Yonghui, and the former chairman Li Jun resigned earlier this month. Whether they can lead Zhongbai Group back on track remains to be seen. On October 11, Beijing Chaoshifa changed its leadership. Li Yanchuan retired upon reaching the age limit, and Wang Zengqing officially became chairman of Chaoshifa. Before this, Wang Zengqing had served as general manager of Chaoshifa for many years, and this change is a normal succession. Unlike Chaoshifa, Carrefour China's leadership change may be related to underperformance. On September 20, it was reported that Suning.com's vice president Gong Zhenyu concurrently served as CEO of Carrefour (China), while former CEO Tian Rui was transferred to Suning's marketing headquarters as vice president, responsible for store construction. During Tian Rui's three-year tenure, Carrefour China tried to break through, but the results did not meet expectations: net store closures of 54, and losses did not improve. In addition, the leadership change at Xiao Runfa was also an unconventional personnel adjustment. At the end of July, media reported that Yuan Bin, former general manager of Xiao Runfa, was no longer responsible for Xiao Runfa's business, and the new business operator was Zhang Haoming, former head of RT-Mart Super (Zhong Runfa), who earlier was responsible for self-operated boxed meal delivery in the Hema system. At this time, less than two years after the first Xiao Runfa store opened, its model had not yet been proven. The intention of bringing in Zhang Haoming, who had already proven the Zhong Runfa model, is obvious. In the convenience store sector, in May this year, 7-ELEVEn China underwent senior management changes. Former 7-ELEVEn China chairman Shinji Uchida returned to Japan and no longer serves as chairman. The new chairman is Yan Qian, former CFO and general manager of 7-ELEVEn China. In addition, Lin Jianhong, former executive director of FamilyMart in mainland China, left a year ago. Although FamilyMart has not yet announced a formal successor, media reports say that Wei Shijie, son of Wei Yingxing, chairman of China FamilyMart, has quietly taken over.
Cage-Clearing to Welcome New Birds In the stock market, the capital operation of 'cage-clearing to welcome new birds' is relatively common. Companies can buy shells to backdoor list, and sell shells to supplement cash flow. In February this year, Andeli announced a restructuring plan, controlling a total of 51% of the voting rights of Yajia Technology, formally taking control of Nanfu Battery. On June 28, Andeli's securities abbreviation was officially changed to 'Anfu Technology.' This also means that the listed company Andeli formally divested its retail main business and transformed into a battery business. Andeli founder Chen Xuegao managed to get the retail business back through a series of maneuvers. Although this business has performed poorly in the past two years, leaving the stock market may give it a new lease on life. Similarly, on April 21 this year, Xinhua Capital transferred all equity of its 11 supermarket subsidiaries to its controlling shareholder Xinhua Capital Industry, transforming into an e-commerce operation enterprise. From offline to online, from heavy assets to light assets, Xinhua Capital finally divested its retail business. Similar to Andeli, Hualian Comprehensive Supermarket also completed the capital operation of divesting its retail business. On October 18, Hualian Comprehensive Supermarket announced that its major asset restructuring was approved by the CSRC. Hualian Comprehensive Supermarket sold all its existing supermarket retail assets to its controlling shareholder and issued shares to acquire 100% of Innovation Metal for 11.5 billion yuan. After the acquisition, Hualian Comprehensive Supermarket's main business changed from supermarket retail to R&D and manufacturing of aluminum alloys and their products. From December 21, the securities abbreviation changed from 'Hualian Comprehensive Supermarket' to 'Innovation New Materials.'
Hunting for Membership Stores In 2022, the warehouse membership store track remained hot, with various players actively hunting. Over the past year, Sam's Club expanded rapidly, opening 6 new stores, bringing the total to 42; Metro also accelerated renovations, currently having 24 membership stores; Costco currently has 2 stores open and more than 8 under construction; Hema X Membership Store is also actively expanding, with a total of 8 stores; others such as Carrefour, fudi, and Jiajiayue are also actively developing. In November this year, a heavyweight player joined the warehouse membership store track: RT-Mart officially entered. The first national store of M Membership Store will be located in Yangzhou, planned to open in April 2023. The impressive performance of Sam's Club and Costco has proven the profitability and feasibility of the membership store model. As an important direction for the transformation of hypermarkets, membership stores target mid-to-high-end customers with differentiation, which is also an inevitable choice for RT-Mart. However, local enterprises are still in the exploration and trial stage for the membership store format, and no local retail enterprise has yet run a profitable membership store model. It will take time to establish an understanding of the core value of warehouse membership stores and build the capability support, and supply chain and operational capabilities still need to be cultivated.
Entering Discount Stores In the past two years, discount stores have become a new choice for supermarket transformation. In July 2021, Jiajiayue opened its first discount store in Jining; in August 2021, Renrenle opened 2 discount stores in Shenzhen and Tianjin; in October 2021, Hema's first fresh produce outlet opened; in November 2021, Huaguan opened its first discount store in Fangshan District, Beijing; in August 2022, Wumart tested discount stores, with its first Meitao quietly opening, mainly featuring seasonal items from Wumart hypermarkets and replacement items that will not be restocked, with near-expiry items accounting for 30%; in October 2022, Guan Supermarket announced the launch of its discount store brand 'Guanpaike,' with the first store opening in Fuzhou... Looking at the chain supermarket companies entering the discount store sector, except for Hema Outlet, which has opened more than 50 stores, the rest are still in the trial and exploration stage, with no mature model yet. Whether testing warehouse membership stores or entering discount stores, supermarket companies are trying to break through and survive. Under the industry cycle difficulties, they must try various formats to find a way out. Chen Liping, a professor at Capital University of Economics and Business, emphasized that discount stores are not a retail format that only sells low-priced goods, but an innovative format in supermarket development. The innovation of the discount store format is based on a sustainable operating system that provides low-priced goods to customers and a sustainable competitive strategy. The competition in discount stores is ultimately a competition of 'efficiency.' As Wang Wei, chairman of Fresh Legend, said: 'The core of discount stores is not cheaper, but more efficient, and efficiency is realized by controlling costs.'
Final Thoughts: In the last month of 2022, epidemic prevention and control policies underwent major changes. For physical retail, the upcoming 2023 may still be severe. Facing future uncertainty, as Li Yanchuan, former chairman of Chaoshifa, emphasized, retailers need to plan ahead, maintain a correct mindset, and stay calm. The future retail landscape is not in the sky, nor underground, but in the hearts of the people. Whether they can meet consumer needs is the key to survival.