---
title: "Yonghui's Dilemma"
description: "On the evening of March 8, Yonghui Superstores disclosed its operating results for January and February 2022, with total revenue of about 20.4 billion yuan, a year-on-year increase of about 3%, and operating net profit of about 760 million yuan. This article analyzes Yonghui's strategic goals, organizational adjustments, business formats, and category planning, exploring how traditional supermarkets can make choices when facing the dilemma of new competition from fresh food e-commerce models."
author: "我是庄帅"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2022-03-24"
language: "en"
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# Yonghui's Dilemma

> On the evening of March 8, Yonghui Superstores disclosed its operating results for January and February 2022, with total revenue of about 20.4 billion yuan, a year-on-year increase of about 3%, and operating net profit of about 760 million yuan. This article analyzes Yonghui's strategic goals, organizational adjustments, business formats, and category planning, exploring how traditional supermarkets can make choices when facing the dilemma of new competition from fresh food e-commerce models.

On the evening of March 8, Yonghui Superstores specially disclosed its operating results for January and February: in the first two months of 2022, its total operating revenue was about 20.4 billion yuan, a year-on-year increase of about 3%, with same-store sales growth of about 1.6%; operating net profit was about 760 million yuan.
The data disclosed in Yonghui's monthly report reflects that the transformation of Yonghui Superstores in recent years has achieved corresponding results, and also injects a glimmer of hope into the traditional supermarket industry.
This article conducts an in-depth analysis of Yonghui Superstores from four aspects: strategic goals, organizational adjustments, business format practices, and category planning, to jointly explore how traditional supermarkets should make choices when facing the "dilemma" of competition from new fresh food e-commerce models.
******"Yonghui Technology" or "Technology Yonghui"**
According to the long-term research of "Zhuang Shuai Retail E-commerce Channel" on the digital transformation of traditional retail, the biggest difference between traditional enterprises and technology companies (Internet companies) is: **is technology used to meet needs or create needs?** There was a popular joke in the tech circle:
When foreigners eat with Chinese people, they curiously ask: "Does your phone have a disinfection function?" The Chinese are surprised and reply: "Haha, our phones are the same as yours, no disinfection function!" "Then why do you take photos before every meal?" The Chinese suddenly understand and explain: "Because we take photos to upload to Moments (Weibo, Xiaohongshu), so that friends who couldn't join us can see the food we eat and interact with us."
This joke reflects the thinking and business model of technology companies: **they hope to create "needs" and change user "behavior" through the application of mature new technologies.**
Before the existence of mobile Internet products like WeChat Moments (Weibo, Xiaohongshu) and smartphones, users did not have the behavior of taking photos of meals and uploading them online. Steve Jobs once said that he never did user research, but used innovative products to create user needs. When the cost of mature new technologies is low enough (app development costs, 4G tariffs, smartphone prices), technology companies will use low-cost technology to develop new products, thereby creating new user needs and behaviors. Amazon's unmanned store Amazon GO is also based on the thinking of "technology creates needs and changes behavior." Driven by Amazon GO, China's retail industry set off a "new retail" transformation from 2015 to 2018.
"New retail" enterprises represented by Hema Fresh are precisely hoping to solve many problems encountered by traditional retail through technology, while changing user consumption behavior: **self-checkout, online ordering with in-store pickup/delivery, electronic price tags, automatic following shopping carts, etc.;** creating new user consumption needs: **dining in the retail store, downloading the app after arriving at the store and transferring to online purchases, etc.**
However, the operation and management of the retail industry is heavier than that of pure technology and Internet companies. Retail with offline scenarios is more complex and diverse, and the process of technology changing user behavior and creating user needs is longer and more costly than expected. So now almost all traditional supermarkets have set up self-checkout, but still need to have one or two operations staff to assist. **For offline physical stores, high rent costs, labor costs, and loss costs make every store attach great importance to every customer who visits, and meeting their needs is far more important than changing their behavior and creating needs. If changing behavior leads to customer loss, it is not worth the loss.** The high costs and lower-than-expected sales growth caused by Hema Fresh's phased practice also confirmed this conclusion of "Zhuang Shuai Retail E-commerce Channel." According to media reports, at the end of 2019, Hema Fresh was downgraded from an independent segment to a sub-business under the business group. The core reason was that its profitability and GMV growth did not meet expectations, and it only scored 3.25 points in Alibaba's performance appraisal in mid-2019, the lowest score in Alibaba's performance evaluation. In essence, new retail is still retail. Whether it is using big data to improve sales efficiency, store digitalization, precision marketing, or improving operational efficiency, it ultimately needs to achieve profitability or maintain high-speed sales scale growth.
For Yonghui Superstores, which has been established for more than 20 years: is it to use mature new technologies to meet users' changing needs, or to create needs? In September 2021, Li Songfeng, who had just taken office as CEO of Yonghui Superstores, held an internal letter and proposed the strategic goal for the next decade, namely **"to build a customer-centric, fresh food-based omnichannel digital retail platform."** From this strategic goal, Yonghui Superstores has made a new strategic choice: **use mature new technologies to meet users' changing needs.** Why make such a choice? This is determined by Yonghui's business model, business structure, and organization in the retail industry, and secondly, it is also determined by the capital market as a listed company.
******Complete phased strategic goals or adapt to competition and change at any time**
The operating characteristics of the retail e-commerce industry first determine that "**technology is used to meet users' changing needs**," and secondly, it is impossible to easily change phased strategic goals, even if the execution process encounters fierce competition! For retail enterprises, strategic goals generally have two key indicators: number of stores opened and sales; for e-commerce platforms, they become: user scale and sales. **According to Yonghui Superstores' official website, as of the first quarter of 2021, there were 1,068 stores nationwide, covering 29 provinces and 585 cities (districts, counties), with 148 stores under construction.** According to the "China Supermarket Top 100 List" released by the China Chain Store & Franchise Association in November 2021, Yonghui Superstores ranked second with sales of 104.53 billion yuan, with a growth rate as high as 12.2%!
The first place was taken by Gaoxin Retail (whose supermarket brands are RT-Mart and Auchan), which was sold to Alibaba, with total sales of 105.98 billion yuan, a year-on-year increase of only 0.1%. From the perspective of the timing of Yonghui Superstores' implementation of phased strategic goals, when the number of stores reached several hundred and sales reached tens of billions, in addition to the "new retail" model of Hema Fresh mentioned earlier, three mainstream new business models with sales exceeding ten billion or even one hundred billion emerged in the fresh food e-commerce field: front warehouse, delivery platform, and community group buying. So, for Yonghui Superstores, facing the step-by-step pressure from these new competitors, should it give up the phased goal, stop opening stores, fully transform and invest heavily in new models, or simply sell to an e-commerce platform like Gaoxin Retail? Facing this "dilemma," Yonghui Superstores, on the one hand, still firmly adheres to the original phased strategic goals, continues to open stores and improve the operational capabilities of offline physical stores to seek growth: **in 2015, it carried out the third organizational restructuring, implementing the "partner + horse race mechanism" organizational reform.** On the other hand, in the same year, Yonghui Superstores accepted JD.com's investment of 4.31 billion yuan for a 10% stake, combined with JD.com's logistics and warehousing advantages to carry out the new business of "Yonghui Home," **founded Yonghui Yunchuang to begin exploring a technology-led new retail model, successively incubating two new retail formats: Yonghui Life (including APP) and Super Species.** Unfortunately, in December 2018, the "concerted action relationship" between the Zhang brothers of Yonghui Superstores, which had lasted for 8 years, was formally terminated.
Yonghui Yunchuang, whose main business was Super Species, was stripped from the listed company segment due to severe losses. Zhang Xuanning publicly stated that Yonghui Superstores should transform into an infrastructure platform service company. Zhang Xuansong, chairman of Yonghui Superstores, once said at a shareholder exchange meeting:
"Regarding Super Species, Zhang Xuanning and I have differences. He focuses on catering, while I think the focus should be on 'home delivery.'"
In 2021, Li Songfeng, then CTO and vice president of Yonghui Superstores (now CEO), again publicly admitted that "Super Species" was a detour that Yonghui Superstores had taken:
"Super Species is an exploration in the new retail era, but it seems not suitable for the needs of users in the 'post-pandemic era.' Now Yonghui's goal is full digitalization, so businesses that cannot keep up will be compressed. This is a detour that Yonghui Superstores has taken."
In the view of "Zhuang Shuai Retail E-commerce Channel," although Super Species has been proven unsuitable for Yonghui Superstores, the process of promoting Super Species provided Yonghui with a large amount of technical reserves, such as self-checkout, unmanned delivery, online operations, and terminal management technology, which are helpful for Yonghui's future development. The core of the entire supermarket digital transformation or upgrade is the combination of software and hardware technology. As a leading supermarket, Yonghui Superstores has the opportunity to learn from Yonghui Yunchuang's experience to do a good job in supermarket digital upgrade. At the beginning of 2019, Yonghui Superstores also proposed to explore "mini stores," targeting community fresh food stores, and opened 573 new "mini stores" that year. As Yonghui Superstores began strategic adjustments, some "mini stores" were closed, leaving only 156 by the end of 2020. As of the third quarter of 2021, Yonghui Superstores opened 20 new stores nationwide, signed 12 new supermarkets, converted 35 warehouse stores, and closed 20 stores.
******Young new users or elderly old users**
According to the long-term industry observation of "Zhuang Shuai Retail E-commerce Channel," the main customers of offline supermarkets are mostly elderly users, while online e-commerce platforms are mostly young users.
**According to iResearch survey data, users aged 35 and below account for 55.7% of fresh food e-commerce users, with post-80s and post-90s becoming the main consumer groups of fresh food e-commerce.**
**Facing this "dilemma," Yonghui Superstores, which focuses on the "fresh food" category, on the one hand continues to open stores to consolidate elderly users' in-store consumption, and on the other hand increases investment in the online "Yonghui Home" platform and transforms more warehouse membership stores to further gain support from young users.** From Yonghui Superstores' financial reports, its online sales proportion continues to increase, although this leads to increasing losses, but the user scale has also achieved rapid growth. Yonghui's online transaction volume increased from 730 million yuan in 2017 to 10.45 billion yuan in 2020, with a cumulative growth rate of about 13.3 times. During the same period, registered users (members) increased from 2.89 million to 49.33 million. In the first half of 2021, Yonghui's online sales reached 6.81 billion yuan, a year-on-year increase of 49.3%, accounting for 14.1% of main business revenue, with a loss of 840 million yuan, and a membership scale of 72.2 million. According to the 2021 interim report data, Yonghui's Fujian warehouse membership store opened in July, directly driving the overall sales same-store growth in Fujian by 12.1%, and daily average customer flow same-store growth by 19.3%. As of October 25, 2021, Yonghui Superstores had 55 warehouse stores in operation, of which 20 were newly opened and 35 were converted from existing stores.
******Single category or full category**
As the "fresh food" category has been broken through by the three new fresh food e-commerce models of home delivery, front warehouse, and community group buying, traditional supermarkets face real online competition. **What is the impact of the three new fresh food e-commerce models on Yonghui Superstores? Further analysis can be made through financial report data:** Yonghui's main categories include fresh food and processing, and food and daily necessities (including clothing). In 2020, the operating revenues of these two major products were 41.481 billion yuan and 45.304 billion yuan, with year-on-year growth rates of 11.74% and 9.30%, totaling 86.785 billion yuan, accounting for more than 93% of total operating revenue. (Fresh food and processing accounted for 45% of main business revenue) In the second quarter of 2021, Yonghui's gross margin was 18.82%, a year-on-year decrease of 3.55 percentage points, while the gross margins of fresh food and processing, and food and daily necessities were 10.27% and 15.68%, respectively, down 4.69 and 3.54 percentage points year-on-year. **According to the financial report, in Q3 2020, Yonghui's single-quarter revenue was 22.154 billion yuan, a year-on-year decrease of 0.95%. This was also the beginning of a year-on-year decline in single-quarter revenue for Yonghui Superstores in the past decade. In the following three quarters of 2020Q4, 2021Q1, and 2021Q2, total revenue declined by 3.77%, 9.99%, and 3.61% year-on-year, respectively.** In addition to the impact of epidemic prevention, Yonghui Superstores is facing intensified impact from new fresh food e-commerce models! Yonghui Superstores, which has emphasized its fresh food advantage since its establishment 20 years ago, is also in a "dilemma" in category management. However, Yonghui Superstores has now made a choice in its new strategic goal, namely **"to build a customer-centric, fresh food-based omnichannel digital retail platform."**
******Yonghui Superstores' liabilities and cash flow**
After four aspects of "dilemma" choices and multiple rounds of exploration, Yonghui Superstores has managed to maintain its advantage and achieve growth among many new and old competitors, but it has also paid corresponding costs, including not only time consumption, organizational adjustments and reforms, but also a large amount of capital investment! Yonghui's asset-liability ratio has been rising in recent years, from 37.91% in 2017 to 63.69% in 2020. During the same period, the current ratio fell from 1.65 to 0.95%. In the first three quarters of 2021, Yonghui's asset-liability ratio was 82.18%, a year-on-year increase of 39.50%; as of the first three quarters of 2021, Yonghui's interest expense was 1.25 billion yuan, an increase of more than 900 million yuan from 314 million yuan in 2020 (partly affected by the new lease standard), with a growth rate of 298.09%. In terms of cash flow, in the fourth quarter of 2019, Yonghui's net cash flow from operating activities was -1.867 billion yuan, and net cash flow from investment activities was -1.298 billion yuan. Yonghui had to increase borrowings by 4.1 billion yuan to supplement liquidity. As a result, at the end of 2019, Yonghui's short-term borrowings on the balance sheet were as high as 10.813 billion yuan, a year-on-year increase of 193.05%; by the third quarter of 2020, short-term borrowings reached 12.308 billion yuan! By the third quarter report of 2021, Yonghui's current ratio was 0.82%, with a book monetary capital balance of 12.568 billion yuan, corresponding to current liabilities due within one year of 14.661 billion yuan, resulting in a funding gap of more than 2 billion yuan, increasing debt repayment pressure. Whether Yonghui Superstores can use the three verified mature business formats: hypermarkets, warehouse membership stores, and home delivery business, to build a fresh food-based omnichannel digital retail platform remains to be seen.
For Yonghui Superstores at this stage, it has already made correct decisions in various "dilemmas," allowing it to face competition from multiple models of fresh food e-commerce and various new business formats!
Source: Zhuang Shuai Retail E-commerce Channel (ID: zhuangshuaiec) Author: I am Zhuang Shuai
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