China Food

The ups and downs of China’s retail industry: from “struggle” to “mutual assistance” online and offline

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in the era of instant retail, physical retail formats usher in a blue ocean.
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Chinese consumers are no strangers to takeout. Nowadays, the responsibility of takeout is far more than delivering three meals a day. More demand is emerging.
 
Consumer Sheng Sheng is the representative of “buy everything with takeout”. She often buys things from surrounding large supermarkets on takeout software, because supermarkets are between e-commerce and small convenience stores, faster than e-commerce and cheaper than convenience stores. “Sometimes I need sanitary napkins badly, so I will take them home.” Sheng Sheng also buys things for the cat on the small program of the pet store, “sometimes the hair cream is out of stock. When I see the cat spit hair in the morning, I have to eat the hair cream quickly at this time, and I will order a takeout directly.”
 
Immediate demand is essentially the demand for “certainty”, which naturally exists, especially during the epidemic. In the first half of this year, the epidemic was repeated in many places, and express delivery could not be delivered. Consumers began to use takeout as express delivery. From eating and drinking to daily chemicals, from cosmetics to clothing, instant retail was accepted by more and more people.
 
Connect offline physical stores and deliver goods to your door in 30 minutes through the takeout distribution network. This is a new retail format, that is, instant retail. Industry insiders believe that one of the differences between instant retailing and traditional retailing is that instant retailing is driven by consumer demand. At the same time, instant retailing truly integrates the advantages of online and offline for the first time, rather than being a simple substitute for online and offline in the past.
 
Feeding online traffic back to offline retail entities and keeping benefits locally is the greatest value of instant retail. The transformation of online and offline game relations is behind the evolution of the whole retail format. What are the other stories of real-time retail that can drive the real economy, promote employment, and provide convenient services?
Start with immediate needs: fast, urgent, and curtilage
How important is takeout in your life? Speaking of this topic, consumers in Beijing feel relieved recently.
 
“I can hardly cook by myself. I order takeout food. I’m used to it. I feel like a part of my life.” But some time ago, due to the epidemic, the demand for takeout at home has also expanded from meals to daily necessities such as general merchandise.
 
One of the biggest reasons is that during the epidemic, the express logistics were blocked, and using takeout as express has become a reassuring norm. It is also in this that she understands that the pursuit of “fast” is essentially the demand for “certainty”. After all, getting the goods is the beginning of all consumption.
 
In addition to being fast, home delivery is also the value of takeout. “Some time ago, takeout was not allowed in the community. They were all placed on the shelf at the door of the community.” It’s also because of the epidemic prevention and control. Anxin said that such a practice is also a safety measure, but she did feel that if she had to walk hundreds of meters to get takeout, it would affect her mood.
 
It takes 30 minutes to arrive and deliver to the door, which solves most of the immediate needs and maximizes the online shopping experience. It’s not necessarily three meals a day. Young people prefer to collect daily necessities from supermarkets, snacks from convenience stores, and even urgently needed cosmetics at home. Similarly, it is not necessarily needed by young people. The elderly who have difficulty in traveling, parents who have children to take care of at home, and any kind of people need the convenience of real-time retail.
 
 
Sheng Sheng told Shen ran that she once went to Beijing on a temporary business trip. When she arrived at the hotel, she found that she didn’t bring facial cleanser and pajamas. It was already more than 10 p.m. at that time, she opened meituan takeout and searched it. She found that there were many stores that could deliver pajamas that night, most of which were the supply of XX Department store and XX convenience store. “It’s amazing to be able to buy pajamas after ten o’clock in the evening.” Sheng Sheng said that the pajamas she bought were pure cotton, which cost 98 yuan a set, and they didn’t look ugly. They are still worn today.
 
According to the report “focus on post-95 consumers in China” released by Accenture, post-95 consumers pay more attention to delivery speed. More than 50% of post-95 consumers hope to receive goods on the same day or even half a day after shopping, and 7% of consumers hope to receive goods within 2 hours after placing an order.
 
Not long ago, Xiao Qi in Beijing wanted to buy a yoga mat temporarily and did some homework. She fell in love with a decathlon. “I found that decathlon’s flagship store has city wide purchase. The same product can be divided into normal e-commerce express delivery and same day delivery in the same city. The same day delivery only needs 4 yuan.” However, Xiao Qi also noticed that she was preparing to place an order in the afternoon, and the delivery on that day had to be in the evening. “I just wondered if it could be faster. I had an idea and searched the yoga mat on the takeout platform. I found that there were many stores around that could deliver it. It took 30 minutes, and there were more brands.”
 
Consumer demand forces the platform to make changes. From the fact that consumers only need takeout to give food and drink, to the fact that consumers also need takeout to give everything, there are two needs of “change and change”.
 
The same is that consumers still need 30 minutes to reach and deliver goods to their homes. For example, not long ago, netizens discussed on social platforms that summer is coming, and many people place orders to buy mosquito prevention products in the middle of the night. According to the speed of e-commerce express, it should be delivered the next day as soon as possible. However, the real consumer demand of consumers who place orders in the middle of the night must be that they can use it half an hour after placing an order and continue to have a good sleep. Therefore, the quick delivery of takeout can meet the immediate needs of consumers in this scenario. Meituan data also showed that in early June, the sales of mosquito repellent incense on the platform in a week increased by 112% year-on-year compared with the same period in May, and the mosquito repellent increased by 95%.
 
Change lies in the expansion of categories. The above data also mentioned that not only mosquito repellent products, but also fruits, catering, daily necessities, medicine and even clothing. In the past two to three months, the national consumer demand for 30 minute delivery of all kinds of goods has increased significantly.
 
In the process of change and unchanging, takeaway has been transformed into “takeaway everything”, and instant retail has gradually entered the lives of more consumers.
 
Take out “order everything”: demand upgrading, hand in hand with entities
For real-time retail, China Merchants Securities Research Report has given a complete definition, which is a high timeliness home consumption format based on the real-time distribution system. Its key feature is that it generally looks for supplies within 5 kilometers around consumers, which meets consumers’ acute and immediate consumption needs, and the timeliness is generally controlled within 1 hour.
 
We can simply understand that instant retail is to give everything away with the advantage of giving away takeout, and take “instant distribution and local supply” as the two foot support to solve the immediate demand for consumers. Among them, there are four important endpoints.
 
First, the supplier. In order to meet the immediate demand, the supplier should not be too far away. The 5 kilometers mentioned in the above research report is a reasonable distance that can ensure delivery within 30 minutes to 1 hour. Therefore, the value of local supply is prominent. The so-called local supply is often large supermarkets such as Wal Mart, Carrefour, China Resources Vanguard, etc., and brand chain stores such as Muji, Xiaomi, Watsons and other offline physical retail forms. At the same time, it also includes convenience stores such as 7-Eleven, convenience bee, etc., as well as small department stores, individual merchants, in addition to local warehouses such as lightning warehouse, front warehouse and so on.
 
The second is the performing party. There are goods within 5 kilometers locally, so efficient and sufficient transportation capacity is needed for distribution. This also requires network delivery personnel such as riders to play a role. With the development of science and technology, more intelligent distribution hardware such as unmanned aerial vehicles and automatic distribution vehicles will also be put into use in the future, constantly expanding the application scenarios and efficiency of real-time retail.
 
Third, the platform side. The platform party and the performing party often cooperate with each other. Meituan and other platform parties provide information, and distribute real-time retail orders to the nearest riders through the intelligent performance scheduling mechanism, so as to ensure the delivery within 5 kilometers within 30 minutes to 1 hour.
 
Fourth, C-end consumers. In the closed loop of real-time retail, consumers’ demand is the beginning, and consumers’ receipt of goods is the end. The efficient cooperation of the above three parties ensures timeliness, and can also make consumers more accustomed to this business format, or continue to raise demand in the future, thus forming a virtuous circle.
 
It is worth mentioning that the epidemic has a catalytic effect on the development of instant retailing. In April, the epidemic was repeated in many places, and some consumer habits changed. People were more inclined to buy the goods they needed in the nearest physical stores, and they expected to deliver them as quickly as takeout. “Takeout as express” became a common occurrence.
 
On the other hand, when the epidemic occurs repeatedly, even if the convenience store is downstairs, consumers cannot go to the store to buy, so they need instant retail and door-to-door service. Even if not limited by the epidemic, instant retailing can save consumers huge time costs, and the price is appropriate. Services such as free distribution fees will also bring consumers more comfort.
 
Local supply is the key to instant retail. For this, offline physical retailers are the first to smell the opportunity. In May, Yan Qian, the new chairman of 7-ELEVEN in China, announced that she would focus on instant retail strategies such as takeout in the future. Supermarkets such as Yonghui, Carrefour and China Resources Vanguard, as well as brand chains such as Sephora and Jenny Road, have also expressed their intention to expand the scale of online transactions.
 
Similarly, platform enterprises are also working on real-time retail. Meituan, jd.com, Alibaba and other comprehensive retail platforms are all involved. From the market results and industry analysis, it is generally believed that meituan and jd.com do better. Their heavy investment in local supply side and performance side for many years has formed a long-term competitive and development advantage.
 
Riders are picking up goods at the convenience store
 
Starting from the real-time demand of consumers, physical retailers have made efforts one after another, and the platform has taken over. Therefore, real-time retail has truly integrated online and offline. AI media predicts that in 2025, the industry scale of instant retailing will be about 1.2 trillion, and the penetration rate of retail sales of social consumer goods in China will be about 7.8%, with a compound annual growth rate of 56%. Zheshang securities also made a forecast for real-time retail, which is expected to have a penetration space of 4trillion yuan, and the real-time retail channel will account for one fifth of residents’ daily consumption.
 
It can be seen that instant retailing is not a simple variation of takeout, but a new retail format that is developing and mature, which requires the joint participation of offline physical stores and online platforms, and the new story it brings to the retail industry has just begun.
What’s the new story of instant retailing?
In 1996, Wal Mart entered China and opened its first Wal Mart shopping mall and Sam’s club store in Shenzhen. The iterative retail scene, refined retail management and other modern retail concepts began to grow in China, promoting the development of modern retail formats.
 
After the rapid development of the Internet, the offline physical retail industry has been impacted. The online stores of e-commerce are a direct substitute for offline entities, gradually sharing the offline market share, using lower prices and more services to shift the focus of consumers to online, while also forcing offline stores to open online channels. In this development process, online and offline are often opposed to each other, and online to offline erosion and substitution exist.
 
Before the era of e-commerce, offline retail format was the mainstream, and the place of production and consumption were unified. After the development of e-commerce retail, the production place and consumption place are separated, and more is the supply + consumption in different places. The receipt of goods at the C end is slow, and the offline business is robbed of a part.
 
Now, with the upgrading of C-end requirements, the relationship between online and offline has also changed. Online platforms no longer chase after offline, and offline platforms don’t have to be afraid of online. The real-time retail format of local supply + local consumption + real-time distribution has been formed, and the places of production and consumption have come back together, which is the strong integration of the two advantages. In other words, at the beginning of this stage, instant retailing will connect online and offline, from “competition” to “mutual assistance”.
 
 
Zhuang Shuai, founder of Bailian consulting, said to shenran that the rise of instant retailing represented that China’s retail industry had entered a stage of stock growth and looking for new increments. Offline retailers, dealers, agents and some new brands, online platforms with local distribution business, and consumers will benefit from this.
 
From the perspective of local supply factors of instant retail, offline physical stores are the biggest beneficiaries. In short, the real-time distribution system of real-time retail has expanded the service radius of stores from the original 1 km to 5 km. Local entities such as supermarkets, chains, Ka, stores and so on can get more orders, and online traffic feeds back offline, while the benefits remain entirely local. In addition, for the construction of warehousing capacity, real-time retail will also cultivate more physical formats, including pre warehouse, lightning warehouse, regional logistics, etc.
 
Meituan data showed that from January to may, the online orders of various physical retail stores such as supermarket department stores increased by 70%, and the online orders of community department stores increased by about 45% year-on-year in the first half of June.
 
Zhou Yu operated a low-cost department store in Tongzhou District, Beijing. During the epidemic, the store was not affected, but also ushered in the peak of business relying on instant retail. In May, the most serious month of the epidemic in Beijing, the online order volume of stores increased by more than 3000 orders, and the online revenue of stores exceeded 500000, an increase of 50% over April. “Most of them are the daily necessities needs of surrounding residents, and the repurchase rate is particularly high.”
 
There are also examples of brands. One week after Muji entered meituan, the order volume reached 68 times that of the first day, and the highest performance of a single store increased by nearly 25%.
 
The development of instant retail will also make the real economy embrace online more actively, “because what online brings offline is no longer an either or grab, but gain.
 
Convenience, driving the real economy, increasing employment… The benefits are obvious. So, what should platform enterprises do?
 
In the real-time retail format, the first core ability to test the platform is the performance ability, which is reflected in the scale and cost of local performance. The second is the size of users. If the scale of users is not large enough, the performance cost will be too high. The third is the ability to organize and manage offline entities, that is, the ability to expand on the ground. The fourth is the construction and management capacity of the platform.
 
At present, platform enterprises such as meituan, jd.com and Alibaba have the above capabilities. Among them, meituan has accumulated experience in local life and has the first mover advantage in carrying out real-time retail business.
 
In terms of user size, meituan has 700million active consumers, and its core users are concentrated in the first and second tier cities. In terms of performance capacity, meituan’s real-time distribution network accumulated over the years can take over the heavy responsibility; In terms of ground expansion ability, meituan, which started from online and offline by connecting lines, can also open up a way to make a living.
 
For platform enterprises, real-time demand, local supply and real-time performance, in essence, they still need to have enough capacity to meet the three core elements of real-time retail, and meituan happens to have these elements at the same time.
 
In fact, the prosperity of local physical retail determines the upper limit of instant retail.
 
Instant retailing, based on local supply, provides a new opportunity for local producers and local brands. This has been preliminarily verified in overseas markets: on Amazon fresh shelves, the proportion of local liquor brands is not only much higher than that of traditional e-commerce shelves, but also higher than that of large chain supermarkets. This is also why local offline physical retailers are the biggest beneficiaries of instant retailing.
 
Instant retailing is a long-term business. But the thicker the thing, the longer the explosion cycle. The growth rate and range of real-time retail may not be as fast as that of pure online platforms, but the construction of offline space, the innovation and upgrading of formats, and the establishment of product end will make the moat of real-time retail higher and higher.
 
The story of physical retail industry comes to the chapter of instant retail. How to speak well and how to speak more deeply in the future also requires joint efforts online and offline. The new story is on the way.
 
*At the request of the interviewee, Anxin, Sheng Sheng and Xiao Qi were pseudonyms.
Author: zoushuai; Source: shenrancaijing (id:shenrancaijing), reprint has been authorized. Reprint authorization and media business cooperation: Amy (wechat: 13701559246);
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