Click the image above for details Source: Supermarket Weekly (ID: cacszk) Author: Wang Yuexia, Editor: Hu Yidao. This article is reproduced with permission; for reprint requests, please contact the original source. Introduction: Mom-and-pop stores, which barely survived the impact of e-commerce, now face encirclement from chain community stores. While e-commerce eroded their price advantage, chain community stores are taking away their proximity advantage. For mom-and-pop stores, the wave of chain community stores is even more deadly than e-commerce. In the face of the COVID-19 pandemic that has lasted nearly half a year, mom-and-pop stores seem doomed to be eliminated. These stores, which rely on midstream wholesale markets for supplies, have been overwhelmed by helplessness during the pandemic-induced shutdown of the retail ecosystem, a sentiment that has pervaded the operations of countless mom-and-pop store owners in the first half of the year. Even without the pandemic, mom-and-pop stores have been struggling in recent years. The rise of e-commerce was the first large-scale, comprehensive shock to these stores. The price transparency brought by e-commerce dealt a heavy blow to mom-and-pop stores that relied on price differences for meager profits. Fortunately, their advantage lies in being close to consumers—capturing the last mile of retail consumption means capturing greater possibilities. Today, that advantage is also being eroded. -01- Individual Businesses in Peril With the spread of the new retail fire, chain community stores have blossomed everywhere. Take Hefei, considered a haven for fresh food community stores, as an example. The two major local chain community fresh food store brands, Fresh Legend and Yipin Fresh, almost ignited simultaneously with the new retail fire. This means that mom-and-pop stores, which barely survived the impact of e-commerce, now face encirclement from chain community stores. If e-commerce seized their price advantage, chain community stores are seizing their proximity advantage. For mom-and-pop stores, the wave of chain community stores is even more deadly than e-commerce. A Beijing mom-and-pop store owner once told Longshang.com & Supermarket Weekly that within the past three years, at least three similar competitors had opened right next to his store, separated only by a wall, all of them local or regional chain enterprises. These community chains initially fought price wars to grab customers in the trading area. "When they cut prices, I had to cut prices too; otherwise, even loyal customers couldn't stop the sharp drop in foot traffic," the owner said, admitting his store's passive position in the competition. Fortunately, he had honed sophisticated operational skills over the years, choosing to differentiate with high-quality imported items to offset the loss of gross margin from promotional products. In reality, however, many mom-and-pop stores without deep roots cannot cope as calmly as this owner; most face the risk of closure. Clearly, community stores have become the new darling of China's retail format evolution, and the last mile has become the main battlefield for retail operators. This means that individual retail practitioners will find survival even harder, with closure, bankruptcy, or transfer likely their ultimate fate. But the mom-and-pop store format will persist in the long run, as it is unrealistic for chain enterprises to extend their reach into every street and alley nationwide. Longshang.com & Supermarket Weekly has also noted in previous community store reports that mom-and-pop stores have tenacious vitality; no emerging format or new consumption era can obliterate them, but in the new competitive environment, the fate of individual practitioners will become more uncertain. -02- E-commerce Giants Seize the Opportunity Internet giants have seen this opportunity. The difficult situation faced by individual practitioners has given them a new point of leverage. Internet companies represented by Alibaba and JD.com have extended olive branches to individual retailers, launching a vigorous "recruitment" campaign. Alibaba was the first to act, ambitiously proposing the "LST (Retail Link)" plan in 2014, aiming to create an online procurement platform for mom-and-pop community stores. Stores joining "LST" could order goods online, and products would be delivered directly to the store via Cainiao logistics. Owners no longer needed to visit suppliers, bargain, or laboriously procure goods, which indeed provided convenience to individual businesses to some extent, and this became the main selling point in LST's early promotion. Although the plan's original intention was to break through the traditional distribution system at the time, it also revealed Alibaba's ambition to integrate mom-and-pop stores to input corresponding logistics, financial, and other value-added services, thereby connecting Alibaba's service system and weaving a massive retail terminal network to dominate half of the offline retail market. The dividends of the lower-tier market are immeasurable; the more retail terminals controlled, the more say one has in the lower-tier market. This is the original intention behind the giants' integration of mom-and-pop stores. Helping individual stores upgrade is much easier than opening stores themselves, as individual retailers are as numerous as capillaries. In comparison, integration clearly aligns with profit principles. Obviously, Alibaba is not the only one with such ambition; JD.com and Suning also have it. Unlike Alibaba's immediate "recruitment," JD.com conducted a year of low-key testing before officially launching "Zhangguibao," also targeting community mom-and-pop stores in third- and fourth-tier cities, offering services similar to LST. Despite JD.com's caution, "Zhangguibao" still struggles to stand out in homogeneous competition with LST. JD.com recently publicly stated that "Zhangguibao" has one million users, but specific numbers were not mentioned. It is worth emphasizing that JD.com had loudly proclaimed in 2017 that "Zhangguibao" would cover one million small and medium stores by the end of 2018; at least from current public information, this data remains to be verified. Alibaba's LST data is roughly similar. The latest data shows that LST covers 1.3 million small stores, with comparable deployment speed, but neither side released new results in 2019. From this, a clue can be glimpsed: the acceptance of LST and Zhangguibao has not met expectations, and the first stones thrown by Alibaba and JD.com in the lower-tier market did not cause much of a splash. This may be the reason why Alibaba launched "Tmall Xiaodian" after LST, focusing on renovating mom-and-pop stores. It is said that Tmall selects suitable independent stores and completely renovates them from signage and decoration to display and sales methods, with the key still being the integration of the LST procurement system. Compared to the shabby and cramped image of mom-and-pop stores, Tmall's exquisite signage is clearly more attractive. JD.com is not to be outdone, launching JD Convenience Stores to compete on the same stage. Similar to Tmall Xiaodian, JD Convenience Stores also adopt a "rebranding" model, using the corporate brand to endorse the store, akin to franchising. Compared to procurement platform services like LST and Zhangguibao, Tmall Xiaodian and JD Convenience Stores provide a new look but also bring financial pressure to operators. Taking JD Convenience Stores as an example, although store owners do not need to pay brand cooperation fees, system usage fees, or training fees, they must pay a substantial deposit, and the cost of store renovation is borne by the owner—a significant expense for small businesses with thin margins. One reason for the disconnect between reality and expectations in these giants' community store renovation plans is that Liu Qiangdong once boldly set a goal of opening 1 million JD convenience stores in five years. In reality, from the first year of JD Convenience Stores, reports of store owners leaving JD have persisted to this day. The development trajectory of Tmall Xiaodian is roughly the same. Reality has not followed the preset direction of internet giants. The operational difficulty of recruited mom-and-pop stores is more complex than imagined, and closure rates remain high. This situation has also dampened the hopes of some mom-and-pop stores relying on giants. If not for the black swan of COVID-19, their stance on self-reliance would have become more resolute. -03- The Road to Integration Is Long and Arduous But now, most mom-and-pop stores are wavering. The choice before them is: persist in fighting alone or accept recruitment by giants. Retail is one of the few industries that could operate normally during the pandemic, yet individual retail stores have struggled the most. During the most severe phase of the pandemic, the shutdown of upstream agricultural product bases and midstream wholesale markets directly caused the closure or even bankruptcy of millions of individual retail stores nationwide. The second wave of the pandemic at Beijing's Xinfadi wholesale market dealt another heavy blow to individual stores that were "self-healing," with foot traffic plummeting by more than half. This is not only a disaster for Beijing's retail market; other retail markets also face great uncertainty. The unpredictable pandemic situation has cast a shadow over the survival of individual retailers nationwide, making embracing giants a greater possibility. This is also the opportunity point for JD.com's launch of "Jingxuan Haoguo." This time, JD.com focuses on community fruit stores, another renovation and upgrade plan for community mom-and-pop stores similar to JD Convenience Stores. The difference is that JD.com has begun to push community group buying. The franchise owners of "Jingxuan Haoguo" become "group leaders" cultivated by JD Fresh, advancing community group buying on the carrier of integrated community stores, a new attempt by JD.com to reach down. But judging from the current situation, "Jingxuan Haoguo" is unlikely to deviate from the old path of JD Convenience Stores. Its business core remains similar to JD Convenience Stores. The biggest problem in expanding JD Convenience Stores is that the procurement system cannot fully solve the pain points of mom-and-pop stores. According to a franchise owner of a JD Convenience Store, the reason for choosing JD franchise was the procurement channel of Zhangguibao and JD's brand effect. Although the brand effect helps, products are still the main factor for customers. Currently, not all products in the store come from Zhangguibao; half come from the town's wholesale department, which usually offers price advantages and includes delivery. On Zhangguibao, they typically purchase flash sale items. This is also the problem Alibaba faces in integrating the supply chain. Although unifying procurement channels for individual stores reduces the burden of purchasing, it is difficult to improve price competitiveness. Earning profits through price differences is the foundation of community small stores. Compared to store decoration and operational guidance, owners are more concerned about product purchase prices. Enhancing price competitiveness through supply chain integration is the key for Alibaba and JD.com to open the integration chain of community stores. The problem is that the traditional offline wholesale supply chain has established an efficient operating chain through continuous development and optimization, making it difficult for internet giants to overturn it in a short time. The more manufacturers integrated, the greater the attraction to individual retailers, and clearly, there is still a long way to go. For individual retailers, being embraced by giants may temporarily shield them from the pandemic's baptism, but it is not a long-term solution and will increasingly lead to homogenization. The charm of individual community stores lies in their unique highlights and human touch.