Return offline to offline, new retail is coming to an end

A few days ago, the news of Pang Donglai's transformation into Yonghui became a hot topic. With offline business plummeting, some companies choose to go online, while others choose to save themselves offline. After all, with 1.2 billion yuan in online costs and hundreds of thousands of API interfaces, how should they choose?

"Going to Yonghui means going to Pang Donglai, right?" Yu Donglai gave this reply when asked whether Pang Donglai would open in Zhengzhou.

This sentence has rich connotations. First of all, it foreshadows that Yonghui will soon provide a shopping experience similar to Pang Donglai. Secondly, it also shows that in Zhengzhou, and perhaps in more places, the old Yonghui will basically withdraw from the stage of history, and will be replaced by a new Yonghui, or a substitute for Pang Donglai.

On June 19, after 19 days of drastic changes, Zhengzhou Yonghui Supermarket appeared in front of consumers with a brand new look. The reorganized product structure reached more than 90% of Pang Donglai's product structure, including Pang Donglai's Internet celebrity products such as big mooncakes and craft beer.

In order to snap up these popular products, some consumers went to Yonghui Supermarket in the early morning to queue up. On the opening day, consumers generally queued for more than half an hour before entering the store, and the queue for popular beer took about two hours. The popularity of Yonghui Supermarket on the opening day was no less than that of the local popular scenic spots.

Judging from the changes in customer flow and sales, Pang Donglai's transformation of Yonghui is undoubtedly successful. Data shows that Yonghui's customer flow on the opening day was 12,926, 5.3 times the average daily customer flow before the transformation; sales were 1.88 million yuan, 13.9 times the average daily sales after the transformation.

However, the lively atmosphere is in sharp contrast to Yonghui's decline, which gives people a mixed feeling. Anyone who has a little understanding of China's retail industry knows how glorious Yonghui was once a chain supermarket, and how it actively embraced the trend of the new retail era. Since 2017, two of the largest Internet platforms in China are shareholders of Yonghui, namely Tencent and JD.com. The former has the most abundant traffic, and the latter has a complete set of online e-commerce solutions, especially in the self-operated e-commerce category, which is unmatched so far.

But it is this retail model that has chosen to start over today. From the "Letter to Customers" released by Yonghui Supermarket, it can be seen that this transformation is by no means a "small-scale one". The data such as the reshaping of product structure, the renewal of facilities and equipment, and the adjustment of employee benefits all indicate that Yonghui has been "reborn".

Of course, Yonghui is not the only one that has made drastic changes. On June 15, Yonghui Supermarket issued a shareholder reduction plan announcement, saying that JD.com plans to reduce its holdings of no more than 182 million shares of Yonghui Supermarket through block trading in the next three months, accounting for no more than 2% of the company's total share capital. Public data shows that as of the end of the first quarter, JD.com held 13% of Yonghui Supermarket's shares, making it the third largest shareholder.

A senior person in the retail industry who has personally experienced the entire process of offline retail going online told Zui Hua that it is difficult to deliberately integrate online and offline, unless there is an online gene to do "addition", there may be some opportunities. But as to the extent to which it can be achieved, it is still unknown.

This year, these unknowns seem to have revealed some clues. As Yonghui reshapes the offline scene, Hema is still adjusting after repeated transformations and attempts. All signs indicate that the honeymoon period of offline and online retail has passed. And the failed relationship left Yonghui with a capital chain hanging by a thread. As of the end of the first quarter, Yonghui Supermarket's current liabilities were 22.499 billion yuan, while its current assets in the same period were only 17.710 billion yuan. At the same time, the relationship also brought losses to Internet shareholders. Take Tencent as an example. In 2017, Tencent purchased 5% of Yonghui Supermarket's shares for 4.2 billion yuan, and has suffered a floating loss of 2.9 billion yuan so far.

There is no doubt that this will be Yonghui’s last fight.

01 Always standing at the crossroads of fate

As one of the largest supermarket chains in China, Yonghui’s experience largely reflects the fate of the entire offline retail industry.

The store that accepted the adjustment by Pangdonglai this time is Yonghui Supermarket's store located in Xinwan Plaza, Zhengzhou. Yonghui Supermarket has stated that it will start the adjustment of the second store on July 1. By the end of 2023, Yonghui Supermarket will have a total of 1,000 stores in 29 provinces and cities across the country. Although the current adjustment is only a "local" pilot starting from Henan Province, it is enough to show Yonghui Supermarket's determination to return its attention to the "offline" again.

Obviously, Yonghui's transformation was forced by its current living environment. In the past three years, Yonghui Supermarket has experienced its darkest moment. Starting from 2021, Yonghui Supermarket suffered its first loss since its listing. In the following three years, the accumulated losses exceeded 8 billion. In 2022, Yonghui was not spared from the closure of traditional supermarkets, closing 60 stores in one year.

But in fact, Yonghui’s previous online transformation also came from survival pressure.

In 2016, after the concept of new retail was proposed, the "fresh food" track in which Yonghui Supermarket was located faced unprecedented pressure. On the one hand, new retail supermarkets represented by Hema were growing strongly. On the other hand, fresh food e-commerce companies such as PuPu Supermarket and Dingdong Maicai, which were based on the concept of forward warehouses, snatched a large number of customers from offline supermarkets.

Faced with the impact, Yonghui joined the retail industry's "online" melee. During this period, Yonghui Supermarket also mentioned "full digitalization" as a top strategy. In an article reprinted on its official website, it mentioned that Yonghui pinned its revenue growth on online.

In the 2023 financial report, Yonghui Supermarket listed the achievements of its "omni-channel strategic transformation": the online business revenue for the whole year of 2023 was 16.1 billion yuan, accounting for 20.5% of the operating income, of which the gross profit margin of goods increased by 0.9% year-on-year. The "Yonghui Life" self-operated home delivery business has covered 920 stores, with sales of 8.38 billion yuan; the third-party platform home delivery business has covered 910 stores, with sales of 7.7 billion yuan.

Logically speaking, the increase in the proportion of online business should be a good thing for the company. In most cases, this phenomenon means new traffic and new transactions. But there is also a possibility that the online business does not increase the business at all.

In fact, in the past three years, Yonghui Supermarket’s operating income has not increased, but has been decreasing, from 93.2 billion yuan in 2020 to only 78.6 billion yuan in 2023.

"I think it's hard for anyone to build a new architecture." The above-mentioned retail industry insider believes that this is a difficulty in the digital transformation of the offline retail industry. "If companies like Alibaba and JD.com can't do it, then the path of online and offline integration in the retail industry will definitely not work."

02 Expensive tuition fees

"Transformation" has been the "keyword" of Yonghui Supermarket in recent years. From the community fresh food supermarket "Yonghui mini" to the warehouse membership store, genuine discount store and other models, none of them have caused much splash. Only the "super species" born at the outlet of the new retail trend have been highly expected by the industry.

"Super Species" is a competitor to Hema, which is positioned as a high-quality fresh food experience store. With the three labels of "catering", "retail" and "Internet", "Super Species" was once regarded as the representative of new retail. In the first year of the birth of "Super Species", its online transaction volume accounted for 27.4% of the total transaction volume. In Yonghui Supermarket's 2017 financial report, it also mentioned the plan to open 100 new "Super Species" stores.

But the reality is that Yonghui Cloud Innovation, which operates Super Species, has been losing money year after year since its establishment and was spun off from the listed company at the end of 2018. By 2019, "Super Species" only had 6 stores. What is even more regrettable is that due to the disagreement between Zhang Xuansong and Zhang Xuanning, the two brothers who founded Yonghui Supermarket, on whether "Super Species" should focus on "catering" or "home delivery", they eventually terminated their agreement as persons acting in concert.

The failure of "Super Species" also means the collapse of Yonghui Supermarket's "new retail dream". One of the reasons why "Super Species" is difficult to make a profit is that its operating costs remain high.

Since "Super Species" is positioned in the mid-to-high-end market, it is very particular about the location. It is reported that the rent of the first store of "Super Species" in Fuzhou is 10 yuan/square meter, which is more than 5 times that of ordinary locations. Yonghui Supermarket's financial report shows that the rental area of ​​"Super Species" in various cities is not small, especially the rental area of ​​stores in Guangdong and Shanghai is more than 1,000 square meters.

On the other hand, since the "super species" also carries the genes of the Internet, in addition to bearing the costs of rent, labor, water and electricity that the retail industry generally faces, it also needs to bear the costs of system development, logistics distribution, and traffic purchase to support online business.

The above retail industry professionals mentioned that although the cost structures of online and offline stores are different, the logic is the same. For example, offline stores need to have good customer traffic, and the store location must be good. If online stores want to get more traffic, they also need to spend money to buy "location".

In the first year of Super Species’ establishment, Tencent invested heavily in it, and JD.com, as a shareholder of Yonghui, also provided delivery services for Super Species through its JD Logistics. However, the protection of the two Internet giants did not change the outcome of Super Species’ exit from the historical stage.

However, even though it has drawn a line between itself and the money-burning super species, Yonghui Supermarket has not stopped its pace of digital transformation. According to annual reports, Yonghui Supermarket began to incur a large amount of R&D expenses in 2021, spending a total of 1.2 billion yuan in three years. At its peak, the company had nearly 1,000 R&D personnel.

03 Return offline to offline

In fact, in the retail industry, there are indeed some companies that already have Internet genes, such as Convenience Bee.

Convenience Bee is an algorithm-driven convenience store that has a system built by a team of 1,000 people. This system can even fully control people. It is reported that this system has multiple modules such as site selection, ordering, product selection, display, layout, internal control and process operations. After arriving at work every day, the clerk needs to complete his daily work according to the instructions of the system.

Convenience Bee, which has such a strong internet gene, still suffered a big setback in the integration of online and offline retail. Today, Convenience Bee has closed a large number of stores, the number of employees has shrunk sharply, and it has even been punished several times for food quality issues.

"The problem with Convenience Bee is that its insertion point is wrong. Convenience stores themselves are not suitable for online business because they are already close enough to customers," said the above-mentioned retail industry insider.

Convenience Bee started its "rapid expansion" mode in 2021, claiming that the number of stores would exceed 4,000 by the end of the year and exceed 10,000 in 2023. The move was an attempt to emulate Luckin's "trading scale for financing," but its wishful thinking was ultimately wrong. "Its consumption scenarios are not exactly the same as Luckin's," said the above-mentioned retail industry insider.

In the team of online transformation of offline retail, even Alibaba, an Internet giant with retail genes, has not been successful. Alibaba has two approaches to enter the new retail field: one is to "build" Hema, and the other is to "transform" RT-Mart.

Huang Mingduan, the founder of RT-Mart, once said that only after he started e-commerce did he know that it was very complicated. There were too many places to burn money, such as attracting customers and developing technology. Even if we attract customers, we still have to spend money to retain them. We need to continue to invest. If time goes by slowly, it is not worth it to continue to burn money. "After seeing Hema Fresh, I want to cooperate with Alibaba even more."

But Huang Mingduan may not have realized at that time that "building" and "transforming" are two completely different things.

Alibaba's online genes helped RT-Mart to quickly carry out digital transformation, such as upgrading RT-Mart's original Feiniu.com to "RT-Mart Youxian" to achieve 1-hour express delivery, sharing inventory with Tmall Supermarket to connect online and offline, and in-depth cooperation with Cainiao to enter the community group buying.

However, judging from the two actions of "Ali considering withdrawing from traditional retail business" and "RT-Mart 2.0 reconstruction", Ali's desire to transform the offline retail industry has also diminished.

In the latest performance announcement of Sun Art Retail, it is mentioned that the reconstruction of hypermarket 2.0 starts from the target users, focuses on products and services, and focuses on healthy and happy shopping scenes. As of September 30, 2023, the group has completed the reconstruction of 8 stores. This also means that RT-Mart will return the focus of its transformation to "offline".

So, is it possible for the offline retail industry to do online business?

Apparently there are. With the popularization of the concept of instant retail, many online traffic platforms have begun to provide a more lightweight online solution. As the above-mentioned person said, it may only cost tens or hundreds of thousands of yuan to make an API interface that can be connected to a third-party platform.

Yonghui Supermarket mentioned in its 2023 financial report that in the second half of 2023, its "Douyin Group Buying in Store" added approximately 200,000 new fans and attracted approximately 2 million users to the store, continuing to rank No. 1 in group buying in the supermarket industry; "Douyin Hourly Delivery" achieved daily broadcasts in November, with a peak number of viewers exceeding 10,000, and continued to rank No. 1 in sales in the supermarket industry in November and December.

Of course, this online solution also has its drawbacks. On the public domain traffic platform, it is difficult for all merchants to create their own private domain. In other words, they may be constrained by traffic anxiety for a long time and will always have to compete with other merchants on the platform.

But what does it matter if you have your own APP? The competition for online consumers actually starts as soon as they pick up their phones.