In Depth: E-Commerce Giants Shun Supermarkets as Sales Slump

The landscape of China's retail sector is evolving as traditional e-commerce giants like JD.com and Alibaba reduce their investment in brick-and-mortar outlets, while newcomers such as Miniso and private equity firms are taking their place. Both JD.com and Alibaba have been divesting from large supermarket chains, reflecting a strategic shift away from offline retail [para. 1][para. 2]. JD.com reduced its stake in Yonghui Superstores, while Alibaba exited its investment in Sun Art Retail Group [para. 2][para. 3]. Their initial involvement was part of a broader "online-to-offline" strategy to drive physical store traffic, which has not realized its expected potential due to challenges in the on-demand retail sector [para. 3][para. 5].

This retraction signifies a financial recalibration for JD.com and Alibaba, aiming to limit losses amidst declining revenues and market sluggishness. JD.com, for example, sold its shares in Yonghui at a significant loss, selling 11.25% for around 2.35 billion yuan, whereas Alibaba witnessed a dramatic decline in Sun Art’s market value and shift toward penny stock levels [para. 7][para. 8]. These decisions highlight a broader strategic pullback from physical retail investment by major e-commerce entities [para. 8][para. 9].

In reaction to these shifts, the retail landscape sees new investors like Miniso taking bold steps toward supermarket acquisitions. Miniso's investment in Yonghui underscores fresh interest in leveraging tangible retail assets. Miniso's founder characterized Yonghui as an attractive asset despite financial challenges, which the company perceives as an opportunity rather than a hindrance [para. 5][para. 6]. This marks a significant transition where firms traditionally focused on digital platforms reassess the value of physical retail presence.

Facing financial pressures, these supermarket chains are pursuing various strategies to conserve resources and enhance competitiveness. Yonghui closed 20% of its stores, while RT-Mart reduced its store count from 602 to 502 as part of cost-cutting measures. These downsizing efforts form part of a broader trend, as Sun Art similarly managed to reverse losses by closing less profitable stores [para. 10][para. 11][para. 12]. Store closures appear to be one of the swiftest measures to mitigate financial losses, underscoring the shift in strategy among these major retailers.

Amidst this turbulent environment, some unique players have emerged. Pangdonglai, a small chain deemed a "boutique supermarket," has defied general retail slump trends with a flourishing business centered around exceptional customer and employee experiences. Its approach has inspired larger chains like Yonghui to re-evaluate their business models, adopting practices that enhance procurement and merchandising control to optimize operations [para. 15][para. 16][para. 19].

Beyond just managing existing challenges, these supermarkets aim to innovate by transforming existing operations into membership-based models, as seen with Sun Art, to foster loyal consumer bases and generate steady income through membership fees [para. 21]. These ventures indicate that while the sector is contracting in traditional areas, there are budding strategies that may redefine future growth potential.

Miniso's recent acquisitions and capital investments further indicate a belief in the long-term viability of these supermarkets despite current uncertainties, with aspirations of sustaining its growth by adding 900 to 1,100 stores annually and targeting at least 20% in compound annual revenue growth [para. 22][para. 24][para. 25]. However, investor apprehension remains, with concerns about the merits of such investments and the complexities of eventual divestiture should assumptions not materialize as planned [para. 25][para. 27].