[Beijing Diary] The Fall of 'Success Model' Jialefu

[Asia Economy Beijing=Special Correspondent Kim Hyun-jung] For several days, rumors have been circulating in China that the large supermarket chain Jia Le Fu (家樂福) might be withdrawing from the Chinese market. Jia Le Fu is the Chinese corporate name given by the famous French retail company Carrefour when it entered mainland China in 1995. In 2019, 80% of the corporate shares were acquired by the local retail giant Suning (蘇寧) Group, effectively making it a Chinese company.

The rumors of market withdrawal are quite specific and have some basis. The most noticeable change is the sharp decline in the number of stores. According to Suning’s corporate report, Jia Le Fu did not open any new stores during the first to third quarters of last year, while the number of closed stores reached 54. Prior to this, in March last year, the Zhongguancun store in Beijing, once famous as the 'largest supermarket in Asia' at its opening, closed after 18 years of operation. The total number of stores dropped sharply by 26%, from 205 at the end of 2021 to 151 as of the third quarter of last year.

Empty Jialefu shelves in China (Photo by Weibo)

Empty Jialefu shelves in China
(Photo by Weibo)

Signs also appeared inside frontline stores. One store in Guangzhou was open but the shelves were empty as goods had run out, and the deli corner had no prepared food at all. A policy was even communicated that payments could not be made with previously purchased 'prepaid cards,' leading consumers to accept the rumors as fact. Photos of empty shelves at stores in Beijing and Chengdu spread online, and Jia Le Fu eventually closed all its stores nationwide on the 30th of last month, citing business adjustments.

Afterwards, customers holding 'prepaid cards' used at the supermarket lined up in front of stores to request refunds. Local media reported that Jia Le Fu had defaulted on payments to many fresh food suppliers, causing the supply of goods to be cut off. On the 4th, a Jia Le Fu representative explained, "There are no plans to withdraw from China; the restrictions on prepaid card payments were only due to supply chain adjustments and temporary financial issues," but the queue for prepaid card refunds has continued unabated.

The decline of Jia Le Fu carries significant implications. For foreign companies aiming to enter the Chinese market and students studying Chinese commerce, Jia Le Fu had long been regarded as a 'textbook example of successful localization.' While large retail companies such as Tesco, Lotte Mart, and E-Mart struggled to establish themselves and exited China, Jia Le Fu, despite being foreign-owned, firmly expanded its presence and became part of China’s 'national supermarket' ranks.

The key to Jia Le Fu’s past success lay in optimizing the French-style hypermarket model for China and accurately identifying and meeting Chinese consumers’ demands. It was also evaluated as successful in adapting to the uncertainties of China’s socialist system, unpredictable administration, and the demanding patriotic consumer base.

However, the reasons for its decline can also be found precisely here. While warehouse-style large supermarkets like Hema (盒馬), affiliated with Alibaba and equipped with their own distribution and delivery networks, emerged and various small and large retailers expanded their operations by partnering with large delivery companies, Jia Le Fu wasted time relying on its existing model. To make matters worse, the spread of COVID-19 sharply reduced offline, face-to-face consumer demand. The strategies of optimization and demand identification failed to exert their power this time. By the third quarter of last year, Jia Le Fu’s cumulative net loss was 4.545 billion yuan (approximately 844 billion KRW), an amount comparable to Suning’s 2019 acquisition price of Jia Le Fu shares (4.8 billion yuan).