Click to read the original article for details After 20 years of operation, Carrefour and other foreign supermarkets have either closed stores, sold out, or embraced local giants. With Carrefour China being "sold" to Suning, and CP Lotus suffering consecutive years of losses, layoffs, and facing privatization, the topic of foreign supermarkets' failure to profit in China has once again sparked discussion. In the 1990s, foreign hypermarkets such as Carrefour, Walmart, RT-Mart, CP Lotus, and Tesco entered the Chinese market one after another. After more than 20 years of operation, they have either closed stores and exited China, sold off their assets, or embraced local giants. This is due to both internal constraints such as talent structure and management mechanisms of foreign enterprises, and rapid changes in Chinese consumer demand and market forms. There is also the head-on counterattack of local supermarkets like Yonghui Superstores, the diversified competition from convenience stores and community group buying, the impact of e-commerce giants like Alibaba, JD.com, and Pinduoduo, and the rapid rise of new retail fresh food supermarkets like Hema Fresh and Super Species. In today's environment, consumers can almost purchase all goods and services they need through the internet, and the hypermarket model that relies on in-store consumption has lost its foundation for survival. The entire hypermarket format is in a declining lifecycle. At the same time, Alibaba, JD.com, and Suning's expansion into offline retail has blurred the boundaries between online and offline retail. Industry insiders point out that the retail industry has entered a transition period. More integration and mergers will lead to high industry concentration, while innovations in different categories or shopping methods will also make China's retail industry highly diversified. Carrefour 'Sold', CP Lotus Loses Nearly 1.4 Billion Recently, Suning.com announced that its subsidiary plans to invest 4.8 billion yuan to acquire 80% of Carrefour China's shares. This means Suning will become the controlling shareholder of Carrefour China, the "originator" of hypermarkets with 210 stores in China. This is Suning's second move in the retail sector after fully acquiring Wanda Department Stores earlier this year. Similarly, Thailand's CP Lotus also recently announced that its board proposed to privatize the company. In fact, CP Lotus has been facing problems for some time. From fiscal year 2012 to 2018, CP Lotus was in a loss-making state for six years, and reports have shown that the company will lay off a thousand employees to save costs. Looking at other foreign giants, in 2014, British brand Tesco sold its business in mainland China to China Resources Vanguard; in 2017, South Korea's Lotte Mart announced the sale of its stores and exit from China; in November 2017, Alibaba acquired 36.16% of RT-Mart's parent company Gaoxin Retail for $2.88 billion; in June 2018, Tencent announced a deep strategic cooperation with Walmart China; in December 2018, French retailer Auchan's China business was taken over by partner RT-Mart; since 2019, Walmart has closed more than 15 stores nationwide in China. All signs indicate that on this once rapidly advancing "gold rush" land, foreign supermarkets are no longer in their prime. Over more than 20 years, foreign retail giants have completed their glorious history in China. In 1995, French entrepreneur Carrefour entered the Chinese market, and in the following four years, Germany's Metro, Netherlands' Makro, America's Walmart, Thailand's Lotus, and France's Auchan successively established themselves. At the same time, Hong Kong and Taiwan retail enterprises such as Trust-Mart and RT-Mart also joined the battlefield. Image / VCG Chinese people, accustomed to the complex process of asking for items, inquiring about prices, comparing, and purchasing in department stores, were fresh to the model of clear pricing and self-selection. In the early days, supermarkets had long queues every day, stores kept opening, and income became increasingly substantial. Between 2004 and 2010, Walmart expanded from 27 stores in 10 provinces to 219 stores in 24 provinces. Carrefour expanded from 100 stores in 2006 to 182 stores in 2010. Starting in 2010, e-commerce developed rapidly in China, rewriting people's consumption habits, and Carrefour and others failed to keep up with this wave. By 2015, the retail industry experienced an unprecedented wave of closures. According to data from the Beijing Technology and Business University Commercial Economy Research Institute, from 2012 to 2015, 138 department stores, 262 supermarkets, and 6,209 sports brand stores closed nationwide. Store closures by supermarket companies in 2017 Carrefour's financial report shows that by 2016, the company's sales were 6.176 billion euros, with a loss of 58 million euros. According to Suning.com's announcement, Carrefour China's operating profit in 2017 was -1.044 billion yuan, and in 2018 it was -412 million yuan; at the same time, its net profit attributable to the parent company in 2017 was -1.099 billion yuan, and in 2018 it was -578 million yuan. Based on this, Carrefour China's total losses in 2017 and 2018 amounted to 1.677 billion yuan. Carrefour has also attempted transformation. In 2014, they opened convenience stores "Carrefour Easy"; in 2015, they launched the e-commerce business "Carrefour Online Mall"; in 2018, Carrefour China's smart retail flagship store Le Marche officially opened, but no obvious results were seen. CP Lotus has also added new formats such as shopping malls, convenience stores, high-end supermarkets, and new retail in addition to hypermarkets. As of December 2018, CP Lotus had 80 retail stores and 3 shopping malls. But the results were not ideal. From fiscal year 2012 to 2018, the company had losses in six fiscal years, with cumulative losses totaling 1.3912 billion yuan. Internal and External Troubles, Foreign Supermarkets' Defeat The failure of foreign supermarkets to adapt to local conditions is the result of both internal and external troubles. In the view of Zhuang Shuai, founder of Bailian Consulting, internally, the retail industry itself is a very localized industry, greatly influenced by economic policies, culture, and consumption habits. Foreign supermarkets' localization capabilities are still insufficient. Take the talent structure of enterprises as an example: CP Lotus mostly uses Thai, Hong Kong, and Taiwanese people; Carrefour China's president has always been French; and few at the director level are from mainland China. They have certain problems in understanding localization and interpreting cultural policies. This has also been complained about by employees of these supermarkets. At the same time, retail is a rapidly changing industry that requires flexible decision-making adjustment mechanisms. Due to the mechanism issues of multinational companies, the efficiency of reporting layer by layer is low. In the external environment, foreign supermarkets face strong competitors. Market share changes of China's top five supermarkets When foreign supermarkets entered China, local supermarkets also began to develop quietly. Imitating foreign supermarkets, using rough angle iron to weld shelves, and using an abandoned printing factory as a storefront, in 1994, Wumart's first comprehensive supermarket was established. Before that, in 1987, Chaoshan native Huang Guangyu opened Gome electrical store, and in 1990, Zhang Jindong founded Suning, mainly selling air conditioners. Local supermarkets such as Yonghui Superstores and Wumart continued to rise, while Gome, Suning, Easyhome, and Red Star Macalline occupied many vertical categories in the supermarket format, forming their core competitiveness with low prices and services. By 2018, Wumart had 1,055 stores, Gome publicly claimed more than 2,000 stores, and by the end of 2018, Suning had 10,000 stores of various types. Yonghui Superstores, founded in 2001, expanded rapidly with its low-price characteristics and received investments from JD.com and Tencent. Changes can also be seen in the number of stores, with foreign supermarket brands closing more stores. Huatai Securities research report shows that in 2017, Walmart opened 27 new stores and closed 24; Carrefour opened only 3 new stores and closed 6. Local enterprises began a new wave of store openings. From 2015 to 2017, Yonghui's net new store openings were 62, 105, and 119 respectively; Bubugao's net new store openings were 9, 39, and 50 respectively. In terms of profits, in 2017, Yonghui's net profit was 1.817 billion yuan, while Carrefour Greater China's was only 32 million yuan. In addition to the rise of local supermarkets, online competition is also fierce. Alibaba, JD.com, and Pinduoduo have grown strong, and with Meituan, Dingdong Maicai, community group buying, and unmanned shelves, basically everyone is competing for this market. According to Euromonitor data, as of the end of 2017, the retail sales of standard supermarkets/hypermarkets accounted for 17.1% and 5.2% of the entire retail format respectively, with growth slowing significantly. Thanks to the rapid development of e-commerce, the compound annual growth rate of online retail sales from 2012 to 2017 was 45.7%. By the end of 2017, online retail sales accounted for 23.8% of the entire retail format, surpassing standard supermarkets to become the largest format. Sales ratio of various retail sub-formats in China at the end of 2017 "All formats are developing in parallel. In the late 1990s, Chinese e-commerce companies like 8848 were already established. Later, Taobao and Tmall gradually developed. With the emergence of WeChat, WeChat business and Pinduoduo also rose. JD Daojia, Miss Fresh, Hema Fresh, etc. developed simultaneously. The competitive environment facing supermarkets is exceptionally diverse and intense," Zhuang Shuai told Rancaijing (ID: rancaijing). Moreover, most of Carrefour and Walmart's stores are located in first- and second-tier cities. With urbanization, store rents have risen simultaneously, greatly increasing the operating costs of physical stores. At the same time, JD.com, Tmall, and Suning have completed their procurement centers and logistics systems, which are incomparable to traditional supermarkets in speed, quality, and convenience. Blurring Boundaries Between Online and Offline In the internet era, consumers can purchase almost all goods and services through the internet. The lifecycle of the entire hypermarket format is declining. Traditional supermarkets have also made some changes, such as trying to open supermarkets, convenience stores, warehouse shopping, setting up front warehouses, and applying new technologies like unmanned retail cabinets. Walmart has launched a grocery delivery service called Unlimited Delivery and has stated plans to invest an additional 8 billion yuan in China over the next decade to upgrade its logistics supply chain. RT-Mart has cooperated with Hema in terms of formats, launching the innovative small format Hema Xiaoma, promoting the home delivery model, setting up a Tmall bestseller product area, and using Hema's middle platform system to transform RT-Mart's IT system to enhance digital operation capabilities. A more obvious trend is that many companies are beginning to combine with online platforms, embracing giants, cooperating with JD.com, Alibaba, Tencent, Dianping, and Meituan, and using home delivery services to transform traditional offline retail. Since 2016, giants like Alibaba, Tencent, and Suning have frequently made moves to lay out offline, expanding boundaries as online traffic hits bottlenecks. Alibaba invested in Intime, Sanjiang Shopping, and Lianhua Supermarket; Tencent invested in Yonghui Superstores and Bubugao; Suning acquired Wanda Department Stores and 80% of Carrefour China. Integration of offline supermarkets by giants / Compiled by Rancaijing In Zhuang Shuai's view, Alibaba started as a B2B company, has a thorough understanding of merchants, strong organizational capabilities, and also strong open platform operation capabilities, strategic planning capabilities, talent pipeline construction, and corporate culture. It will be a powerful player in the future. Tencent is slightly weaker in commercial organizational capabilities but strong in user understanding and tool development, with high user stickiness and a relatively open platform, which is where its opportunities lie. "Suning has strong offline operational capabilities and has been strengthening its online technology and offline logistics, moving towards comprehensive development. Acquiring Carrefour has gained many high-quality store locations and also some online supermarket categories, allowing it to compete with Tmall Supermarket and JD Supermarket," Zhuang Shuai said. But he also pointed out that Suning faces many problems. "After all, Suning has not had particularly outstanding performance in recent years, with most of its profits coming from selling Alibaba shares. The acquired Carrefour and Wanda Department Stores both have huge losses, adding two burdens, and the challenges are not small. However, some business segments are performing well, and the breakthrough business ideas and innovations they may bring are worth looking forward to." There Are Failed Enterprises, But No Failed Industries In the view of retail expert Bao Yuezhong, the current retail industry is in a transition period. The factors affecting retail transformation mainly include two aspects: the consumer market and sales forms. First, the entire consumption structure is changing. The original consumer demand was relatively unified, but now China's consumer market is becoming stratified, and personalized needs are more prominent. The original retail formats that served a unified market are difficult to adapt to changes in the current consumer market. In addition, retail forms are also changing. The original single in-store retail scenario has become more and more new forms such as home delivery, O2O, and community retail. It is necessary to adjust from the original in-store function to meet the convenience of user purchases. "At the same time, in the previous connection, supermarkets and customers were disconnected, using public domain traffic. Now the whole Chinese society has become a connected society, and we must find ways to build our own private domain traffic," Bao Yuezhong pointed out. Bao Yuezhong emphasized, "There are failed enterprises, but no failed industries. Although many enterprises have problems, innovative models continue to emerge. In the future, in the entire supermarket field, there will definitely be enterprises that succeed in transformation. The key is to continuously adjust and change with environmental changes." In Zhuang Shuai's view, in the future, on the one hand, the retail industry will be highly concentrated. At the same time, China will adhere to opening up, and more foreign enterprises will enter. In addition, online diversification and innovation will remain vibrant. "No matter how many giants there are now, there will still be new enterprises innovating in different categories or shopping methods. China's retail industry will continue to present a highly diversified situation in the future." Source: Rancaijing (ID: rancaijing)