Analysis of the Impact of Baiguoyuan's Store Closure Incident on Fresh Retail Valuation Models

Based on collected data, I will systematically analyze Baiguoyuan’s 1600 store closure incident and its impact on fresh retail valuation models.

Baiguoyuan, as the ‘first share of China’s fruit chain retail’, is facing severe operational difficulties. According to public data [1][2], the company’s store count has shrunk significantly:

• 2024
  : Total stores decreased from 6093 to 5127, a net reduction of 966 stores, averaging 2.65 store closures per day
• H1 2025
  : Total stores decreased by 1639 net compared to the same period last year, dropping to 4386
• Financial Performance
  : In 2024, it recorded its first annual loss since 2019, with a net loss attributable to shareholders of 386 million yuan; in H1 2025, the net loss attributable to shareholders was 342 million yuan, a year-on-year increase of 486.5%
• Plummeting Gross Margin
  : From 11.5% in 2023 to 7.4% in 2024, further dropping to 4.9% in H1 2025

The company had to raise approximately 300 million yuan through a discounted rights issue (HK$1.17 per share, a 19.31% discount) to repay debts [1].

Core assumptions of traditional fresh retail single-store models include: surrounding population coverage, per-square-meter efficiency, gross margin, etc. The Baiguoyuan incident reveals the fragility of these assumptions:

According to industry analysis [3], community fresh stores face an ‘impossible triangle’ between product variety, freshness, and low losses. Baiguoyuan’s gross margin plummeting from 11.5% to 4.9% indicates that single-store profitability is far lower than expected. Valuation models need to adjust:

• Gross margin assumptions from the industry average of 10-12% to 5-7%
• Per-square-meter efficiency assumptions need to be downgraded based on actual operational data
• Investment payback period assumptions from 3-4 years to 5-7 years

The Baiguoyuan case shows that fruit retail has serious issues with losses and overstocking [2]. Franchisees report that ‘the company holds the distribution rights, not replenishing what the store lacks’, leading to significant losses. Models need to:

• Add loss rate assumptions (from industry default of 5-8% to 10-15%)
• Consider the impact of interest distribution mechanisms between headquarters and franchisees
• Include stricter rent cost stress tests

Baiguoyuan announced a ‘Golden Decade’ strategy at the beginning of 2024, targeting over 10,000 stores [2]. However, the actual situation is:

• Franchise stores decreased from over 6000 to 5116
• Franchisee attractiveness continues to decline; some profitable stores are also being transferred
• The company encourages franchisees to move to low-rent areas, which is essentially passive contraction

This impact on valuation models includes:

• Conservative scenario: store count assumptions from annual growth of 15-20% to -5% to 0%
• Need to distinguish risk differences between direct and franchise stores
• Add store closure rate as a key parameter (suggested at 10-15%)

The Baiguoyuan incident indicates that the franchise model faces systemic challenges in the fresh retail sector [2]. Models need to:

• Increase franchisee churn rate assumptions
• Consider the impact of interest conflicts between franchisees and headquarters
• Add risk premium for franchise system stability

According to industry comparable company analysis, fresh retail enterprise valuation multiples are usually based on:

• Single-store revenue contribution
• Same-store sales growth rate (SSSG)
• Gross margin and net margin levels

The Baiguoyuan incident leads to:

• Single-store revenue assumptions need to be downgraded by 15-25%
• SSSG assumptions need to be adjusted from positive to negative growth
• Net margin assumptions need to be downgraded from 2-3% to -5% to -10%

Baiguoyuan’s shift from ‘100 billion yuan target’ to ‘large-scale store closures’ indicates:

• High growth expectations for the fresh retail industry need to be re-examined
• Investors’ risk aversion increases
• Need to add industry-specific risk premium in WACC calculation (suggested increase of 2-3%)

Baiguoyuan was forced to raise funds through discounted rights issues to repay debts, with over 90% of funds used for debt repayment [1]. The impact on valuation models includes:

• Operating cash flow assumptions need to consider the impact of revenue decline
• Capital expenditure assumptions need to be adjusted (from expansionary to maintenance)
• Working capital assumptions need to consider inventory overstock risk

• Debt coverage ratio assumptions need to be downgraded
• Need to add liquidity risk assessment
• Consider the possibility of potential debt restructuring

Scenario	Store Count Assumption	Gross Margin Assumption	Single-store Revenue Assumption	Adjusted Valuation Multiple
Optimistic	Annual growth of 5%	7-8%	Flat	80% of industry average
Baseline	0% annual growth	5-6%	10% decline	60% of industry average
Pessimistic	10% decline	3-4%	20% decline	40% of industry average

1. Store Count Growth Rate
   : From 15-20% to -5% to 5%
2. Same-store Sales Growth Rate
   : From 8-10% to -5% to 2%
3. Gross Margin
   : From 10-12% to5-7%
4. Net Margin
   : From2-3% to-5% to0%
5. Store Closure Rate
   : From3-5% to10-15%
6. WACC
   : Add industry-specific risk premium of2-3%

• Sensitivity to store count changes (every10% reduction in stores leads to 20-30% valuation decline)
• Sensitivity to gross margin changes (every1 percentage point decrease leads to10-15% valuation decline)
• Sensitivity to cash flow status (valuation discount when operating cash flow is negative)

The Baiguoyuan store closure incident has a profound impact on fresh retail valuation models, with core changes including:

1. Shift from Growth-oriented to Profitability-oriented
   : High growth expectations give way to profitability verification
2. Comprehensive Reconstruction of Single-store Model Assumptions
   : Especially gross margin, per-square-meter efficiency, and loss rate assumptions
3. Re-evaluation of Franchise Model Risks
   : Interest distribution mechanisms and standardized operation capabilities are key
4. Cash Flow and Solvency Become Core Concerns
   : From pursuing scale to cash flow stability

When evaluating fresh retail enterprises, investors should focus on:

• Single-store profitability and sustainability
• Franchisee profitability and churn rate
• Cash flow generation capacity and debt burden
• Supply chain efficiency and loss control capability

The valuation logic of the fresh retail industry is undergoing a fundamental transformation, from ‘scale is king’ to ‘profitability is king’, which will profoundly affect future investment decisions and valuation frameworks.

[1] Agricultural Materials and Market - Baiguoyuan Raises 300 Million Yuan to Repay Debts! Over1600 Stores Closed in a Year, Net Loss of342 Million Yuan in Half a Year (https://www.enongzi.com/news/details/be020e38-0a0b-40ba-9f74-449470515d66)

[2] Sina Finance - Nearly1000 Stores Reduced in a Year! Baiguoyuan’s Fruits Are Not Selling, Falling into Huge Losses in the Second Year of Listing (https://finance.sina.com.cn/stock/roll/2025-03-30/doc-inerkumy5309116.shtml)

[3] Everyone is a Product Manager - Case Analysis: Single-store and Chain Models of Physical Retail (https://www.woshipm.com/it/3277095.html)

[4] Jiemian News - Baiguoyuan Falls from the Altar: Why High-end Fruits Are Out of Favor (https://www.jiemian.com/article/12362185.html)