Metro quietly exited after selling for 11.9 billion yuan. Dai Luobo faced a crisis half a year after financing. Layoffs, mergers, and closures hit community group buying, with Shihuituan and Niwonin merging but failing to sustain last year's success. Once capital darlings, retail entrepreneurs felt the market's cruelty this year. Retail is no longer the crowded field it once was; instead, capital and industry players have become cautious, and the entire retail industry is undergoing qualitative changes in a slow process. -01- Foreign Retail: Ice and Fire In September, Suning.com announced the acquisition of 80% of Carrefour China for 4.8 billion yuan in cash. The following month, Metro announced the sale of 80% of its China business to Wumart and Duodian for over 10 billion yuan. Meanwhile, Korea's Lotte Mart, US's Macy's, and even Amazon closed their stores in China. On the other hand, Walmart China announced plans to open 500 new stores and cloud warehouses in the next 5-7 years. Japanese convenience store chains have also accelerated expansion in the past two years. Costco and ALDI, two "star" retail companies, made their first forays into China, even causing social media buzz due to chaotic openings. This year, foreign retailers' strategic layouts in the Chinese market have diverged. After foreign hypermarket retailers entered China, they reached maturity after initial development, frequently opening stores and expanding regions, with sales in China boosting their financial reports. However, these industry darlings faced significant impact from the rise of local Chinese retailers like RT-Mart, Wumart, and Yonghui. They encountered development bottlenecks and eventually exited China, with the most direct reason being poor performance or even losses. On one hand, foreign retailers exiting China are mostly in the hypermarket format, but the "big and comprehensive" product structure has lost appeal to consumers. As consumption upgrades, consumers demand better product structure and shopping efficiency, which hypermarkets with their "large size and full range" cannot provide. On the other hand, hypermarkets are often located far from residential areas, putting them at a disadvantage compared to convenience stores and community supermarkets in terms of distance. Compared to shopping malls and commercial complexes also far from residential areas, hypermarkets lack a comprehensive shopping experience, creating a mismatch with consumer needs. Hypermarkets are in an awkward position: not as good as shopping malls above, nor as good as community formats below. Under pressure from all sides, their product mix and operations fail to meet current consumer demands. Additionally, decades-old formats and enterprises suffer from management chaos and imbalanced work order, making foreign hypermarket retailers a target of criticism. The fate of foreign retailers is due to the decline of the hypermarket format, influenced by urbanization and changing consumer demands, but more so by the drawbacks of past extensive management and failure to meet consumers' fragmented shopping needs. Foreign retailers' transformations have also drawn attention, as they attempted self-rescue through multi-format and store renovations, but due to lack of understanding of consumer needs and inability to effectively improve operations and shopping efficiency, they ended up exiting China. For newcomers like Costco and ALDI, they have just made their first moves in China, and their future remains uncertain. Finally, given the upgrading consumption structure and trends, only foreign retailers that focus on convenience, differentiation, and experience can establish a foothold in China. -02- Fierce Battle in Mini Stores Mini stores became the preferred format for retail giants to reach lower-tier markets this year. By the end of Q3, Yonghui had opened 510 mini stores. Although Hema only opened 3 stores, Hou Yi claimed they would replicate on a large scale after the Spring Festival. Besides Yonghui and Hema, other retailers eyeing small formats include Bubugao's "Huimi Fresh", China Resources Vanguard's "Leshop Express", Carrefour's "Easy Carrefour", and many traditional retail players who have been exploring mini stores for years. After being targeted by front warehouses and community group buying, high cold-chain logistics and customer acquisition costs left the community fresh food market littered with failures, until the rise of small formats with seemingly higher efficiency gave retailers a new way into communities. This mini store model under 1,000 square meters, touted as "low investment, high efficiency", is triggering a new round of retail warfare. Mini stores are independent of giant stores, densely deployed in communities, complementing them, improving efficiency and reducing costs, strengthening coverage in existing cities, and competing head-on with front warehouses through home delivery services. In the industry, mini stores are called "the only potential front warehouse terminator". However, the road ahead is long; mini stores are not simply "compressed store space" but differ vastly from hypermarkets in product structure, location, selection, and back-end operations. "Big stores" focus on the front end, while mini stores focus more on the middle and back end. In terms of front-end aspects like product categories, display, user experience, and price, they are similar, but building a store with relatively complete functions and sufficient category width and depth requires deep consumer insight and long-term exploration and trial. The middle and back end are key to mini store success, testing scale, team, management, resources, and supply chain. Clearly, this year's exploration has not been very successful. Hema mini opened only 3 stores in a year, not expanding aggressively due to profitability issues, while Yonghui mini, as a new business, "dragged down" Yonghui Cloud. Data shows that Yonghui's mini store losses are expected to be around 200 million yuan for the year. At this stage, all retailers' mini store formats need improvement in quality, price, brand, and premium product power. Whether Yonghui or Hema, after harvesting in hypermarkets, they turned to community stores, claiming hypermarkets as the core and mini stores as community supplements. But currently, retailers that excel in big stores have not mastered the special differentiation of mini stores and applied it to operations. -03- Still Burning Cash Front warehouses: This year, few front warehouse companies announced financing. In May, Wuhan Jiji Fresh, a front warehouse + home delivery model, announced completion of Series A financing. Half a year later, layoffs and warehouse closures were reported, and the strategy shifted from instant delivery to twice-daily delivery. In September, Dingdong Maicai increased its registered capital to 1.5 billion yuan. Regional front warehouses still attract capital, with PUPU Supermarket and Dingdong Maicai, despite claiming to slow down, expanding across regions. The pioneer Miss Fresh, though without financing news, completed an iteration, launching front warehouse 2.0 with more categories, larger areas, upgraded equipment, and city expansion and investment. On the front warehouse battlefield, retail giants are present but not prominent in the first tier. Hema Xiaozhan, Yonghui Satellite Warehouse, Walmart, JD, and Suning all set up community warehouses for fresh groceries, with consumers ordering via apps for fast (30-minute) delivery. Despite the emergence of multiple formats challenging front warehouses, they are "surviving" thanks to capital support. For front warehouses, different players focus on different points. Some rely on brand traffic for aggressive expansion and regional replication, aiming to grab fresh food market share, while many first-tier players focus on profit models to escape capital dependence. The former tests financing ability, accelerating expansion in regions and increasing point density as a key direction, considered a crucial path to a viable model. The latter focuses on three core issues: high turnover, full category layout, and instant delivery. Front warehouses often start with high-frequency vegetables, but this results in low average order value and high loss. They then expand categories to increase gross margin contribution and offset vegetable loss costs, which is the biggest challenge. Only when average order value * gross margin > fulfillment cost can they sustain operations. Fulfillment costs include picking, packing, and delivery. With smaller warehouse areas, picking efficiency is higher, but roughly, most front warehouses have fulfillment costs of 10-15 yuan per order. Besides fulfillment costs, there are fixed costs like rent; higher order volumes reduce fixed costs per order, so each warehouse must exceed a volume threshold to be sustainable. Many retail giants are deploying "store + warehouse" models, opening front warehouses around big stores to balance cost advantages and drive traffic, including Hema Xiaozhan, Yonghui Life, and Greenland G-Super Satellite Warehouse. -04- Community Group Buying Shakeout Since the second half of 2018, community group buying has become hot, with companies securing financing from over 30 investment institutions. At the beginning of the year, Squirrel Pinduoduo announced a $31 million Series B1 round. Following that, over 20 platforms like Youyun Youxuan, Youtuan, Jinlin, Yuanchuang Youpin, Zhaituan, and Niwonin raised over 4 billion yuan. On the other side, Suning Xiaodian launched "Su Xiaotuan" APP for community group buying, recruiting tens of thousands of group leaders nationwide and building front warehouses. JD launched Youjia Puzi, and Taobao is doing station group buying. However, under the spotlight, community group buying entered a shakeout period. Squirrel Pinduoduo failed to raise funds, leading to cash flow tensions. After Niwonin and Shihuituan merged, they faced rumors of capital chain rupture. Linlinyi withdrew from several cities in Jiangsu and Zhejiang. Regional group buying platforms were acquired... The halo of community group buying is fading, with participants either joining forces or relying on giants for support. Community group buying became a hot spot after shared bikes and unmanned shelves because it turns traditional e-commerce's public traffic into small private traffic, using "group leaders" to obtain more accurate user traffic pools. But now, the chaotic situation is inseparable from capital's role. In the early stage, players competed for market share by relying on capital for reckless expansion. The money-burning model is unsustainable, leading to price wars, fake orders, unclear sources, and ultimately losses. Due to the long chain and many links in community group buying, involving many people and identities, any deviation affects subsequent processes and user experience. There's a saying: "Community group buying succeeds or fails by group leaders." Only by achieving high group efficiency can logistics costs per order be reduced. Additionally, community group buying requires local differentiated operations, but most companies haven't focused their funds and energy on specific business aspects. In the fierce market, community group buying attracts price-sensitive consumers with low prices, but long-term development requires supply chain accumulation. Industry insiders predict that group buying will eventually return to physical stores, as store operations are a capability reconstruction for pure online group buying. In interviews by Lingshou, many group buying participants believe that having stores as a carrier makes it easier to implement group buying, serving as a revenue growth point. Moreover, group buying brings consumers closer to community stores, allowing them to be buyers, sellers, and promoters simultaneously. At the same time, relying on offline store influence, price advantages attract consumers and collect prepayments. On the supply chain side, fan groups become bargaining capital, forming a virtuous cycle where the main point of group buying is minimizing logistics costs, with in-store pickup and no loss. Group buying helps offline companies better understand consumers and even aids front warehouse layout. Using front warehouse sales data to analyze whether to open stores and determine store size and product selection, community group buying may feed back into community fresh stores, complementing each other. -05- Wet Markets Become Hot In early April, Hema opened two community-focused Hema Cai Shi sample stores in Shanghai and Beijing. Three months later, Yonghui Supermarket's Jishi Shenghuo opened its first store in Shanghai. It's not just about wet market delivery; front warehouses and community stores are also involved. Internet giants are "eroding" wet markets in different ways. After announcing the restart of its B2B Youcai business on December 26, 2018, Ele.me also pushed into C-end vegetable buying, establishing an open fresh food platform. Meituan, with a similar platform model, launched a vegetable buying channel on Meituan Waimai and also opened Meituan Maicai with a front warehouse model. In this race to revive "wet markets", there are also players directly renovating wet markets. Additionally, many entrepreneurs have emerged who aggregate wet market resources upstream and connect with delivery platforms downstream, earning service fees and commissions, such as Cai Laobao. Under the "transformation" of traditional wet markets, the combination of chain supermarkets and standardized management of individual vendors has become another product of the fresh food battlefield. In recent years, traditional farmers' markets have shown a "dying" trend in first-tier cities due to poor stall environments, non-standard management, incomplete categories, and outdated business combinations. Retail giants like Hema and Yonghui entered with market and bazaar concepts, introducing joint operation models on top of chain supermarkets to capture the largest price-sensitive consumer base, exploring more down-to-earth wet market business with low average order value and high traffic. Whether wet markets or bazaars, they introduce joint operation models on top of chain supermarkets, lowering entry barriers for individual vendors and improving supermarket control. Additionally, bazaar formats can distribute the hardest-to-handle fresh supply chain costs to individual vendors. Conversely, individual vendors benefit from chain supermarkets' traffic and brand awareness, gaining business premises and achieving omni-channel integration, making it a good option for individual vendors as traditional wet markets decline. Moreover, large online platforms are targeting traditional wet market renovation, helping them gain online traffic and digitize, while making wet market inventory delivery-oriented. Compared to front warehouses and community stores, digitizing wet markets is not easy. First, fresh products are diverse and numerous, making standardization difficult. Second, stalls are fragmented and cannot coordinate. But this positioning is fundamentally different from traditional retail, so promotion is challenging. Retail giants entering wet market renovation have not yet found a good model. Ultimately, only players with "strength" to deeply renovate wet markets in people, goods, and places will win. Additionally, it's worth noting that traditional wet markets will not disappear. They have two core advantages: the best cost-performance and the richest fresh categories, plus a strong sense of life and human touch that attracts community residents. Front warehouses and community stores will not completely replace wet markets or wholesale markets. Through cooperation, renovation, or empowerment, they help individual vendors "re-employ", reduce pressure on fresh supply chains, give consumers more choices, and foster healthier competition and environment. Half a year ago, capital stopped favoring retail, and investors turned pale at the mention of fresh food. A few months later, multiple community fresh players exited. Internet giants, from online to offline and new retail, are now clashing in lower-tier markets. On the surface, competition is ending, but the next half is a covert struggle. Compared to the first half's capital support and scale competition, the second half tests profitability. -06- Hunting in Lower-Tier Markets As traffic dividends peak, internet giants have found a new track: lower-tier markets. This year, internet giants accelerated offline "small store" layouts, using "integrating local home appliance retailers" as a key strategy, while online they "follow" Pinduoduo. To date, Suning Retail Cloud has over 4,600 stores across 4,000 counties. JD acquired Five Star Electronics and accelerated JD Home Appliance expansion. Additionally, lower-tier markets are crowded with startups offering "technology empowerment" in verticals, as well as brands and distributors wanting a say in retail, and commercial real estate entering the track. Online, Pinduoduo's followers are becoming more aggressive. Alibaba restarted "Juhuasuan" to help channel sinking with low-priced goods from top merchants. Suning increased group buying to improve penetration. JD, around the JD Mall app, formed over five businesses like Fenxiang, Jing Xiaoge, Jingxi, and Yundian, and accepted Tencent's strong channel support to battle Pinduoduo and others. The saying "the more retail can sink, the stronger its competitiveness" holds. Internet giants are leveraging their core strengths, constantly experimenting and accelerating to find suitable incremental markets, and finding ways to sink in this market of over 300 billion yuan. The reason for sinking is consumer changes. After "town youth" were baptized by internet giants, consumption habits changed completely, with traffic dividends shifting from tool-based social to content-based social. Emerging live-streaming commerce, acquaintance economy, and communities are seen as key means to develop new traffic, activate lower-tier consumers, and improve conversion. As competition intensifies in first- and second-tier cities, sinking to third-, fourth-, fifth-, and sixth-tier cities becomes a necessity for many retailers, explaining why lower-tier markets are contested. At the same time, regional retail enterprises and commercial complexes in third- and fourth-tier cities, previously "cold-shouldered", are being re-evaluated by capitalized retailers. For internet giants, supply chain integration and online layout advantages give them more edge in "grabbing" lower-tier markets, but the profitability of such models remains questionable. Whether giants starting in first- and second-tier cities can adapt to lower-tier consumers' habits is a true test of their "big data analysis". More importantly, whether infrastructure, logistics, and professional manpower can support giants' ambitions in lower-tier markets, and how to balance logistics investment and returns, are major challenges. Notably, there's speculation that lower-tier markets will enter a new phase of industrial sinking, represented by supply chain sinking. If logistics can't even reach township level, other aspects are harder. So, whether supply or service sinking, the first priority is industrial sinking. This is what lower-tier markets truly need to consider, but can they sink? -07- Store Closures, Layoffs, and Bankruptcies: Some Players Exit In the past month, Dai Luobo was exposed for layoffs and unpaid wages and supplier debts. Miao Shenghuo "quietly" closed all stores. Then Jiji Fresh, a "front warehouse + home delivery" business, laid off staff and closed warehouses. In one month, the "fresh food track" and companies seemed to enter a harsh winter. Since the second half of this year, investors have been saying they "will no longer invest in fresh food or retail". In fact, since the second half of 2018, capital has cooled down, and this year it has decreased sharply. Except for some leading companies, most have "died". Retail, as an industry with non-short-term returns, attracted VC/PE due to its essential and high-frequency attributes. But at the same time, the high "mortality rate" of fresh food confirms that fresh e-commerce is not a game for small players. When capital exits, it leaves a mess without even a chance to "explain". Retail companies driven by capital, once cut off, if they haven't found self-sustaining capabilities, their fate is obvious. Looking at these failed retail players, they all share three keywords: blind expansion, capital chain rupture, and inability to profit. When capital invested, novel business models were the focus. After securing funding, they used low-price strategies to grab market share, achieved large scale, then used scale to squeeze supply chain profits and improve efficiency, believing that only expansion and scale could lead to profitability. But when capital protection was lost, capital chains broke, and larger scale meant greater losses. The hardest part is their difficult exploration of profitability. High fulfillment costs, storage rent, loss, labor, and even huge customer acquisition costs require capital support. Without a fixed profit model, they consume capital and eventually are abandoned. Thus, we see layoffs, store closures, liquidation, and unpaid wages and supplier debts. In summary, unit economics don't work, scale effects are not obvious, and they must continue burning cash to find viable profit models. Once capital support is lost, companies lacking self-sustaining ability will close stores, warehouses, or collapse one after another. In fact, fresh food has always been a tough nut to crack. In fresh food operations, logistics, finance, user operations are all indispensable, while low profits, high loss, and lack of stable profit models often cause industry pain. -08- Retail Giants' Mergers and Acquisitions As the saying goes: Major M&A events are like weather vanes, indicating changes in the retail industry. This year, retail M&A continued to be a key action between physical enterprises and with internet companies, as they seek oligopoly through rapid market capture. First is the "rich man" Wumart Group: In March, Wumart took over 5 Carrefour stores in Beijing from China Resources Vanguard. In June, it invested 7.075 billion yuan in cash in Chongqing Department Store's parent, Chongqing Commercial Group. In October, it spent over 10 billion yuan to acquire Metro China. Next, Shandong regional retail giant Jiajiayue is also advancing toward becoming a national retailer. In September, Jiajiayue completed the acquisition of China Resources Vanguard in Shandong. In November, it invested 210 million yuan in Kuaile Zhenbang to enter Anhui market. Additionally, JD acquired Five Star Electronics, but the biggest M&A in retail this year was Suning: In February, it acquired 37 stores of Wanda Department Store; in August, it acquired OK Convenience Store; in September, it acquired 80% of Carrefour China. This year, more M&A occurred among traditional retail giants. Whether Wumart or Suning, they aim to enhance competitiveness by integrating regional resources. More importantly, when retail companies reach a certain stage, due to cost issues and regional differences, they find it hard to expand independently or cover and control everything at once. Only through M&A can they cover more markets with scale advantages, reducing costs and improving efficiency. This strategy may be influenced by Walmart, which entered global expansion in the 1990s by acquiring foreign chains. Subsequently, international revenue grew, and even in 2010, Walmart entered new fields by acquiring e-commerce platforms and digital tech companies. Looking at this year, both foreign and regional retail show a trend of "low valuations", with "bargain sales" as the keyword. For instance, Carrefour China, with 200 large supermarkets and 24 convenience stores, was valued at only 6 billion yuan, which is 1/17 of Yonghui Supermarket's value, and comparable to a new-style tea brand. This is mainly due to the retail industry's difficulties. In a downturn, acquisitions can be made without high valuation premiums, achieving rapid expansion. For some retail giants, this is a good choice. But to seize this "dominant" opportunity, one needs not only courage but also the ability to face integration risks. After M&A, the first test is supply chain integration, as it's the core capability of large supermarket formats. How the two giants improve supply chain capability and efficiency is the first test of integration. Second, there's personnel integration, from chairmen and executives to store staff, involving the placement of tens of thousands of employees and cultural integration, all hurdles. In domestic and international M&A cases, few succeed; most fail. Blindly "buying" for scale may result in a hot potato. In fact, offline retail competition is not about scale but about who can understand consumers, predict future lifestyles and consumption patterns, and adapt accordingly. After all, many regional retailers quietly make big profits. -09- Upstream Supply Chain and Order Agriculture China's agricultural upstream has a trillion-yuan supply chain, but it's the weakest link. So this year, more retailers extended their reach upstream. In November, Jiuzhou Xiongdi Lian, established by 32 national retailers, was officially formed, achieving unified operations and procurement among retail enterprises, systematic fresh product standards, and order agriculture through joint platform big data analysis. Other retailers like Pagoda, Hema, and Yonghui have also invested heavily in order agriculture, such as sales output and agricultural finance supply chain output, providing stability for fresh product supply chains. Order agriculture refers to a model where farmers sign orders with buyers (themselves, cooperatives, or rural organizations) before organizing production, avoiding blind production compared to traditional agriculture's produce-first, market-later approach. Many companies have broken the status quo of fragmented, inefficient, low-end, and low-value-added agriculture. Through orders and collective orders, they guide and promote upstream, ultimately achieving "reverse supply chain model of producing based on sales" order agriculture, providing economic guidance for agricultural products. Retailers, with physical stores and membership systems, connect upstream and consumers, and with supply chain and operations systems, can reduce loss and increase profit margins. Order agriculture is becoming common in retail. Signing contracts ensures priority supply rights, and more importantly, helps retailers achieve upstream layout, controlling product quality, ensuring stable supply of high-quality fruits, and saving costs. This confidence stems from retailers being closest to consumers, not just suppliers, so they know better what grade of products to sell and in what form. -10- Strengthening Private Brands For retailers in fierce competition, private brand development is seen as a trump card. This year, Walmart made another private brand move: launching fast-fashion private brand "George". Hema, after "Daily Fresh", "Emperor Fresh", and "Hema Taste", launched "Gaoshan Fresh". Hou Yi even claimed Hema aims to have over 50% private brands within three years. RT-Mart also said it hopes private brand products will grow by 1% annually. Beijing's old supermarket Wumart launched fresh private brand "Meirixian", trying to tap the private brand market, shifting from high gross margin to product differentiation and customization. Fresh Legend has over 800 private brand products, accounting for 30% of sales, and plans to increase to over 50%. Yonghui Supermarket has also intensified private brand investment this year. Financial reports show Yonghui's private brand C-end sales in H1 were 786 million yuan, accounting for 2.1%, with food and daily necessities at 544 million and fresh at 242 million; B-end sales were 714 million, with food and daily necessities at 450 million and fresh at 264 million. As foreign retailers retreat from China, Costco and Aldi have bucked the trend. Though their models differ, their operations are consistent: high weight on private brands. This is not unique to foreign retailers. Data shows that in major UK supermarkets, over 30% of products are private brands, with the highest at 54%. In US supermarkets, over 40% are private brands. In Japan, as early as the late 1980s, nearly 40% of large department stores developed private brands. In contrast, China's private brands are still in the initial stage, with a market share of only about 3%, far behind developed countries. The gap is mainly due to the small scale of domestic retailers, making it hard to achieve scale advantages to reduce production costs. Also, the long-standing "channel is king" pattern hasn't changed, and retailers lack experience in product R&D and brand marketing, hindering private brand development. But fortunately, the significance of private brands to retail enterprises is growing. From a strategic perspective, developing private brands helps change the weak bargaining power of domestic retailers against upstream suppliers, as their gross margins are lower than foreign retailers and upstream suppliers. Private brands will help retailers gain a larger share of the industry pie. As retailers gradually gain bargaining power upstream, private brands may become the redistributor of the zero-supply industry's interest chain. Most importantly, private brands can expand profit space, which is the secret weapon for high profit margins of retailers like Walmart. In retail, retailers traditionally act as channel sellers, with profits stable at 25%-30%. Private brands can effectively increase gross margins and thus net profit margins. Data shows Costco's private brand sales account for 25%, while Aldi takes this to the extreme at over 90%. Secondly, leveraging chain scale benefits, they enjoy brand dividends from expansion. By strengthening private brands, supermarkets save sales expenses while creating flexible, unique marketing scenarios on their own channels, expanding product influence and increasing sales. By using their own channels for trial sales and feedback, they can create products that better meet market demand, forming a closed loop in the zero-supply relationship. This is why retailers are rushing to make achievements in private brands. But it's worth noting that when strengthening private brands, it's essential to control differentiation and quality, focus on consumer needs, create differentiated competitive advantages, and improve supply chain management, quality control, and channels. Finally, Lingshou suggests that private brands are not just about registering a trademark and selling products, but about intervening in every aspect of upstream production and registering the private brand in consumers' minds. Source: Lingshou (ID: lingshouke) Tips for exclusive news: 400-2000 yuan