As we move through 2026, community retail is entering a fresh wave of transformation, with a clear shift towards "high-value, quality-conscious community consumption." On one side, the rise of fresh snacks is capturing younger shoppers who crave options that are both healthy and satisfying. On the other, bulk snack brands are racing to evolve into full-category hard discounters. Yet, in the retail space, achieving freshness, attractive pricing, and healthy profits simultaneously remains a formidable challenge. Freshness inherently brings spoilage risks, and good pricing squeezes margins, demanding exceptional operational efficiency to sustain profitability.

As retail brands pivot towards healthier fresh food offerings, Pagoda Group (02411) finds itself in a strategic sweet spot, leveraging over two decades of expertise in loss control, cold-chain logistics, and supply chain management. On August 28th, the company released its interim results. For the first half of the year, revenue reached approximately RMB 5.01 billion, a year-on-year increase of about 14.5%. More notably, net profit attributable to shareholders turned positive at roughly RMB 30 million, a stark contrast to the RMB 342 million loss recorded in the same period last year. Store count also saw a net increase, climbing nearly 53% to 6,709 stores, signaling a return to sustainable expansion. This simultaneous uptick in revenue, profit, and store openings firmly establishes a turning point in its performance.

This result is an understated win for the capital markets. The company's earlier profit alert projected revenue growth of at least 7% and a net profit attributable to shareholders of no less than RMB 20 million. The actual figures for both metrics have significantly outperformed these expectations. Achieving a "return to profitability" is the clearest sign that two years of proactive strategic restructuring are beginning to bear fruit at its core. But what is driving this reversal? Founder Yu Huiyong has previously outlined a three-tiered strategic vision: to become a globally leading fruit industry ecology technology company, a premier platform for incubating fresh fruit and vegetable processed category brands, and a globally integrated, full-format fruit supply chain service platform. This latest financial report shows Pagoda Group is answering the question of its future through tangible business evolution.

Turning the corner: "Information + Agriculture" technology strengthens the core fresh fruit business

Fruit is perishable and constantly competing against time. From harvest timing and storage temperature to transport losses and shelf life, a single misstep translates quality produce into a loss-making venture. Over the past two decades, Pagoda Group has meticulously refined every link in its chain, from varietal selection and post-harvest preservation to intelligent ordering and store diagnostics. In the first half of 2026, the capabilities built within its value chain are unlocking more significant value. Revenue, profit, and store openings all trending upwards concurrently confirms the turnaround in its primary business. Crucially, this growth has emerged after a period of "purifying" operational quality, moving beyond just pursuing scale.

In recent years, Pagoda Group underwent a deliberate phase of closing underperforming stores, and this consolidation is now complete. Therefore, this reversal should be understood not merely as operational recovery. The deep-rooted industry chain expertise forms a more durable competitive advantage than a simple store network, anchoring its strategic aim of being a "globally leading fruit industry ecology technology company." It's clear that its full-chain technology system provides a stable foundation for the core business amid the newest retail revolution. Store-level operational quality is continuously improving. By the end of the second quarter, its membership base had surpassed 97.7 million, online orders accounted for 27.8% of total orders, and both the per-store model and member repurchase rates are deepening.

Looking deeper, Pagoda Group is transforming from a traditional fruit retail chain into a platform enterprise with industry infrastructure capabilities. This evolution is built on the deep accumulation and externalization of four core strengths: First, deep application of digital and AI technology, with intelligent ordering and store diagnostics covering all outlets, while R&D expenses decreased by about 17% year-on-year. Second, solid supply chain and cold-chain logistics capabilities, supported by over 20 years of global fruit sourcing, 29 national cold-chain warehouses, and 56 signature fruit category brands. Third, a robust franchise chain management capability, with standardized operating systems continuously iterated across over 4,000 fruit retail stores. Fourth, strong fresh fruit inventory and loss control, optimizing every node from harvest timing, storage temperature, to shelf-life management. The concentrated effect of these "foundational capabilities" allows Pagoda Group to solidify its fresh fruit base while expanding into multi-format retail, B2B platform business, and empowerment for both large and small B-end clients. From this financial report, the turnaround in its core business is step one; the true expansion of its growth narrative lies in steps two and three.

Growth engines: transitioning from qualitative growth to ecosystem expansion

Historically, various business theories have explored corporate growth trajectories. For instance, McKinsey senior advisor Mehrdad Baghai, in "The Alchemy of Growth," proposed that all continuously growing large companies maintain a balance across three business levels: defending and extending the core business, building new emerging businesses, and creating viable candidate businesses for the future. These three levels function like a pipeline, where established businesses generate cash flow and new businesses take over the baton for growth, ensuring a continuous stream. This aligns perfectly with Pagoda Group’s founder Yu Huiyong's vision: fruit stores are just the starting point and a testing ground.

As its primary fruit business grows steadily, Pagoda Group is expanding outward, using its fresh produce capabilities as the core. The second step involves establishing its second growth curve in community fresh retail and community hard discount supermarkets, moving beyond just fruit stores. Over the past two years, bulk snack retailers have rapidly expanded based on low prices and scale. However, as the hard discount snack sector stabilizes, consumer demand, particularly among younger demographics, has shifted from "cheap and satisfying" to prioritizing "health, freshness, and experience." This is spurring the fresh snack market. According to a research report from Zheshang Securities, the Chinese fresh snack market grew from less than RMB 5 billion in 2020 to RMB 18 billion in 2025, representing a compound annual growth rate exceeding 40%. It is projected to surge to between RMB 40 billion and 50 billion by 2026.

However, the fresh snack segment is fraught with challenges like high spoilage, complex operations, and high turnover requirements – areas where traditional snack players are least proficient. For Pagoda Group, this is a strategic advantage. Fresh fruit is one of the most difficult fresh categories to manage, and Pagoda Group has excelled in it for over two decades, developing four core strengths: over 20 years of global fruit supply chain experience, loss-control expertise from running thousands of stores, 29 national cold-chain warehouses, and seven major regional local brands. Now, Pagoda Group is methodically exploring new business models. This involves category expansion, transitioning from fruit category brands to fruit and vegetable category brands, and then to processed fruit and vegetable category brands. It systematically exports its accumulated capabilities in planting, quality control, preservation, channels, and capital to each individual category brand. Simultaneously, it is expanding its channels. New business models do not disrupt existing stores, but both formats share a common capability set. By adopting "standard and agile" approaches, it balances standardization with localization.

Through these efforts, Pagoda Group is advancing toward its second strategic goal: to become a "globally leading platform for incubating fruit and vegetable processed category brands." According to company announcements, it partnered with seven local brands in the first half of 2026 to explore new business formats and store types, including "fruit + snack" and community fresh retail stores. In July, its first innovative flagship store opened in Shenzhen, shifting its positioning from just "buying fruit" to offering "one-stop healthy lifestyle solutions," with the goal of raising non-fresh fruit sales to around 40%. Ready-to-eat fruit cuts, short-shelf-life foods, dried fruit, juices, and even bakery ingredients are opening up longer lifecycles for its category brands. While accelerating its multi-format retail layout, Pagoda Group’s B2B platform business and supply chain empowerment features are also scaling up. Its B2B platform, Banguo, achieved a GMV of RMB 1.401 billion in the first half, a year-on-year increase of about 22%. In its open 2B supply chain business, targeting snack shops, convenience stores, restaurants, tea shops, and corporate benefit procurement, it offers a three-tier empowerment system: differentiated product development, low-cost fulfillment, and full-process operational coaching. Any business requiring fruit supply chain capabilities, whether a large B or small B, is becoming an "external customer" for Pagoda Group. This signifies that its supply chain capabilities are no longer just serving its own stores but are being opened up to the entire industry, moving from an "internal closed loop" to "platform-based output." With fresh fruit capabilities at its core, excellent categories are emerging across the entire value chain, and Pagoda Group’s potential is unfolding through retail innovation.

Creating the future: a three-tiered growth model reshapes value

Pagoda Group’s strategic vision extends to a much longer horizon. Every major retail format boom has emerged at a pivotal economic cycle. For example, Germany's post-WWII economic reconstruction gave rise to Aldi, the pioneer of hard discounting, with its low margins, streamlined SKUs, and extreme supply chain efficiency conquering the European market. Today, amid global structural economic shifts, consumption is emerging as a core engine for China's domestic demand, fueling the start of the 15th Five-Year Plan. A new wave of retail innovation is building, with a landmark trend being the logic of hard discounting, which is set to reshape Chinese retail. According to research from Guotai Haitong Securities, the penetration rate of pan-hard discount models in China's grocery retail is only 8%, significantly lower than Germany's 42% and Japan's 31%, but it is projected to grow at a compound annual growth rate of 23% over the next three years. This combination of low penetration and high growth indicates a highly certain trajectory within the industry.

While Aldi accelerates expansion in China, Walmart is venturing into private labels, and Hema has launched its "Chaohesuan NB" line, a gap has always existed. The challenge lies in the "last mile" closest to the community: how to achieve economies of scale for fresh food in smaller store formats that rely heavily on community foot traffic. Traditional hard discount models are strong in snacks, beverages, and daily necessities, but a broadly proven solution for fresh produce and short-shelf-life food has yet to emerge. Pagoda Group can fill this gap by scaling fresh food in a community setting, extending from fruit specialization to "fruit + all-category hard discount." This points to the second growth curve benefiting from the boom in community consumption. Building on this, Pagoda Group has no intention of keeping its capabilities siloed. Founder Yu Huiyong has set a third major strategic goal: to be a "globally integrated, all-format fruit supply chain service platform." Pagoda Group is pushing for supply chain platformization, fully opening its standards, products, fulfillment, training, and operational capabilities to any business format requiring fruit supply chain expertise.

Specifically, this empowerment system has three layers. At the product level, it provides high-margin products through differentiated product development capabilities, and its 56 signature fruit category brands are continuously solidifying their market influence. At the supply chain and fulfillment level, it offers low-cost fulfillment through its national fresh food distribution and preservation system. Additionally, at the training and operations level, it provides full-process coaching from product selection to promotions. This shapes the "three growth curves" – "profit now, growth in the medium term, and space for the long term," making Pagoda Group an ideal example of McKinsey's theory of three business levels. The first curve is its core fruit business, which leverages brand density, service standards, and fulfillment capabilities to return to profitability. The second curve is its fruit industry ecology technology and category brand incubation, bringing agricultural technology, information technology, and business incubation into a longer-term value creation plan. The third curve is the output of its supply chain capabilities to the entire industry – snack shops, convenience stores, restaurants, tea shops, and corporate benefit procurement – any operation needing fruit is a potential client.

Currently, the market still perceives Pagoda Group as a "traditional retailer," with its valuation below book value starkly contrasting with the fundamental reversal in its performance. However, this earnings beat is a critical step in building trust with the capital market: it prefers to deliver results over narratives and validate strategy with verifiable data rather than public fanfare. As AI-driven efficiencies continue to translate into net margin improvements and its new business models and B2B operations contribute incremental revenue, the market is likely to shift its valuation perspective from a pure retail model to a more diversified one, considering "retail + technology + supply chain services." A securities firm has already upgraded its rating on the company to "recommended," based on the improvements in its core business and new business initiatives. Looking ahead, Pagoda Group is well-positioned to seize the opportunities from this new wave of retail innovation and enters a new growth cycle. Supported by its three-tiered growth logic, it is evolving into an industrial platform encompassing "fruit industry ecology and technology, fruit and vegetable category brand incubation, and supply chain services." With the spending power of 1.4 billion people becoming the main engine of China's domestic demand, the era's dividend is just beginning.