Source: Sharp Company (ID: shangjiezz)

Traditional supermarkets have entered an exceptionally brutal winter. In the biting cold air, a host of once-glorious legacy supermarket chains are gasping for breath.

Due to poor operating conditions, since 2021, Carrefour has gradually closed many stores in China. According to statistics, in just the first two months of 2021, Carrefour closed 14 stores; Walmart's first store in China also announced closure in December 2021, and in the first half of 2021 alone, Walmart closed 11 stores in mainland China.

After more than a decade on the stock market, Yonghui Superstores has delivered its worst performance ever—according to its third-quarter report, the company lost 2.178 billion yuan in the first three quarters of 2021, a year-on-year drop of 207.37%. Dragged down by the poor performance, Yonghui's stock price fell by 45.53%, and its market value evaporated by about 30 billion yuan.

Overnight, we suddenly realized that the sky over supermarkets has changed.

Chasing an Unreachable Trend

From a warm spring to a cold winter, Yonghui has experienced the full course of gradually cooling temperatures. Facing the aggressive advance of "invaders," Yonghui actively fought back each time, but was defeated again and again.

The beginning of the changing sky started with internet e-commerce. Human laziness made shopping accessible at one's fingertips, while traditional supermarkets, rooted in the offline world of "slow carriages and horses," were caught off guard.

At this time, the "culprit" behind the traditional supermarkets' successive defeats, Jack Ma, the founder of Taobao, offered an antidote—new retail. He encouraged the integration of online and offline commerce, urging traditional e-commerce to vigorously develop new retail platforms while capital investment enthusiasm was at its peak.

Yonghui thought it could seize the opportunity of the era by relying on its deep expertise, but it was slapped in the face by the times.

To test the waters of new retail, Yonghui launched "Super Species." Despite receiving capital support from the Tencent ecosystem, the business struggled to gain traction and remained in a loss-making state. On May 21, 2021, Yonghui Superstores' chairman Zhang Xuansong responded to investor questions at the annual shareholders' meeting, stating that Yonghui would return to the origin of being a supermarket for people's livelihoods.

Building an online platform is not difficult for traditional e-commerce. But how did their path to emulate Hema Fresh's advanced model end up in a mess?

Rather than being an antidote for traditional supermarkets, new retail seems more like a grand blueprint tailored for Alibaba Group, more like a "conspiracy" by Jack Ma to extend his reach offline. Alibaba's Hema Fresh was born under this ostensible "excuse" and was the first to propose the "fresh food + dining" supermarket competition model.

First, Hema chose to locate in office-dense areas, high-end residential areas, and shopping centers; second, the "freshness" emphasized by Hema is a major test of the supply chain. Every link places higher demands on capital, traffic, talent, and technology. For Alibaba Group, which was at its peak, Hema had enough confidence to deliver a high-scoring answer.

But for traditional supermarkets like Yonghui, the stamina in every link—capital chain, traffic, talent, and technology—was insufficient. Because they lacked the ability to continuously create hit products to attract traffic, after the big promotions ended, the curious users dispersed.

Moreover, for the suddenly appearing lucrative business, every department wanted a piece of the pie.

A former employee of Yonghui Yunchuang revealed, "Everyone sat in their own position, wanting to stuff their own things in. In such a situation, no one properly sorted out the supply chain of Super Species or its entire profit model." In this way, Super Species, which was originally planned to open in Manhattan and Silicon Valley, became a discarded pawn of Yonghui.

Interestingly, RT-Mart, another new retail banner under Alibaba, leaned on a big tree but struggled to regain its former glory. This "king of supermarkets," which once set a record of "not closing a single store for 19 years," joined the new retail torrent after being acquired by Alibaba, shouting the slogan of a "down-to-earth version of Hema." It removed the home appliance and apparel sections from its hypermarkets, focusing on "fresh food lifestyle supermarkets," with food accounting for 85%.

Financial reports show that in the six months from April 1 to September 30, 2021, RT-Mart's revenue was 41.534 billion yuan, a year-on-year decline of 5%, and profit attributable to shareholders was 117 million yuan, a year-on-year decline of 86%. It turned out that without the support of first- and second-tier city consumers, the banner of "fresh food + dining" no longer fluttered.

The trend of fresh food stores in commercial centers had not fully passed when traditional supermarkets faced the next trend: community group buying. However, this time they withered further.

Yonghui strongly played the card of Yonghui Mini, but it failed again without exception. Due to low customer traffic and few orders in a single community, community fresh food requires selling high-margin products to be profitable, putting enormous pressure on profitability. Market sources revealed that Yonghui Mini began large-scale store closures in the second half of 2020.

This was not the end of Yonghui's transformation. As the "imported" warehouse stores joined the red ocean of supermarkets, Yonghui once again chose to follow the trend.

Can Warehouse Stores Save Supermarkets?

"In China, anything that charges a fee can be obtained for free." Clearly, Yonghui has grasped the essence of this saying.

In May 2021, Yonghui began experimenting with warehouse stores.

As of the end of June 2021, the 20 warehouse stores that Yonghui Superstores converted and opened nationwide saw a year-on-year increase of 136% in average daily customer traffic per store. This was Yonghui's most powerful counterattack to this new era since its self-rescue efforts. The company excitedly praised Yonghui warehouse stores as a major footnote to its strategy of "Technology Yonghui, Digital Empowerment."

Yonghui's glamorous turnaround was not a simple copy-paste. Traditional warehouse stores attract customers with "wholesale prices," as long as products don't lose money, and profits mainly rely on membership fees. But Yonghui warehouse stores, well-versed in Chinese psychology, abolished the membership fee system and continued the wholesale price feature, keeping the overall gross margin at around 10%.

To achieve profitability, Yonghui implemented a low-profit, high-turnover, wholesale-retail combined sales model. But this competitive logic of streamlining SKUs and boosting sales per product means the original supplier system will be restructured, severely testing the company's product selection ability.

Yonghui cannot passively wait for consumers to choose; instead, stores must judge consumer demand and select product displays.

Moreover, while Yonghui's relationship with its core supply chain has strengthened, it has also become more dangerous. Once Yonghui frequently tests suppliers' bottom lines, or the core supply chain exerts supply pressure on Yonghui, the alliance between the two will collapse.

For Yonghui, warehouse stores are hope, but this wing is not yet fully fledged, still hesitating in a small sky, and currently cannot support the empire's future.

Product selection and supply chain testing—these two hardcore standards have discouraged traditional supermarkets lacking confidence.

Besides Yonghui, Sam's Club is also a leader in the warehouse store industry. The latter's approach is more traditional, mainly relying on membership fees for profit. For such traditional membership warehouse stores, the "membership renewal fee" is the driving force behind the supermarket's operation.

Sam's is the "pioneer" of warehouse membership stores, coming to China as early as 1996, struggling to promote this business model, enduring a long period of acclimatization, and finally in recent years "seeing the clouds part and the moon shine." Unlike other countries, benefiting from developed e-commerce, consumers in China's first- and second-tier cities mostly do not have a rigid need for regular bulk physical purchases.

So Sam's carved out a path by turning its private brands into online hits, actively creating differentiation, and turning the supermarket into an internet-famous check-in spot.

Data shows that Sam's private brand Member's Mark accounts for 20% of its SKUs, while Costco's private brand Kirkland accounts for 25%. In contrast, traditional supermarkets like Yonghui and Hema are still in the early stages of building their own brands and creating differentiation.

Therefore, whether warehouse membership stores can be the antidote for traditional supermarkets remains to be answered by time. But some analysts point out that the market for warehouse membership stores in China is quite limited.

This judgment points out that, based on city capacity, for example, Beijing has a population of over 20 million. When dividing typical target groups by middle-class income, married groups, and family consumption, the actual number of people is not that impressive.

For supermarkets like Costco, 200,000 to 300,000 members can only support one store. In a city like Beijing, opening about five stores would already be quite saturated. "The market size will not be too large within five years."

If this analysis is correct, then warehouse stores are ultimately just a narrow glimmer of hope for traditional supermarkets.

Nowhere to Go?

In this harsh winter, do the scattered traditional supermarkets really have nowhere to go?

Pangdonglai, dubbed the "Haidilao of the retail industry," has become a "landmark" in Henan, resonating strongly with local consumers.

In 2015, Pangdonglai originally decided to withdraw from Xinxiang due to rent increases, but local residents and officials pleaded for it to stay, creating a much-told story in the retail industry.

Even Jack Ma once praised it for "triggering new thinking among Chinese retailers and being a banner for Chinese enterprises." Lei Jun called it "a god-like presence in China's retail industry."

The secret to Pangdonglai's success continues Haidilao's "extreme" service gene—if items are out of stock, you can leave a message and they will restock or even deliver to your door; as long as consumers think the food is not tasty, even without a receipt or reason, Pangdonglai will refund...

Unfortunately, Pangdonglai cannot provide an answer for traditional supermarkets' future. Because its success is confined within Henan's provincial borders.

This is because Pangdonglai is an excellent "persona management master." Whether it's brand promotion, team and founder story shaping, or service, everything revolves around "exchanging genuine products for genuine hearts."

But a warm, sincere strategy requires an unquenchable torch to keep consumers warm, requires entrepreneurs to frequently appear to "maintain presence," and requires a strong emotional foundation with consumers. Once it steps beyond Henan's borders, the strategy diminishes with increasing distance.

After Alibaba acquired RT-Mart, the founder left the company with all senior executives, leaving behind the classic quote from RT-Mart's original team: "We defeated all competitors but lost to the era," lamenting that in the current era of internet waves and endless new consumption models, even strong combat effectiveness is but an ant under the wheels of the times.

Has the traditional supermarket become the tears of the era?

Not necessarily. Trends are always changing. Compared to the fleeting new winds, traditional supermarkets have always stood firm at the street corners most familiar to consumers, possessing a strong user base.

Besides continuously learning new business models, the most important thing is to boldly play the card of differentiation.

This could be partnering with logistics giants to reach consumers' doorsteps faster than new retail, community group buying, or warehouse stores; or it could be continuously creating hit products through private brands, making consumers pay attention to these time-honored brands again, so that traditional supermarkets no longer gather dust and are no longer traditional.

Traditional supermarkets still have the potential to hold their ground at the busiest intersections.

  • Image: VCG

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