Maybe Sam didn't expect that Hema would cut the price so ruthlessly

Walmart's latest earnings report was announced, and Sam couldn't sell anymore

This time, Sam is in trouble in the Chinese market.

On February 20, Eastern time, Walmart announced its results for the fourth quarter of fiscal 2024 (November 1, 2023 - January 31, 2024).

During the reporting period, Walmart's total revenue was US$173.4 billion, up 5.7% year-on-year, and its operating profit was US$7.3 billion, up 30.4% year-on-year. For the full year of fiscal 2024, Walmart's total revenue was $648.1 billion, up 6.0% year-over-year, and operating profit was $27.0 billion, up 32.2% year-over-year.

Overall, Walmart delivered a good answer. The revenue of $173.4 billion has exceeded market expectations of $170.35 billion. Walmart President and CEO Minglun Dong also said at the earnings conference: "Our team delivered an outstanding performance during the quarter, which is a successful end to the year. ”

On the day of the earnings report, Walmart shares rose to a record high of $181.35.

However, while the overall growth is solid, the latest earnings report also exposes some hidden concerns.

In recent years, the Chinese market may be one of the most important growth engines for Walmart, and it has repeatedly praised the contribution of the Chinese market in its financial reports, especially the rapid growth of Sam's China and e-commerce business to promote international business.

However, judging from the financial report, in the fourth quarter of fiscal year 2024, Walmart's net sales in the Chinese market were $4 billion, an increase of only 11.3% year-on-year, and the growth of comparable sales was only 6.6%, the slowest growth in the past five quarters.

Walmart financial report Source: Walmart China

At the same time, Walmart China's e-commerce net sales growth rate in the past four quarters was 70%, 54%, 44% and 38% respectively, while the latest quarter was only 11%, with a clear downward trend.

In this regard, Walmart explained that the Chinese New Year in 2024 will start later than the previous year, and the belated consumption season has had a negative impact on growth.

But in addition, Sam's price reduction strategy in the second half of last year may also be one of the key reasons for the slowdown in Walmart China's revenue growth: in the quarter, Sam's Club segment sales were $21.9 billion, an increase of only 2% year-on-year.

Sam has also previously said that in the past 12 months, it has spent nearly 900 million yuan in costs to reinvest in commodity prices. By improving end-to-end efficiency and the scale benefits brought by the increasing membership base, dozens of products purchased by members on a daily basis have achieved long-term price reductions.

For example, Sam's popular durian mille-feuille has dropped from 128 yuan to 85 yuan in some areas, Australian fat beef rolls have dropped from 128 yuan to 118 yuan, and frozen salmon has dropped from 145 yuan to 135 yuan......

And when Sam's popular products began to reduce prices intensively, it was when Hema launched the "Moving Mountain Price". In the face of this hard-nosed competitor, Sam has taken a price reduction strategy over the past few months, either actively or passively, in an attempt to gain more market share – but its revenue has inevitably suffered.

After Hema "moved mountains", Sam was drawn into a price war

In July last year, media reported that Zhu Xiaojing, president and chief executive of Walmart China, said in an internal meeting that if Sam had a rival in China, the only possibility would be Hema because the latter's "grocery supply chain is very creative."

According to people familiar with the matter, "unique" does not mean that Sam's only competitor is Hema, but that Hema is the only potential to pose a competitive threat to Sam's Club with its innovative way of doing business.

After the content of this internal speech came out, Hema was quickly thrust into the spotlight and aroused widespread attention and discussion.

According to Yuehu data, the overlap between Hema and Sam's Club users at that time was as high as 43%, and nearly half of Sam's members also installed the Hema App, while in terms of monthly active users, Hema was three times that of Sam's, and the penetration rate of Hema was also higher than that of Sam's.

Hema also seems to have suddenly realized that it can compete head-on with international retail giants like Walmart within a certain range.

So at the end of the month, Hema Fresh quietly launched the "Moving Mountain Price", and almost all the price-reduced products are in Sam's with the same style.

At that time, some consumers in Shanghai discovered that Sam's original price of 128 yuan for the "durian mille-feuille cake", but Hema suddenly launched the "moving mountain price" and lowered its same product to 99 yuan.

Then Sam noticed Hema's "small moves" and decisively chose to accept the challenge. On August 1, the price was changed to 98.9 yuan, which is only a dime cheaper than Freshippo. Then the two sides officially "went to war", Hema dropped to 89 yuan on August 2, Sam dropped to 88 yuan on August 3, and then the price dropped to 86 yuan and 85 yuan......

This price war ended with Sam staying at 85 yuan and Hema dropping to 79 yuan.

Not only durian mille-feuille cake, but also moon cakes, watermelon, eggs and other products have joined the price war between the two sides. Hema and Sam come and go, each with its own winners and losers.

Netizens sorted out the "battle situation" Source: Xiaohongshu

By the end of August, Hema expanded the "moving mountain price" from core cities such as Shanghai and Beijing to 15 cities across the country. Hou Yi, founder and CEO of Freshippo, said at the time that behind the "moving mountain price" is essentially a battle for Hema life and death. Hema needs to constantly put pressure and change itself through price power competition, so as to shorten the gap with the world's leading retail companies and participate in international competition on behalf of local retail enterprises.

Aurora big data shows that after the launch of "Yishan Price", the average weekly DAU (average daily active users) of the Hema app increased by 13.3%.

"(The price war) has to be fought all the time, and a single product is found every month. Durian this month, milk, beef, and lamb chops next month. The traffic brought by a single product is huge, and it is worth it no matter how you count it. Hou Yi said.

In the following months, as Hou Yi said, many popular items of Hema have seen price reductions. In mid-October, Hema directly announced a 20% price reduction for more than 5,000 offline products, and officially launched the discount reform......

Today, more than half a year has passed since Hema first launched the "Yishan Price", but its discount strategy continues.

On February 18, Hema began a pilot project in 81 Hema fresh stores in Beijing, Nanjing and Changsha, achieving simultaneous online and offline low prices, and generally lowering commodity prices, covering almost all commodity categories such as seafood and aquatic products, meat and poultry eggs, vegetables and fruits, baking, snack foods, and wine.

For example, the "strawberry box cake" sold in Hema has been adjusted from 88 yuan to 59 yuan, the price of Norwegian salmon has been reduced from 126 yuan to 99 yuan per catty, and the 800-gram imported raw cut eye steak has dropped from 119 yuan to 69.9 yuan, a significant drop.

As for Walmart China on the other side, not only Sam's plate, but Walmart hypermarkets have also joined the ranks of low-price competition.

On January 17 this year, Walmart China announced that the first batch of 29 hypermarket stores in 8 cities across the country have been upgraded. In addition to adjusting the number of store displays and SKUs, the store has added a discount area of 1.99 yuan, 9.9 yuan, and 19.9 yuan, and launched a variety of discount products, such as "cold fresh pork one-size-fits-all" that does not exceed 9.9 yuan per catty, shampoo and shower gel for 19.9 yuan. The online mini program has also launched a 9.9 yuan area and launched small package products......

As long as Hema doesn't stop, Sam and Walmart as a whole may continue to be "forced to fight". In this wave of discounting initiated by Freshippo, Sam's or other retail companies are almost "immune".

Online and offline chess, the retail industry has intensified low-price competition

Throughout 2023, we have witnessed low-price competition in retail, from online to offline.

For example, at the beginning of the year, Taobao took "price power" as one of its five major strategies, giving commission-free "lowest-priced" products on the whole network, and setting the "Taobao Good Price" section in the C position on the homepage;

In addition to sticking to the main position, Pinduoduo's cross-border e-commerce platform Temu has shown its strength in overseas markets with Shein, relying on the ultimate cost performance. Therefore, in this year, the factories in the industrial belt have suddenly become the sweets of various platforms, trying to ensure the low price of goods from the source.

This year, the war of low-price competition has not stopped.

In addition to Hema Sam is still secretly competing, it was recently reported that Douyin e-commerce has set "price power" as the highest priority task in 2024 and officially joined the low-price battle.

Before the Spring Festival, IKEA China also announced that it would launch more low-cost products in the 2024 fiscal year, accumulating nearly 500 models in the whole fiscal year, involving bedrooms, living rooms, kitchens and other multi-scene furniture and home furnishings, as well as some IKEA food.

It can be said that this trend of price reduction in the retail industry has reached the point where it is out of control, and the scope of influence is still expanding.

For consumers, the more the better. However, for retail enterprises, whether the price reduction will squeeze their own profit margins and whether the low price can last for a long time are all issues that need to be considered.

Just like when Hema recently reduced the price of online and offline in the pilot, it also increased the free shipping standard in the pilot city from the original 49 yuan to 99 yuan, and if the order amount does not meet this standard, you need to pay an additional 6 yuan for shipping. This move seems to be intended to make up for the loss of profits caused by the price reduction of single products by raising the unit price of customers, so as to achieve small profits but quick turnover.

But on February 22, #盒马提高免运费门槛#的话题还冲上了微博热搜, many consumers were dissatisfied with this, believing that it was a disguised price increase.

Hema raises the freight threshold on the hot search Source: Weibo

If you calculate carefully, even if you don't reach the threshold of 99 yuan, in fact, the difference in the price of the reduced goods can completely cover the freight, and the more you buy, the more you save. But the problem is that, judging from the current consumption habits of the public, they are still more inclined to the most intuitive "free shipping" and "free shipping", and they do not buy the shipping fee separately.

Judging from the current market reaction, the pilot of Hema may eventually come back in the end. In addition to developing a vertical supply chain on the supply side and increasing the unit price on the market side, Hema still needs to find new solutions to achieve a balance between low prices and profits, which is the most critical proposition in the current competitive environment for the entire retail industry.

Author | Li Songyue