Editor's note: Zhang Chenyong, an expert in instant retail, delivered a keynote speech titled "The Endgame and Path of Instant Retail" at the 5th China FMCG Conference, sharing in-depth insights on the transformation trends of retail formats and the future direction and path of instant retail. New Distribution has compiled the essence of Mr. Zhang's speech for our readers. (Some parts have been edited.)
The Endgame of Instant Retail
One Axiom and One Hypothesis
I believe the endgame of instant retail can be summarized with "two ones": one axiom and one hypothesis.
An axiom is a basic proposition that has been tested through long-term human practice and does not require further proof; it is a fact recognized by the industry.
What is the axiom of retail? Faster, cheaper, and more.
Of course, in the industry, there is the saying "more, faster, better, cheaper." But "better" is subjective and cannot be quantified, while faster, cheaper, and more can be quantified and compared.
Speed can be measured by fulfillment time, cost by price, and variety by the number of products. By analyzing from the three dimensions of speed, cost, and variety, we can clearly see the transformation of retail models.
The first transformation: supermarkets defeated grocery stores. Compared with grocery stores, supermarkets are on par in terms of speed, but they have a stronger competitive advantage in cost and variety. Therefore, supermarkets eventually routed grocery stores.
The second transformation: e-commerce challenged supermarkets. Here, e-commerce refers to traditional e-commerce like Taobao and JD.com, with delivery in 1-3 days. In terms of speed, e-commerce is inferior to supermarkets, but in cost and variety, e-commerce has a more obvious competitive advantage. With "two wins and one loss," e-commerce has had a significant impact on supermarkets, but supermarkets remain the mainstream channel.
The third transformation: instant retail is challenging supermarkets. In terms of speed, instant retail has an advantage—30-minute delivery, no need to go out, delivered to your door. But in cost and variety, instant retail can at best match supermarkets.
From these three transformations, we can derive two laws:
First, the evolution of business formats is essentially about having a competitive advantage in one aspect of speed, cost, or variety, meeting differentiated needs;
Second, comparing from the dimensions of speed, cost, and variety, the more dimensions in which one leads and the greater the lead, the greater the impact on the old format.
That is the axiom part. Now let's look at the hypothesis: The hypothesis is that when the technological singularity of unmanned warehousing and unmanned delivery arrives and matures, the fulfillment cost of instant retail will decrease.
If unmanned warehousing and unmanned delivery mature and become widespread, instant retail will have a comprehensive competitive advantage in "speed, cost, and variety."
For ease of understanding, let's assume a concrete case: In a Guangzhou community, there is a 20,000-square-meter front warehouse. What would it feel like to buy goods near this warehouse?
First, you would feel it is very fast—30-minute delivery to your door; second, you would feel it is very cheap because unmanned technology significantly reduces fulfillment costs; third, the product range would be richer—a 20,000-square-meter warehouse can hold 100,000 SKUs, so basically any product you want to buy is available.
When such a competitive advantage exists, consumers' channel stickiness to instant retail will further strengthen, disrupting the entire retail ecosystem.
The final conclusion is that the future endgame of retail is instant retail, and possibly 2-3 instant retail companies will capture 80%-90% of the home shopping market share.
The Development Path of Instant Retail
Specialization and Category Expansion
The path of instant retail can be divided into two stages: the first half has already happened, and the second half will happen in the future.
What has already happened refers to the current development model and competitive landscape of instant retail. Instant retail can be divided into three models: platform model, direct-operated model, and traditional model.
The platform model includes large platforms like Meituan and Ele.me, professional platforms like JD Daojia, and enabling platforms like Duodian, Taoxianda, and Global Frog.
The direct-operated model mainly involves launching self-operated apps with self-management. One type is store-warehouse integration, such as Hema and 7Fresh; another is front warehouses, such as Dingdong Maicai, Meituan Maicai, Pupu Supermarket, and Sam's Club front warehouses.
The traditional model mainly refers to traditional supermarkets' instant retail. One type is joining platforms, which most chain supermarkets do; another is direct operation, launching their own apps, such as Yonghui, RT-Mart, Wumart, and Walmart.
Based on the current model and landscape of instant retail, I would like to share a few insights.
First, instant retail is not developing in leaps and bounds because it only has the advantage of speed, with no advantage in cost and variety;
Second, traffic is the key to instant retail. How to obtain traffic and how to convert traffic are the keys to victory or defeat;
Third, acquiring traffic is difficult, but losing users is easy. Only with a sufficiently good shopping experience can users be prevented from switching platforms. Internal operational strength is key;
Fourth, instant retail has formed national and regional layouts. National platforms include Meituan Waimai, Ele.me, JD Daojia, Taoxianda, Hema, Walmart Sam's Club, and Yonghui. There are also regional players in instant retail, including Dingdong Maicai, Pupu Supermarket, and Meituan Maicai.
What will happen in the future refers to the future development direction of instant retail. There are two directions: one is specialization, and the other is category expansion.
Specialization means that stores focus solely on online business without catering to offline customers, such as the lightning warehouse model that Meituan is promoting, and the front warehouse model under the direct-operated model.
Category expansion means that as order volume in small areas increases, expanding from high-frequency products to low-frequency products requires more category supply.
A basic law is that the higher the city level, the higher the consumer demand for instant shopping, and the more obvious the direction of specialization and category expansion.
The future path can also be divided into two points: before the singularity and after the singularity. The singularity is the technological transformation.
After the singularity, there will be two changes: one is unmanned in-warehouse operations, and the other is unmanned delivery.
For unmanned in-warehouse operations: AGV robots + AI image recognition + robotic arms. Previously, picking was done manually one by one. Now, warehouses are stationary, and robots move shelves to people, who just pick and stock. The technology is already mature and used in many logistics operations.
Going further, picking and stocking can be done entirely by robotic arms, but current AI visual capabilities are insufficient. Image recognition and video recognition are not good enough. Simple products can be handled, but with many products, errors are likely.
For unmanned delivery: unmanned vehicles and drones for delivery. The technology is also not yet mature; currently, it can only run on relatively simple routes. Essentially, image recognition and video recognition capabilities are not up to par.
However, it is only immature at present. With technological development, the transformation will come quickly. Perhaps suddenly one day, these technologies will mature, just like GPT made a splash.
Therefore, after the singularity occurs, fulfillment costs will significantly decrease, and consumers will use instant retail not only for speed but also for lower prices. At this point, specialization and category expansion will become even more pronounced.
After the "Singularity," Business Formats Will Be Reshaped
When singularity technology first arrives, the beneficiaries will be instant retail companies like Meituan, Ele.me, Hema, Dingdong Maicai, and Pupu Supermarket. They will quickly adopt this technology.
But after adoption, they will quickly discover that applying new technology to old models is not the most efficient way; instead, new technology should be used to reshape a business format.
Therefore, I believe there will be 20,000-square-meter front warehouses. This format will be fast, cheap, and diverse. It will bring greater value to consumers, and the development of instant retail will shift from linear to leapfrog, possibly changing the retail market within three to five years.
Here are some suggestions.
For instant retail companies, first, pay attention to technology. For example, companies like Meituan have elevated technology to the highest level as a top-priority project.
Second, adopt an endgame mindset. What various instant retail platforms are doing now is not the endgame but a stage. With an endgame mindset, the approach to trade-offs and strategy formulation will be different.
For traditional e-commerce, try new layouts. If 80% of demand is concentrated on 2-3 instant retail platforms, then consumers will buy everything on instant retail platforms. Even if 10% of products are not available, they will still search on instant retail platforms, and after discovering that delivery takes two to three days, they will still place orders on the platform. Therefore, there will be a significant impact on traditional e-commerce platforms.
For distributors, the essence of distribution is distribution, and the foundation is that channels are sufficiently dispersed. In the future, channels will become centralized, and the survival space for distributors will shrink. Distributors must accelerate transformation.
For brand owners, with channel centralization and delivery pre-positioning, the number of product handling times decreases, and product turnover rate significantly increases. They need to redesign products that fit the instant retail scenario.
For retail practitioners, the survival space for traditional retail will significantly shrink. Enter the instant retail industry early to amplify value competitiveness in the future.
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