Fangzheng Securities: Where is this round of reforms/quality supermarket expansion compared to the previous round of “new retail”?

The Zhitong Finance App learned that Fangzheng Securities released a research report saying that this round is not a simple business format renovation, but that the offline supermarket industry as a whole has entered a new round of major transformation. Hypermarkets continue to shrink, and the transformation to quality supermarkets/instant retail is being accelerated. The bank is optimistic about the sustainability of this round of changes in the supermarket business format: the profit model has been verified, there is a huge gap in quality supply between the second and third tier regions, and the dividends of falling rents and mature contract fulfillment are difficult to reverse in the medium term.

The main views of Fangzheng Securities are as follows:

Offline supermarkets are seriously divided, and the quality/regulation department continues to perform briskly

Since 2024, Fat Donglai has officially announced that it has helped Backgao and Yonghui supermarkets. After focusing on the business format, JD Qixian restarted and expanded — whether it was an offline supermarket for Internet e-commerce or a FAT-restructured store. After opening, it triggered a boom in the queuing experience of surrounding residents, which strongly contrasted with the relatively weak zero data of offline social networks, and the trend continues to this day. The bank believes that this is not a simple business transformation, but that the offline supermarket industry as a whole has entered a new round of major transformation: large stores continue to shrink under the successive diversion of searches for e-commerce, community group purchases, hard discount stores, and chain stores in various categories (Baiguoyuan, Aunt Qian, very busy snacks, etc.), and is accelerating the transformation to quality supermarkets/instant retail.

Reviewing the previous round of 2016's new retail sales, the bank's summary failure stemmed from three points

① The profit model has not been verified -- economies of scale have not been converted into profits. Hema lost 9 years, and Gaoxin's retail profits have never improved since Yonghui Yunchuang and Ali took a stake; ② Traffic and cost double kills — online dividends peaked, and offline to online diversion was not established, compounded by the high rent and labor costs of commercial real estate at the time (location selection also generally favors urban centers); ③ The supply chain is easy to stop — the changes focus on “market” renovation (live seafood dine-in, suspension chains, electronic price tags), and stopped on the transformation of goods On the surface, the lack of product strength causes the flow of customers to be lost as the feeling of freshness subsides.

The essential differences in this round of expansion are viewed from the perspective of “people, goods, and markets”

① People -- The middle income group has exceeded 400 million people and continues to expand under the “15th Five-Year Plan” policy. Generation Z has grown, compounded by a slowdown in economic growth. Consumers are willing to go out for good products and only pay for valuable products, and the quality-price ratio has become the main line; ② Goods - food safety incidents have systematically raised the will to pay for quality, and brands are moving in both directions with channels under growth pressure. Customized, joint names, and own brands have entered an acceleration period (the penetration rate of private brands in categories such as fresh milk, nuts, juice, etc. has reached +10%); ③ Market—Online penetration is stabilizing, rents are entering a downward cycle, and instant retail execution is highly mature The marginal cost of an integrated storehouse has been drastically reduced, and the expansion cost curve has been systematically lowered. The channel role was then redefined, from a tenant with a channel fee+entry fee to a streamlining SKU, direct source procurement, buyout operation, and private brand selectors. The channel is directly responsible for product quality and definition, and the gross margin and repurchase rate have both improved.

The bank is optimistic about the continuity of this round of supermarket business transformation

The profit model has been verified (Hema has been profitable since 2025, Yonghui and Backgao have reversed losses, expansion is driven by operating cash flow, and reliance on primary market financing is significantly lower); huge quality supply gaps in the second and third tier (NB plans cover more than 300 counties, Meituan Lightning Warehouse already covers 2,800 counties and cities); the dividends of declining rents and mature performance are difficult to reverse in the medium term. According to Bain's estimates, in 2025, the share of large offline stores will still account for 11%, supermarkets/small supermarkets will account for 30%, and there is plenty of room for stock transformation.

Risk warning: demand recovery falls short of expectations; competition in the retail industry intensifies; representation or bias in grassroots research