Domestic retailing, supply chain management, and the rise of fresh food supermarkets in China

Abstract

This study investigates the emergence of fresh food supermarkets and explores domestic retailers’ fresh food supply chain management in China. The study explores two aspects of supply chain management: procurement and logistics. In line with prior research, the results suggest that domestic retailers’ continuous dominance over international retailers stems from their development of supply chain management. This study demonstrates that endogenous creativity fostered the emergence of fresh food supermarkets. Additionally, it underscores the importance of focusing beyond the transplantation route and Western impact when studying supermarkets in less developed countries.

Keywords:

• Supermarket
• supply chain management
• retail format
• logistics
• Chinese entrepreneur
• less developed country
• private firm
• food chain
• perishable good
• food supply
• food industry
• food retailing
• agribusiness

Introduction

Research on supermarkets in China has debated the role of two actors, international and domestic firms. Hardaker (2015, 2017) demonstrated the pioneering role of international firms and affirmed their role in introducing new supermarket formats. They have changed China’s industrial structure in retail, consumption, and cultural and social aspects (Au-Yeung, 2003). However, some studies consider that domestic retailers have more advantages than international retailers. Wang and Zhang (2005) emphasised that foreign supermarket retailers have not been as successful as domestic retailers despite their greater expertise. Their decreasing importance in food retail is related to leadership, innovation, and localisation (Hardaker, 2017). Goldman and Qin (1998) and Goldman (2000) argued that local supermarket chains, rather than foreign ones, drive the food retail modernisation process, particularly in secondary cities. Furthermore, Hingley et al. (2009) considered that China remained dominated by domestic retail chains in terms of store number and turnover. Domestic firms’ development of sophisticated supply chain management has contributed to their continuous dominance. Goldman (2000) recognised that supply side factors posed major difficulties to supermarkets in China, and retailers that improved this aspect achieved more competitiveness, which verified Hingley et al.’s (2009) perspective. In addition, Hardaker (2015) affirmed domestic retailers’ ability to learn, copy, and improve international retailing operations, resulting in competition with their international counterparts in terms of numbers.

Moreover, supermarkets were considered to compete with traditional wet markets in terms of fresh food retail but did not bring significant competitive pressure on them (Bai et al., 2008; Hardaker, 2015). The variety, freshness, quality, price, and the appropriateness of simple technology for fresh food in supermarkets are weaker than those in wet markets (Goldman et al., 1999; Goldman et al., 2002). Furthermore, studies have proposed suggestions on fresh food supply chain management for supermarkets. For example, Hu et al. (2004) found it necessary to upgrade the supply chain of agricultural products and move to directly deal with farmers. Cheng (2008) and Li (2014) indicated that fresh food supermarkets (Shengxianchaoshi) could achieve their targets by obtaining low procurement prices, engaging in logistical systems, and producing and processing fresh food.

In summary, studies have confirmed domestic firms’ important role in food retail modernisation and superior performance against international firms. The China Chain Store and Franchise Association released data also showing these facts. Domestic retailers’ revenue has increasingly exceeded that of major international retailers. Seven domestic supermarket brands have entered the top ten supermarket brands in China in 2021. Certain domestic firms, such as Yonghui, maintained a high growth rate from the 2000s to the 2010s (China Chain Store and Franchise Association, 2006–2020, 2021). Furthermore, studies have emphasised that the advantage of domestic supermarkets is supply chain management, but it is still unclear how it operates. To support these findings, it is necessary to focus on domestic supermarkets’ supply chain management activities. Moreover, focusing on domestic firms’ activities enables us to investigate whether endogenous creativity exists in the expansion of supermarkets in less developed countries (LDCs), rather than the oft-discussed international firms’ transplantation routes and pioneering roles.

Furthermore, studies highlight the importance of supermarkets in China to overcome weaknesses in fresh food and to develop fresh food supply chain management. The weakness of supermarkets in terms of variety, freshness, quality, and price had more to do with their upstream food chain, which could be traced from procurement to agricultural production. It has been almost 20 years since this weakness was recognised, but supermarkets’ subsequent improvements have not been considered extensively in the literature.

This study examines the history of supermarkets in China by focusing on two aspects: the role of domestic retailers and fresh food supply chain management. Specifically, it explores how domestic supermarkets developed fresh food supply chain management and whether domestic firms adopted endogenous creative actions. To this end, this study analyzes a new retail format: fresh food supermarkets. This supermarket format is appropriate for this study because its primary business is selling fresh food, and it was first established by a domestic firm. By exploring how and why fresh food supermarkets have emerged and become a competitive retail format in China, two aspects of supply chain management, namely procurement and logistics, are studied to investigate how domestic firms reshaped the upstream supply chain of fresh foods in China.

This study focuses on the Fujian Yonghui Group (Yonghui). Yonghui, a domestic private firm, was the first retailer to establish a fresh food supermarket and has since consistently modified this new retail format. Yonghui’s annual sales in 2021 were RMB 99 billion (USD 15 billion), ranking second among all the supermarket chains. It had 1,090 stores and over 123,000 employees by the end of 2021. It started locally but developed a national presence by expanding to 580 cities in 29 provinces and was a driver of the fresh food supermarket format. Yonghui expanded not only in stores, but also in the fresh food supply chain nationwide. However, it is not easy to replicate this format in other countries. In the United States, national coverage became possible only with Walmart’s investment in logistics and supply chain management (Nguyen, 2017). In Japan, food supermarkets with a similar format expanded only locally (Kishimoto, 2013). Other fresh food supermarkets established in the 2010s were inspired by Yonghui’s model.

This study contributes to the literature in two ways: first, it contributes to our new understanding of supermarkets as an endpoint in a supply chain. As stated below, existing studies about supermarkets focused more on retail space and consumption, but this study highlights the role and importance of the upstream supply chains. Second, it highlights the history of an underdeveloped industry that is driven by endogenous power and creativity in a ­latecomer and less developed country. Scholars are attentive to the phenomenon of Americanisation, retailer internationalisation, and transplanting foreign models, when studying the proliferation of supermarkets in latecomer countries (Fletcher & Godley, 2000; Goldman, 1975; Goldman & Qin, 1998; Kacker, 1988; Shaw et al., 2004). However, research on British, Italian, and Japanese supermarkets emphasises the need to note the creativity of domestic retailers in latecomer countries (Alexander, 2008; Ishihara, 1998; Kishimoto, 2013; Scarpellini, 2004; Shaw & Alexander, 2008). They suggested that innovative self-service stores and supermarkets in these countries arose and expanded not because of a transplantation route, but through the creativity of domestic retailers and their responses to different institutional and political environments. This study also seeks to find endogenous elements that promote the rise and expansion of supermarkets in China. Domestic private firms were revived because of China’s transformative economy and were treated as essential actors in the market economy. Thus, this study contributes to enhancing the understanding of domestic firms’ roles in latecomer countries and LDCs and their activities in a China-specific transformative economy.

The standard approach of using internal firm sources for historical research may be difficult in Yonghui’s case, as the firm is only 20-years old; however, this was overcome using Yonghui’s in-house magazine Tongdao,¹ archival sources, and interviews with Yonghui’s store managers and personnel directors. This study conducted six semi-structured interviews in four stores that were first set up in Fujian and two stores in Shanghai and partly utilised the interview data. The interviews were conducted using a retrospective approach. Interviewees were asked questions regarding the operation of logistics and procurement systems. They responded with their observations in the stores (in the current and previous stores because these administrative staffs were transferred between Yonghui’s stores), during meetings, and from communication with other supermarkets. Using a qualitative analysis of the interviews, this study sought to verify and supplement the historical facts provided by in-house magazines. Furthermore, data obtained from Yonghui’s annual reports, various almanacs, general newspapers, business newspapers, and business journals were utilised.

The remainder of this paper is organised as follows. Context and conceptual framework discusses the history of food distribution and introduces the contexts and basic concepts used in the analysis. From low-profit stores to fresh food supermarkets, 1999–2000 discusses Yonghui’s origins and move towards fresh food. Purchasing directly from origin farms, 2001–2003 analyzes the establishment of direct-sourcing-centred procurement systems. The next section explores the nationwide expansion process and how it builds nationwide direct-­sourcing-centred procurement and logistics systems. In the next section, I analyse its national expansion in the 2010s and the resulting development of the procurement network. A final section synthesises my findings and presents the contributions of this study.

Context and conceptual framework

Changing food distribution: from planned economy to market economy

After the founding of the People’s Republic, China gradually transitioned from a new democratic to a socialist society. A centrally planned command economy was introduced. With the nationalisation of the economy, private distributors gradually vanished. The distribution was under the ‘unified purchase and supply’ system implemented to support industrialisation, and food distribution was no exception. For China, this distribution system was also of paramount political importance, similar to the Soviet Union, Yugoslavia, Hungary, and East Germany, because it helped quell peasants’ and private businesses’ resistance to the socialist ideology and system (Chen, 2004b; Ciesla & Poutrus, 1999; Hamilton, 2018; Marukawa, 2021; Patterson, 2009; Randall, 2008; Reid, 2002; Smith, 2014; Zhao, 2009).

Food distribution actors underwent significant changes during the 1950s. In terms of wholesaling, private wholesalers were originally the main actors and the wet market was one of their sales positions. However, since 1953, peasants had been banned from engaging in free transactions; consequently, private wholesalers had lost food sources. Under this new system peasants must sell all agricultural products except those for self-consumption to designated state agencies. The central government asked supply and marketing cooperatives (SMCs [Gongxiaohezuoshe]) to purchase wholesale agricultural products as state agencies to reduce the market share of private wholesalers (Rural Work Department of the CCP Central Committee, 1981, p. 48). The SMCs were ‘designed to knit together rural production and demand through a hierarchy of general stores that purchased members’ farm goods or handicrafts and retailed basic necessities crafted by both rural and urban workshops’ (Scranton, 2019, pp. 21–22). In 1955, the State Council stipulated the incorporation of the SMCs’ wholesale departments into state-owned commercial corporations (SCCs). After the complete disappearance of private wholesalers, SCCs controlled intermediate distribution, and wet markets were no longer wholesaling places (Wuhan Chronicles Compiling Committee Office, 1986, p. 45).

Retail actors also experienced significant changes. Initially, SMCs and SCCs competed with private peddlers, but by the mid-1950s, they largely superseded them, aided by tightened marketing and nationalisation regulations. Simultaneously, the wet markets were nationalised. Consequently, SMCs, SCCs, and nationalised wet markets, as rationing institutions, became the main actors in the retail sector.² A retailer type called Friendship Store was first established in 1951 for foreigners and Chinese senior cadres. They were state-owned, providing high-end goods, including processed foods. These stores were the first to introduce the concept of self-­service retail in the 1980s.³

The food distribution system had been overhauled since the reform and opening-up policy was implemented in 1978. As the stringent rules of the ‘unified purchase and supply’ system were loosened, the distribution of some foods was permitted under the free market system. New wet and wholesale markets were set up by the government to promote free distribution, and thus were called ‘free’ markets. There were no leasehold relationships or time limitations to constrain farmers and private peddlers in the ‘free’ markets. In addition to these new markets, existing wet markets were also transformed into ‘free’ markets, shedding their nature as rationing institutions. All wet and wholesale markets were owned and administrated by the local government. In addition to wet markets, street markets thrived again. They sold the same food lines as the wet markets but were often self-aggregating without government approval and were, thus, sometimes banned (Goldman, 2000, p. 5). Since the planned food distribution system completely ceased in 1985, wet markets, street markets, and wholesale markets became the main sources of farm products, and SMCs and SCCs gradually withdrew from the distribution of farm products. Afterward, local governments occasionally contracted wet markets to individuals. Wet markets have been very popular in China, especially throughout the 1990s and 2000s, as the main venue for purchasing fresh food (China Agriculture Wholesale Market Association, 2020, p. 9; Ma, 2021, p. 13).⁴

The emergence of new retail types had diversified food retail. First, individual groceries were revived at the end of the 1970s and officially permitted in 1981 (Li, 2016, p. 94). Then, the state reformed Friendship Stores.⁵ In 1981, the Friendship Store in Guangzhou was the first to introduce the self-service concept and supermarket facilities, and was called ‘the first supermarket’ of China (Liang, 2009, pp. 395–400). Shanghai Friendship Store also opened the so-called ‘supermarket’ in 1987. They mainly targeted foreigners, and the products had far less complexity and richness, which made them different from supermarkets in Western countries (Liu, 2014, p. 82). Later, many domestic firms opened small and medium-sized chain supermarkets, owing to distribution and state-run firm reforms. These stores were accessible to the public and had a far greater variety of products; thus, they were considered the first formal supermarkets (Sternquist & Chen, 2006, p. 243). However, domestic stores operated without fresh food. This changed with the entry of foreign supermarkets (Tong et al., 2001; Wu, 1998; Yang, 2003).

Supermarkets multiplied rapidly after the government first permitted foreign retailers to enter China in 1992 (Chao & Myers, 1998, p. 351; Wang & Zhang, 2005, p. 66). Large-scale supermarkets, including hypermarkets and warehouse stores, thus emerged (Editorial Office of Shangchangxiandaihua, 2013, p. 23). However, the number of foreign supermarkets was limited by restrictions on foreign investment policies. They were allowed to enter the market only by holding a non-controlling stake in a joint venture (JV) with a local company, and only permitted to be in Beijing, Shanghai, Tianjin, Guangzhou, Dalian, Qingdao, and special economic zones (Hardaker, 2017, p. 55). China’s accession to the World Trade Organisation (WTO) in 2001 contributed heavily to the increase in foreign supermarkets. However, restrictions on foreign investment policy in commercial sectors were not completely lifted until 2004 (Goldman, 2000, p. 2; Hardaker, 2017, p. 56). In addition to foreign-owned firms, domestic firms contributed to the increase in supermarkets in the 2000s (Hu et al., 2004).

Many supermarkets did not sell fresh foods because of incomplete supply chains and logistical issues in the first half of the 1990s. Wet markets were still the primary retailers of fresh foods. However, local governments began to reform wet markets in the second half of the 1990s, gradually reducing their importance. Due to poor management, wet markets were associated with poor hygiene, fake goods, and tax evasion, which caused diseconomy and inconvenience to consumers. Local governments implemented a policy to transform wet markets into supermarkets, and the transformation continues to this day. Newly established supermarkets were no longer governed by the government. Meanwhile, the government facilitated the supermarkets’ extension of fresh food sales to reduce wet markets (Chen, 2004a, p. 13; Tong, 2007, p. 16; Wu, 1998, pp. 44–47).

Wet markets have gradually lost their main position in fresh food retail owing to continuous reform, but wholesale markets still act as the main fresh-food intermediate distributors. The proportion of fresh foods supplied via wholesale markets was still over 70% in 2019 (China Agriculture Wholesale Market Association, 2020, p. 9).

Diversification of ownership and domestic private retailers

During the centrally planned command period, only public ownership (state and collective) existed. Until the end of 1978, state and collective ownership accounted for 80.8% and 19.2% of the economy, respectively.⁶ Economic reforms began in 1978 and paved the way for diversity of ownership. Consequently, the retail industry comprises a mixture of state-owned, collective-owned, private, and foreign retailers (Goldman & Qin, 1998, p. 90).

Among the diversified ownership types, private ownership revived again after 20 years. Among private businesses, the individual business first reappeared and was officially permitted in 1981 with the release of Several Policy Provisions on Individual Businesses. The individual groceries mentioned above belong to this category. Civil law enacted in 1986 formally wrote individual business into the law (Chen, 1998, p. 17). Furthermore, the new constitutional amendment of 1988 added provisions for private enterprises. Thus, private enterprises were first added in the official paperwork. The first set of regulations tailored to private enterprises was issued the same year. Meanwhile, the government established associations to promote private enterprises. The legislation and facilitation of the associations showed the government’s positive attitude towards private enterprises (Chen, 1998, pp. 17–18). However, public ownership still accounted for 86.4% of the Chinese economy in 1992, far exceeding that of individual businesses (7.8%), and private and foreign businesses (5.8%).⁷

After Deng Xiaoping’s tour of South China and the 14th CCP National Congress, the environment became friendlier for private entrepreneurs. Congress explicitly affirmed the importance of diversification of ownership. It noted that ownership structure should largely be a public ownership structure ‘supplemented’ by the non-public economy. In response to Deng’s appeal, local cadres tried to promote policies that encouraged non-public enterprises (Chen, 1993, p. 29). Many employees left state-owned firms to start private businesses or obtain jobs from private firms (Chao & Myers, 1998, p. 359). From 1992 to 1996, the number of private firms increased annually by more than 50% every year (Chen, 1998, p. 18). A clear change in the status of private businesses was evident at the 15th CCP National Congress held in 1997 and the new constitutional amendment passed in 1999, as the status of non-public ownership changed from ‘supplement’ to ‘important component’  (Li, 2015, pp. 126–127; Wu & Dong, 2017, p. 45). This further expanded the proportion of private ownership.

Institutional and legal reforms enabled the private economy to achieve rapid growth in the next 20 years. By the end of 2016, there were 23 million privately owned holding companies and 59 million individual businesses, which showed tremendous growth since 1999 when there were 1.5 million privately owned holding companies and 32 million individual businesses (Editorial Office of Almanac of the Industry and Commerce Administration, 2000, pp. 493–495; 2009, p. 733; 2017, p. 696). The total proportion of private and individual businesses surpassed 60% in both gross domestic product and fixed asset investments in 2016.⁸

Literature on supermarkets around the world

In the past 30 years, much has been written about the evolution of supermarkets in modern industrialised countries. However, the existing literature prioritises the evolution of retail space, the experience of consumers, culture, and policies. They emphasise the role of supermarkets in changing consumers’ behaviour and culture (for example, Bowlby, 2001; Humphrey, 1998). These studies explore the impact of self-service practice on the retail spaces, consumers’ behaviour and culture, and the positive effects of policies on the expansion of this retail format (for example, Alexander et al., 2009; Deutsch, 2001; Jacques, 2018).

However, some studies on Britain, Spain, and American supermarkets highlight the importance of upstream supply chains in the expansion of supermarkets. In Britain, supermarkets’ collaboration with manufacturers in the upstream chain of the poultry industry promoted the expansion of supermarkets (Burch & Lawrence, 2007; Godley & Williams, 2009; Tessari & Godley, 2014). In Spain, supermarkets’ connection with the upstream processed milk industry and a more active supply chain management strategy allowed them to expand the market (Collantes, 2016). The rapid growth of American supermarkets in the 1950s and the 1960s is also relevant to the upstream food chain. Hamilton (2018) suggested that substantial government support and subsidisation of food research, production, processing, and distribution enabled supermarkets to grow domestically and overseas. Alternately, Bailey and Alexander (2019) and Godley and Williams (2009) considered that the rise of supermarkets also played a role in upstream suppliers’ growth.

Nevertheless, the majority of the remaining texts focus on the downstream, the retail location and consumers, largely ignoring supermarkets’ upstream supply chain issues. However, the historical analysis of the retail revolution may benefit from establishing a link to the upstream supply chain, as retailing is a node within a longer chain that includes farmers, processors, wholesalers, and consumers (Collantes, 2016, p. 1058). Hamilton (2018) also suggested that supermarkets should be understood not just as a retail space, but also the endpoint of a supply chain. The upstream supply chain plays a critical role in the quality, safety, volume, consistency, and price required by supermarkets (Hu et al., 2004, p. 582). Therefore, this study breaks down the artificial division between upstream supply chains and retail locations, focusing on supermarkets’ supply chain management.

Fresh food supermarket as a retail format

Retail format has been discussed in various contexts. Summarising the views of several scholars, this study considers retail format as a specific configuration of the retail strategy mix (Zentes et al., 2016) and provides the following definition. Retail formats are distinguished by the strategies mixed mainly by the selection of items (choice of assortment), store scale, target customers, location, sales method (such as self-service and face-to-face sales), service, whether it is a multistore operation, and the connection with and involvement in production and distribution (Hardaker, 2015, pp. 23, 70; Ishihara, 2000, pp. 183–185; Reynolds et al., 2007, p. 648; Yahagi, 1996, p. 144).

Synthesising the above definition of a retail format, entrepreneurs’ and researchers’ definitions, and government document descriptions of the features of a fresh food supermarket (Cheng, 2008, p. 89; Qi, 2012, p. 30; Zhang, 2013, p. 56), it was defined and featured as follows. A fresh food supermarket is a type of supermarket that sells fresh foods as its primary business, which is its selling point, although it also sells grocery lines and general merchandise. This type of store is larger and has a wider selection than older grocery store formats, peddlers in wet markets, and convenience stores, but has a smaller and more limited range of merchandise than a hypermarket. Despite operating a wider range of products, hypermarkets do not specifically treat fresh food as their first line of business and selling point. In addition, fresh food supermarkets are generally one of many within a larger retail chain. It is a self­service shop targeting housewives and salarymen. They are situated in urban residential areas and minor arterials that differ from hypermarkets to meet the habit of high-frequency purchase of fresh foods and play the same role as that of wet markets. With fewer stores than fresh food supermarkets, hypermarkets in China are generally located in the cities’ central and subcentral commercial districts. In recent years, some retailers have opened hypermarkets in suburban areas. Generally, fresh food supermarkets attach importance to their connection with and involvement in the production and logistical process of fresh foods.

Fresh food supermarkets and hypermarkets are types of supermarkets but differ in their foundations of key competitiveness. The key competitiveness of hypermarkets is low price, and the foundation is scale expansion. The rapid store expansion and mass procurement make low prices possible. Owing to the features of fresh foods, pursuing higher precision in procurement, logistics, and selling than hypermarkets is important for fresh food supermarkets. Japanese convenience stores also pursue the same goal and have set systems in support. However, convenience stores that sell almost no fresh foods have different purposes, such as to constantly provide abundant varieties of items in limited store spaces and reduce the loss of cooked foods (Mizuno, 2016, p. 101).

In many countries, certain supermarkets’ core business comprises selling fresh food; however, the concept of the ‘fresh food supermarket’ or ‘fresh supermarket’ may not be universal. There are no fresh food supermarkets or similar retail formats listed as statistical items in many countries, including China, and there are no industry associations; however, the concepts have been used by governments, researchers, and practitioners.⁹ In certain countries, such as Japan, government statistics include ‘food supermarkets’ that centre their core business on fresh foods.

After Yonghui’s stores became well-known in China and became a dominator in the 2000s, other firms began emulating Yonghui in the 2010s, and this new retail format gained acceptance. The market size of this format was RMB 850 billion in 2011 and increased to RMB 1,300 billion by 2016, accounting for 30% of the supermarket industry.¹⁰ Table 1 shows the establishment years and locations of the main fresh food supermarkets in China. Three types of firms entered this industry. First, some hypermarkets and other physical retailers established fresh food supermarkets. Second, e-commerce firms started brick-and-mortar fresh food supermarkets to enhance their e-commerce fresh food retail. Third, under the local government’s policy guidance, local state-owned agricultural firms started this format.¹¹

Table 1. List of primary fresh food supermarkets.

Fresh food supermarket	Entry year	Number of stores (as of 2018)	Opening area (as of 2018)
Yonghui	2001	705	28 Provinces
Jingjie Fresh	2015	20	Peking
Shengxianchuanqi	2015	110	Anhui
Hema	2016	40	Shanghai, Beijing, and Zhejiang
Dili Fresh	2016	12	Liaoning
Linli Fresh	2016	110	Hubei
Xingli Fresh	2016	9	Guizhou
Huimin Fresh	2017	13	Guizhou
Zhangyu Fresh	2017	96	Peking

Source: Website of each firm (accessed December 12, 2019).

Fresh food and freshness

The Chinese term for ‘fresh food’ (Shengxianshipin) was widely used by supermarkets, but the National Medical and Food Products Administration officially issued package and label standards for fresh foods sold in supermarkets only in 2015. It defined fresh foods as edible agricultural foods, seafood, and livestock foods that do not involve any cooking process, such as stewing and frying, and contain seasonings and additives.¹² Some fresh foods were often ‘lightly processed’ during the distribution process to enhance the appeal and convenience for shoppers and guarantee freshness, cleanliness, and homogeneity. For instance, some agricultural and aquatic products were sorted, washed, cut, tidied, refrigerated, and frozen and livestock products were cut, and refrigerated. However, these ‘lightly processed’ fresh foods were still raw (not cooked), and conformed to the official definition of fresh food.

Unlike industrial products, fresh foods have specific characteristics: first, they are perishable. Second, many fresh foods are soft, fragile, and prone to damage. Third, their yield and quality vary; therefore, standardisation is difficult. Fourth, farms are scattered throughout the country and around the world. Fifth, producers, suppliers, and distributors of fresh foods are mostly small-scale businesses. Sixth, fresh food yields are affected by natural conditions such as the weather (Japan Society for Distributive Sciences, 2008, p. 45). The development of methods to cope with these specialties served as the foundation and impetus for fresh food retail.

Maintaining the freshness of perishable foods is a business focus. But what exactly is freshness? Freidberg (2009) suggested that freshness means different things for different foods; thus, it cannot be defined in a simple sentence. Moreover, people value freshness in ways that cannot be boiled down to nutrition or taste. We also cannot judge the freshness of food based on whether it is ‘lightly processed’ during the distribution process. It is hard to say whether these frozen, chemically treated, or ‘otherwise preserved’ foods during distribution lose their freshness. For instance, irradiated or waxed fruit can be labelled ‘fresh’. Refrigerated food can be called fresh, even if it is weeks old. These lightly processed foods were once considered dangerous, rotten, or otherwise offensive to standards of freshness. However, this view underwent a radical shift in the late nineteenth century, as new technologies allowed distributors to defy geography and seasonality in delivering and refrigerating foods, pushing the frontiers of the fresh food supply globally (Freidberg, 2009, pp. 1–2, 4, 9). Yonghui’s many fresh foods are ‘lightly processed’ before being delivered to stores.

With technological innovations, even the authorities responsible for food standards and labelling struggle to define freshness. For example, to decide ‘the use of the term “fresh”’, the United States Food and Drug Administration held a public meeting (Freidberg, 2009, p. 2). To seek clear answers in China, the National Medical and Food Products Administration created an exposure draft of legislation to collect views from retailers and scholars. The legislation, issued in 2015 was the first special standard for fresh foods. It was first implemented in the supermarkets. This legislation stipulated that supermarkets must label fresh foods with the details of the producer, supplier, production area, and plucking time for consumers to judge the freshness. Previously, fresh foods were sold loose without packaging and labelling, and no details of the production places and dates were provided on the price tag. However, draft standards were contested. Hypermarkets, such as Walmart, took issue because it was difficult to obtain details on production dates and places as they mainly purchased from wholesale markets (Cao & Pederzoli, 2013, p. 301). Supermarkets that had adopted direct procurement systems, such as fresh food supermarkets, benefitted from this standard, as it enabled them to better demonstrate their freshness. Other retail formats also did not support the legislation, as they were concerned that the standard would eventually be applicable to them.¹³ However, the government did not issue a finalised standard after this draft.

The standard of ‘freshness’ issued by the government was based on biology. In addition, supermarkets also devised different definitions and standards of freshness for different foods based on biology to provide references for store and purchasing staff by editing the manuals. However, biology alone cannot explain ‘freshness’. ‘Freshness’ is also a cultural construct. Freshness is synonymous with nature and health and can easily encourage people to consume fresh foods. Therefore, freshness drives retailers to develop effective business strategies. Its appeal ‘lies in the anxieties and dilemmas’ borne out of industrial capitalism and the mass consumption culture, which makes people yearn to connect with nature and health (Freidberg, 2009, pp. 3–7).

The consumption of fresh food

Consumers’ preferences regarding fresh foods differ by region and country. Countries that are freshness-oriented have comparatively high fresh-food consumption, and their consumers are sensitive to freshness. Retailing of fresh food is strongly influenced by local consumers’ preferences. For example, Bonpreu capitalised on Spain’s freshness orientation and created a new business model to compete with large multinational retailers (Yasumuro, 2006, p. 73).

Chinese consumers are more freshness-oriented than consumers in other countries and attach importance to freshness and quality when purchasing fresh foods (Hingley et al., 2009, p. 49). The rise in fresh food supermarkets is rooted in this dietary habit. Rather than processed food, Chinese consumers prefer to purchase and cook fresh unprocessed foods. Processed foods accounted for 80% of food purchases in Western European countries but only 30% in China (Dede, 2008, p. 16). Discount-format retailers usually do not offer fresh meat or vegetables and provide only packaged or canned food; therefore, their offerings do not match Chinese preferences. Most hypermarkets in China provide counters of fresh food (Hingley et al., 2009, p. 49). Furthermore, Chinese people consume large quantities of fresh food. For example, the Shanghai government recorded that the annual fresh vegetable consumption per person was over 185 kg in 1962, even during periods of food scarcity.¹⁴ The national consumption per person in 2008 was 123 kg, far exceeding the consumption in America (85.7 kg) and Japan (93.6 kg [National Bureau of Statistics of China, 2009, p. 323]).¹⁵

Chinese consumers purchase fresh foods in small quantities but frequently. During the second half of the 2000s, 33% of consumers purchased fresh foods more than six times a week, whereas 31% purchased them four to six times a week (He & Zhou, 2007, p. 135). Therefore, fresh food supermarkets located near residential areas are convenient for high­frequency purchases and are thus marketable.

Supply chain management of fresh food: procurement and logistics

Managing the supply chain requires the consideration of procurement, distribution, logistics, and inventory of the entire supply chain system (Manuj & Mentzer, 2008, p. 138), which supermarkets must confront without exception. This study focuses on the procurement and logistics of fresh foods.

Considering the characteristics of fresh foods, retailers face the following issues in terms of procurement and logistics. In the procurement stage, the stable purchase of fresh foods remains a major problem because the supply of fresh foods is susceptible to natural conditions. Furthermore, purchasing fresh foods requires higher precision than purchasing other merchandise. They need to purchase the right quantity at the right time, places, and prices to minimise loss. Professional procurement organisations and buyers are necessary to achieve high-precision purchases. Buyers must possess adequate knowledge and experience concerning product quality, storage life, market conditions, natural conditions, farming systems, and production quantity of agricultural producing areas. In particular, knowledge of agricultural producing areas is important because farms vary due to their geographical dispersal in China.

Moreover, minimising the intermediate distribution is vital for purchasing fresh foods to guarantee high freshness, low prices, and minimal loss. To achieve this, it is optimal for supermarkets to vertically integrate more parts of the supply chain and even develop direct sourcing (Zhicai) from origin farms. China’s supermarkets generally purchase from wholesale markets (China Agriculture Wholesale Market Association, 2020, p. 9; Huang, 2008, p. 10). However, wholesalers rely on an additional layer of secondary wholesalers, which increases the price and loss, and reduces freshness.

However, compared with wholesale markets, sourcing directly has several limitations. First, direct sourcing limits purchasing variety and quality, whereas wholesale markets offer the required variety, quality, and quantity for a single purchase. Second, retailers must carry all procurement costs, such as the cost of exploring farmlands and transacting with farmers, which were originally carried by wholesalers. Direct sourcing costs are especially high in China because of its vast territory and geographically distributed farming households (Hoken & Satou, 2009). Third, direct sourcing means that retailers need to deal with risks related to market and production conditions. Direct sourcing can deliver a comparative advantage over wholesale market procurement only when the aforementioned issues are resolved. In the primary stage of developing direct sourcing, retailers should be able to efficiently use conventional procurement routes simultaneously, procuring via the wholesale market, to respond to emergencies.

Furthermore, logistics confronts three issues: (1) improving the efficiency of logistics, which is a common problem for all retailers; (2) maintaining freshness; and (3) establishing a logistics system that supports stores in minimising fresh food losses. To improve logistical efficiency, we should specifically consider the features of fresh foods, including large transport volumes and high transport weights per unit price. Maintaining freshness requires shortening lead times, managing preservation conditions such as temperature and humidity, and constructing an information system. This managerial knowledge has been built by logistics firms in developed countries, and Chinese firms have adopted these systems. To avoid losses caused by overstocking and understocking in stores, delivery to stores should meet the following requirements: transporting the right foods at the right time in the right quantity. Therefore, transport must be high-mix (in other words, multi-variety), multi-frequency, and small-cargo (low-volume). Since no firms provided high-precision delivery in the early 2000s, establishing owned logistics was a better solution. The order method should be suited to the aforementioned delivery conditions. However, this type of delivery system must coexist with cost-lowering strategies.

From low-profit stores to fresh food supermarkets, 1999–2000

Overview of Yonghui

Yonghui Superstore Corporation was founded in Fuzhou City, the capital of Fujian Province, as a private firm in 2001. Its founder, Zhang Xuansong (1971–), was born in Fuzhou. He started a beer wholesale business after dropping out of high school and then switched to the supermarket business. In the grocery market, Yonghui held a 5.7% market share at the end of 2021, ranking 2 among all grocery retailers in China. Though Yonghui’s fresh food supermarket stores also sold processed foods, daily necessities, apparel, and household appliances, fresh foods accounted for over 50% of the stores’ area and 50–60% of sales, making fresh foods its primary business.¹⁶

Yonghui achieved continuous growth. It soon entered the list of the top 100 chain store firms in China, ranking 49th in sales in 2006 far below Walmart (14th). Yonghui sustained its high growth rate, outdistancing JIAJIAYUE and Auchan, both of which had similar sales in 2006. Eventually, Yonghui ranked fourth amongst chain store firms by 2020 in China, while Walmart was left behind at seventh place. In the 2010s, other top supermarkets reached their growth limit; however, Yonghui’s growth stood out (Table 2). Yonghui’s operating margin, return on equity, growth rate of annual sales, gross profit margin, and inventory turnover were always the highest among domestic supermarket firms. Its annual sales were far less than the global sales of Walmart and Costco and only half of the global sales of RT-Mart; however, Yonghui’s operating revenue grew at a rate of 15–19% between 2015 and 2017, which was higher than that of the three global supermarkets. The operating rate of return was higher than that of these three retailers, all of which had negative growth.¹⁷

Table 2. Annual sales (RMB billion) and number of stores of Yonghui and main rival supermarkets.

		Yonghui	Lianhua	RT-MART	Carrefour	Walmart	NGS	Auchan	JIAJIAYUE
2006	Sales	4	44	20	25	15	20	6	6
	Number	129	3913	68	95	71	1857	16	375
2008	Sales	7	50	34	34	28	27	8	9
	Number	205	3932	101	134	123	3330	31	456
2012	Sales	28	66	73	45	58	30	16	18
	Number	249	4762	219	203	395	954	54	595
2016	Sales	54	60	93	50	77	28	18	24
	Number	487	3648	368	319	439	917	78	498
2020	Sales	105	57	106	27	87	–	–	28
	Number	1172	3192	490	228	429	–	–	868

Source: China Chain Store and Franchise Association (2006–2020). Note: The number of stores for NGS from 2007 to 2010 and JIAJIAYUE before 2012 include convenience stores.

Business startup and beginning of fresh food supermarkets

Yonghui’s entrepreneurial foundation was the three bulk-cheap supermarkets established between 1995 and 1998 in Fuzhou City. Learning from forerunner supermarkets, the three mid-scale stores sold various non-food items such as household goods. However, with the opening of over ten hypermarkets, competition was fierce. Such large-scale supermarkets selling a wider assortment of groceries did not exist before. These entrants transformed consumers’ impressions of supermarkets, and the hypermarket’s large-scale image gradually took root in Fuzhou (Qi, 2012, pp. 29–30).

With the emergence of these large-scale competitors, Zhang’s three stores and other homologous small and medium-sized stores faced difficulties. However, he treated the local government’s policy of transition from wet markets to supermarkets, launched in 2001, as an opportunity to change. In addition to changing wet markets to supermarkets, he adopted the selection of items, selling methods, and locations of wet markets to differentiate them from hypermarkets. He opened the first supermarket centred on fresh foods in 2000 (Editorial Office of Shangchangxiandaihua, 2013, pp. 22–23). He named the store ‘Fuzhou Yonghui Pingxi Fresh Food Supermarket’. The store was located in a residential area. As a 1000 m² store, it was considered a medium-sized supermarket according to the standards of the China Statistics Yearbook. Over half of the business area in the shop contained more than 1000 items of fresh food, generating over 60% of the store’s total revenue.¹⁸

Purchasing directly from origin farms, 2001–2003

Yonghui focused on developing direct procurement in its initial growth stage. However, it began direct sourcing merely as a means to solve insufficient stock problems, without the awareness of the advantages of direct sourcing. Therefore, the establishment of a direct sourcing system was an emergent and creative process based on trial and error. Directly sourcing fresh foods is not rare in developed countries but Yonghui’s creativity was not emulated from foreigners, rather through the process of solving understock problems.

The first fresh food supermarket faced frequent stock-outs in the beginning, as Yonghui had no experience in predicting the increasing number of customers. An increase in procurement quantity could lead to surplus stock and quality deterioration. Furthermore, multiple procurements in a day were difficult, as leafy green vegetables were sold in the wholesale market only from nightfall to early morning. Therefore, Yonghui considered the option of direct procurement from farms. It obtained information about farms from wholesalers, and with frequent contact with farmers, Yonghui hired those familiar with the farms as farm investigators. Consequently, it accumulated information concerning varieties, quality, and quantity of fresh foods in each farm and their supply capabilities, and built long-term relationships with farmers, which guaranteed stable supplies in the province (Qi, 2012, p. 29).

By doing this, Yonghui gradually realised the advantages of direct sourcing over purchasing from wholesale markets (Qi, 2012, p. 29). The wholesalers lacked modern logistics management skills and found it difficult to maintain freshness and reduce losses caused by multiple-stage logistics and reloading of fresh foods; however, direct sourcing could avoid these problems.¹⁹ Consequently, after trials with leafy vegetables, Yonghui adopted this method for other fresh foods. Furthermore, considering the increasing number of stores in Fuzhou (12 stores as of September 2003) and sales volume, direct sourcing from outside Fujian Province began in 2003.²⁰

Yonghui began to use the term ‘direct sourcing’ in its advertisements and in-house magazine. These advertising actions became a way to promote ‘high freshness’ and ‘low price’ for consumers.²¹ Further, advertising was aimed at familiarising consumers with this new retail format and the retail firm.

To build the organisational capabilities for direct sourcing, Yonghui established buyer teams in 2002. The first buyer team consisted of 20 buyers who had prior experience working at either wholesale markets or the fresh food section of retail stores. They were knowledgeable in selecting fresh foods and planting, which shortened the period of professional training. Their buying focused on farms inside Fuzhou City. As the direct sourcing buyer teams lacked information on market conditions, the wholesale market purchasing team provided them with the relevant information, including prices.²²

Accordingly, Yonghui optimised its fresh-food ordering systems. From February 2002, when the number of stores exceeded ten, it changed the order frequency to twice a day. The fresh foods sold from opening time in the morning to midday had to be ordered before 4 pm the prior day and sold from midday to closing time had to be ordered by 11 am on the same day according to the selling conditions of that particular morning.²³ This was when the practice of placing multiple orders in one day began in China.

With the beginning of direct sourcing, Yonghui improved logistics by establishing an owned logistics system and selecting logistics centres. It had to establish logistics to directly transport from the farms to the stores. However, transporting from a single source to over 10 stores was inefficient. Hence, Yonghui usually selected one store as a ‘logistics center’ that managed warehousing, storing, sorting, and delivery for all adjacent stores. This was related to their approach to store expansion, namely ‘copy store mode’. In this mode, the management of existing stores raised funds and opened new stores by copying their existing managerial mode related to product line-up, purchase location, and store operation. Moreover, the existing stores shared logistics networks with the new stores, and some new stores were selected as the new logistics centres (Ye & Lin, 2004, p. 74; Cai & Huang, 2002, p. 43).

Nationwide construction of direct procurement and logistics systems, 2004–2010

Nationwide store expansion

After opening 15 stores in Fuzhou City, Yonghui drew up a plan for opening stores outside Fujian Province in 2004, instead of expanding in other cities of Fujian. Zhang cautiously chose the new provinces. After investigating Beijing and Chongqing for a year, Zhang chose Chongqing, which was less developed than Fujian at the time, as its first location outside Fujian. His plan progressed rapidly and the store generated the third highest annual revenue among all retail stores in Chongqing in 2008 (China Chain Store and Franchise Association, 2006–2020). He opened stores in Beijing in the same year, and expanded to Guizhou Province and Anhui Province after 2 years, in 2010.

Generally, Chinese retailers that aimed to become large-scale enterprises pursued retail location expansion, but Zhang expanded not only for store expansion but also to develop fresh food supply chain management. The nationwide expansion of retail locations and construction of nationwide direct sourcing and logistics networks were simultaneously implemented and were complementary to each other. This was a feature of Yonghui’s nationwide expansion. While expanding chain stores, Yonghui did not adopt the prevailing strategy of not entering into other regions or provinces until it had abundant stores in one region or province (dominated in one region or province). In other words, it did not open chain stores in a region or province to achieve high market share. Instead, after opening some stores as pioneers in one or two cities in a region, it immediately entered other regions. The subsequent expansion in each region centred on these pioneer stores. The scattered expansion was important for constructing a nationwide direct sourcing and logistics network instantly. It considered these pioneer cities as the stronghold of direct sourcing and logistics networks (Pan, 2011, pp. 46–47).

Nationwide direct procurement system

With store expansion, Yonghui established a nationwide direct procurement system for fresh foods. Direct sourcing, accounting for 76% of total purchases in 2010, was the dominant procurement method. Compared to the average of 25% in other supermarkets in China, Yonghui’s percentage of direct sourcing is noteworthy.²⁴

As detailed in the first section, directly sourcing from farms also has disadvantages. To cope with the disadvantages, Yonghui formulated the following strategies: (1) diversification of procurement locations, (2) supporting procurement locations, (3) involvement in agriculture, (4) promotion of preprocessing by farmers before shipment, (5) building of intermediate organisations inside and outside the company, (6) quick payment to procurement locations, and (7) collaboration with professional farmer cooperatives.

Yonghui (1) diversified its procurement locations by expanding its nationwide purchasing network and exploiting various direct procurement locations consisting of retailer-established farms, collaborative farms, local origins, and distant origins (Figure 1). Direct procurement locations supplied various fresh foods, including fruits, vegetables, livestock, and aquaculture, to stores nationwide and were not necessarily confined to local stores. Yonghui started retailer-established farms in 2006, which were areas of farm production that were established, owned,²⁵ cultivated, and managed by Yonghui. These were critical farmlands for developing direct sourcing, which by 2010 covered 17,000 square metres inside of Fujian and 11 million square metres outside of Fujian.²⁶Additionally, Yonghui purchased directly from collaborative farms, generally large-scale farms operating coordinated farm production organised by the local village government. Yonghui named them collaborative farms as they established bulk transaction relationships with them. Nevertheless, the collaborative farms still favoured their independence. The Chinese government launched the Direct Farm Program in 2008 to promote the formation of large-scale and coordinated farms and encourage direct contracting between large retail buyers and farms (Michelson et al., 2018, p. 49). In addition to these two types of farms, Yonghui also exploited other direct procurement locations that were divided into local and distant origins, which were mostly farms cultivated by individual farm households at a smaller scale. Like the collaborative farms, local and distant origins were independent of Yonghui, but had some long-term transactional relationships with Yonghui.²⁷

Figure 1. Yonghui’s sources of fresh foods.

Source: Tongdao 21, p. 6; 35, pp. 4–5; 36, pp. 4–6; 174, p. 6; ‘Yonghui: jiangchaoshichanyelian shenxiangtianjianditou [Yonghui: expanding the value chain of supermarkets into the farms]’. China Business Herald, January 22, 2010, p. 003.

Although Yonghui did not participate in the cultivation and management of collaborative farms and local and distant origins, it provided (2) support for them. It set up a consulting department that provided consulting and training on production, preprocessing, packaging, and logistics to farmers. In terms of production, it provided seeds and technological support for farmers and supervised their cultivation processes.²⁸ Therefore, Yonghui achieved (3) involvement in agriculture by cultivating retailer-established farms, as well as providing production support to collaborative farms and other independent origins to guarantee the quality and quantity provided by these farms.

Support for preprocessing was related to (4) promotion of preprocessing by farmers before shipment. Yonghui got farmers to clean, sort, and encase agricultural and marine products, such as removing dead leaves and unwanted parts, washing, and bundling before transportation. Preprocessing was generally handled by the purchasing party. However, Yonghui’s stores had to handle this because they directly sourced food without the operation of the outside purchasing party. By promoting preprocessing by farmers, it eliminated the costs of doing so in stores.²⁹

Moreover, (5) intermediate organisations inside and outside the company acted as communication channels between Yonghui and farms (collaborative farms, local origins, and distant origins). Essentially, intermediate distributors, such as wholesalers, played an important role in discriminating the varieties, quantity, and quality of fresh foods. However, Yonghui had to conduct these evaluations independently when sourcing directly. To achieve this, it continued expanding the buyer teams. It attracted experienced buyers by offering high salaries and attached importance to the development of the buyer team’s professionalism and skills.³⁰ Buyers were chosen from store staffs (Yonghui’s own staff and local staff of other retailers) who understood fresh foods operations and current consumer demands well. They had to receive training regarding planting and discrimination knowledge from senior buyers.³¹ The regional procurement departments managed the local buyer teams, and the headquarters’ fresh food division unified regional procurement departments. Buyers explored local farms for nationwide stores considering various categories of fresh foods. Furthermore, buyers played a significant role in finding intermediaries outside the company. They assigned intermediary functions to farmers. The function of the farmers was to collect information about nearby farms and make contracts with other farmers.³² This lessened the difficulty and cost of finding new farmers and directly negotiating with them in newly entered cities and regions.

Supermarkets, especially large-scale retailers in China, had strong buying power, but suppliers, including farmers, were relatively weak. Beyond prices, supermarkets requested the transaction terms, including apportionment of various distribution fees, asserting claims for payment (such as delays in payment), and the deduction of slotting fees (a fee charged to produce companies or manufacturers by supermarkets in order to place their products on supermarkets’ shelves).³³ Therefore, the State Council exhorted retailers to improve.³⁴ However, Yonghui desired to establish long-term relationships with reliable farmers to guarantee stable supplies, and thus, did not follow these terms. In turn, it started making (6) quick payments to procurement locations. Compared with the usual practice, in which retailers, including foreigners, made payments to both direct origins and wholesalers 60 days after delivery, Yonghui paid in only 30 days and sometimes even paid in advance and settled on the spot during direct sourcing (Chen, 2013, pp. 20–21). These advantageous transaction conditions for suppliers helped promote trust; hence, farmers preferred to make contracts with Yonghui.³⁵

Issues (2), (3), (5), and (6) also reduced the risk of farmers’ non-compliance with contracts. In addition, issue (7), collaboration with professional farmer cooperatives,³⁶ had the same effect. With the ceasing of the ‘unified purchase and supply’ system and marketisation, farmers lost the safety net for their agricultural product distribution and needed time to adapt to the free market. Farmers have always encountered slow-moving stocks of agricultural products and difficulties in supplying to modern retail formats, even in the 2010s. Local professional farmer cooperatives helped farmers find distribution routes to alleviate these issues.³⁷ Yonghui negotiated contracts with the cooperatives and became an important distribution channel for farmers. Cooperatives supervised farmers’ production based on Yonghui’s standards and ensured farmers’ compliance with contracts.³⁸

The nationwide expanding direct sourcing network achieved by the aforementioned measures was remarkable in a country as large as China. Even the world’s major retailers such as Walmart and Carrefour treated it as a high-cost project hard to achieve. Similar to Yonghui, they established purchasing offices and centres but not for nationwide direct sourcing. Both Walmart and Carrefour primarily adhered to the local procurement in China as it greatly saved them transportation costs to achieve their ‘low price’ aim (Xu et al., 2014, p. 156). Generally, Walmart’s purchasing officers directly acquired fresh foods at local wholesale markets. Given the lack of own transportation and storage infrastructure, they increased reliance on a large number of specialised wholesalers in wholesale markets. The wholesalers often relied on an additional layer of secondary wholesalers, which had an adverse effect on price and freshness. Although they saved transportation costs through local procurement, the additional-layer distribution raised the prices, which proved that relying on local wholesalers was not a wise move. Coincidently, the evidence suggests that other international supermarket chains’ supply chain strategies for fresh foods were similar to those of Walmart in China (Michelson et al., 2018, pp. 47, 50). Presumably, these hypermarkets did not construct nationwide direct sourcing and self-managed logistics systems as urgently as Yonghui did because their primary business was not fresh food.

However, these competitors turned to direct sourcing in the late 2000s. Although they implemented after Yonghui, they had long known the importance of direct sourcing. In 2008, the government’s invitation to participate in the Direct Farm Program provided Walmart with the opportunity to explore the feasibility of moving towards more direct sourcing relationships. Given that Walmart was a relative newcomer and lacked both the size and experience needed for direct sourcing in China, it had to draw support from others. Walmart identified private vendors (intermediaries supplying fresh foods) to help establish a pilot Direct Farm Program rather than build direct transaction relationships with the farms. However, these vendors also relied on an additional layer of local, secondary vendors to manage their relationship with the farmers; thus, this supply method was still far from ‘direct’. The farms had limited benefit, as their size was significantly smaller than both the retailer-established and collaborative farms of Yonghui. Further, the proportion of this kind of direct sourcing was still much less than that of indirect sourcing, and Walmart primarily relied on wholesale markets (Michelson et al., 2018, p. 50). Consequently, compared with Walmart, Yonghui’s direct procurement locations were more varied and supplied more abundant varieties of products. Furthermore, Yonghui built more direct transactional relationships with farms, which made it advantageous for fresh food procurement.³⁹

In order to highlight that the stores provided ‘first-hand’ freshness, Yonghui and its operators frequently mentioned the term ‘direct sourcing’ and ‘directly connecting with farmland’ on the official website and in-store billboards, and in in-house magazine and newspaper interviews, and clearly marked the direct sourcing place and farmers’ names on the price tags.⁴⁰

Furthermore, Yonghui highlighted the features of its ‘first-hand’ freshness—natural and safe—through advertising strategy and cooperative cultivation with the local Academy of Agricultural Sciences (AAS) to respond to consumers’ attitudes about freshness in the wake of a series of adulteration scandals and highly publicised safety. A series of food safety incidents occurred between the second half of the 1990s and the 2000s. Carrefour, a major supermarket, also caused food poisoning problems in the 2000s.⁴¹ Therefore, Chinese consumers wondered about what had been lost or added to fresh food and focused on health and safety when purchasing agricultural products (Tang et al., 2010, p. 59). The enforcement of the Law on Quality and Safety of Agricultural Products in 2006, the issue of the National Emergency Plan for Major Food Safety Incidents in 2006, and several governmental projects for regulating food market order and guaranteeing food safety and pure nature without additives in the 2000s also indicated social concerns regarding the safety, additives, and pure nature of foods.⁴² To cope with consumers’ changed attitudes, Yonghui wrote ‘fresh Yonghui and secure Yonghui’ as operational philosophies in its annual social responsibility reports and entrance signage to link first-hand freshness with safe and natural images (Lin, 2014, p. 46).⁴³ Furthermore, Yonghui collaboratively established some farms with the local AAS. Cultivation should adhere to pollution-free standards under the supervision of the AAS. Yonghui claimed to have applied the standards to other farms. The authority of the AAS added reliability to Yonghui’s direct-sourced foods, implying a natural and safe image of first-hand freshness (Lin, 2014, p. 50). A survey on the reasons why customers usually line up to buy fresh foods in Yonghui indicated that its natural and safe image gained ground.⁴⁴

Nationwide logistics system

As with purchasing, Yonghui also needed to construct a nationwide logistics system. The core attributes of the logistics system were (1) retailer-established logistics; (2) centralised and joint delivery; (3) high-precision delivery, which is the high-mix (multi-variety), multi­frequency, and small-cargo (low-volume) delivery; and (4) multi-frequency ordering. Therefore, Yonghui reduced the loss of fresh foods from farms to stores to only 5%, which was far lower than the average rate (10–15%) for supermarkets in China.⁴⁵ As mentioned in the first section, fresh foods typically involve more procurement locations than processed foods and daily necessity items, and these locations tend to be geographically scattered. Yonghui’s centralised and joint delivery system solved this problem. High-precision delivery was necessary to reduce losses of fresh foods, and accordingly, multi-frequency ordering was also required. However, Chinese logistics was in a start-up state at the beginning of the 2000s and lacked the competence to achieve high-precision delivery.⁴⁶ To achieve this kind of delivery, Yonghui had to establish logistics on its own.

However, unless the number of stores reached a certain level, centralised and high­precision delivery by owned logistics incurred high costs. Therefore, Yonghui partly utilised third-party logistics. With regard to the logistics centres, in addition to owned centres, it simultaneously utilised self-managed rental centres and third-party centres (which were either shared with other firms or were completely dedicated to Yonghui). In third-party centres, Yonghui entrusted operations to third parties. Similarly, delivery was mixed with both internal and external delivery.⁴⁷ However, Yonghui utilised its own logistics centres and delivery personnel to the greatest extent. Even in third-party logistics, they significantly intervened in their operations. For instance, according to Interview 1, with a store manager and personnel director, and Interview 2, with another store manager, Yonghui staff locked the doors of trunks before the third-party delivery people set out and unlocked the doors when they arrived at both logistics centres and stores.⁴⁸

The core of retailer-established logistics is owned logistics centres. Logistics based on the ‘copy store mode’ mentioned in the previous section became inefficient with the increasing number of stores. Therefore, it established logistics centres and simultaneously utilised self-managed rental and third-party centres. The logistics centres’ function was to preserve fresh foods using strict temperature and humidity management, a conveyor system inside the warehouse, and information systems that had been constructed by logistics firms in developed countries. They performed the functions of both distribution (temporarily store goods and subsequently deliver to stores) and transfer (truck loading immediately after unloading) (Cao, 2015, p. 96). All goods were first gathered at these logistics centres, which saved storage costs in stores and shortened lead times. Consequently, the lead time for most fresh foods was within 24 hours, and for foods from distant origins, within 2 days. With the continuous nationwide expansion, it began to set up central distribution centres (CDC) to act as a hub to dispatch goods to logistics centres in 2010 to further improve efficiency.⁴⁹

In addition to logistics centres, Yonghui developed centralised and joint delivery to improve logistics efficiency and high-precision delivery to support stores in minimising fresh food losses. Centralised delivery means that direct-sourced fresh foods were concentrated in logistics centres, and other goods were first delivered from suppliers and wholesalers to logistics centres. Joint delivery means that the foods concentrated in logistics centres were collectively delivered to multiple stores, not to one store. When delivering to each store, Yonghui followed the high-mix, multi-frequency (in a day), and low-volume patterns. This kind of ‘just-in-time delivery’ with high precision could keep the foods fresh and prevent losses due to excessive inventory in stores and low stocks due to the sudden increase in sales.⁵⁰ Despite multifrequency delivery to each store, joint delivery reduced the overall frequency. Centralised, joint, and high-precision delivery is rare in supermarkets in China even today.

The ordering system also determined product flows. Most competitors adopted the direct order method, whereby stores directly ordered from suppliers. However, Yonghui adopted both direct and indirect order systems simultaneously, which were more flexible. Under the indirect order method, stores send purchase requests to logistics centres, and the logistics centres order from suppliers and origins. This method fits centralised and joint delivery via logistics centres better. However, in case of urgent replenishment, they adopted the direct order method through which they were supplied more rapidly. Generally, they selected the appropriate method based on the sales status, market condition, and attributes of the merchandise.⁵¹

A comparison of the logistics systems indicates that Yonghui’s competitors primarily relied on external logistics and seldom established national-coverage logistics. Walmart invested in the construction of distribution centres in China in the 2000s, but this did not drive the establishment of national coverage logistics. Logistics infrastructure is an advantage for Walmart in the United States, Canada, and Mexico but inconvenient in China because of the poor logistics network (Cao & Pederzoli, 2013, p. 301). Until the early 2010s, Walmart had only established two logistics distribution centres in Shenzhen and Tianjin, which were stocked with products to be redistributed to only some stores by external transportation. It was hard to set up branches around the two centres to reduce costs and, on the contrary, the logistics cost increased (Xu et al., 2014, p. 157). The fresh foods were not redistributed via the centres. The fresh foods acquired at local wholesale markets were delivered by contracted transportation and directly delivered to nearby stores (Michelson et al., 2018, p. 50). Carrefour did not set up its own distribution centres. It assigned decision rights regarding orders and delivery between stores and suppliers. The stores mostly relied on the delivery of suppliers and wholesalers in local cities or regions (Xu et al., 2014, p. 158). Among the competitors, Metro had similarities with Yonghui. It had a keener sense of direction regarding the establishment of logistics centres and centralised and joint delivery. It had constructed logistics centres since 2003 to reduce costs and continuously increased the number of centres. Metro also expanded the proportion of its indirect order system in which its headquarters collected orders from stores, and also utilised logistics centres to centralise goods. Similarly, it adopted both internal and external logistics. However, its precision did not reach Yonghui’s status because it was less important for Metro to develop a high-­precision delivery pattern (Du, 2009, p. 34; Wang, 2010, p. 112).

Rapid expansion and nationwide sourcing, 2010–2020

After 2010, in addition to expanding stores, Yonghui continuously developed new strongholds to construct direct sourcing networks. By this period, Yonghui had entered Beijing, Tianjin, Shanxi, and Hebei in north China, Fujian, Anhui, Shanghai, Jiangsu, and Zhejiang in east China, and Chongqing, Sichuan, and Guizhou in southwest China. Yonghui then entered Guangdong in south China, Henan in central China, and three provinces (Liaoning, Jilin, and Heilongjiang) in northeast China. Especially in northeast China, it aimed to develop origin farms while simultaneously opening more stores.⁵²

With increasing procurement and an increasing number of cooperative farmers, Yonghui went on to reform fresh food buyer teams. The number of buyers increased to 300 by the end of 2010, and exceeded 600 by 2015. With this increase, buyers’ duties changed from regional directionalization to category directionalization. The change in duties improved procurement efficiency. According to Interview 1, with a store manager and personnel director, and Interview 3, with another store manager, initially, buyers explored farms for various categories of fresh foods and were managed by the local procurement departments. Their role was revised to take charge of only one or two products (such as only procuring cucumbers) for nationwide stores, and was directly managed by the fresh food division at the headquarters.⁵³

Furthermore, Yonghui constructed a cooperative relationship with local governments in agriculture. In addition to the professional farmer cooperatives mentioned in the last section, local governments also regulated farmers’ quality and delivery dates for Yonghui.⁵⁴

In addition to domestic direct sourcing, Yonghui expanded to procuring fresh foods from overseas farms to supply to high-end consumers. Initially, through a fresh food fair held by the Chinese government, it affiliated with trade companies to purchase from abroad. In 2014, it began direct sourcing from Australia and, subsequently, expanded worldwide.⁵⁵ The expanding global direct sourcing was different from the strategy established in the 2000s. It still followed the principle of purchasing from the sources, but the fresh foods travelled half the globe and lasted longer. This diverts from the initial aim of the direct sourcing—shortening lead time, maintaining natural freshness, and lowering price. The rise of consumption levels and the innovation of logistics and transportation technology pushed the frontiers of supply across continents and oceans.

The global direct sourcing strategy catered to the changing consumer culture by expanding purchases of trendy, exotic, and high-end fresh foods. Chinese consumers’ propensity to follow the latest trend as well as their hedonic attributes, had a substantial effect on the consumption of agricultural products, which had become apparent since the end of the 2000s. The hedonic attribute encouraged consumers to pursue high-end and novelty foods (Tang et al., 2010; Wang et al., 2000). Given the new consumer demand, Yonghui directly sourced overseas varieties of fruit that were highly popular but not common in China. Prices were more suitable for high-end consumers owing to their high quality and rarity. Moreover, it directly purchased some varieties that were also grown in China but had advantages in terms of taste and size. The prices of these varieties were also higher than those of locally grown foods because of their high quality.⁵⁶ Freshness under Yonghui’s global direct sourcing strategy was seen as providing a sense of trendiness and superiority to whoever could find and afford it.

With the expansion of territories in the 2010s, there was a geographical dispersion of chain stores. Accordingly, Yonghui’s logistics costs increased; however, the operating income did not decrease. There were no data on logistics costs; however, the selling and general administrative expenses in the 2010s were kept firmly between 13% and 15%. It is difficult to confirm whether this is because logistics costs did not change dramatically or because other costs showed a decreasing trend; in either case, both selling and general administrative expenses and the gross profit margin increased by 20% almost every year in the 2010s, and the growth rate of operating profit often crossed 20% after 2011.⁵⁷ Therefore, even though the reduction in store density caused an increase in logistics costs, Yonghui’s growth was not restricted.

Tax benefits and state financial support played vital roles in controlling the costs of retailer-established logistics. In 2011, the State Council reduced taxes related to the logistics of agricultural products. Furthermore, in 2013, local governments started to provide financial support to Yonghui to establish logistics. Consequently, the share of retailer-established logistics in the total product delivery reached 45% in 2017. The company’s 2013 annual report showed a 40% reduction in deficits in Henan and Jiangsu related to the expansion of owned logistics.⁵⁸

Furthermore, Yonghui expanded CDCs in Anhui, Chongqing, Liaoning, and Sichuan starting in 2012, and set up Regional Distribution Centres, both retailer-established and rental types, that took on transfer stations between CDCs and stores.⁵⁹ Meanwhile, Yonghui commissioned third-party logistics to set up dedicated logistics centres in Jiangsu and Shanghai. As with the last period, the delivery between centres and stores involved both internal and external operations; however, there are no clear data showing the rate.⁶⁰

Yonghui’s expansion of the direct sourcing network and retailer-established logistics is still remarkable. Yonghui’s competitors continued exploring the feasibility of moving towards more direct sourcing, but they did not expand as uncompromisingly as Yonghui did. Walmart decided to discontinue the formal Direct Farm Program at the end of 2012 due to the high cost of establishing stable contracting relationships with farms. However, they turned to developing direct sourcing again in 2013 but still relied on private vendors to explore farms. They shifted to a smaller number of large vendors who could supply larger quantities and a greater variety of fresh produce at more competitive prices. Walmart aimed at establishing a nationwide direct sourcing network through these large vendors, but direct sourcing was still not the primary procurement method for fresh foods in the 2010s. It continued primarily relying on wholesale markets in the short run. Walmart expected to build on these experiences and, in the medium and long run, the transition away from wholesalers towards more direct and traceable procurement. Walmart’s slower process of transition to direct procurement resulted from the unestablished logistics infrastructure and cold chain storage (Michelson et al., 2018, pp. 51, 58). However, Walmart’s recognition of the importance of direct procurement and logistics construction indicates that Yonghui’s persistence was worth it.

Discussion and conclusion

This study analysed how and why fresh food supermarkets emerged and became competitive in China and examined domestic firms’ activities in shaping the fresh food supply chain. It highlights the influence of cultural, institutional, and competitive conditions, as well as entrepreneurs’ exploration and creative processes. Chinese shoppers’ preferences for freshness and changing consumption culture were essential for the rise of fresh food supermarkets. Institutional conditions, the reform and opening-up policy, and the transition of wet markets are also significant. In a competitive environment, Yonghui recognised the cultural and institutional conditions and independently created a new retail format to differentiate it from the transplanted hypermarket. Furthermore, it constructed nationwide fresh food procurement and logistics systems earlier than the major international retailers. Domestic firms’ creativity, through considerable trial and error existed in the process of responding to Chinese conditions. These creative processes are thus endogenous. Investigations did not indicate that the processes resulted from the transplantation route, although similar retail formats and firms established nationwide food distribution systems abroad.

From an international perspective, Yonghui’s creation of nationwide direct procurement and logistics systems and the accelerated nationwide store expansion is noteworthy. Generally, fresh foods have strong regionalism and required high precision logistics and wide-area distribution of fresh foods was difficult, as evidenced by major retailers’ hesitation to develop it in China. Therefore, supermarkets whose assortment focused on fresh foods had more difficulties with nationwide expansion. The fact that in spite of the vast territory and differences in food culture, Yonghui, a firm started in a local city, not only created a new retail format but also achieved quick expansion nationwide in terms of store expansion and supply chain makes it a remarkable achievement in Chinese distribution history.

This study concurs with the literature on supermarkets in China, which demonstrates supermarkets’ disadvantaged position in fresh food operations including their fresh food supply chain management, and domestic retailers’ continued dominance resulting from the development of sophisticated supply chain management. First, Yonghui’s persistent establishment of procurement and logistics systems for fresh foods since its beginning, and the competitors’ subsequent recognition of the importance of these systems demonstrate that they have a weakness in the fresh food supply chain, which needs to be reshaped. Second, Yonghui’s continuous development of the upstream supply chain and impressive business performance reflects the importance of developing supply chains to remain competitive. It also suggests that supermarkets in China can overcome the difficulties in fresh food supply chains.

The case highlights why domestic firms led the development of supply chain management and remained dominant. The most obvious reasons are the high sensitivity to institutional, cultural, and environmental changes. Domestic firms certainly have the advantage of perceiving changes in their own country, and international competitors are at a disadvantage in the relatively new environment. The other reason was the domestic firms’ bold trial and error. For instance, the trial of developing as many direct-sourcing strongholds in various regions as possible during dispersed-type nationwide expansion was not common at the time. Major world retailers saw more limitations and, thus, hesitated to move forward. Understandably, given that they were relatively newcomers, the international retailers were less familiar with the environment and, thus, less willing to take risks. Moreover, their abundant experience and mature managerial know-how enabled them to comprehensively analyse and avoid taking unnecessary risks. On the contrary, Yonghui deservedly made a bold trial without misgivings, given that the domestic firms, particularly private firms, just got off the ground in the 1990s and 2000s without referable experience under inchoate economic reforms and market economy.

This study’s findings contribute to not only the debates on the development of supermarkets and food supply chains in China but also provide references for supermarket growth in China. The findings reinforce the idea that developing fresh food factors and fresh food supply chain management brings advantage for supermarkets in China. Furthermore, it indicates that international firms should use their experiences to make bold trials to build appropriate upstream supply chains.

Although the domestic entrepreneur’s role is analysed in the above sections to some extent, it is not the main subject of this study, which makes it a crucial topic for future research. Therefore, the entrepreneur’s role in the rise of the new retail format is a subject that warrants extensive research to examine the comprehensive history of supermarkets and domestic retailers in China.

Archival sources (see the Endnotes for the detailed information.)

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by Japan Society for the Promotion of Science KAKENHI Grant [Number 22K13446].

Notes on contributors

Rui Shi

Rui Shi is a lecturer at the Faculty of Economics, Seinan Gakuin University. After receiving her PhD from Kyoto University, she worked as a lecturer at Shanghai University of International Business and Economics. Her current research focuses on the history of Chinese retail industry. She has recently published the monograph Economic Reforms and the Emergence of Retail: Distribution Restructuring in China’s Reform Era with Kyoto University Press.

Notes

1 Tongdao is published by a cultural media subsidiary of Fujian Yonghui Group and is circulated inside Yonghui. It published essays written by employees from the administrative departments, regional divisions, and stores.

2 ‘Shanghaibeishishucaidihuoshichangchoubeihui1951niangongzuozongjie [The preparatory meeting of North Shanghai Vegetable Markets and annual work summary 1951]’, May 1954, file number: HudangQ233-1-1, Shanghai Municipal Archives; ‘Guanyuzhengqiuduixiaoshangfanfensanjingyingwentideyijiandetongzhi [Seeking for opinions about the management of ­peddlers]’, October 1956, file number: 14-1-37, Wuhan Municipal Archives; ‘Zaijuminzhong­shedaixiaodiangongyingshucai [Setting up stores to supply vegetables for residents]’. Changjiang Daily, August 5, 1958, p. 2; ‘Shanghaishishucaigongsibeishichang­1953 nian4yue-1954nian2yue jingfeikaizhi [The account book of North Market of Shanghai Vegetable Company]’, December 1952, file number: Hudang Q233-1-30, Shanghai Municipal Archives.

3 ‘Shanghaishidiyishangyejuguanyuchousheshanghaishiwaibinwuzigongyingjigoudeyijian [Shanghai First Commercial Bureau’s opinions about setting up supply institutions for for­eigners in Shanghai]’, 1951, file number: Hudang B123-3-1188-5, Shanghai Municipal Archives; ‘Zhonggong shanghaishibaihuogongsiweiyuanhuiguanyuyouyishangdianguoqingshizhouniangongyingzhunbei gongzuodebaogao [Shanghai Department Store Committee of the CCP’s report about Friendship Store’s supply for the 10th National Day]’, September 1959, file number: Hudang B123-4-37-164, Shanghai Municipal Archives; ‘Guanyu­guancheguowuyuan98haowenjiandeyijian [Opinions about the State Council’s Document No.98]’, ‘Guowuyuanzhuanfaguojiajihuaweiyuanhuiguanyujinyibu banhaoyouyishangdianderuoganyijian [The State Council transmits the State Planning Commission’s opinions about further developing Friendship Store]’, April 1979, file number: Hudang B123-10-906, Shanghai Municipal Archives.

4 ‘Shanghaishiweishizhengfuyinfaguanyushucaishengchanhegongyinggongzuoguidingdetongzhiyiji shilingdaojianghua [The document anounced by Shanghai government about the production and supply of vegetable]’, March 1981, file number: Hudang B1-8-179, Shanghai Municipal Archives.

5 ‘Guanyuguancheguowuyuan98haowenjiandeyijian [Opinions about the State Council’s Document No.98]’,  ‘Guowuyuanzhuanfaguojiajihuaweiyuanhuiguanyujinyibubanhaoyouyishangdianderuogan yijian [The State Council transmits the State Planning Commission’s opinions about further ­developing Friendship Store]’, April 1979, file number: Hudang B123-10-906, Shanghai Municipal Archives.

6 ‘Zhumingjingjixuejialinyifu: gaigekaifangchuang40nianjingjizengzhangqiji [The reform and opening-up created 40-year miracles by Lin Yifu, a well-known economist]’. Economic Information Daily, May 2, 2018, p. 005. Collective ownership is the ownership of property by all members of a group. During planned economy era, the administration of collectively-owned units was usually designated by governmental agencies and state-owned enterprises while not owned by them.

7 ‘Zhumingjingjixuejialinyifu: gaigekaifangchuang40nianjingjizengzhangqiji [The reform and opening-up created 40-year miracles by Lin Yifu, a well-known economist]’. Economic Information Daily, May 2, 2018, p. 005.

8 Ibid.

9 For instance, the term ‘fresh food supermarket’ (Shengxianchaoshi) was used in the following ­research articles: Maruyama et al. (2016, p. 34); Geng et al. (2017, p. 71). Further, the term appeared in government documents, for example, ‘Suggestions for promoting convenient lives in urban areas’ released in 2021. The document made a clear distinction between fresh food supermarkets and hypermarkets when they listed the retail types they promoted to open more in communities. Moreover, the concept was also widely used by newspapers and the fresh food supermarkets themselves, for example, ‘Yonghuichaoshijinrishangshidazaoquanguoshengxianchaoshilongtou [Yonghui floated on the stock market today, aiming at becoming the leading fresh food supermarket]’. Securities Times, December 15, 2010, p. B02.

10 Zhiyan Consulting. 2017nian-2023nianzhongguoshengxianchaoshi hangyeshendudiaoyan jitouzizhanlueyanjiubaogao [The research report of fresh food supermarket 2017-2023]. http://www.chyxx.com/research/201708/550750.html.

11 ‘Wenzhuguiyangshimindecailanzi [Fresh grocery program maintaining price stability and daily lives]’. Guizhou Daily, April 13, 2016, p. 006; ‘Pingjiashengxianhuimin [Low-price fresh foods benefit daily lives]’. Guiyang Daily, September 26, 2018, p. A05.

12 ‘Chaoshishengxianshipinbiaoqianjiangyouguifan [A new standard on fresh food sold in supermarkets will be implemented]’. China Food Safety News, December 1, 2015, p. A01.

13 ‘Chaoshijinshousanzhuangrouxianxinguiyinreyi [A hot debate on the legislation in which supermarkets will be forbidden from selling loose chopped meat]’. Shanghai Xinmin Evening News, February 19, 2016, p. A6; ‘Chaoshishengxianbaozhuanghebiaoqianxinguinichutaiyinlailiangfang yijianjiaofeng [Two-sided debate about the packaging and label standards for fresh foods sold in supermarkets]’. Shanghai Xinmin Evening News, February 20, 2016, p. A7.

14 ‘Guanyushucaixiaofeixuyaodetongjibaogao [The report of demand and consumption of vegetables]’, August 1962, file number: Hudang B6-2-490-142, Shanghai Municipal Archives.

15 Statistical Abstract of the United States 2009, https://www.census.gov/library/publications/time-series/statistical_abstracts.html; Table on demand and supply of food by MAFF, https://www.maff.go.jp/e/data/publish/annual_2008.html.

16 Yonghui’s homepage, http://www.yonghui.com.cn; KANTAR, Grocery Market Share, https://www.kantarworldpanel.com/cn-en/grocery-market-share/china-national/snapshot/27.12.19.

17 China Chain Store and Franchise Association, Chinese Top 100 2006-2017; Annual Report of Yonghui, Walmart, RT-Mart, Costco, Jiajiayue, Renrenle, Bubugao, Bailian, Hualian, 2015-2017.

18 ‘Nongmaoshichangxuyaochaoshihua [Food markets need to be transformed to supermarkets]’. People’s Daily, February 12, 2002, p. 006; ‘Yonghuichaoshishizenyanglianchengde [How Yonghui was forged?]’. Fujian Business Times, November 5, 2010, p. 001.

19 Tongdao 179, p. 9.

20 Tongdao 179, pp. 10–11.

21 Tongdao 179, p. 10.

22 Ibid.

23 Tongdao 179, p. 9.

24 ‘NongchanpinPKyonghuichaoshi liutongfangshishuizuozhu [Fresh foods PK Yonghui who decided the distribution]’. Securities Times, April 27, 2011, p. B04; ‘Yonghuichaoshijinfaxing sixingutongrishangshi [Yonghui issued shares today]’. Shanghai Business Daily, December 7, 2010, p. 02.

25 This article uses the word ‘owned’ here to refer to owning rights to use and manage farm. It does not mean having the ownership. The Land Administration Law of the People’s Republic of China stipulates public ownership of land in the urban areas of China. In addition, the lands in rural area are collectively owned, and thus also not private. Farmers have only land contracted management right. The rural villagers’ commissions have a say on how to allocate the lands. It is hard to estimate whether all the retailer-established farms were located in rural area according to the available sources. However, retailer-established farms are definitely not private and Yonghui has only right to use and manage them.

26 Tongdao 35, pp. 4–5; 36, pp. 4–6.

27 ‘Yonghui: jiangchaoshichanyelianshenxiangtianjianditou [Yonghui: stretched out the value chain of supermarkets into the farms]’. China Business Herald, January 22, 2010, p. 003.

28 Ibid.

29 Tongdao 181, p. 12.

30 ‘Yonghuimoshinonggaichaodexianxingzhe [Yonghui model the pioneer of transformation]’. China Cooperative Times, November 4, 2011, p. A03.

31 Tongdao 120, pp. 26–27.

32 Yonghui Superstores Company Limited Annual Report. 2012, p. 14; 2013, p. 25; Tongdao 120, pp. 26–27.

33 Deducting slotting fees is a trade practice in retail industry in China. It is defined as an unfair act by administrative measures and regulations implemented by the government in the 2000s such as the Fair-Trade Regulation for Retailers and Suppliers, because deducting slotting fee is supermarkets’ unilateral requirement. Produce companies and manufacturers can’t have their product placed on supermarket shelves or within their supply chains without paying slotting fees, and thus have to comply with them. Therefore, it is a signal of supermarkets’ strong buying power. The central and local governments sought to remove the unfair trading practice, but this remains widespread. Predictably, rather than the slotting fees, protesting against the unfair trade practices using legal weapons will bring more losses for produce companies or manufacturers, as a protest will lead to all supermarkets’ refusal to place their products on the shelves.

34 ‘Guowuyuanerduzhaokaichangwuhuiyijiangdiliutongfeiyong [The State Council introduced 10 measures to decrease distribution fees]’. China Economic Times, December 27, 2012, p. 001; ‘Jialefukuaisuyinglimoshixiabiduanpinxian [The advantages of the Carrefour revenue model]’. China Business Herald, January 28, 2011, p. A01.

35 Tongdao 120, pp. 26–27.

36 Professional farmer cooperatives were set up in 2006 with the launch of Professional Farmer Cooperatives Laws. Agricultural product processing firms, distribution firms, and agricultural production material firms invested in cooperatives. They utilized local human capital to organize farmers, thus playing a role in the distribution of agricultural products and materials. Similar to cooperatives in many countries, they provided information regarding demand and supervised processing, delivery, and storage.

37 For example, ‘Nancaibeishangyumainan [Vegetable in southern China was hard to go north]’. Farmers’ Daily, January 10, 2017, p. 006; ‘Nongchanpinliutong, gongxiaomoshinengdanzhulima? [Can cooperatives become the main strength in agricultural products distribution?]’. Xinhua Daily, November 1, 2021, p. 011.

38 ‘Yonghui: jiangchaoshichanyelianshenxiangtianjianditou [Yonghui: stretched out the value chain of supermarkets into the farms]’. China Business Herald, January 22, 2010, p. 003; Yonghui Superstores Company Limited Annual Report. 2011, pp. 29–30.

39 ‘Yonghui: jiangchaoshichanyelianshenxiangtianjianditou [Yonghui: stretched out the value chain of supermarkets into the farms]’. China Business Herald, January 22, 2010, p. 003.

40 For example, see, ‘Zhangxuansong: woyaoba chuangzaodejiazhi huikuinongmin [Zhang­xuansong: I will give business value back to farmers]’. Fujian Daily, April 26, 2006, p. 004.

41 ‘Wubuweifadongweijiaoshouroujing [Five ministries suppress clenbuterol hydrochloride poison]’. Jiangsu Economic News, July 26, 2001, p. 006; ‘Chongqinghuoguojipandajia [Chaffy dishes in Chongqing needed regulation]’. China Business Times, November 6, 2000, p. 006; ‘Jialefushushi shijian [Food incident of Carrefour]’. China Business Herald, August 26, 2003, p. 004.

42 ‘Nongchanpinzhilianganquanfatongguoshenyi [Law on Quality and Safety of Agricultural Products]’. Farmers Daily, May 1, 2006, p. 001; ‘Shouciguojiazhongdashipinanquanshiguyingjiyanxi yanlianjuxing [The first rehearsal of National Emergency Plan for Major Food Safety Incidents]’. People’s Daily, June 17, 2006, p. 004; ‘Sanlvgongchengcushipinxiaofeianquan [Three Green Project promotes food consumption safety]’. Xinhua Daily Telegraph, August 1, 2001, p. 002; ‘Guifan shichangshipinxianxing [Starting with the food safety to regulate the market]’. China Food Quality News, April 7, 2001, p. 001.

43 Yonghui Superstores Company Limited Annual Social Responsibility Report. 2011–2021.

44 For example, see, ‘Zhangxuansong: woyaoba chuangzaodejiazhi huikuinongmin [Zhang­xuansong: I will give business value back to farmers]’. Fujian Daily, April 26, 2006, p. 004.

45 Tongdao 181, p. 12.

46 See China Federation of Logistics & Purchasing (2002, pp. 15–16, 38; 2005, pp. 27, 243). China Federation of Logistics & Purchasing (CFLP) considered Some Opinions on Accelerating the Development of Modern Logistics in China released by the government in 2001 as the first policy document about logistics industry, and also signaled the beginning of the logistics industry in China. Before it, the storage and allocation enterprises set up during the planned economy era, transportation enterprises such as railway companies, and manufacturers’ logistics departments undertook the logistics function in China. Therefore, until the beginning of the 2000s, there was no modern logistics enterprises in China, let alone a logistics management system or regional logistics centers that could achieve high efficiency logistics for fresh foods. Furthermore, in 2004, when Yonghui began to expand its stores nationwide, CFLP evaluated that the logistics for retail were still in the initial stages and had low efficiency. The delivery of fresh foods was usually undertaken by local wholesalers periodically; no more than once a day. Therefore, China’s logistics industry lacked the competence to achieve high-efficiency and high-precision delivery at the time.

47 Yonghui Superstores Company Limited Annual Report. 2010, pp. 19–20; 2011, pp. 26, 30–31; 2012, p. 10; 2013, pp. 29–30; 2015, pp. 151–152; 2016, pp. 26,173; 2017, pp. 26, 34–35, 140.

48 Store manager and personnel director of Yonghui’s store A, and store manager of store B. Interviews 1 and 2 by author. Personal interviews. June 8, and June 10, 2019.

49 Tongdao 181, pp. 9, 12.

50 Tongdao 181, p. 9.

51 Ibid.

52 Tongdao 120, p. 24.

53 Yonghui Superstores Company Limited Annual Report. 2014, p. 17; Store manager and personnel director of Yonghui’s store A, and store manager of store C. Interviews 1 and 3 by author. Personal interviews. June 8, and June 18, 2019.

54 ‘Shanzaichengchushanji [Shanzai orange runoff from farms]’. Fujian Daily, November 24, 2018, p. 02.

55 Tongdao 174, p. 6.

56 Tongdao 223, pp. 9–10; ‘Aozhoubaoyuyaolailemeizhiyijinzhong [Australian abalone weighing about 0.5kg each is coming]’. Strait News, December 2, 2014, p. A42.

57 Yonghui Superstores Company Limited Annual Report. 2010–2017.

58 Yonghui Superstores Company Limited Annual Report. 2011, p. 26; 2013, p. 135; 2017, pp. 19, 160–161.

59 Tongdao 181, p. 9.

60 Yonghui Superstores Company Limited Annual Report. 2010, pp. 19–20; 2011, pp. 26, 30–31; 2012, p. 10; 2013, pp. 29–30; 2015, pp. 151–152; 2016, pp. 26, 137; 2017, pp. 26, 34–35, 140.