The 210 Days of a Chain Supermarket's "Extreme Transformation"

Author | Yang Yafei

Editor | Qiao Qian

Early in the morning, Li Ming went directly to Zhuoyuehui Shopping Center next to his home. His destination was Yonghui Supermarket on the B2 floor, but nowadays people more often call it "Shenzhen's Pangdonglai". He was also curious about how the store's renovation turned out, but the customer flow was too large when it first opened. He wanted to wait for the popularity to subside before going to see it, because "going to join the fun wouldn't allow me to see the details so clearly."

"The changes in this supermarket are very obvious, but they are not quite the same as ours." Li Ming said.

Li Ming is an employee of Rainbow Supermarket, and they have also been busy with renovations recently. This is an established supermarket with its base in South China and Central China. Currently, there are 116 stores nationwide, including 65 in South China, 31 in Central China, 9 in East China, 8 in Southeast China, and 3 in Beijing.

In April this year, the first 3.0 store of the upgraded sp@ce Rainbow Supermarket started construction. They chose the Shenzhen Bao'an Rainbow Shopping Center store, with an area of more than 4,300 square meters. This store has a relatively good foundation and can rank among the top three among more than 110 Rainbow stores. The shopping mall where it is located is ranked Top 1 in terms of customer satisfaction in Bao'an District. The reason for choosing it for renovation is to quickly determine the acceptance of customers under the condition of relatively abundant resources.

Considering the large number of customers around the supermarket, only half of the store was closed for renovation. It took five months from the start of the renovation to the reopening on September 6. The renovation effect is obvious. Without promotional activities, the average daily sales in the first three days reached 1.17 million yuan, an increase of 102%, and the cumulative average daily sales in the first week increased by more than 70% compared to the previous period.

This renovation action of Rainbow Supermarket is an epitome of the recent "supermarket renovation fever". Previously, retailers including Yonghui Supermarket, Bubugao, Zhongbai Group, and China Resources Vanguard have all started renovations.

An industry insider said straightforwardly, "This year is the year of supermarket renovations."

The model for renovations is naturally the local supermarket in Xuchang, Pangdonglai, which has attracted many apprentices and has become a "6A-level scenic spot". As of November 26, Pangdonglai Group's cumulative sales this year reached 14.6 billion yuan, and it was contributed by only 13 stores, with a profit of 140 million yuan. In contrast, in 2023, Yonghui, with 1,000 stores, suffered a loss of 1.329 billion yuan.

Compared with the direct boost of Pangdonglai's aura, independent renovations are a longer and more uncertain path.

Li Ming said that they have inspected Pangdonglai's stores and also visited Sam's Club and ALDI. Among them, Two aspects of Pangdonglai impressed them. One is the ability to precisely select products, "with high accuracy and scientific pricing". Second, undoubtedly, it is the service, "That is a benchmark."

Not long ago, the sp@ce 3.0 store renovated by Rainbow Supermarket has been open for more than 80 days, and they have just completed a new round of review. Business data shows that the overall average daily customer flow has increased by 60% compared to before the renovation, the sales structure of fresh and cooked food has increased by 11%, and the growth of the younger customer group is obvious. The proportion of customers aged 18 - 35 has increased by 10%.

On the road to becoming an apprentice of Pangdonglai, this supermarket seems to have found some ways.

"Retailers Have Woken Up"

As early as July last year, Rainbow had the idea of renovating the supermarket. Although the epidemic had passed by then, they realized that the consumer market had changed: the proportion of online sales was getting higher and higher, and the customer flow of offline supermarkets continued to shrink.

The relationship between upstream zero-supply and retailers has become unprecedentedly tense. In the past era when channels were king, the pricing of goods was determined by brand manufacturers, and supermarkets played the role of KA channel distributors. A person in charge of a fast-moving consumer goods retail channel told 36Kr Future Consumption that brand manufacturers often set artificially high prices in supermarkets, and the prices were not competitive compared to online ones. Most of the time, they could only rely on long-term discounts and promotions to stimulate sales, that is, "no promotion, no sales".

Nowadays, after the renovations of various supermarkets, frequent promotions have been stopped, and the same is true for Rainbow Supermarket's 3.0 store. They have changed the product procurement model and renegotiated with brand manufacturers on product selection, cost price, and markup rate. The overall product focus is on cost performance, mainly promoting nearly 1,000 long-term low-price products, with a price reduction of up to 15 - 25%.

In the process of renovation, not only retailers need to change their cognition, but brand manufacturers also need to make changes. But not all brand manufacturers are willing to cooperate, which means breaking the previous price system. But they also know that it is not realistic to stick to the original price system. Li Ming said, because "all retailers have woken up."

Unlike others who can directly "copy homework", for self-study and renovated supermarket brands, how to adjust the product structure?

According to 36Kr Future Consumption, the Rainbow Supermarket 3.0 store chose to focus on a younger customer group. The mainstream customer age structure has been lowered from the previous 35 - 45 years old to 30 - 35 years old. More specifically, it is mainly women, focusing on families with one or two children.

At the product level, including PB (private brand) products, the overall product selection of Rainbow Supermarket 3.0 highlights the health attribute. Homogeneous products and long-tail products are directly eliminated, and the SKU of some categories has been reduced by 80%. The proportion of standard products is lowered, and the focus is on three meals a day to increase the proportion of fresh and cooked food.

According to 36Kr, after the renovation, the number of products has decreased from the previous 13,000 to about 8,000.

The creation of a "shopping experience" is an important direction of this scene renovation. They removed the stack heads and end shelves, widened the shopping aisles, and added nearly 100 service items. According to the 细分生活场景, nine category experience stores including flowers, baking, alcohol, and baby products have been added.

According to 36Kr Future Consumption, not all retailers dare to touch the flower category. Even Sam's Club only operates it on weekends. The difficulty lies in that flowers require high efficiency, and the customer group is relatively fixed, which requires high operational capabilities of the store.

By directly cooperating with the base, the flowers of Rainbow Supermarket include two categories. One is the seasonal fresh flowers of large products in the production area, and the other is the medium and high-end flower material combination for family life experience. They also provide value-added services of florists, and the price of flower packaging is only half of that of flower shops. Between professional flower shops and mass products, they have found a new way.

According to 36Kr Future Consumption, after the Spring Festival this year, Rainbow officially introduced the flower category. After this renovation, the sales of flowers have tripled.

At the store level, the most intuitive feeling for customers when entering the store may be the change in lighting. In the past 1.0 and 2.0 stores, the lighting above the customers' heads was relatively dim, and the lighting was mainly focused on the products to guide the customers' eyes to focus on the products. After this renovation, the lighting in the entire store is brighter, and green plant elements have been added to make the store look more natural and pleasant to shop in.

In addition to the front desk, Rainbow has also made a new arrangement for the entire back-end operation. Take the aquatic product area as an example. In the past, after the employees finished killing the fish in the backstage, they would directly hand the fish to the customers, and over time, a pool of water would accumulate on the ground. Considering this problem, Rainbow has now rearranged the fish-killing table, cleaning pool, and customer delivery window. For similar SOPs in the back warehouse, colleagues who write the operating procedures are required to operate first, and then teach the employees after completing the operation.

According to 36Kr Future Consumption, in the next stage, Rainbow Supermarket plans to focus on promoting the digitalization of processes, and the system will support employees to perform necessary actions. By simplifying the operating procedures, human repetitive actions are reduced.

"Supermarket Renovations Are Not Simply Copying Anyone"

Compared with optimizing the customer flow and providing considerate services, what most consumers are most concerned about is whether the products after the renovation are worth adding to the shopping cart.

Pangdonglai's appeal is unique, and even purchasing on behalf of others has become a new business. But for most retailers, the renovation is not just to bring the product prices back to the normal system, but more importantly, while slimming down the products, to create private brand products similar to those of Sam's Club and Pangdonglai.

In September this year, when Ye Guofu talked about the acquisition of Yonghui Supermarket, he also clearly stated that he would help the latter develop private brand products, "benchmarking against Sam's Club, Costco, and Pangdonglai." Recently, Wang Shoucheng, the person in charge of the national renovation project of Yonghui Supermarket, responded that they have communicated with Miniso about cooperation matters. Obviously, Pangdonglai IP products are just the beginning of their renovation.

Private brand is also the strength of Rainbow's products. According to 36Kr Future Consumption, up to now, the sales proportion of Rainbow Supermarket's private brand products has reached nearly 20%, and there are not many retailers in the industry that can achieve this level.

According to 36Kr Future Consumption, Rainbow's private brand has gone beyond the simple OEM, that is, for large brand products, finding sources to make big brand substitutes. At the current stage, it is more ODM, focusing on developing dominant products in dominant categories. It will embed deeper in parts such as design, raw material ingredient list, and taste. Some products will directly lock the production line of the supplier.

Behind this, the competition among retailers upstream nowadays is no longer the difference in cost advantages behind the scale, but rather, it is further to see who can lock the production line or even the formula of the supplier.

In order to differentiate from peers, considering the family groups mainly radiating within a three-kilometer radius, Rainbow's private brand products choose to focus on developing dominant categories such as grain, oil, and non-staple food. For fruits, the main push is seasonal fruits, and they will "put them on the shelves in the best taste season".

Nowadays, supermarket renovations have entered a stage of competing for speed. Yonghui Supermarket has renovated and opened 21 stores since June, and there are 20 - 30 renovated stores on the way before the Spring Festival. Next year, they plan to independently renovate 100 stores. As of November, Bubugao has been guided by Pangdonglai to renovate 10 stores.

It is reported that currently, Rainbow Supermarket has been drawing up a national planning map. They plan to take out a benchmark store in each city for renovation, and according to the investment return ratio, carefully consider whether to conduct a comprehensive renovation or a partial renovation.

In Li Ming's opinion, supermarket renovations are not just the adjustment of product combinations. The core is the change in business logic. In the past, supermarkets played the role of channel distributors and gained benefits from the perspective of resources. "Now, from the product dimension, we need to clarify the target customers, rather than simply copying anyone."

(Li Ming in the article is a pseudonym.)