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Recently, there was news that Chairman Fat Donglai visited several Yonghui supermarket stores in Zhengzhou. Many netizens speculated that this move meant that Fat Donglai wanted to help Yonghui supermarket? According to an evidence-based report from Dahe Daily, Fat Donglai has already started to help Yonghui Supermarket. The two starting stores are Yonghui Supermarket Hanhai Beijin Store and Xinxiang Baolong Plaza Store.

On May 8, in response to the rumor that Fat Donglai had started to help Yonghui Supermarket (601933.SH), the Blue Whale Finance Reporter called Yonghui Supermarket's director office and responded that the company would learn from Fat Donglai, and there is currently no further information to disclose.

The Blue Whale Finance Reporter learned from staff at Yonghui Supermarket Xinxiang Baolong Plaza that Fat Donglai's support program will begin in June, and the details are yet to be determined. It is worth mentioning that Fat Donglai has two physical stores in Xinxiang, Henan. Fat Donglai (Xinxiang Dafang Store) is only 4.8 km from Yonghui Supermarket Xinxiang Baolong Plaza.

Affected by this news, Yonghui Supermarket's stock price rose and stopped. As of May 8, the closing price was 2.62 yuan, with a total market value of 23.7 billion yuan.

Can Fat Donglai's successful experience of standing out from supermarkets with good quality, low prices, and good service help Yonghui Supermarket get out of the trouble of losing money over the years?

Yonghui supermarket lost money for three years in a row, with a cumulative loss of 8 billion dollars

Under the impact of e-commerce and community group buying, traditional supermarkets have been discouraged in recent years. Yonghui Supermarket's 2023 annual report shows that the annual revenue of more than 78 billion dollars has led to losses of 1,329 billion yuan. Blue Whale's financial analysis revealed that this is already the third year in a row that Yonghui supermarket lost 3,944 billion yuan and 2,763 billion yuan in 2021 and 2022, respectively. In the past three years, Yonghui supermarket lost more than 8 billion yuan in total.

According to the financial data for the first quarter of 2024, Yonghui supermarket is still in a state of loss. Operating income was 21.6 billion yuan, down 8.98% from the same period last year. Although net profit increased slightly compared to the previous year, net profit after deducting non-recurring profit and loss was 599 million yuan, a decrease of 3.08% year on year. By region, Yonghui supermarket's main revenue declined in all regions of the country, and the main revenue of central and southern China regions fell by more than 10% over the same period last year. The East China region, which has the highest main revenue, also experienced a year-on-year decline of more than 9%.

In order to save years of losses, Yonghui Supermarket has taken various measures to reduce costs and increase efficiency in recent years, closing more than 400 loss-making stores, selling assets, layoffs, and reducing R&D costs... Drastic changes have also involved senior personnel changes. Since this year, three vice presidents have resigned, and the company's director and financial director have also undergone new changes.

Compared to other domestic supermarkets, there are companies that face the same difficulties as Yonghui Supermarket, and others that have achieved better profits in 2023. Among them, Da Runfa is most similar to Yonghui Supermarket in terms of revenue and scale. According to the profit warning recently disclosed by Da Runfa's parent company Gaoxin Retail, the annual net loss up to March 31, 2024 was 1.6 billion to 1.7 billion. The reasons given by the company include closing stores, impairment of fixed assets, and impairment of goodwill.

It is worth mentioning that the profit performance of Jiajiayue, a regional supermarket chain similar to the Fat Donglai model, was relatively good in 2023. The company's annual report shows that Jiajiayue's revenue in 2023 was 17.7 billion yuan, down 2.31% year on year, net profit of 136 million yuan, up 127.04% year on year, after deducting 98.71 million yuan in non-net profit, up 275.56% year on year.

Looking specifically at Fat Donglai's performance in 2023, founder Yu Donglai publicly stated that he originally planned to earn 20 million yuan last year, but he didn't expect to earn 140 million yuan by the end of the year, and employees' wages continued to rise. The minimum income was 7,000 yuan per month, and the salary of employees in many stores was generally over 8,000 yuan. If the information revealed by Yu Donglai is true, Fat Donglai's net profit has already surpassed that of many well-known listed companies in the retail industry.

Comparatively, regional supermarket chains now seem to be more resilient to risks. This is also an experience Yonghui Supermarket hopes to learn from Fat Donglai.

The “Fat Donglai Model” can be learned and is difficult to copy

One is Fat Donglai, which has 13 physical stores in Henan, and is loved by local consumers for its beauty, low prices, and good service. The other is Yonghui Supermarket, which has nearly 1,000 stores across the country, with a net profit of over 70 billion dollars but a loss of 1.3 billion dollars. What kind of sparks can the cooperation between Fat Donglai and Yonghui Supermarket spark?

According to the Elephant News report, the main changes include mainly Yonghui's existing supply chain system, with Fat Donglai making structural additions, and fully referring to the product structure of Fat Donglai in store products to greatly improve product quality. At the same time, increasing employee remuneration and shortening working hours will also be prioritized simultaneously.

It is currently unknown whether learning Fat Donglai can drive Yonghui supermarket's performance growth, but unlike Fat Donglai, Yonghui supermarket also faces problems of reduced shareholders' holdings, high debt, and fierce competition for community group purchases.

According to the shareholding reduction announcement issued by Yonghui Supermarket on March 20, Suqian Hanbang Investment Management Co., Ltd., the shareholder holding 5.27% of the shares, plans to reduce its holdings by no more than 90.753 million shares through centralized bidding transactions, accounting for no more than 1% of the company's total share capital. Suqian Hanbang and Jingdong World Trade Center are acting in concert. Both are companies controlled by JD. Together, the two hold 13.39% shares in Yonghui Supermarket.

It is worth noting that this is the first time that JD, which has owned Yonghui Supermarket for more than 9 years, announced a plan to reduce its holdings, reflecting a change in JD's strategic attitude towards Yonghui Supermarket. Yonghui Supermarket's stock price fell in response. It fell 4.71% on the 21st and continued to fall 3.29% on the 22nd.

The high debt ratio is also an important factor affecting Yonghui Supermarkets. According to financial data, Yonghui Supermarket's debt ratio has continued to rise in the last seven years, from 34.64% in 2016 to 88.60% in 2023. According to the 2024 quarterly report, Yonghui Supermarket faces high liquidity risks with a working capital of 6.9 billion yuan, short-term loans of up to 4.85 billion yuan, and non-current liabilities due within one year.

Furthermore, unlike Fat Donglai, Yonghui supermarket has many first-tier stores, and it is also the place with the highest level of community group buying and e-commerce penetration. Community group buyers such as Meituan, Pinduoduo, and Hema Xiansheng compete with the same consumers as Yonghui Supermarket. Compared with Yonghui supermarkets, channels such as Meituan and Pinduoduo have more cost advantages in terms of employee costs and store rent. As can be seen, it is easy for Yonghui supermarkets to learn the fat donglai model, but it is still difficult to reverse the decline by copying the fat donglai model. It is necessary to draw on the advantages and disadvantages of the two models and redevelop a development model that is more suitable for Yonghui supermarkets before it is possible to get out of the downturn.