Is there still a need for traditional supermarkets?

The closure of Shanghai City Supermarket and Hubei Fudi Supermarket has once again sounded the alarm for the retail industry. The new round of elimination in the chain supermarket industry may focus on service-oriented retail brands that deeply cultivate regional markets.

After more than 30 years of development, the Chinese chain supermarket industry has seen the industry focus shift from hypermarkets to fresh supermarkets, and then to membership stores and discount stores in recent years. The iteration speed is accelerating, and the industry has been in a constant process of elimination.

What kind of retail industry does the future consumer market need? The industry is constantly exploring this question. JD.com has long summarized it as "more, faster, better, and cheaper."

Businesses like Hema are focusing on their supply chain layout to expand the proportion of their own branded products with better quality. Players like Miss Fresh and Xiaoele Supermarket are pursuing the ultimate delivery efficiency. In recent years, the hottest discount stores and bulk snack stores have always been able to surprise people with their prices. In essence, they are all focusing on these core points.

Who will become the "light of retail" for the next generation?

Is this the start of a new wave of supermarket closures?

On April 16th, the sophisticated residents of Shanghai were surprised to find that their frequent shopping destination, Shanghai City Supermarket (CITY SHOP), suddenly announced its closure.

Public information shows that the City Supermarket was established in the 1990s and was "renowned in Shanghai for operating a variety of world cuisine." Positioned as a high-end imported boutique supermarket, its stores such as the Shangcheng Mall, Jinqiao, Lianyang, and Tianshan were all located in Shanghai's "upscale residential areas."

In 2008, the City Supermarket expanded beyond Shanghai and opened its first store in Beijing at Liangmaqiao. In 2013, the Qiaofu Fangcaodi store in Beijing opened. However, these two stores did not last long, and in the end, there were only 9 stores in Shanghai.

A notice dated April 15th stated, "In recent years, the operation of Shanghai City Supermarket has been extremely difficult, and despite taking various self-rescue measures, it has become unsustainable! The company has decided to dissolve and cease all store operations from April 16th." In just a few days, its official website already displayed "403 Forbidden."

At the end of 2018, the City Supermarket's Day Month Light store in Dapuqiao had a dispute with the property owner, which temporarily affected its normal operation. After the issue was resolved, on the first day of the 2019 New Year, Shanghai City Supermarket made a high-profile announcement claiming, "With these three treasures, City Supermarket will definitely thrive for another 500 years," attracting more attention from the people of Shanghai. The three treasures referred to here are the unchanged star roasted chicken, the popular sesame egg rolls, and the low-calorie staple food, La Fa pancake.

Unexpectedly, just five years later, the people of Shanghai quickly abandoned these popular items, and Shanghai City Supermarket could only lament, "Borrowing another five hundred years from the heavens."

Recently, another supermarket, Fudi Supermarket, headquartered in Xiantao, Hubei Province, has been caught up in rumors of "almost all stores under its banner closing down."

Fudi Supermarket is not an unknown entity. Its first store was established in 2002 in Yanglinwei Town, Xiantao City, and subsequently opened operating points in more than ten towns and townships in surrounding cities and counties, becoming the largest township chain supermarket in the Jianghan Plain.

By 2011, the number of stores exceeded 500, with over 10,000 employees at its peak, ranking among the "Top 100 Private Enterprises in Hubei in 2021." According to the threshold of the list, its revenue in 2020 was at least 3 billion yuan.

On April 6th, in response to the related rumors, a notice stamped by Fudi Company and the local Business Bureau stated, "Due to unexpected difficulties in transformation and development, the company has encountered operational challenges, leading to some conflicts and disputes."

The changing consumer environment and fierce market competition, especially the impact of O2O platforms such as Hema, Xiaoxiang Supermarket, and Pupu, have increased the pressure on offline retail day by day.

The closure of Shanghai City Supermarket and the disputes at Fudi Supermarket may not mark the end of the crisis in chain supermarket operations but could very well signal the beginning of a new wave of closures. Moreover, many of these brands may not even make it to the news; they might only be left with a white flag saying "store for transfer."

China's chain supermarkets have been turbulent for over 30 years. During this period, there have been several iterations, resulting in a prolonged elimination game. In this round after round of supermarket closures, even the service-oriented supermarkets that were originally far from the battlefield are gradually unable to withstand the pressure. Why is this happening?

The Iterative History of Chain Supermarkets

In 1990, the first supermarket in China was born in Humen Town, Dongguan, Guangdong Province—Meijia Supermarket. The following year, Lianhua Supermarket was founded in Shanghai. In 1992, CR Vanguard, the third-largest supermarket group in Hong Kong, opened its first store in Shenzhen. The industrial atmosphere of chain supermarkets in China gradually formed.

After several years of cultivation, the chain supermarket industry in China finally experienced a major outbreak around 1995. In that year, Carrefour opened its first store in Beijing; Li Binlan established New Yijia in Shenzhen; the first Jiajia Yue supermarket opened; Zhang Xuansong opened a supermarket called "Gule Weili" in Xiamen, which is the predecessor of Yonghui Supermarket; Wang Tian opened the first Bubugao supermarket in his hometown of Xiangtan, Hunan Province; negotiations for Walmart's entry into China were also basically finalized, and its stores opened the following year...

Therefore, influenced by Carrefour, Walmart, and CR Vanguard, in the early stages, the Chinese chain supermarket industry was extremely enthusiastic about the hypermarket model. The hypermarkets dealt a heavy blow to traditional grocery stores and quickly attracted consumers.

Many people born in the 1970s and 1980s should remember the shock they felt when they first entered a hypermarket. The huge store space, a wide variety of goods, and the self-service shopping with carts were refreshing.

However, after more than a decade of the golden age of commercial real estate development, the expansion risks of the hypermarket model began to emerge. Some imitators whose strength could not keep up started to fall behind, leading to a wave of chain supermarket closures. One typical example is New Yijia.

Back then, Li Binlan left Wanjia Chain and founded New Yijia in Shenzhen— a new branch of Wanjia. The company once ranked among the top 10 in the Chinese chain supermarket industry, and Li was known as the "Iron Lady" of retail.

Starting from 2008, New Yijia experienced a nationwide wave of store closures. Its financial chain broke in 2016, and it officially went bankrupt in 2017.

Li Binlan's former employer, Wanjia Chain, was divested from Vanke by Wang Shi and sold to CR Vanguard, forming CR Vanguard Wanjia. It once firmly held the leading position in the Chinese chain supermarket industry, achieving a different fate.

The traditional hypermarket model faced pressure, and a group of innovators quickly emerged by leveraging the advantage of fresh produce, among which Yonghui in the south and Jiajia Yuet in the north stood out. With this advantage, Yonghui quickly rose to the top three in the chain supermarket industry and became the youngest listed company in the industry.

However, the moat of fresh produce as a category is relatively limited and was quickly replicated across the industry. Yonghui Superstores, the epitome of the fresh produce model, struggled for years after a major transformation into new retail before barely recovering.

In recent years, the survival status of nationwide chain supermarkets has been far inferior to regional brands. The most typical examples are Hongqi Chain and Jiajiayue. Nationwide chain supermarkets that focus on first and second-tier cities cannot survive without background support and financial strength.

Even regional service-oriented chain supermarkets like Shanghai City Supermarket and Fudi Supermarket are beginning to struggle. The retail industry can't help but wonder: Where should it go from here?

What kind of retail does the market need?

Regardless of market fluctuations or industry transformations, consumer shopping needs have always existed and continue to evolve with socioeconomic development.

Whether it's traditional chain supermarkets or the current popular O2O platforms, they have already become basic infrastructure for urban services.

The core of the retail industry has shifted from merely meeting basic needs to providing deeper service experiences. In this endless pursuit of improvement, consumers always anticipate the emergence of "retail stars." This label once belonged to Carrefour and Walmart, then it was passed to Yonghui Superstores, and now it's associated with Pinduoduo.

Why is there such high praise for Pinduoduo? Actually, there's no big secret. Regional focus, exceptional service, supply chain efficiency, competitive pricing, and employee engagement mechanisms.

Regionalization in retail helps enhance operational efficiency, cost control, and brand visibility by increasing store density within a specific area. Pinduoduo's examples of exceptional service and employee welfare are numerous. Leveraging the supply chain to develop product advantages not only cultivates popular items but also deepens user engagement. Pinduoduo's own-brand items, such as their mooncakes, craft wheat beer, and Freedom Love white liquor, are examples of this strategy. In terms of pricing, Pinduoduo adopts a cost-plus-fixed-margin model similar to membership-based supermarkets like Costco, although it hasn't explicitly emphasized a membership system, it has essentially adopted the operating model of such supermarkets.

Individually, these aspects may not seem groundbreaking. Just accomplishing one or two of them would be sufficient to establish a foothold in the retail market. Pinduoduo has managed to excel in all these aspects, making it the hottest phenomenon in retail today.

However, what out-of-town consumers are most concerned about is whether Pinduoduo's efforts in external assistance over the years have been effective, in other words, whether Pinduoduo's model can be replicated.

If Pinduoduo fails to achieve any of the above business highlights, lacks clear regional and business positioning, lacks product and service awareness, lacks price advantages for consumers, and lacks incentive mechanisms for employees, then it can be classified as a traditional supermarket without much necessity for existence.

In the future retail market, differentiation is not only reflected in scale, but the differences in business models will also become increasingly clear.

There are those that sell extreme efficiency, such as Hema, Missfresh, and Xiaoxiang Supermarket. When you want to have hotpot and beer at home, the demand can be met within half an hour. This is also the reason why community convenience stores can continue to exist, but their development has long departed from the concept of traditional supermarkets. The service nature of convenience stores will also become more diversified.

Alternatively, there are those that sell experiential services, such as membership-based supermarkets that can stimulate shopping desires, and the "six-star" scenic area known as Pinduoduo.

Apart from these, will there be a third path?