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China: Discounter Leerle and Gome Supermarket start cooperation

Discount Retail Chain Leerle in Changsha, Hunan, was not long ago visited by, Gome Group founder Huang Guangyu paid a night visit to this retail chain company in Changsha, Hunan, and was personally received by founder Chen Zhengguo and his senior management team. After the visit, the two parties held closed-door talks and signed a cooperation agreement.


Not only is Leerle actively promoting its cooperation with the former richest man, but from May 1 to now, Gome Supermarket, run by Huang Guangyu, has also been promoting the matter through its Douyin account, saying that Gome Supermarket and Leerle have finalized cooperation matters. And said that "the sword is aimed at hard discounts." Prior to this, the official Douyin account of Gome Supermarket had stopped updating for 4 months.


In November 2023, the news that Gome planned to open 10,000 Gome supermarketl stores within three years attracted attention and even caused the stock prices of Gome listed companies to rise sharply. Subsequently, Gome Retail, a core listed company of Gome Group, issued an announcement stating that Gome Supermarket is not operated by the company, but is operated by the main shareholder Huang Guangyu and its related parties in cooperation with a third party. The company also stated that it does not rule out the possibility of exploring new retail projects in the future.


The operation model of Gome Supermarket is not a franchise store, but closer to brand authorization. Supermarket operators pay brand usage fees to the operating company, which are 15,000 yuan for two years for properties below 40 square meters, 30,000 yuan for two years for properties below 40-80 square meters, and 50,000 yuan for two years for properties below 80-120 square meters. As of November 18, 2023, Gome Supermarket stated that 3 stores have been opened, and 7 more stores are under renovation and waiting to be opened.


Leerle was founded in Changsha, Hunan in 2011. Chen Zhengguo, a native of Shaodong, Hunan, was inspired by the "happy world after tomorrow" in "The Story of Yueyang Tower" and named the supermarket Leerle. In previous interviews, he has said that the original intention of Leerle was to save students money and allow them to buy genuine products at low prices.


Leerle explains the positioning of its hard discount stores as selling regular products, and mainly reduces costs from the supply chain, warehousing and logistics, human efficiency, private brands and other links, thereby winning more room for price reductions for the products.


2019 is the dividing line for Leerle's development. Prior to this, Leerle mainly relied on its first-mover advantage and B2B model to develop rapidly, and relied on flip-flop mom-and-pop stores to expand terminal procurement scale. After 2019, Leerle began to gradually change loose franchises into tight franchises, and at the same time developed partnership direct-operated stores. By 2023, Leerle will expand nationwide and establish an investment team, Leerle Huimeng, and claim to invest 1 billion in the supply chain to build supply chain advantages.


According to officially disclosed information, there are currently more than 4,000 Leerle stores, over 90% of which are franchise stores. As the discount trend gradually becomes popular, Leerle will open more than 1,000 stores in 2023 alone, with annual sales exceeded 40 billion yuan, and its highest annual sales volume of a single store reached 1.176 billion yuan. According to 36Kr Hunan reports, Leerle will have more than 10,000 stores through Leerle Huimeng in 2024, with revenue exceeding 100 billion.


With such impressive performance, Leerle is not well-known. This may be because Leerle has not yet entered first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen. This discount supermarket chain from Hunan has more than 2,500 stores in its base camp. In addition, it also operates in more than ten provinces and cities including Hubei, Jiangxi, Guangdong, Henan, Sichuan, Guangxi, Chongqing, Yunnan, and Anhui.


Based on information from platforms such as Dianping, Leerle usually appears in the "worst" spots near university towns, on the second floor or in the basement of popular business districts. Leerle mainly develops with three main store types, including small stores of 300-800 square meters; medium-sized stores of 1,000-2,000 square meters; and warehouse stores of 5,000-10,000 square meters.


Most of the people who come here to purchase are college students, the elderly, and even married shopkeepers. In the sharing post about Leerle on Xiaohongshu, many college students said they came here to buy it because it is cheap and nearby.


In addition, Leerle has also extremely reduced costs in many aspects. Leerle's stores can be said to be simple, with rows of goods piled directly on the packaging cartons; stores usually only carry out simple decoration, and can even distribute goods directly without changing the shelves; at distributors, Leerle said that manufacturers directly dock Leerle Warehouse Delivery, warehouse delivery is delivered directly to stores and franchise stores, eliminating a series of operating expenses such as shelving, barcoding, authorization, etc., and there is no profit margin on the price of the goods.


To a certain extent, Leerle, which has been dormant for many years, is like Pinduoduo in the supermarket world, winning the affordable consumer market through supply chain integration and extremely low prices.


For now, the cooperation between Leerle and Gome Supermarket seems to be a win-win cooperation. Leerle further enhanced its brand value through Huang Guangyu's halo as the former richest man and attracted more franchisees. Gome Supermarket took advantage of this shareholder style of hard discounts to enter the sinking market and get out of the predicament and start anew.



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