The struggle of hypermarkets: Gaoxin Retail suffers losses as it gets caught in the battle of membership stores.

Gaoxin Retail (06808.HK) is still going through tough times.

On the evening of November 14th, Gaoxin Retail, the parent company of Darunfa, released its interim report for the 2024 fiscal year ending on September 30th. During the reporting period, the company recorded revenue of 35.768 billion yuan, a year-on-year decrease of 11.94%, and a net loss of 359 million yuan. It is worth noting that in the 2023 fiscal year, Gaoxin Retail had just turned its losses into profits under the "cost reduction and efficiency improvement" measures.

During the reporting period, Gaoxin Retail's revenue from commodity sales was 34.225 billion yuan, accounting for 95.69% and a decrease of 12.4% compared to the same period last year. Same-store sales also decreased by 5.9% year-on-year. Gaoxin Retail attributed this to the year-on-year decrease in the CPI of pork and fresh vegetables, the contraction of supply business, and the reduction in customer hoarding, which led to a decline in average transaction price.

During the reporting period, Gaoxin Retail continued its strategy from the previous fiscal year and continued to actively reduce costs. Its sales and marketing expenses in the first half of the fiscal year decreased by 7% to 8.718 billion yuan year-on-year, administrative expenses decreased by 13.3% to 898 million yuan, and financial expenses decreased by 9% to 213 million yuan.

However, the reduction in expenses is still not enough to offset the pressure brought by Gaoxin Retail's expansion of stores against the trend.

Within six months, Gaoxin Retail opened 3 Darunfa hypermarkets, 7 medium-sized supermarkets (Darunfa Super), and 1 M membership store. Currently, Gaoxin Retail has a total of 458 hypermarkets, 19 medium-sized supermarkets, and 1 M membership store.

In contrast, Yonghui Superstores (601933.SH) has taken actions to shrink its business, closing 25 stores in the first half of the year and successfully turning losses around.

Gaoxin Retail's M membership store carries the expectation of exploring its second growth curve.

According to the financial report, the M membership store opened by Gaoxin Retail in Yangzhou in April this year has attracted more than 50,000 paying members, with approximately 3,000 SKUs, of which more than 10% are private brands. It is expected that there will be two more stores opening in Nanjing and Changzhou in the future.

In comparison, Sam's Club currently has 50 offline stores in China, and Hema has 9 membership stores. It seems that Gaoxin Retail, which wants to participate in this membership store competition, is lagging behind.

In the eyes of industry insiders, the ultimate transformation of supermarkets into membership stores is the "trend", and membership stores have greater profit potential compared to traditional supermarkets.

Taking Sam's Club, a subsidiary of Walmart, as an example, on the one hand, it adopts a strategy of wide product categories but streamlined SKUs, and leverages its scale advantage to reduce procurement costs. Public information shows that Sam's Club has approximately 4,000 SKUs, while traditional hypermarkets like Yonghui Superstores have over 20,000 SKUs.

On the other hand, Sam's Club focuses on private label products, which can generate higher gross profit margins. For example, according to "LatePost", the sales of Sam's Club's Swiss roll products can even account for 10% of some stores, and the gross profit margin of bakery products can reach 30%.

In fact, there have been precedents of traditional supermarkets transforming into membership stores, but the outcomes have not been satisfactory. Carrefour closed its membership stores in Shanghai, including the Chengshan Road store and the Zhongshan Park store, in April this year. The Chengshan Road store was Carrefour's first membership store and had been in operation for less than two years. This indicates that the transformation of supermarkets into membership store formats is not an easy task.

Lin Xiaohai, CEO of Gaoxin Retail, openly stated, "For the membership store model, in the first year, I did not set a profit target for the team. I only set two indicators: the number of members and the card renewal rate. In fact, we do not plan to make a profit from the membership store model within three years."

However, there is still a difference between not planning to make a profit and the difficulty of making a profit.