Chongbai New Century is betting heavily on “fresh food + discounts”, a new solution for the retail industry?

Chongqing New Century Supermarket is the first large-scale supermarket in Chongqing to become a "discounted" supermarket. It entered the market with the core model of "fresh food + discount", highlighted the commodity power of "saving, good quality and fresh", followed the "hard discount" logic, and achieved its goals based on supply chain optimization. This shows that there are still retail companies looking for a way out that is different from "Pang Donglai".

Entering 2024, retail enterprises have launched new reforms in the "stock era", trying to respond to consumption changes with a new attitude and reverse the decline in performance. The core keyword of this reform in the first half of the year was "Pang Donglai-style adjustment and reform". Bubugao, Yonghui, Zhongbai, Lianhua and others have all borrowed from Pang Donglai's success in the name of assistance or self-adjustment.

However, not all companies are looking "outward" for solutions; some companies are choosing to look "inward" for solutions.

Take Chongqing Department Store as an example. As the "No. 1 retailer" in the southwest region, Chongqing Department Store cannot avoid the situation of both revenue and profit declines that domestic retail peers such as Yonghui and RT-Mart are generally facing. On August 30, Chongqing Department Store (600729.SH) released its 2024 semi-annual report, with an overall operating income of 8.98 billion yuan, a year-on-year decrease of 11.56%; net profit of 712 million yuan, a year-on-year decrease of 21.06%.

However, Chongqing Department Store did not blindly plunge into the arms of Pang Donglai. Instead, it used its "Chongqing New Century Supermarket" as an anchor and broke through the "fresh food + discount" model through the innovation of the "super market" format in the past three months.

In the ever-changing retail industry, there will never be only a single solution. Perhaps Chongqing Department Store’s approach can bring a new reference paradigm to the development of the industry.

01 Fresh food + discounts: “high quality and low price”

On August 27, the Chongqing Department Store Hongqihegou Store Supermarket opened. This is the fourth "fresh food + discount" community store opened by Chongqing Department Store New Century after the California Store on May 28, the Baihe Road Store in Nan'an District on June 26, and the Tianwan Store on July 30.

According to official media, on the opening day of all stores, sales increased four to five times, with an average daily transaction volume of more than 500,000 yuan and more than 6,000 transactions. It is worth mentioning that Chongqing New Century Supermarket is the first large-scale supermarket in Chongqing to operate a "discount" supermarket.

Source: Chongqing Retail Business Association

From the perspective of business model, how is the "fresh food + discount" super market format promoted by Chongqing New Century Supermarket different from traditional discount stores?

In general, the operating area of ​​a supermarket is about 1,000-1,500 square meters. It is based on the community and belongs to the community fresh food store format. The core logic behind it is "supply chain optimization and reconstruction". This shows that the brand has chosen a "hard discount" path, that is, it is not simply pursuing low prices, but by optimizing the supply chain and improving operational efficiency, it realizes the promise of "good goods at low prices" for a limited number of selected SKUs. At the same time, as a fresh food retail enterprise, it also emphasizes "freshness".

Source: Chongqing Retail Business Association

Specifically, this model focuses on building the three product strengths of “saving”, “good” and “fresh”.

1. "Save" means low prices every day, super savings, source factories, bulk purchases, eliminating middlemen and reducing costs;
2. "Good" means focusing on cost-effective and high-quality products, upgrading services and promised projects;
3. “Fresh” means that fresh produce is directly sourced from more bases and delivered directly to stores. It is fresh and not left overnight, and the shelf life of goods is checked daily.

In response to the diversified shopping needs of consumers, Chongqing New Century Supermarket has also launched a differentiated product strategy. It has reduced the number of items and specially launched the "Top Ten Must-Buy Items", such as the classic dessert Swiss roll and its own brand of fresh eggs.

Source: Chongqing Retail Business Association

Zhou Miao, general manager of Chongqing Department Store New Century Supermarket Division, said that today's consumers are better at making choices, especially when it comes to unique and creative products that are scarce and seasonal. Chongqing Department Store New Century Supermarket explores the supply chain through screening and layout across the country and even the world, that is, it collaborates with multiple upstream suppliers to control the number of SKUs and select goods, thereby achieving scale and low prices for each product.

In addition to strengthening the product power, Chongqing New Century Supermarket has also made significant improvements in the consumer shopping experience. It has redesigned the store layout, from the entrance to the store, improved the overall lighting effect, optimized the store traffic flow, further widened the shopping aisles, and made the store appear more transparent.

In addition, for some stores, baking items have been added based on market research of surrounding residents and customer needs, and the original cooked food and pastry product structure has been upgraded and adjusted to make the stores more down-to-earth.

Through the above series of actions, the "fresh food + discount" supermarket model of Chongqing New Century Supermarket has overturned the consumers' stereotype that "low price equals low-end" and established the brand of "high quality and low price".

But coming back to Chongqing Department Store, can the introduction of the supermarket format reverse the current situation of Chongqing Department Store’s continued sluggish revenue?

02 Across multiple sectors, supermarket performance has declined significantly

Before discussing whether the supermarket can “save” Chongqing Department Store’s overall performance, let’s first look at Chongqing Department Store’s current business system.

Chongqing Department Store was established in 1950. Its predecessor was Baoyuantong private store founded in 1920. It is the first state-owned department store in Chongqing after liberation and the first commercial listed company in Chongqing. Its business scope covers four provinces and cities, namely Chongqing, Sichuan, Guizhou and Hubei. It has been ranked among the "Top 100 Chinese Chain Stores" selected by the China Chain Store Association for ten consecutive years.

At present, Chongqing Department Store’s main businesses include department stores, supermarkets, electrical appliances and auto trade. It owns famous commercial brands such as “Chongqing Department Store”, “New Century Department Store”, “Shangshi Electrical Appliances” and “Shangshi Auto Trade”.

Image source: Huaan Securities Research Institute

Looking back on the development history of Chongqing Department Store, it can be divided into the following stages.

Pre-IPO growth stage (1950-1995): Chongqing Department Store completed its shareholding reform in 1992 and was officially renamed "Chongqing Department Store Co., Ltd.". In 1995, it achieved revenue of 685 million yuan.

Post-IPO capital market development stage (1996-2016): In 1996, Chongqing Department Store was successfully listed on the Shanghai Stock Exchange, with operating income of 793 million yuan that year. After a series of market-oriented restructuring operations, the overall revenue reached its peak in 2016: from 30.1 billion yuan in 2014 to 36.49 billion yuan in 2015 (the 2015 financial report data was revised and incorporated into the integrated enterprise).

Mature transformation stage (2017 to present): In 2019, we launched the Smart Shopping APP together with Duodian; in 2020, we introduced Wumart and BBK to complete the mixed-ownership reform. The overall performance is relatively stable. In 2020, due to the adjustment of accounting standards, the revenue of affiliated merchants was recognized on a net basis, and the overall revenue scale was reduced to 21 billion yuan in 2020. In 2023, Chongqing Commercial Society was absorbed and merged.

Chongqing Department Store Revenue Situation Chart: Qianxing

Chongqing Department Store’s main business models include distribution, agency sales, joint ventures and leasing (mainly distribution and joint ventures).

Distribution is also known as "buyout", which means that the supplier sells the goods to the supermarket, and the goods enter the supermarket's inventory system after inspection. The ownership belongs to the supermarket, and the pricing power is in the hands of the supermarket. Joint venture is also known as "flow deduction", the supplier's goods enter the supermarket without inspection and storage, the inventory is managed by the supplier, and the supermarket deducts a certain percentage of sales monthly as income.

Taking the financial report data for the first half of 2024 as an example, the distribution model achieved more than half, nearly 56% of sales, with 33% of the area; the joint venture model achieved 38% of sales with 41% of the operating area.

Chongqing Department Store Sales Chart: Qianxing

From the perspective of operating areas, Chongqing Department Store's main operating area is Chongqing. Taking the 2023 annual report data as an example, Chongqing achieved a revenue of 16.37 billion yuan, accounting for 97.74% of the revenue. Sichuan, Guizhou and Hubei regions only had a total of 378 million yuan, accounting for less than 3%. The only store in Guizhou was also closed in July 2023.

It is not difficult to see that Chongqing is its base camp. If it leaves Chongqing, Chongqing Department Store’s “regional advantage” will fade and it will be difficult to expand nationwide.

Source: Chongqing Department Store Financial Report

In terms of the number of stores in various business formats, Chongqing Department Store reached a peak of 311 stores in 2017, including 181 supermarkets, 55 department stores, 47 electrical appliances, and 28 auto trade stores. In the first half of 2024, the number of stores was 274, of which supermarkets were significantly reduced to 149, a decrease of nearly 20%; department stores and electrical appliances also decreased, with only 50 stores and 41 stores left respectively; the number of auto trade stores was the only format to increase in the past six years, with 34 stores.

Chongqing department store number distribution map: Qianxing

In terms of the scale of revenue of business formats, the supermarket format has declined significantly in the past four years, from 8.55 billion yuan in 2020 to 6.18 billion yuan in 2023. The electrical appliance format has increased significantly, from 2.11 billion yuan in 2020 to 2.92 billion yuan in 2023. The revenue of the financial format (Mashang Consumer, in which it has a stake) has also been increasing year by year, from 150 million yuan in 2020 to 615 million yuan in 2023. The overall department store and auto trade business has declined slightly, with a drop of less than 10%.

The performance reflects the changes brought about by the launch of multi-point smart shopping. The supermarket format is facing a huge impact from community group buying and fresh food e-commerce. Online access only adds new channels to slow down the downward trend of revenue scale, which is difficult to "turn the tide". However, the online access of the electrical appliance format has greatly enhanced the growth of revenue scale.

Chongqing department store revenue distribution map: Qianxing

From the perspective of profit contribution of business formats, taking the data of 2023 as an example (the distribution differences over the years are small), the department store format achieved a gross profit margin of 66% with a gross profit of 1.33 billion yuan; the supermarket business achieved a gross profit margin of 17.36% with a gross profit of 1.07 billion yuan; the electrical appliance format achieved a gross profit margin of 19.77% with a gross profit of 578 million yuan; the auto trade format achieved a gross profit margin of only 6.25% with a gross profit of 380 million yuan; and the financial format, as an investment and shareholding, contributed 15% to the overall gross profit.

Chongqing department store gross profit distribution map: Qianxing

Through the business system of Chongqing Department Store, its business formats are complex and cover multiple fields. Supermarkets can only have an impact on its supermarket format and it is difficult to have a significant boost to the overall performance.

Since supermarkets can't change much, why does Chongqing Department Store open stores so intensively, which seems to be a breakthrough? The answer lies in the importance of each business format.

03 Transformation is imminent

By analyzing the five existing business formats of Chongqing Department Store through the GE business matrix and the 2023 financial report data, that is, using market attractiveness and market competitiveness as the two major dimensions of evaluation, we can see the following points.

GE Business Matrix Analysis and Mapping: Qianxing

Department stores account for 11% of the company's overall revenue and 32% of its gross profit. With high gross profit margins and strong market share, this means that this business should be the company's most core business and requires key investment.

The supermarket business has the largest revenue scale, accounting for 34% of the total revenue and 26% of the gross profit. Although the gross profit margin is only 17.36%, the overall market competitiveness is strong due to its deep cultivation and layout in Chongqing for many years. Therefore, this business is the company's main business and the main source of cash flow. On the one hand, it needs to make profits through refined operations, and on the other hand, it needs to expand its scale by continuously meeting consumer demand.

The overall revenue scale of the auto trade format ranks second, accounting for 33% of the revenue, but the gross profit contribution is less than 10%. For Chongqing Department Store, the auto trade format has low market appeal and low market competitiveness, so the key business strategy of this format needs to focus on how to increase gross profit margin.

The overall revenue scale of the electrical appliance business is not large, accounting for 16% of the total revenue and 14% of the gross profit, which is quite satisfactory. Therefore, this business is a non-core business of the company. Due to the standard product attributes of 3C electrical appliances and the low frequency of repurchase by consumers, Chongqing Department Store can consider maintaining only limited investment.

The financial industry has the smallest overall revenue scale, accounting for only 3% of total revenue.

In summary, the supermarket format, as the main business, is the business that Chongqing Department Store must maintain at present, otherwise it will directly affect the company's operating cash flow. Therefore, pushing up the revenue of the supermarket format and attracting more consumers to the store are the main means for Chongqing Department Store to consolidate its basic market.

The launch of the "super market" is also timely, and even urgent for Chongqing Department Store. Chongqing Department Store also has a clear plan for the goal and path of transformation, and consolidates its front-end price competitive advantage through supply chain optimization.

However, the promotion of supermarkets still faces three major challenges:

First, the pace of the new "supermarket" business model is not fast enough. The current pace of one store per month to complete the transformation of the existing nearly 150 stores seems a drop in the bucket. The hard discount path needs more scale support. With the advantage of scale, costs can be strictly controlled. With the cost advantage, consumers can be provided with low-priced and high-quality goods, thereby continuing to promote the sales growth of goods and promoting a larger scale.

Secondly, organizational upgrading needs to be followed up simultaneously. For Chongqing Department Store, transformation means taking drastic measures, even burning the boats. It requires the organization to break the existing business framework, step out of the comfort zone, and meet daily challenges and changes with a "Day One" entrepreneurial mentality.

Finally, we should deepen the "Chongqing Department Store" brand and make good use of the existing advantages of multiple formats. The high-frequency consumption attributes of the supermarket format can attract customers to formats such as electrical appliances, department stores, and auto trade, while other formats can also use corresponding housing fund benefits and other measures to increase consumers' brand stickiness in the supermarket format. Chongqing Department Store needs to give full play to its advantages as a regional retail leader and strive to become "the most trusted quality life service provider for consumers."

Overall, Chongqing Department Store has the "mental intelligence" of the local area and a population base. Coupled with its determination to continuously transform and change, time may give it the ideal return.

Author: Qianxing Editor: Lv Xinyi Producer: Retail Business Finance ID: Retail-Finance