The small store closest to the neighborhood will never disappear. On November 16, at the 2018 Double 11 "Look at China" high-end thought forum co-hosted by Alibaba and Tsinghua University School of Economics and Management, Alibaba Vice President and General Manager of Retail Link Business Unit Lin Xiaohai delivered a speech titled "Channel Digital Transformation, Store Digital Upgrade."
The following is the transcript of the speech:
Retail Link is an internal entrepreneurial project at Alibaba. Let me first describe our scenario: mom-and-pop stores. These small stores are all in cities, doing neighborly business, covering a radius of 300 meters. They serve about a thousand consumers a month, or two hundred a day. These consumers repeatedly come to this small store for neighborhood business. It is the lowest cost, closest to the neighborhood, and will never disappear. There are still over six million such stores nationwide. Taking Zhejiang Province as an example, Hangzhou has 50,000 stores. Hangzhou covers 11,600 square kilometers, so there is one store every three kilometers. This is the distribution of small stores. This store format occupies 50% of the FMCG market share. No matter how other formats develop, this remains a very large system. We say "never disappear" does not mean "never change." This channel has very obvious pain points. I came from a brand company and know that FMCG brands go to distributors, then to first-level wholesalers, second-level wholesalers, etc., and then to small stores. There are many layers. Each small store needs to establish an independent supply chain and channel system, which is redundant construction. But currently, the number of brands capable of reaching one million stores is over 100,000 in the FMCG industry, and the cost is high. For stores, we see that small stores never disappear, but their sales per square meter are low. They are at the end of the supply chain, the quality of goods they get is not guaranteed, they lack business awareness, and they have no IT foundation. The level of informatization in the entire chain is very low. Even if distributors adopt some ERP systems, when it reaches small stores, there is still the wholesale channel in between. Information is fragmented, and even if there is information, it is an information island, causing the roles in the entire chain to be blind. So these are the pain points of the entire channel. After seeing these pain points, what problems can our Retail Link help solve? The entire process of Retail Link is B2B2C. Brand owners and distributors are our customers; our users are millions of offline stores and the hundreds of millions of consumers behind them. What does the Retail Link platform provide? It provides the ability to select products. We assemble goods from brand owners and distributors. We provide small stores with high-quality, competitive FMCG products. Think about it: each store alone has no bargaining power, but when millions of small stores are connected by me, it becomes a huge business group. We can let brand owners customize products for us. Today, some brand owners are here. They customize products for small stores. We have a warehousing and distribution system. We provide supply chain services and also accommodate the distributor systems of brands with deep distribution. We digitize their warehousing and distribution systems and share them with all shallow distribution brands. We have built a field promotion team, which is traditional salespeople. One person can operate many brands. Through this system, we build a digital self-marketing system for brand owners. All brand owners can select products and locations on the platform and directly reach small stores. We hope to work with brand owners and distributors to build an intelligent distribution system, allowing millions of small stores to embrace this era. When I came to Retail Link two years ago, we covered 10,000 stores and had one warehouse. Now we cover one million small stores, with 3,500 brands officially入驻 Retail Link. We have 20 FMCG KA brands where we are the largest offline channel. Think about who would buy a lollipop on a B2C website? They would definitely buy it at a small store like those on Retail Link, taking their child downstairs to buy one. We have 20 such brands. One million stores is far from our goal for this business. I think the real goals behind covering one million stores and connecting 3,500 brands are two things. The first is channel digital transformation. We hope that through this channel digital transformation, we can provide brand owners with a main battlefield for operating offline stores and consumers. More than 50% of offline distribution channels are basically unreachable, unoperable, and not digitized. We hope to establish such a main battlefield. Now let's talk about digital channel transformation. Before talking about transformation, we want to know what it is like today. I came from a brand company and have over 20 years of brand work experience. When we launch any new brand, the brand marketing department designs the brand based on historical consumer data, makes a brand plan, then hands it to the marketing department to make a plan, then to the sales department, and then the business is distributed layer by layer to each channel and each region, and then they stock up. One day, SOC (Sales Order Cycle) everyone grabs goods, and finally advertising blitz. This brand-centric, left-to-right chain lacks digital support. All data is historical data, some sample data, not timely, not comprehensive, and decisions are blind. Then it's stock first, promotion later. The entire hierarchy is very deep, and it attenuates layer by layer. The marketing department's 50-page PPT market plan eventually reaches the store as "boss, buy four get one free, do you want it?" That's basically it. The core of channel digital transformation is two things: first, a consumer-centric, right-to-left decision chain, which is the C2B or C2M logic. Second, digitize the entire chain from consumers to brands, all links. We summarize the several links that need digitization in the channel. First is store digitization. There are six million small stores offline, and each brand owner calls them differently. Finding these stores takes a lot of time. Information between companies is not shared. We use each store's location, area, owner's personal information, basic store information, plus the store owner's personal information, browsing behavior on our platform, and the surrounding 300 meters of business district information and consumer information to give the store a comprehensive assessment. We divide Retail Link stores into 96 subcategories, which we call the "Da Vinci Code." Then we can share this with our brand owners. We have 7 KA cooperative merchants. We hope to give each store an ID card. Through internet collaboration, we can do precise marketing. This is a living ID card. Next, we need supply chain digitization, which is more complex. Because we sell FMCG, a quite complex category, we now have different solutions for medium, shallow, and deep distribution brands. Retail Link and Cainiao have built warehouses in 17 provinces and 50 cities. For brands with less developed supply chains, we provide comprehensive services: if you put goods in our warehouse, we deliver to small stores. But for deep distribution brands, like dairy drinks and grain and oil, moving to our warehouse is a waste. So we help digitize their warehousing and distribution systems. Merchants ship themselves, but because it is digital, we can provide deterministic services to small stores. Our next thought is to consolidate the warehousing and distribution capabilities of these deep distribution brands at the end, then deliver to small stores, using the lowest cost, like the cost of water and drinks to buy chocolate. Two years ago, when I came to Retail Link, the most loyal brand to us was an Italian brand, the company that makes Alpenliebe lollipops. Lollipops have always been 50 cents. They wanted to launch a new zodiac lollipop at one yuan, which would be difficult in traditional channels. After choosing Retail Link, we sold 10,000 boxes in two hours. After a month, we successfully distributed to 17.5% of small stores, achieving the brand's consumption upgrade. To this day, after two years, this brand has cumulatively distributed to 400,000 small stores. Just past Double 11, we sold 10 million lollipops in one day. For this store, products need digitization, inventory digitization, and transaction digitization. So we introduced a "Ruyi Store Manager," which is a POS machine. This is a cloud POS. We have 99% of products loaded. After scanning the code and filling in the retail price, it's done. The store doesn't pay any fees. So we rely on Alipay to provide zero-fee capability. This is the basic capability. We digitize inventory. After inventory is digitized, in the Alibaba system, products can be searched on AutoNavi, Taobao, and Ele.me. We achieve online-offline integration. We hope to activate stores based on our understanding of store tags and the Da Vinci Code. Each store sees a different APP when opened. We recommend products that can sell. We recommend shelves. Initially, we sell single products, then brand categories, and then sell entire shelves. We tell the store how many shelves it needs, which categories, and why. If each shelf has 20 SKUs, we select about 40 for pre-selection, explain the reasons, and let them pick the most suitable from the 20. Once they meet the shelf standard, our brand owners and we give incentives to change the shelf structure. We divide the store into shelves. Extension of the scene: a small store operates 12 hours. What about at night? It can only reach 300 meters. What about slightly farther? We provide zero-rent unmanned vending machines. The first machine is free, the location is free, and the shopping link is free. A machine only needs to sell 60 yuan to break even. This way, the store owner can close earlier and get up later, extending the entire business scenario of the small store. For an ordinary small store, we install a POS machine, carry out shelf renovation, connect online, access over 3,500 brand resources through the POS, and place some unmanned vending machines at the door. This small store becomes a very low-cost smart store. Our wish is to know that the best convenience store is 7-Eleven. I hope to achieve 70% of its capability with 7% of the cost. These small stores can multiply their efficiency many times. We renovated a small store in Chengdu. After the renovation, the overall growth was 30-40%. The brand endorsement and product structure changed. We have now opened takeout for small stores. Don't think takeout has no scenario. When I was at a meeting near our park and wanted to eat melon seeds, the first service provider I searched was Tmall. During the World Cup, beer sold like crazy. Our small stores earned an extra 2,000 yuan per month from takeout, which is significant for a small store. The unmanned vending machine has zero rent. Based on my restocking suggestions, they regularly restock the machine. For me, the business opportunity is also huge. It is deterministic distribution. A small store can place 5-8 machines around, and basically just restock them. Store digital upgrade should bring precise product selection, expand service boundaries, and help connect to online platforms. In the future, the most valuable thing about a small store will definitely not be the store itself, but its location. Because this location is so close to the community, so low cost, and the owner is so warm. These factors constitute the store. What products to sell and what services to provide, the platform can give them the simplest service. They only need to make decisions and choices under the platform's recommendations, and the store will become a smart store. New Distribution Perspective: As the proposer and firm practitioner of new retail, there is no doubt that Alibaba and Retail Link are at the forefront of the industry. Not only do they provide supply chain services to stores, but more importantly, they connect the store's products, sales, and marketing through IT tools, helping it achieve an upgrade from the inside out. In the development of FMCG B2B in recent years, many industry participants have been led into a pit, believing that as long as products are cheap enough, the platform's competitiveness is guaranteed. In fact, low-priced products only ensure that stores can purchase at the lowest possible cost, but they cannot truly help small stores earn more money. No matter how cheap the purchase price, if they can't sell, it's useless. It is undeniable that supply chain capability and product capability are important, but if they cannot create value for stores, they cannot become the core competitiveness of a B2B platform. Alibaba Retail Link, through a complete information system, has digitized the store's operations from products to management. Secondly, relying on Alibaba's ecosystem including Tmall, Taobao, AutoNavi, and Ele.me, it can effectively link with Retail Link's smart store plan, breaking the spatial limitations of traditional store operations. Unmanned retail cabinets expand the store's operating area and break its time limitations, truly helping traditional retail increase increment. This is precisely the capability that other industry participants need to build. Source: 36Kr -END-