External pressure from e-commerce group buying has crushed traditional supermarkets such as hypermarkets, and their inherent profit models and backwardness in product selection management have also been exposed one by one. Offline formats in the midst of huge commercial inertia, how to avoid becoming a giant ship that hits the iceberg?
On March 30, 2022, Carrefour and other stores in the Zhongguancun Square Shopping Center in Beijing were clearing their warehouses for sale. Photo/Visual China
Text | "Finance" reporter Ma Lin intern Yang Fan
Edit | Yu Le
On March 31, Carrefour in Zhongguancun, Beijing, officially closed its doors.
The 18-year-old Carrefour hypermarket, which covers an area of 32,000 square meters, was once Carrefour's largest flagship store in Asia. Consumers vaguely remember the grand occasion when it opened in 2004, "at that time, it was a tourist attraction to visit..." "Visiting Carrefour is like shopping..."
"Finance" reporter visited this super hypermarket before closing the store, at that time most of the fresh and frozen containers were empty, some packaged food and beverages, department stores waiting to be finally cleared, and the mall banner read "Carrefour looks forward to meeting you in the future", but no one knows when the future refers.
More than 100 shops attached to Carrefour in Zhongguancun are facing closure. Photo / Caijing reporter Ma Lin
An employee in front of the checkout desk told Caijing that the notice he received was that the store was upgraded along with Zhongguancun Square. Employees don't know what the renovation means and whether it will reopen in the future. "I've heard that like other shops, they can't afford to pay the rent."
Zhongguancun Carrefour Guandian is not alone. In recent years, the hypermarket brands that were once well known to the public have closed their stores one after another.
South Korea's Lotte Mart, Spain's Dia Tiantian, France Auchan, Britain's Tesco withdrew from the Chinese market, Thailand's Bee Lotus in Chinese mainland large-scale withdrawal and delisted from Hong Kong, China's local supermarkets are good and many successive closures, China's business is not improving Carrefour, METRO was taken over by Suning, Wumart, in recent years Carrefour, Wal-Mart has also been forced to close stores continuously... The traditional supermarket format, represented by the store model, seems to have reached the edge of the cliff.
Many retail industry insiders told the "Finance" reporter that the general extensive operation method of traditional department stores and supermarkets, including hypermarkets, is not working, and the dividend period of occupying a favorable position and hiring a good store manager to make money has long passed. External pressure from integrated e-commerce, fresh e-commerce, and community group buying has crushed the advantages of traditional supermarkets, and the inherent profit model and backwardness of selection management of these offline formats have also been exposed one by one.
The decline of hypermarkets has even changed the city's commercial landscape. In the past, a hypermarket such as Carrefour and Walmart could often become a community commercial center within a radius of several kilometers, so that the "free shuttle" to each community once became the standard of hypermarkets. Nowadays, various convenience stores and community fresh stores with a small footprint have divided up the passenger flow of hypermarkets and changed the "centralized" commercial layout to "distributed".
Such changes not only make it difficult for hypermarkets, but also affect the peripheral formats that are attached to hypermarkets. Located in the center of a sprawling underground commercial street, The Carrefour Hypermarket in Zhongguancun is home to more than 100 small shops and restaurants selling clothing, shoes and hats, sheets, pots and pans, snacks. With the end of Carrefour, these stores will also be closed. The words "withdraw the store and clear the warehouse, lose money and throw it wildly" at the entrance of some stores are particularly eye-catching.
Among these stores, a small number of stores have branches in other stores or department stores, employees and stalls can follow the past, the rest of the stores are independent operators, operating a single-store small business, one of the wool sweater shop owners worriedly told the "Finance" reporter that the store closed until March 31, where to go has not yet landed.
Retail expert Wan Mingzhi told Caijing that the gradual withdrawal of traditional hypermarkets such as Wal-Mart and Carrefour from the market is an inevitable trend, which is also the consensus of the industry.
Wu Junsheng, the founder of the retail consulting agency Supermarket Gang, has accumulated rich work experience in many supermarket companies, and he believes that 2022 may be the most concentrated year for traditional supermarket closures.
How can traditional supermarket formats, which are in the midst of huge commercial inertia, avoid becoming a giant ship that hits an iceberg?
The rout of the traditional supermarket
Photo/Visual China
Traditional supermarkets include hypermarkets commonly known as hypermarkets, as well as medium-sized supermarkets and small supermarkets.
The area of hypermarkets generally exceeds 6,000 square meters, selling vegetables and fruits fresh food, packaged food and beverages, daily necessities, clothing, household appliances and so on. Medium-sized comprehensive supermarkets refer to comprehensive department stores of 2,000 square meters to 6,000 square meters, and small comprehensive supermarkets refer to comprehensive department stores of less than 2,000 square meters. Medium-sized supermarkets and small supermarkets sell fewer products than hypermarkets, but the categories are similar to those of hypermarkets.
In the past decade, carrefour, Wal-Mart, Jiajiayue, Renrenle, Gaoxin Retail's RT-Mart, Tianhong and other hypermarket formats have been most violently affected, and the decline is obvious.
In 2012, the O2O model (online ordering, offline fulfillment) emerged, and hypermarkets began to suffer. In recent years, comprehensive e-commerce has launched the instant home delivery business of fresh department stores, and fresh e-commerce companies that use the front-loading warehouse model such as Dingdong to buy vegetables and daily excellent fresh have also seized a lot of supermarket shares. Since 2020, community group buying, which has risen due to the epidemic, has further intensified competition. In addition to the above reasons, all kinds of small and medium-sized supermarkets that have emerged around the needs of the community have also diverted the flow of customers from many hypermarkets.
At the beginning of 2022, Carrefour announced the closure of at least four stores across the country, all of which have been in operation for nearly 20 years. In 2021, Carrefour closed at least 20 stores across the country.
Just before the Zhongguancun Carrefour store was announced to close, on February 24, a Wal-Mart store in Guangzhou, which had been operating for nearly 20 years, closed down. In 2021, Walmart closed more than 30 hypermarkets in China, and even Walmart's first Store in Shenzhen closed at the end of 2021.
The direct cause of the closure of most stores is that the lease period has expired and the rent cannot be paid. The lease term of the general store is between 10 and 20 years, and the supermarket industry has experienced 20 years of golden 20 years of stores, and the lease is gradually expiring.
Some retailers told the "Finance" reporter that now the renewal of the contract, the store rent at least three times the starting price, labor costs have risen four or five times compared with more than ten years ago, sales are still declining, resulting in the situation that "the old stores can not afford to continue, other supermarkets can not afford to rent" situation. Although there is no authoritative statistics, from time to time you can see some reports of vacant shops in the city.
According to Wind's statistics, since 2011, the growth rate of A-share supermarket chain enterprises has fallen sharply from more than 15% in 2011, and has rebounded to a certain extent since 2016, until it falls to only 10% in 2020.
According to the "2021 Supermarket Format Survey Express" released by the China Chain Store & Franchise Association, in 2021, 67.1% of the sales of supermarket enterprises fell year-on-year, 72.2% of the net profit of enterprises fell year-on-year, and 68.39% of the corporate passenger flow fell year-on-year.
Judging from the financial report data, Wal-Mart's operating profit and gross profit margin in China in the fourth quarter of January 2022 have declined. Its sales in China rose nearly 27 percent in the fourth quarter, driven primarily by Sam's Club, a format that is different from traditional supermarkets. Retailers expect Walmart's traditional hypermarket business in China to see sales fall by 20%-30% in 2021.
Although some companies have not yet disclosed their full-year 2021 financial forecasts, from the data they most recently disclosed, the performance is equally dismal.
Carrefour, which was acquired by Suning for an 80% stake, lost 770 million yuan in the first half of 2021. Gaoxin Retail, which specializes in RT-Mart, had seen an 86% decline in net profit for half a year ending September 2021, and the decline was even more severe if rental income was excluded.
BBK's revenue declined in the first three quarters of 2021; Tianhong shares are also not ideal, and the premise of revenue growth in 2021 is that 2020 has experienced a sharp decline in revenue, and the revenue growth rate cannot make up for the decline.
Why are traditional department stores and supermarkets in decline?
For consumers, the biggest attraction of traditional department stores, including hypermarkets, was that the goods were complete, and consumers could buy all the goods on the purchase list at once, and these goods were affordable and the quality was guaranteed. However, with such a widespread use of online consumption today, the above advantages have been lost. In addition, the online platform also provides delivery services that are not available in stores.
The radiation capacity of hypermarkets has also weakened, especially in first- and second-tier cities. With the development of the economy, the city often developed a number of business districts, each business circle gathered a wealth of shopping malls, supermarkets and other consumption places, and now the radiation capacity of a hypermarket has been reduced from 3 km - 5 km to less than 1.5 km. Congestion has caused the radiation capacity of stores to further decrease, and sales have naturally declined.
The various categories that support the profits of hypermarkets have also been diverted from other channels. In addition to fresh food in the store, there are also department stores, home appliances, clothing, personal beauty, etc., these categories have all been selected more abundant, consumer portraits more accurate online and offline stores diversion, the only remaining high-frequency goods in the store is fresh. However, for traditional supermarkets, fresh food is only a drainage device, and a large number of standard products sold in traditional supermarkets (packaging, appearance, quality, specifications are exactly the same, and can be mass-produced at one time) is the point of profit. The decline in sales of standard products has exacerbated the crisis of traditional supermarkets.
In recent years, hypermarkets have tried to save themselves, and one of the reform directions is to start from the size of the storefront, close large stores and open small stores, which Walmart and Carrefour have made have made such attempts. At present, RT-Mart supermarket owned by Gaoxin Retail and Suning Carrefour after being acquired by Suning are still trying the small and medium-sized supermarket model.
However, Wan Mingzhi believes that only changing the size is "changing the soup without changing the medicine", and the profit model is still vague, and it cannot be spelled e-commerce. The mediocre performance of listed companies in small and medium-sized supermarkets is an example.
Another profit point of hypermarkets is the collection of rent from surrounding shopping streets, which has been lost accordingly after the transformation of the stores to small and medium-sized supermarkets.
For a long time, traditional hypermarkets and small and medium-sized supermarkets have also charged a series of fees to suppliers, which is another profit model for them, which is difficult to sustain in the fierce market competition.
Taking advantage of their market advantages, Walmart and Carrefour have taken the lead in charging suppliers for entrance fees, listing fees, display fees, pile fees, etc. in the Chinese market, and Chinese local supermarkets have basically followed this charging method. Various fees have increased the cost borne by dealers by nearly 50%, and the price of offline goods has no advantage over online ratios, and consumers will naturally turn online.
This model of charging fees to suppliers, brand owners, and manufacturers is also called "upstream profit model", whether it is sold or not, it is charged first, and the inventory that cannot be sold in the end is then returned to the supplier.
Corresponding to the "upstream profit model" is the "downstream profit model", also known as the buyer system, the Sam's Club, the Costco Club and the Aldi discount store currently operating in the Chinese market all use the buyer system, which purchases goods from dealers and brand owners, does not charge entrance fees, listing fees, etc., and is responsible for the sales of all goods.
Supermarket brands that adopt a buy-and-sell system tend to be more demanding and carefully selected for their products. Because it is the customer's money that is earned, not the money of dealers and brand owners, it must be cost-effective and the product is the right way. The procurement and marketing system adopted by e-commerce platforms is also similar to the buyer's system.
"Traditional supermarkets do not use the buying system, they are just a shelf manager, facing the impact of e-commerce, discount stores, and member stores, without any combat effectiveness." Manmei said.
Some local supermarket brands rely on the consumption inertia of locals and live well, such as the Sichuan Hongqi chain that makes community supermarkets of about 300 square meters. But Manmei believes that these supermarket companies are equally weak. "Whether the supermarket can survive has nothing to do with the size of the scale, if you want to sell more things, you have to be bigger, sell less things you are smaller, the key is whether your profit model is healthy."
The weak commodity power and service capacity are important reasons for the abandonment of traditional supermarket formats.
For the closure of China Resources Wanjia Supermarket on Zhichun Road in Beijing, many residents around are not surprised. This CR Vanguard supermarket covers an area of several thousand square meters, radiating at least ten communities around it, and the source of customers is quite sufficient. But at the end of February 2022, like other traditional supermarkets, the old store, which had been open for more than a decade, was forced to close its doors due to the expiration of the lease and the rent.
A major force in the general supermarkets near the community are retired and slightly older residents in the neighborhood, and a considerable part of the consumption of young people has been robbed online. A retired resident who goes to CR Vanguard's home almost every day said that she feels that the management of the supermarket is not good, such as "bad fruits and good fruits are piled together, the clerk does not sort in time" and "bad fruits are often hidden in good fruits for sale".
For young people who also have offline consumption demands, the problem of this CR Vanguard is the same as most traditional supermarkets, the selection of products is really unattractive, and even if young people patronize, they can't pick out many favorite goods.
What kind of supermarkets survive?
Brick-and-mortar retail is still alive.
Offline supermarket stores can naturally radiate to the surrounding communities and business circles, which means that offline traffic is cheaper than online traffic, offline mode also has convenience, consumers need supermarkets such as more humane consumption places, convenience stores and community fresh shops live well, is an example.
Ren Xiaodong, founder of the New Channel Research Institute, told Caijing that offline retail entity traffic still accounts for 60% of the total brand traffic, including large comprehensive supermarkets, small and medium-sized supermarkets, convenience stores, catering stores, and stores of various categories of goods. E-commerce search traffic accounts for 20%-30% of total traffic, and recommended traffic that needs to be recommended by anchors, celebrities, and community leaders accounts for 10%-15% of live e-commerce, social e-commerce, and community e-commerce. The rest is attention flow from ads, brand names, brand logos, etc.
Although the offline supermarket format has been eaten away by the internet, in fact, its online competitors are also in the glue, Dingdong buying vegetables, daily excellent fresh is still losing money, and the group buying enterprises in various communities after the subsidy war have either been difficult to protect themselves, or have greatly contracted their business. Offline retail is under external pressure, but the crisis is more from within.
Ren Xiaodong said that consumers' shopping habits have long been irreversibly changed by major integrated e-commerce, community e-commerce, and live e-commerce, but the service capabilities of hypermarkets have not changed, and the supermarket format needs to rethink each of its business elements, adjust to a healthy profit model, attach importance to selection, and attach importance to efficient turnover.
Supermarkets should first adjust from the admission fee model to the buyer system, be responsible for the goods, establish cooperative relations with suppliers, and jointly discuss how to generate sales of goods selling points, consumption circles, and marketing activities, and cannot choose this supplier because a supplier has high negotiation strength and procurement personnel have personal relations with themselves.
Secondly, continue to do online and offline integration, consumers usually shop in which channel, in which channel layout. According to the "2021 Supermarket Format Survey Express", although the sales of a large number of supermarket enterprises declined, 78.5% of the online sales of enterprises increased year-on-year, and the focus of the work of supermarket enterprises in 2022 includes omni-channel business expansion, deep integration of online and offline, optimization of procurement channels, free commodity development, and digital transformation of stores to improve efficiency.
From the perspective of business model, breaking the magic spell of entry fee, reducing the supplier's account period of the member store, discount store format is in line with the current consumption trend, but also the retail industry recognized the model and direction.
The member shops represented by the market opener and Sam are consumed by families with cars, and profits rely on membership fees. The discount store represented by Orezi meets the needs of consumers for high-quality and low-cost products, and the profitability of the discount store mainly depends on a large number of purchases, small profits and high sales. Chinese retailers also highly recommend Japan's Don Quixote discount chain, believing they can learn from their success paths.
Since 2021, Yonghui, Hualian, Jiajiayue and Renrenle have begun to try the membership store and discount store model, but several industry insiders have said that they are not very optimistic about these hastily launched clubs and discount stores, and think that they are difficult to truly form a climate. The reason is that the follow-up member stores and discount stores have not yet cultivated the commodity power that can compete with the market openers, Sam, and Olezy, and "look like gods."
Yonghui, which folds on the "super species" of high-end supermarkets, stands at the head of this wave of member stores and discount stores, and the industry's attempts at Yonghui are mixed: on the one hand, Yonghui is indeed doing new business formats, and its new stores have also ushered in a long-lost consumer flow, but because the selection is still not unique, its long-term development ability needs to be observed. Wan Meizhi said that although Yonghui is a member store, it is difficult to collect membership fees, and it is actually a discount store.
At present, hema fresh may be the supermarket brand that abandons the most traditional supermarket ills and has the greatest growth possibility. Hema adopts the buying system, does not charge entry fees, pile fees, etc., and its member stores are real members. In the selection of products, Hema's standards are more stringent, catering to young people, only looking at the amount of goods brought by the brand, which is a testing ground for many emerging brands. Hema pays special attention to aesthetics, at least formed a consistent selection style, if the food packaging is too earthy, even if the taste is good, it is difficult to be selected.
However, since opening its first store in 2016, Hema has not been able to achieve overall profitability and has not yet proven itself in the business model.
Wu Junsheng is optimistic about the future of the supermarket industry, but also admits that the problems of the traditional supermarket industry today are that the operation, commodity management and marketing professionalism are not enough.
"It's not that customers lose us, it's that we don't really run customers." He believes that from the perspective of commodity structure, traditional supermarket stores do not meet consumer demand, supermarkets need to go out, do global selection, starting from the basic products of people's livelihood, Internet celebrity explosives, seasonal goods, etc., rather than waiting for suppliers to come to the door to talk about business.
Compared with the comprehensive supermarkets that sell various types of department stores, clothing, skin care products, and home appliances, many retailers are more optimistic about the retail format focusing on a single category, such as food supermarkets focusing on fresh, non-staple foods, and packaged food and beverages, which can be integrated into fresh semi-finished products, prepared dishes, homemade foods, etc.
According to the "Chain Supermarket Operation Report (2021)" released by the China Chain Store & Franchise Association, 70% of the top 100 supermarket stores in 2020 are small community stores. In addition, the newly opened stores of physical supermarkets are increasingly transforming into small community stores that mainly engage in fresh food, with an area ranging from 200 to 300 square meters to 1,000 square meters, with an average area of about 900 square meters.
Wu Junsheng is optimistic about the transformation of supermarkets into food supermarkets, and ito Yokado's path of diluting department stores in the Sichuan market, focusing on fresh food, supplementary food seasonings, and increasing the proportion of self-made products. In Wu Junsheng's view, this is the best time for discerning entrepreneurs to enter the game, and traditional supermarkets that still hold traditional concepts will be eliminated sooner or later.