The "becoming overweight" Yonghui has decided to lose weight quickly first.

Written by Yang Yafei

Edited by Qiao Qian

The share price of Yonghui has increased nearly 1.4 times in the past four months. Before the disclosure of the third-quarter report, the market's expectations for Yonghui Supermarket were extremely high - this is their first report card since learning from Pang Donglai. By the end of September, 8 "Pang-style" renovated stores have been opened, and 7 of them were opened in the third quarter.

However, the result is that the effect is not so immediate. In this quarter, Yonghui's revenue was 16.77 billion yuan, a year-on-year decrease of 16.4%, and the net loss attributable to the parent company was 353 million yuan, with the loss expanding by 10% compared to the same period last year. It also turned from profit to loss on a quarterly basis. In the first half of this year, Yonghui was still making money, with a net profit attributable to the parent company of 275 million yuan.

Yonghui's revenue and profit changes in the first three quarters of 2024

The most core reason for the loss in the third quarter is that "slimming down" and "becoming Pang-style" are being carried out simultaneously.

From the current situation, the store renovation and closure takes about 30 days. Not only does the renovation require spending money, but the store closure also results in the loss of some income - during the reporting period, 186 loss-making stores with difficult turnaround situations have been closed this year. The number of stores covered by the "Yonghui Life" app has also decreased from 920 at the end of last year to 780, with a reduction of 140 stores, of which 103 stores were reduced in the third quarter alone. The unaudited loss amount resulting from the closure and disposal of stores by Yonghui has reached 465 million yuan.

Another cost is the decline in gross profit margin. Yonghui's gross profit margin in the third quarter was only 19.19%, a year-on-year decrease of 1.69 percentage points. However, compared with Costco, the gross profit margin still has a significant room for decline, as the latter controls the gross profit margin at around 11%. They do not earn high price differences, but rely on high-cost-performance private-label products to make paying members willing to continue renewing their memberships.

Despite the inevitable pain, Yonghui's determination to transform is evident.Learning from Pang Donglai to renovate stores is their proactive change, and so is closing poorly performing stores. This can free up energy and resources to focus on more store renovations. 

Ye Guofu, the founder of Miniso, is also optimistic about Yonghui Supermarket's direction of learning from Pang Donglai and decided to spend 6.27 billion yuan to "bottom-fish" Yonghui at the end of September.

In the interview on the "High Energy" podcast, Ye Guofu couldn't hide his excitement about the acquisition of Yonghui Supermarket. "The (negotiation) time for the transaction took two months," Ye Guofu said, but he only spent about a week thinking about it because "this is a once-in-a-lifetime opportunity."

Behind this optimism is not only Miniso's search for an opportunity to extend from discretionary consumption to necessary consumption, but also his optimism about Yonghui becoming a retail benchmark enterprise similar to Trader Joe’s, Costco, or Sam's by learning from Pang Donglai.

Pang Donglai is not so easy to copy, and Yonghui is not the only "student" of Yu Donglai, but they may be the most active. Among the 10 renovated stores that have been opened, 7 of them were independently renovated by Yonghui, and they plan to send about 50 store managers to study in Xuchang Pang Donglai.

The performance of several renovated stores has indeed improved significantly: The first renovated store, Zhengzhou Xinwan Square Store, had an average daily revenue of about 1.53 million yuan as of September 30 and achieved profitability in September; The first renovated store in Beijing, Xilongduo Store, had an average daily revenue of about 1.6 million yuan in the 10 days after its opening, which is 6 times that before the renovation.

The renovation of Yonghui to become "Pang-style" is accelerating. According to Yonghui Supermarket, the number of renovated stores will reach about 40 - 50 before the Spring Festival, with new additions in multiple cities including Shanghai, Lanzhou, Tianjin, Chongqing, Shenyang, and Shenzhen. This also means that in addition to the 18 stores that are currently known to be open or to be opened, at least 22 more stores need to be renovated in December and January next year.

In May this year, Yu Donglai's speech at the launch ceremony of the renovation of Yonghui Zhengzhou Xinwan Square Store, as shown in the IC photo

The most intuitive change in Yonghui's transformation to become like Pang Donglai is the adjustment of the product structure. Most of the renovated stores have a product structure that is 90% similar to that of Pang Donglai, almost a 1:1 copy of Pang Donglai's product structure. And it has changed from the previous hypermarket model that charged entry fees, barcode fees, and display fees to a naked price and controlled back-end, improving the cost performance of products by cutting out the middle links and back-end costs.

In fact, Yonghui's private-label brand has been in operation for many years. As early as the 2.0 upgrade in 2018, it was clear that it would aim to create a high-cost-performance product positioning by directly reaching the source. But this is not as effective as Pang Donglai's direct opening of the supplier list and marking the cost price and gross profit margin on the product price tags, which makes consumers so willing to pay.

The determination for the renovation is also reflected in a newly disclosed appointment announcement. Yonghui announced the appointment of Wang Shoucheng as the company's vice president. This post-90s individual initially entered Yonghui as a management trainee. Before being appointed as the VP, his position was the person in charge of the national renovation team of Yonghui.

The channel reform is also reflected in Yonghui's hope to open up its online business with the help of Meituan. According to the announcement, Yonghui cooperates with Meituan Zebra Supermarket to launch the Lightning Warehouse project on the Meituan Flash Sale platform and establish a wholly-owned subsidiary, "Zhengzhou Dingdingmao Supermarket Co., Ltd." Lin Hongdong, the general manager of Yonghui's online operations department with a 2-year background in Meituan Grocery Shopping, was also promoted to VP at the same time.

A background information is that Miniso, the new shareholder of Yonghui, has also just announced a strategic cooperation with Meituan, and plans to launch more than 800 24-hour superstores in the form of Lightning Warehouses on Meituan within the year.

This part is an attempt to reverse the decline in the online business. Under the background of renovation, Yonghui's online business revenue in the first three quarters was 11.57 billion yuan, a year-on-year decrease of 5.63%. Among them, compared to the company's own APP platform, the sales of the third-party platform's home delivery business have declined more significantly. The sales in the first three quarters were 5.26 billion yuan, a year-on-year decrease of 10.54%.

However, online retail will not be Yonghui's main battlefield. For a long time in the future, what the outside world is most concerned about is still the progress of store renovations. Judging from the current performance, consumers will be attracted to the store by the characteristic products of Xuchang Pang Donglai, but Yonghui's renovation cannot just stop at the surface. The reorganization of the organization and system based on the transformation to become like Pang Donglai is a more difficult task.