Yonghui Superstores (永辉超市), once a retail titan in China, recently issued an open letter to rival Sam’s Club, but its ambiguous messaging has sparked confusion and criticism. This episode underscores a central conflict: Yonghui’s aspiration to lead is consistently contradicted by its submissive actions, revealing deep-seated strategic flaws. As the company grapples with financial woes and identity crisis, its ability to reclaim market leadership hangs in the balance.
Executive Summary
Key takeaways from Yonghui Superstores’ current predicament and its implications for China’s retail landscape:
– Yonghui’s open letter to Sam’s Club was criticized for vagueness and lack of direct confrontation, contrasting sharply with Luckin Coffee’s bold 2018 challenge to Starbucks.
– The company’s financial health is deteriorating, with negative net profit, debt ratio approaching 90%, and leadership transitions from the Zhang brothers to Ye Guofu (叶国富).
– Attempts to emulate successful models like Pang Donglai (胖东来) have failed to address core issues such as employee compensation and supply chain development.
– Sam’s Club’s slow but steady growth over 30 years, with only 63 stores in China by 2025, highlights the importance of sustainable supply chain investment over rapid expansion.
– For Yonghui to regain its position, it must move beyond superficial changes and pursue decisive actions, including formal regulatory complaints against anti-competitive practices.
The Open Letter Debacle: A Study in Strategic Confusion
Yonghui Superstores’ open letter to Sam’s Club, titled with the slogan “National Supermarket, Quality Yonghui,” aimed to position the company as a champion for fair competition. However, its content was marred by ambiguity and hesitation, failing to deliver a clear message. This approach highlights Yonghui’s aspiration to lead while simultaneously engaging in submissive actions, such as refusing to name Sam’s Club directly when accusing it of forcing supplier exclusivity. The letter’s six-point “dos” were essentially recommendations that Sam’s Club already implements, making Yonghui appear like a novice advising a veteran.
Comparison to Luckin Coffee’s Bold Move
In 2018, Luckin Coffee (瑞幸咖啡) issued a direct open letter to Starbucks, explicitly complaining to authorities about monopolistic practices. Yonghui’s letter, in contrast, lacks this decisiveness. While Luckin was a startup with nothing to lose, Yonghui is a former industry leader with a legacy to uphold. This timidity undermines its credibility and suggests a deeper identity crisis. As one analyst noted, “Yonghui wants to be the big brother but acts like a grandson,” a phrase that encapsulates its leadership aspirations versus submissive actions. The company could learn from Luckin’s approach by filing formal complaints with China’s State Administration for Market Regulation (国家市场监督管理总局) if it believes Sam’s Club is engaging in anti-competitive behavior.
Yonghui’s Rise and Fall: From Retail Empire to Financial Struggles
Yonghui Superstores once symbolized China’s retail boom, with over 1,000 stores and a market capitalization exceeding 100 billion CNY at its peak. Listed on the Shanghai Stock Exchange (上海证券交易所) as 601933.SH, it expanded rapidly through aggressive store openings and capital market activities. However, this growth came at the expense of long-term stability. The company’s focus on “speed and stimulation,” as described in internal documents, prioritized storytelling for investors over foundational investments like supply chain development.
Leadership Transitions and Financial Woes
The founding Zhang brothers (张氏兄弟) – Zhang Xuan Song (张轩松) and Zhang Xuan Ning (张轩宁) – drove Yonghui’s early expansion but faced internal conflicts that led to a split at the market’s peak. By 2024, they had ceded control to Ye Guofu (叶国富), who inherited a troubled balance sheet. Recent financial reports show Yonghui with less than 4 billion CNY in cash, but liabilities including over 8 billion CNY in payables and 4.9 billion CNY in contract liabilities. With a net profit margin in negative territory and debt ratio nearing 90%, the company’s survival depends on urgent restructuring. This financial pressure exacerbates Yonghui’s tendency toward submissive actions, as it lacks the resources for bold moves.
Learning from Competitors: Missteps with Pang Donglai and Sam’s Club
In a bid to revive its fortunes, Yonghui has turned to emulating successful competitors, but these efforts have often missed the mark. The “Pang Gai” (胖改) initiative, launched in June 2024, aimed to adopt practices from Pang Donglai (胖东来), a highly regarded regional supermarket known for employee welfare and customer service. Yonghui rapidly modified over 100 stores in a year, but focused on superficial aspects like装修 and考核, neglecting core principles such as fair wages.
The Pang Donglai Wake-Up Call
At the 2025 China Supermarket Week event, Pang Donglai founder Yu Donglai (于东来) publicly criticized Yonghui’s approach, interrupting a executive’s speech to emphasize that 60% of profits should go to employee bonuses. This incident exposed the gap between Yonghui’s aspirations and its submissive actions in implementing change. Similarly, Yonghui’s recent pivot toward learning from Sam’s Club risks repeating this pattern. Sam’s Club, operated by Walmart (沃尔玛), has grown slowly in China since 1996, with only 63 stores projected by 2025, but it has invested heavily in supply chain and private label development. Yonghui’s open letter implicitly acknowledges this strength, yet the company has not committed to similar long-term investments.
The Core Issue: Supply Chain Neglect and Market Positioning
Yonghui’s struggles stem from a fundamental neglect of supply chain development, a area where Sam’s Club excels. While Yonghui pursued rapid expansion, Sam’s Club focused on building a robust supply network over decades, using local resources to cultivate reliable partners. This strategic patience has allowed Sam’s Club to maintain quality and cost efficiency, even with fewer stores. In contrast, Yonghui’s supply chain remains underdeveloped, with executives admitting they are “toddlers” in private label offerings.
The Cost of Short-Termism
Yonghui’s historical emphasis on store count and market cap, exemplified by its “千亿千店” (thousand-billion, thousand-store) campaign, diverted attention from sustainable practices. As the retail market evolves, consumers increasingly value quality and consistency over sheer scale. Yonghui’s submissive actions in avoiding deep supply chain reform reflect a reluctance to invest in unglamorous, long-term projects. For instance, developing a proprietary supply chain could take 10-30 years, but Yonghui prioritized quicker wins. This misalignment between leadership aspirations and operational reality is a critical flaw that must be addressed for recovery.
Path Forward: Reclaiming Leadership Through Decisive Action
For Yonghui Superstores to escape its identity crisis, it must align its aspirations with concrete, bold actions. The company should start by clarifying its market position: is it a national champion for consumers, or a follower of trends? This requires moving beyond vague public letters and embracing transparent strategies. Filing formal complaints with regulatory bodies, as Luckin Coffee did, could demonstrate a commitment to fair competition, provided there is evidence of wrongdoing by competitors.
Strategic Recommendations for Yonghui
To transition from submissive actions to genuine leadership, Yonghui should consider the following steps:
– Invest in supply chain development: Allocate resources to build private labels and supplier relationships, even if it means slower short-term growth. This could involve partnerships with local producers or technology upgrades for logistics efficiency.
– Enhance employee welfare: Implement Yu Donglai’s advice by tying profits to employee bonuses, which can boost morale and service quality, as seen in Pang Donglai’s model.
– Leverage digital transformation: Use data analytics to optimize inventory and customer engagement, areas where Chinese retailers like Alibaba’s Freshippo (盒马) have excelled.
– Engage in transparent communication: Instead of ambiguous open letters, publish clear strategic plans and progress reports to rebuild investor and consumer trust.
Yonghui’s aspiration to lead must be backed by a willingness to take risks, such as confronting competitors directly or innovating in untapped market segments. The company’s large store network provides a foundation, but it must be coupled with operational excellence.
Synthesizing the Challenge: From Crisis to Opportunity
Yonghui Superstores stands at a crossroads, where its past glory as a retail giant clashes with current realities of financial stress and strategic confusion. The open letter to Sam’s Club is symptomatic of a broader pattern: the company’s leadership aspirations are undermined by submissive actions, from vague accusations to superficial imitations of competitors. However, this crisis also presents an opportunity for reinvention. By embracing decisive moves—such as formal regulatory complaints, deep supply chain investments, and employee-centric reforms—Yonghui can begin to reconcile its desires with its deeds. The Chinese retail market, valued at over 5 trillion CNY annually, remains dynamic, with room for players who combine scale with substance. For institutional investors and business professionals watching this space, the key takeaway is clear: Yonghui’s future depends on shedding its timid posture and reclaiming the boldness that once made it a leader. Monitor the company’s next steps closely, as they will signal whether it can transform aspiration into action and regain its position in China’s competitive equity landscape.