Incident: After 19 days of closure and rectification, Yonghui Supermarket Henan Xinwan Plaza will resume normal business at 9:30 a.m. on June 19, improving all aspects of the store's product structure, flow layout, equipment and facilities, professional ability, and employee benefits. According to a video posted on Yonghui Supermarket's official video account, we found that the revised supermarket site looked very clean and tidy. The overall traffic channels were spacious, and the shelves were made of high grade materials and good texture.
The product structure has been greatly improved: 10,841 units were removed from the shelves, and the delisting ratio was 81.3%. The number of units was re-planned to be 12,581, and 80% of the new products were added. After sorting, the product structure reached more than 90% of the product structure of Fat Donglai. Meanwhile, a large number of branded products from Fat Dong have entered Yonghui, including Fat Donglai influencer mooncakes, DL mango mixed juice, DL craft wheat beer, DL oatmeal, etc.
The flow line layout is smoother, and the pattern has been optimized: abolish forced traffic lines, widen store channels, add tobacco and wine cabinets, customer rest areas, expand baking areas, on-site processing, and cooked food areas, and abolish the original outsourced areas and e-commerce operations.
A large proportion of equipment has been updated and iterated: comprehensive maintenance, renewal and iteration of the original equipment, the addition of equipment and facilities such as fresh/loose grains, and the addition of a cold chain for daily distribution, accounting for 45% of the overall hardware equipment renewal.
Employee benefits and training: A total of nearly 30 large and small training sessions were shared. Employee wages were raised from 2,500 yuan/month to 4,500 yuan/month, annual leave was increased, etc.
Product structure adjustments are in line with expectations. Judging from available information, “the product structure has reached more than 90% of Fat Donglai's product structure” has been promoted many times through media channels since the start of the reform, and the market has certain expectations. We believe that the cancellation of entrance fees in large stores is a general trend, and supermarket channels need to start from consumer demand to display the products that consumers really need. In this process, the original product structure will be greatly adjusted.
The device update iterations slightly exceeded expectations. This time, the equipment update and iteration ratio of Yonghui's first store reached 45%. Previously, this information was rarely covered in media channels. We believe that a larger scale of equipment updates and iterations required a certain amount of investment, reflecting Yonghui Supermarket's determination to carry out internal rectification. The new equipment and facilities can bring customers a better experience and maximize the benchmarking role of the first store.
Looking to the future: external adjustment+internal reforms are expected to drive the positive development of the company's store sales. While Fat Donglai's reforms were planned in the early stages, the company's internal reforms also continued. For example, in April '24, Yonghui's Beijing stores completed the restructuring. Most of the upgraded stores reduced the number of SKUs and added their own fresh brands, new product incubation areas, and genuine product discount zones. The average daily customer flow of some stores exceeded 10,000. We believe that in the process of accepting Fat Donglai's reforms, Yonghui Supermarket itself is also continuing to explore new store models within itself and carry out self-regulation in the subregions according to local conditions. Fat Donglai's reforms can bring external transformative power, and the experience of the Henan region after the restructuring can be replicated in similar regions.
Profit forecast and valuation: In the past 3 years, under the impact of many factors such as new retail sales and the epidemic, Yonghui Supermarket faced large losses. After internal adjustments in 2023, the company's losses have narrowed significantly. The introduction of Fat Donglai as an external aid this time, combined with the company's own adjustment efforts, is expected to further enhance the company's profitability, achieve break-even balance and even profit. Overall, the company's net profit to mother is estimated to be 50 million/230 million yuan in 2024-2025, maintaining the “recommended” rating.
Risk warning: store adjustments fall short of expectations, loss reduction falls short of expectations, consumption recovery falls short of expectations