Two "bottom fishing" activities for RT-Mart are almost happening simultaneously.

One is the "fixed price" frenzy happening in stores. Consumers, re-engaged by bargains like 1-yuan Prince Frog wet wipes, Master Kong iced tea, Weilong spicy strips, 2.9-yuan white vinegar, Crest toothpaste, and 4.9-yuan Lay's potato chips and Want Want snow cakes, filled their shopping carts with the ambition of finding bargains offline.

The other is happening on the Hong Kong Stock Exchange. Since issuing a positive profit warning on October 15, RT-Mart's parent company Sun Art Retail Group has been busy updating trading disclosure announcements almost every day. Secondary market investors are continuously bottom fishing the former "King of Chinese Supermarkets" through institutions like China International Capital Corporation and JPMorgan Chase.

The premise of "bottom fishing" is naturally believing that RT-Mart's growth potential is underestimated. Just like the new investors preparing to take over from Alibaba, most believe there is still potential for valuation growth.

In fact, since news broke earlier this year that Alibaba wanted to bundle RT-Mart for only 10 billion yuan, to the announcement in April of a huge loss of 1.6 billion yuan in fiscal year 2024, RT-Mart has silently played the role of a lonely giant in a declining industry losing customer favor, a huge burden waiting to be sold off.

But in the view of "Noise Reduction NoNoise", shedding the role of being subordinate to a large company's strategy may not be a bad thing, just like some East Asian married women who break free from family shackles to change their fate and find themselves. Specifically for RT-Mart, being underestimated while wearing the cloak of new retail is inevitable; returning to the role of a traditional retailer, on the other hand, gives it a chance to fight back.

Before a new buyer emerges, understanding how "underestimation" occurred, seeing the real business changes, and the larger industry process behind them, may be the only way to determine where traditional retail's faith will emerge.

01

The King of Chinese Supermarkets

Away from the Parabolic Peak

In the pantheon of Chinese supermarkets, the latest pilgrimage destinations have become Sam's Club, Costco, Dongdonglian, and Aldi.

They are destinations where peers flock to explore, targets for commercial real estate around the country to compete for, and holders of supermarket business records.

If we go back 10 years, all these glories belonged to RT-Mart – with single-store sales reaching twice that of Walmart and 1.6 times that of Carrefour, RT-Mart not only became a model for peers to learn from but also the most popular retailer in local investment attraction.

At that time, introducing RT-Mart was like adding a "guarantee agreement" to the cash-in of surrounding commercial real estate. Industry insiders estimate that a new RT-Mart store can bring an average daily flow of 6,000 to 12,000 people to a commercial entity.

That was the golden age of hypermarkets. Mo Mo (pseudonym), an employee at RT-Mart on Wuxi Changjiang North Road (formerly Auchan Supermarket), remembers that peak sales at the store could reach over 2 million yuan a day. The store was always packed with people, with customers waiting in long lines at 64 cash registers, and over 150 cashiers working in shifts.

▲RT-Mart was once the traffic bearer of commercial real estate

Even today, a single-store daily sales of 2 million yuan is still an impressive achievement. For comparison, there is Yonghui's Xilongduo store in Beijing – with the traffic effect of Dongdonglian, this Yonghui self-adjusted store had a first-day sales volume of 1.7 million yuan, six times higher than before.

Relying on popular affordable products and a dislocated competition strategy in third- and fourth-tier cities, RT-Mart's sales surpassed Carrefour in 2010, becoming the new king of domestic retail. This was the 12th year since RT-Mart supermarkets entered the mainland from Taiwan. In 2011, RT-Mart merged with France's Auchan Supermarket to form Sun Art Retail Group and went public in Hong Kong, becoming China's largest retailer.

By 2017, when Alibaba invested, RT-Mart's annual sales had reached a new high of 100 billion yuan, with a net profit of 2.793 billion yuan and 461 stores.

Almost at the same time Alibaba invested in Sun Art Retail Group, news came of Tencent's investment in Yonghui. From an internet perspective, such marriages are an expansion of internet giants' spheres of influence and online penetration and transformation of offline. Alibaba, in particular, consciously took up the banner of the new retail narrative.

But from the perspective of offline supermarkets, 2018 was a special turning point. That year, the impact of e-commerce on hypermarkets suddenly intensified, and retail formats diversified with fierce competition –

Traditional hypermarkets' low-frequency, high-margin categories such as department stores, clothing, and home appliances have been severely impacted by e-commerce; at the same time, new retail models that integrate online and offline, represented by Hema Supermarket, and various fresh food e-commerce platforms have soared in the narrative of consumption upgrading, with valuations and traffic soaring together.

The tough times for hypermarkets have quietly arrived. In 2018, RT-Mart's same-store sales growth further declined from -0.26% the previous year to -1.72%; Yonghui fell from a growth rate of 2.2% the previous year to 1.6%; and foreign giant Walmart China's same-store sales growth rate was -0.2% year-on-year.

"It's not that the large supermarket format is no longer viable, but that companies have lost the original advantages of traditional retail businesses, while disadvantages have become more prominent." After experiencing six consecutive months of sales declines, Meng Fanzhong, chairman of the regional chain supermarket Biyoute, also realized the problem.

At the crossroads of the times, RT-Mart did not fail to respond, and even from today's perspective, the strategic positioning written into the 2018 financial report was pragmatic and forward-looking – "Sun Art Retail should focus on the fresh food category and aspire to become a fresh food retail expert."

Fresh food can be said to be a physical fortress that the internet has not yet conquered. But from a longer-term perspective, RT-Mart's ambition for online transformation is clearly higher than its focus on the goal of becoming a "fresh food retail expert."

Beyond Yonghui, it is Hema, Dongdonglian, Sam's Club, and others that have developed their own characteristics in large food areas such as fresh food, pre-made dishes, cooked food, and baking. Regional supermarket Biyoute has also expanded its fresh food share to nearly 50%, thereby emerging from the industry's trough and later acquiring Carrefour stores in the northeastern region.

02

Being underestimated is RT-Mart's "destiny"

Digitization itself is not wrong, but is this process a lifeline for the transformation of traditional supermarkets or a branch of the evolution of retail infrastructure? Is it the standard or the essence? Different choices lead to different trends.

As Alibaba's "showroom" for new retail, RT-Mart was full of expectations for online transformation at the time. Hema's overhead conveyor system and part of the supply chain were opened up to the "elder brother" to assist in the integration of store and warehouse. On this basis, RT-Mart promoted the RT-Mart Fresh App on one hand and undertook traffic from ports such as Tmall, Freshippo, and Ele.me, providing supply chain services for Tmall Supermarket and later Community Group Buying (community group buying).

▲RT-Mart Fresh app home page

In fiscal year 2020, RT-Mart reached a peak of double 100 billion in market value and sales, reaching its most glorious moment. Among them, online revenue exceeded 20 billion yuan, accounting for 24% of sales.

When asked about the integration effect with Alibaba, RT-Mart's soul figure Huang Mingduan quoted a comment from then-Alibaba CEO Daniel Zhang (Huahua Zi), "RT-Mart is different because of Alibaba, and Alibaba is different because of RT-Mart."

▲Alibaba and Sun Art Retail reached a strategic cooperation on new retail

Source: Alibaba's official website

For this "difference," Alibaba paid the price of 50 billion Hong Kong dollars.

In hindsight, the more dazzling the halo of new retail was, the more helpless RT-Mart felt being "dumped" later.

Frankly speaking, RT-Mart was not the only traditional supermarket obsessed with "going online" and new retail at the time. The shift in consumer shopping habits led traditional supermarkets to collectively chase the internet. But a former RT-Mart employee was still blunt in his criticism, "Huang Mingduan himself was a bit PUA'd by the internet."

Yonghui also invested too much energy and trial-and-error costs in the process of new retail. New formats such as Super Species and Yonghui Mini stores gradually emerged. In an industry where every penny counts, the cost of innovation is magnified countless times. Super Species burned so much money that it was spun off from the balance sheet, and Yonghui still couldn't stop its descent, as described by the resigning secretary, "going downhill."

▲Yonghui store after adjustment by Dongdonglian | Photographed by Noise Reduction

Of course, there were setbacks from the pandemic and the impact of community group buying and emerging retail formats. But if we look vertically, the main line of offline supermarket changes in recent years has revolved around format and scenario innovation, with the idea of reaching more consumers in every possible way and making it easier for them to place orders.

Online transformation from 2017 to 2021 belonged to the former, while the rapid expansion of community stores from 2018 to 2022 and the ongoing adjustment of hypermarket scenarios belonged to the latter.

Ultimately, it's still about "scale."

After a period of exploration, Yonghui incurred a cumulative net loss of over 8.1 billion yuan in the 3 years and 9 months from 2021 to the third quarter of this year. RT-Mart, shouldering the heavy responsibility of being Alibaba's eldest son in new retail, fared no better, with its downhill slide becoming steeper: revenue fell to 88.134 billion yuan in fiscal year 2022, with a net loss of 739 million yuan; in fiscal year 2023, it fell to 83.662 billion yuan, with a net profit turning positive after laying off 14,000 employees; and in fiscal year 2024, it dropped to 72.567 billion yuan, with a net loss of 1.6 billion yuan.

Looking around, the industry's most comfortable players – Dongdonglian, Sam's Club, Costco, and the steady Aldi – all follow another path in retail: merchandise power.

▲Customers queuing in Dongdonglian's deli section | Photographed by Noise Reduction

"It feels like those who pursued scale in recent years have all collapsed because their products didn't keep up with the scale." This is the observation of retail expert Wang Guoping.

If the direction is wrong, no amount of effort will help. Faced with losses, store closures, and sell-off news, RT-Mart seems to have become a hot potato, with the earliest rumored transaction valuation being only 10 billion yuan. In a sense, being underestimated is RT-Mart's destiny – the collapse of Alibaba's new retail faith has amplified the outside world's perception of RT-Mart's "decline."

But if we consider that 34% of RT-Mart's stores are owned properties, the commercial real estate value of 4-5 billion yuan alone makes this rumor thin; not to mention the 21.8 billion yuan in net assets on the balance sheet and the 27 years of retail operation expertise that are difficult to monetize.

It's estimated that it's hard for RT-Mart's internal team not to feel "annoyed."

However, from a positive perspective, Alibaba's letting go just gave RT-Mart the opportunity to "be itself" without having to prioritize group strategy; returning to the retailer evaluation framework, if RT-Mart can quickly return to the essence of retail, it still has a chance to turn the tide against the wind.

This point has already been proven by peers in the pantheon and regional retailers with strong strength but away from the spotlight.

Even today, when the hypermarket format is bearish, Walmart's offline traffic still shows "positive growth." This is also a highlight emphasized in Walmart China's Q3 2024 earnings report.

03

No industry is obsolete, only obsolete companies

It can only be said that no industry is obsolete, only obsolete companies. RT-Mart's fate ultimately depends on its ability to self-transform.

"RT-Mart's ability to self-reform is still there, and it's more than what the outside world expects." Retail industry observer Wan Deqian believes that in the current industry situation, RT-Mart does not need to come up with innovative transformation methods; simply reviving old methods and returning to where it was a decade ago will provide opportunities.

This "old method," in the words of RT-Mart management, is returning to the essence of retail.

In a shareholder letter dated May 21 this year, Sun Art Retail Chairman Huang Mingduan wrote meaningfully: In fiscal year 2024, Sun Art Retail took some detours... Next, we need to return to the essence of retail.

Just two months ago, RT-Mart just completed a change in leadership. Alibaba executive Lin Xiaohai resigned as CEO of Sun Art Retail, and Shen Hui, who has years of experience within the Sun Art Retail system, began to lead RT-Mart. Informed sources revealed that multi-level Alibaba executives at RT-Mart have also been gradually withdrawing, and the management team is returning to the traditional retail team.

▲Today's RT-Mart on Wuxi Changjiang North Road | Photographed by Noise Reduction

What are the "detours" mentioned by Huang Mingduan? Judging from a series of adjustment actions since the beginning of this year, the main problem seems to lie in product and price competitiveness.

In the past, RT-Mart was able to rise from a latecomer in the supermarket industry founded by a Taiwanese textile company to overtake the two foreign giants Carrefour and Walmart and reach the peak of being the "King of Chinese Supermarkets" by relying on products and prices, the fundamentals of the retail industry.

Based on this, Huang Mingduan once extracted four "determinations": quality determines whether customers come; price determines whether customers buy; service determines whether customers want to; and efficiency determines whether one exists.

RT-Mart's affordable mindset was once deeply rooted in people's minds. Carrefour conducted a survey in the Shanghai market in its early years and found that its "price image" ranking was lower than that of RT-Mart. Undeterred, Carrefour conducted spot checks on multiple categories and found that similar products supplied by RT-Mart were more "low-end" but had a clear price advantage.

"Noise Reduction NoNoise" has also previously written that RT-Mart once sold electric bikes that cost over 3,000 yuan on the market for only 999 yuan in its stores.

To maintain price competitiveness, RT-Mart had a tradition of manual "price comparison" in its early years: each store was equipped with a price checking team of six to seven people who would randomly select 1,000 customer-purchased categories each day to conduct real-time "price comparisons" with peers within a 5-kilometer radius of the store. Whenever a product's price changed, the computer system would automatically update the product's gross margin, which was tied to the performance of procurement personnel, transmitting pressure upstream layer by layer.

But in the past two years, many consumers have complained on social media that the prices of RT-Mart's goods have increased. Some consumers have found that a bottle of Jiannanchun liquor costs at least 70 yuan more in RT-Mart than in other channels. Similarly, a 538-gram package of Saxima costs 24.8 yuan in RT-Mart, but only 15.7 yuan after obtaining a coupon online.

This is a dangerous signal for RT-Mart.

Wan Deqian believes that during Lin Xiaohai's tenure as CEO of RT-Mart, customer experience was prioritized, but not enough effort was put into product quality and pricing, which was a "detour".

Taking RT-Mart Wuxi Changjiang North Road Store, the benchmark for RT-Mart's Restructuring 2.0, as an example, after its reopening in September 2022, the store emphasized shopping experience and scenario-based design, including modifying traffic flow, designing special product display areas, and creating an arched wine rack displaying 1,800 bottles of red wine and a micro-drinking station. In terms of product structure, the number of SKUs was reduced by 20%, from over 30,000 to around 25,000, with an increase in high-price items. To meet niche demands, 20% of differentiated products were introduced, such as high-year imported whiskies, ultra-light carbon bicycles, and museum cultural and creative products.

After Shen Hui took over as CEO, RT-Mart began to reshape its price image by creating the "RT-Mart Must-Buy", "More Quantity, Same Price" series, and its private label "Dazhimu Super Save" series, introducing over 1,100 new low-priced items. These low-priced items are mostly core products of supermarkets rather than supplementary ones.

▲RT-Mart's low-price promotion. Source: RT-Mart's official Weibo

Some Shanghai netizens have shared their purchases of hand cream, lip balm, and SOD cream, which together cost more than 10 yuan, saying, "My consumption concept has been corrected by RT-Mart... it's almost free after rounding up."; many netizens from other regions have also shared RT-Mart's "uniform price" promotions, exclaiming how good the deals are.

According to the fiscal 2025 half-year report of Sun Art Retail Group, from April 1 to September 30 this year, the low-price strategy drove a year-on-year increase of 0.3% in same-store sales at RT-Mart, with a recovery in customer traffic.

This may be a more positive signal than turning losses into profits. In the retail industry, same-store sales have always been a crucial financial metric, relating to trends and future decision-making.

Besides pricing, RT-Mart has a clearer goal this year in exploring new business formats: M Member's Store and RT-Mart Super (medium-sized supermarkets) are Parallel as the second growth curve beyond hypermarkets. Xiao Runfa, a small-scale community fresh food supermarket, has essentially been abandoned.

▲Xiao Runfa. Source: RT-Mart's official Weibo

Xiao Runfa was the first "work" of Lin Xiaohai after taking charge of RT-Mart, with over 100 stores at its peak. However, the difficulty of profitability for small-scale community fresh food stores is a common issue in the industry, with Yonghui Mini and Walmart's "Hui Xuan" also being abandoned. Only Hema Outlet, which transformed from a Hema Fresh nearing its expiration date, has carved out a new path by adopting a hard discount model.

RT-Mart Super is a medium-sized community supermarket with an area of 1,500-3,000 square meters. Besides selected products, community canteens are also introduced into its store functions. This type of store has become a mainstream business format being explored by domestic supermarkets in the past two years, closer to community customers than hypermarkets but still focused on differentiated products and pricing power.

▲RT-Mart Super's first store in Zhuhai. Source: Xiaohongshu @yy It's me

As for M Member's Store, one crucial opportunity lies in speed. While Sam's Club and Costco are primarily located in first- and second-tier cities, despite Sam's Club's recent acceleration in "sinking" into lower-tier cities, the membership store model has extremely high requirements for stores, with project advancement measured in years. Taking the Shenzhen Qianhai Sam's Club flagship store as an example, it took at least 18 months from project commencement to opening. One advantage of M Member's Store is its proximity to RT-Mart's extensive self-owned properties in third- and fourth-tier cities, which can be directly put into operation after renovation.

▲RT-Mart M Member's Store. Source: RT-Mart's official Weibo

Another opportunity lies in the trend of regional consumption stratification. Comparing the growth rates of total retail sales of consumer goods in high- and low-tier cities, low-tier cities have robust demand for consumption upgrades, which is favorable for the expansion of membership store formats. However, the premise is differentiated products and competitive pricing.

From an industry perspective, RT-Mart's past supply chain capabilities are difficult to directly replicate in the membership store format. Whether M Member's Store can succeed in third- and fourth-tier cities and become a second growth curve will depend on the management team's product development capabilities, supply chain capabilities, and operational efficiency.

04

One more thing

RT-Mart also has an underestimated asset - people, specifically, 69-year-old Huang Mingduan.

A misattributed quote, "Winning all competitors but losing to the times," once made Huang Mingduan famous but also brought him endless grievances. As the "land warfare king" of supermarket chains in the retail industry, how could Huang Mingduan willingly admit that he and RT-Mart, which he personally built, had lost to the times?

▲Source: Huang Mingduan's Weibo

Regarding changes in the times, his most frequent response is "overcoming".

In 1997, when the textile business primarily operated by Taiwan's Ruentex Group was in trouble, Huang Mingduan was assigned to explore the retail and supermarket business in the mainland market, marking the beginning of RT-Mart's story. Facing the situation where foreign giants like Carrefour and Walmart had already seized first- and second-tier cities, the little-known RT-Mart decided to first enter third- and fourth-tier cities, overcoming its "innate deficiency" and avoiding direct competition. Facing the impact of e-commerce since 2012, Huang Mingduan gambled his personal reputation on building Feiniu.com. Although this effort to "overcome" the times cannot be considered a success, it provided a basis for Sun Art Retail's subsequent decision on online transformation.

After Alibaba executives took over RT-Mart, Huang Mingduan gradually faded from RT-Mart and even deliberately kept his distance. However, former Alibaba personnel close to Huang Mingduan told us that Huang is a restless person whose focus has never left the business.

During the online grocery shopping war, Alibaba's community group-buying business was integrated into Taocaicai, with RT-Mart providing the supply chain. Huang Mingduan taught classes to the grocery shopping team every week, "feeling like a coach role" because the grocery shopping business is not based on traffic logic but on retail fine operation logic.

The above insider observed that Huang Mingduan is particularly meticulous about many things, emphasizing fine operation, especially sensitive to data. "He always does the accounting and breaks down costs in great detail, calculating how much money can be saved with each change and presenting it. If someone makes a mistake in the report, he gets very emotional. In contrast, it's difficult for internet people to be that detailed."

During his tenure as Chairman of the Board of Suning.com from July 2021 to April 2023, Huang Mingduan personally took Suning.com's senior management to visit RT-Mart stores in Shanghai to specifically learn about fine operations.

"It's evident that he is very proud of RT-Mart and treats it like his own son." The aforementioned person mentioned a detail: A subordinate once joked that since RT-Mart had been acquired by Alibaba, Huang Mingduan should have achieved financial freedom a long time ago, so why was he still working so hard? Huang Mingduan responded that he hadn't sold a single share of his stock.

Whether it was helping Taiwan's Ruentex Group expand its territory, taking charge of RT-Mart at the age of 41, or serving as Chairman of the Board of Suning.com from July 2021 to April 2023 at the request of Daniel Zhang, Huang Mingduan has always demonstrated loyalty and responsibility. The aforementioned insider revealed, "At that time, Suning.com had lost its actual controller, and Alibaba urgently needed to find someone who could coordinate various forces. However, there was no suitable candidate internally. This was actually a difficult situation that could even potentially tarnish one's reputation. Daniel Zhang personally asked Huang Mingduan for help. He went and not only stabilized all forces but also gave everyone hope for the business."

Now, RT-Mart, which Huang Mingduan built with half a lifetime of effort, has once again reached a crossroads in its destiny. Without the shackles of Alibaba and with a return to the essence of retail becoming the mainstream of current retail transformations, if the former retail legend can once again personally intervene and assist the management team in finding a new direction for RT-Mart to "overcome" the times, it could be good news for both RT-Mart and the retail industry.

References:

[1] "RT-Mart Abandons Xiao Runfa," Jiemian

[2] "RT-Mart Receives Tender Offer Intention - Who Will Take Over for Alibaba?" Caixin

[3] "Latest Conversation Between Huang Mingduan & Lin Xiaohai: RT-Mart is Continuously Transforming, and Hypermarkets Have Four Tricks," Weilaixiaofei App

[4] "Interview with RT-Mart Chairman Huang Mingduan: Who Said I 'Lost to the Times'? I Wish I Had Met Alibaba Sooner!" 2018 Lianshang Network Conference

[5] "2021 China's Best Stores Tour: RT-Mart Wuxi Changjiang North Road Store," Lianshang Network