---
title: "What Kind of Supermarket to Open? Yonghui Superstores Is Confused"
description: "The demand for grocery shopping is eternal, but successive rounds of business model innovation have proven that the modern grocery business is tough, and one misstep can leave your model behind. Yonghui Superstores, known as 'China's first fresh food stock,' has been struggling in recent years, actively following every fresh food retail trend—new retail, fresh food community convenience stores, fresh food plus dining, community group buying, supermarket delivery, warehouse membership stores—yet results have been disappointing, posting its worst performance in 11 years since listing."
author: "于斌"
publisher: "New Distribution"
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published: "2021-11-26"
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# What Kind of Supermarket to Open? Yonghui Superstores Is Confused

> The demand for grocery shopping is eternal, but successive rounds of business model innovation have proven that the modern grocery business is tough, and one misstep can leave your model behind. Yonghui Superstores, known as 'China's first fresh food stock,' has been struggling in recent years, actively following every fresh food retail trend—new retail, fresh food community convenience stores, fresh food plus dining, community group buying, supermarket delivery, warehouse membership stores—yet results have been disappointing, posting its worst performance in 11 years since listing.

Source: Yujian Column (ID: yujianzhuanlan)

The demand for buying groceries has existed since ancient times, but one round after another of business model innovation proves that the modern grocery business is very difficult. If you are not careful, your grocery model falls behind.

Yonghui Superstores, known as "China's first fresh food stock," has been struggling in recent years. New retail, fresh food community convenience stores, fresh food + dining, community group buying, supermarket delivery, warehouse membership stores... Yonghui Superstores has actively followed every fresh food retail trend, but the results have been unsatisfactory, delivering its worst performance in 11 years since listing. In the first three quarters of this year, both revenue and profit declined, recording a loss of 2.178 billion yuan.

Facing continuous changes in the retail industry, can Yonghui Superstores, standing at a crossroads, keep up with the next trend?

**Succeeded by Fresh Food, Failed by Fresh Food**

Founded in 1995, Yonghui Superstores was formerly Gule Weili Supermarket. As the name suggests, low profit was its strategy. At that time, Gule Weili quickly captured the market with retail prices lower than the market.

But the good times did not last long. When international supermarket giants such as Metro, Walmart, and Carrefour entered the Chinese market in succession at the end of the 20th century, low prices lost their appeal.

The owner of Gule Weili opened the first Yonghui Superstore in July 2000 on Pingxi Road in Fuzhou. In this store, the fresh food area accounted for 50% to 70% of the total operating area. From then on, Yonghui Superstores established its business positioning with fresh food as the main focus, thus carving out a path to survival amid the encirclement of international supermarket giants.

To this day, fresh food remains Yonghui Superstores' most advantageous category. Public data shows that the average fresh food operating area of Yonghui Superstores stores is over 40%, and sales account for about 50%, but the fresh food loss rate is only 3-4%, while the industry's fresh food loss rate is as high as 20% to 30%, building a deep advantage barrier.

For Chinese consumers, fresh food is a rigid demand, high-frequency consumption scenario that can significantly attract customer traffic. Yonghui Superstores' strategy is to use fresh food to drive sales of other categories. However, the problem is that because fresh food is rigid demand, high-frequency, and low-priced, it is also the category most vulnerable to impact in offline retail.

Xu Zheng, founder of Miss Fresh, used the phrase "bending over to pick up steel coins" to describe the fresh food retail industry. Although the gross margin is not high, because of its low entry barrier, it has become the category with the most retail changes and the highest elimination rate in recent years.

Fresh food e-commerce, community group buying, supermarket delivery, warehouse supermarkets... every innovation in fresh food retail attracts consumer traffic with subsidies, discounts, and low prices. Traditional supermarket audiences obviously do not have loyalty to a particular store for buying groceries; consumers only care whether the vegetables they buy are fresh and cheap. Price wars can attract consumers the fastest, but at the same time, they can also lose consumers in the shortest time due to competitors' price wars.

In particular, the impact of community group buying on traditional fresh food supermarkets is unprecedented. According to a report by Soochow Securities, fresh food e-commerce overall is 20% to 25% more expensive than offline supermarkets, but community group buying overall is 20% to 25% cheaper than offline supermarkets.

Capital players in fresh food e-commerce are also emerging one after another. According to statistics from Winshang.com, in 2017, in shopping centers of 30,000 square meters and above in first- and second-tier cities, 16 fresh food supermarket brands entered people's daily lives. In addition, supermarkets in communities are mostly no longer limited to selling ordinary daily necessities; selling vegetables and fruits has also become an essential business for community convenience stores.

With various fresh food formats emerging one after another, Yonghui Superstores' fresh food, which had sustained it for over a decade, could no longer bring performance growth. According to Yonghui Superstores' 2021 semi-annual report, in the first half of this year, the gross margin of fresh food and processing business fell sharply by 5% year-on-year to only about 10%, and the gross margin of food and daily necessities fell by 3.5% year-on-year, causing the company's overall gross margin to decline to 18.75%.

**Striving to Follow the Trends**

As competitors made moves one after another, Yonghui Superstores was not indifferent. In fact, Yonghui Superstores has been striving to follow changes.

In October 2016, Jack Ma proposed the concept of new retail in a speech, saying, "In the next 10 or 20 years, there will be no e-commerce, only new retail." That year, Alibaba launched Hema Fresh, which combines online, offline, and logistics, aiming to revolutionize the supermarket industry.

In early 2017, Yonghui Superstores also launched "Super Species," a hybrid format of "high-end supermarket + fresh food dining + O2O," and claimed to improve the standardization of deep-processed dining.

In 2018, a certain securities firm even defined Super Species and Hema Fresh as the two leading players in "new retail new formats" supermarkets in its weekly report on the commercial retail industry. According to reports, in 2019, Super Species had more than 80 stores nationwide.

The company's stock price was also favored by capital due to this exploration. From January 2017 to January 2018, Yonghui Superstores' stock price rose by more than 120%.

However, Super Species did not receive a warm welcome from consumers. Although its operation combined a fresh food supermarket with high-end dining, it also caused blurred positioning. The ingredients were priced higher than those in wet markets and ordinary supermarkets, but the quality and taste of the dishes were not as good as professional restaurants. It was neither high-end nor affordable, pleasing neither side.

Moreover, supermarket retail and dining are naturally opposed in terms of categories. Retail stores need as much space as possible to build shelves and increase categories to lower gross margins, but Super Species left half of the store space for dining, making the number of products stored extremely limited, with even less than 1,000 SKUs per store.

Reflected in performance, Super Species did not bring new business growth points to Yonghui Superstores; instead, it dragged down performance.

Financial reports show that Yonghui Yunchuang, responsible for new retail businesses such as Super Species and Yonghui Life stores, lost a total of more than 3 billion yuan from 2017 to 2020. By 2021, more than 80% of Super Species stores had closed.

As a large and comprehensive chain supermarket, Yonghui also tried the small and beautiful community mini-store format. Mini stores are positioned as community fresh food (small) supermarkets, with fresh food accounting for more than 60%. Compared with hypermarkets, mini stores are geographically closer to residents' lives, reducing the time cost of shopping for nearby users and meeting the consumption needs of both home delivery and in-store shopping.

From the perspective of fresh food retail market demand, mini stores have more of Yonghui Superstores' supply chain advantages compared with other community fresh food retail brands, helping Yonghui Superstores reach short-distance community needs.

However, when Yonghui Superstores entered the mini-store market, community fresh food was experiencing rapid development. Community fresh food supermarkets such as Qian Dama and Yipin Fresh Food were opening stores frantically, and online brands such as Miss Fresh and Dingdong Maicai were offering large subsidies and discounts.

To seize the market, Yonghui Superstores adopted a strategy of aggressively opening mini stores. In 2019 alone, 573 new mini stores were opened, covering 19 provinces.

But aggressive store opening in a short period means extensive management. Because the group required major regions to open a large number of stores, regions, in order to meet the store opening targets, opened stores in the cheapest rental locations, resulting in stores that did not reach the target customer group at all, completely contrary to the goal of mini stores reaching community consumers. As a result, a large number of stores fell into losses.

In 2020, mini stores began closing. In just one year, the number of mini stores dropped from 573 to 156. By the first quarter of this year, there were only about 70 stores left.

The failure of new retail formats and community fresh food stores did not stop Yonghui Superstores from following the trend of retail reform. In April this year, Yonghui Superstores tested the warehouse model, upgrading traditional stores to warehouse stores, advocating "everyday low prices, wholesale and retail" to attract customers.

Yonghui Superstores was also very fast in opening warehouse stores. Starting the trial in April, by the end of June, the company had opened 20 warehouse stores nationwide after remodeling.

In its semi-annual report this year, Yonghui Superstores stated that warehouse stores achieved sales of 150 million yuan in the first half of the year, a year-on-year increase of 139%, with average daily customer traffic of 6,181 person-times per store, a year-on-year increase of 136%.

Many people believe that large stores are Yonghui Superstores' traditional advantage, and the warehouse model is highly likely to bring new life to Yonghui Superstores, which is deeply trapped in the dilemma of transformation.

However, it is worth noting that Yonghui Superstores' previous attempts with Super Species and mini stores both experienced initial success, but the results were ultimately unsatisfactory.

In addition, Yonghui Superstores' warehouse stores are not the same as Costco or Sam's Club warehouse models. First, Yonghui warehouse stores are non-membership, with no paid entry threshold, and do not require buying large quantities beyond actual needs, adhering to the principle of small profits but quick turnover.

Moreover, in Sam's Club, most products are private label, which removes backend costs and increases front-end gross profit. However, Yonghui Superstores' warehouse stores still use the original suppliers and products, only changing the display and sales methods and prices, without reducing intermediate costs. Therefore, even if Yonghui warehouse sales increase, profits do not, and in the end, it is likely to be a losing business.

**The Painful Transition Period Is Still Long**

Although repeated attempts have not brought real performance growth poles to Yonghui Superstores, Yonghui is still brave enough to keep trying. Since this year, it has been frequently taking actions such as adjusting personnel, restructuring, and reducing inventory.

More notably, as a traditional supermarket brand, Yonghui Superstores has increased R&D investment this year, raising the banner of "Technology Yonghui."

According to publicly disclosed information from Yonghui Superstores, in the first three quarters of 2021, Yonghui's technology investment exceeded 400 million yuan, mainly using technological means to digitally reorganize supply chain modules such as direct sourcing from origin, forecast ordering, and calculating product life cycles.

As a supermarket enterprise mainly focused on fresh food, it is very necessary to use technical means to standardize replication and reduce management costs. According to Yonghui, by optimizing the product structure, Yonghui reduced ineffective inventory occupation, lowering the total inventory amount from 10.882 billion yuan at the beginning of 2021 to 7.713 billion yuan at the end of the third quarter, a decrease of 29.12%.

Although Yonghui's repeated attempts in online business and store models have failed, and it has not yet found a stable growth path, digital investment can help Yonghui Superstores reduce costs, reduce inventory, and improve operational capabilities during this wave of major retail industry changes, preparing it to find the next growth pole.

In fact, not only Yonghui Superstores, but also traditional large chain supermarkets such as RT-Mart, Sichuan Hongqi Chain, and Zhongbai Group are facing varying degrees of decline in revenue and profit. Currently, the domestic new retail industry is in an exploratory period. What the future of retail will look like, no one has found a truly nationally viable path.

However, as a leading traditional supermarket, Yonghui has obvious advantages in facing the wave of retail reform. Whether it is warehouse stores, mini stores, or instant retail, it ultimately comes back to meeting consumers' shopping needs. Yonghui's supermarket system itself is very mature, with all aspects of the supply chain basically formed and supporting, and intermediate channel providers stable.

Compared with other retail entrants that still need to build new supply chains, Yonghui only needs to integrate logistics to ensure that a large number of finished products can keep up.

Whether Yonghui's current losses are the pain of transformation or falling behind in structural industry adjustment, no one can say clearly. But one thing is certain: if traditional supermarket brands do not actively follow the trends and explore multiple formats, they may lose direction and completely fall behind in the major retail industry transformation.

For a company, what is feared is not losses, but not daring to try and relying on old achievements. Therefore, in the long run, Yonghui's huge loss this year may not necessarily be a bad thing.

**Are you "watching" me?**


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