Having entered the industry in 2003, I have worked in FMCG retail for 13 years, including 5 years in offline supermarkets and 8 years in e-commerce retail (including O2O). Reflecting on the past decade and looking ahead to the next, I suddenly realize that the present may be the starting point of a major transformation. Perhaps in 10 years, hypermarkets will be scarce or even extinct. The unexpected changes of the future are actually inevitable, and how many stories will FMCG retailers have in this transformation?
Yesterday: A Decade Ago, FMCG Retail Was Racing Ahead, Dominated by Territory
Ten years ago, in 2006, I had already been in the retail industry for 3 years, working in operations for a chain supermarket in Chongqing. The mainstream FMCG channels back then were chain hypermarkets, independent supermarkets, night markets, street stalls, and 2-yuan stores.
2006 was the golden age of hypermarkets. Foreign supermarkets like Walmart and Carrefour were aggressively expanding, while regional supermarkets such as Zhongbai Warehouse, Suguo Mart, Wumart, and Chongqing Department Store were emerging strongly.
Carrefour entered Chongqing in 1997 and opened the city's first hypermarket. In the following years, any employee who had worked at Carrefour could directly become a section chief or supervisor at other supermarkets. Carrefour became the Whampoa Military Academy for Chongqing supermarket professionals, and young people at that time were proud to enter the supermarket industry.
In 2006, Yonghui Supermarket had just entered Chongqing two years earlier, and it was not yet apparent that its self-operated fresh produce would turn it into a dark horse. At that time, fresh produce in hypermarkets was mainly operated through joint ventures. However, when Yonghui opened new stores, many Chongqing residents would spread the word that Yonghui's eggs and apples were very cheap.
In 2006, the phenomenon of big fish eating small fish was already emerging in the hypermarket sector. Large supermarkets were opening more and more stores at an increasing pace, and some small chain supermarkets began to close down.
Some of my senior colleagues formed consulting teams to help wealthy locals in small cities open supermarkets. Their high income and opportunities to travel made me, a newcomer, quite envious.
In 2006, per capita income was low, and there was no soil for Japanese-style convenience stores. Independent supermarkets and hypermarkets were both growing rapidly. People from Lishui formed groups to open supermarkets across the country, and they also inspired locals to open many independent supermarkets.
In 2006, there were also various small chain supermarkets (with small footprints) across the country. Chongqing's Shifenli Supermarket was somewhat famous, but 10 years later, traditional small chain supermarkets find it hard to survive. Now, Wuhan Zhongbai has partnered with Lawson to gradually convert small supermarkets into Japanese-style convenience stores.
In 2006, night markets and street stalls were more numerous than today, as city appearance management was not as strict. Consumers were more price-sensitive, and 2-yuan stores and night markets were spread throughout the city.
In 2006, there were few specialty stores. Hypermarkets were more impressive in consumers' minds. For purchasing mother-and-baby products, alcohol, and gifts, the first choice was hypermarkets, not specialty stores.
2006 was an era of hypermarkets and Suning Appliance racing ahead, dominating territory. Large supermarkets, medium and small supermarkets, and night market vendors formed the main retail channels for FMCG products.
Today's Retail Landscape: Innovation Sprouts, Fine-Tuned Operations
Looking at FMCG retail today, although supermarkets remain the primary channel, hypermarkets are already on the decline. Japanese-style convenience stores and specialty stores are rising, and online supermarkets and O2O supermarkets have emerged.
Hypermarkets, Convenience Stores, Specialty Stores
In recent years, supermarkets, department stores, and brand specialty stores have been the hardest hit by closures. In 2015 alone, Lianhua Supermarket closed 612 stores (including small stores), Carrefour closed 18, Renrenle closed 11, and Lotte Mart closed 5. According to Lianshang.com statistics, major supermarket and department store companies in China closed 201 stores in 2014 and 138 in 2015. The situation in 2016 is not expected to improve, and even retail giants like Xinyijia are on the verge of bankruptcy.
Hypermarket closures can be attributed to the following reasons:
1. E-commerce impact: Hypermarkets are characterized by a wide assortment and low prices, which are also the core competitiveness of e-commerce. Especially in non-food categories, e-commerce offers far greater variety and lower prices than hypermarkets. Hypermarkets previously made most of their profits from non-food categories, and when these profit centers were impacted, they turned from profitable to loss-making.
2. Rising costs: The rapid development of hypermarkets occurred from 2000 to 2010, typically with 5- or 10-year lease contracts. By 2016, many hypermarket leases expired, and the real estate boom drove rents up sharply. Additionally, labor and tax costs increased, making it difficult for hypermarkets to remain profitable.
3. Changing consumers: With rising per capita income, consumer demand shifted from "having" to "having more" and then to "having the best." Hypermarkets are characterized by a wide assortment, but consumers increasingly value "convenience" and "curated selection." More and more consumers prefer category specialty stores (mother-and-baby, snacks, fruits, alcohol, etc.), which diverts sales away from hypermarkets.
As consumer incomes rise, the demand for "convenience" and "curated selection" becomes prominent, driving the rapid development of convenience stores and specialty stores. Convenience stores have seen a compound annual growth rate of over 17% in recent years, ranking first among traditional retail formats. Many independent supermarkets are also changing their image to look more like Japanese-style convenience stores.
Currently, convenience stores still hold a relatively small market share compared to supermarkets, but in Japan, convenience stores have become the number one retail format. If nothing unexpected happens, convenience stores will continue to grow rapidly, and the advent of an aging society in China will further promote their development and penetration.
The key to success in the supermarket industry has shifted from "dominating territory" to "fine-tuned operations." Yonghui with its self-operated fresh produce, RT-Mart with its emphasis on SOP and integrated operations and procurement, and FamilyMart with its value-for-money experience are clearly more competitive.
New FMCG Channels
Currently, new channels have emerged in FMCG retail, including online supermarkets, O2O supermarkets (such as Hema Fresh), and WeChat businesses.
01. Online Supermarkets
Tmall Supermarket launched its "Double 2 Billion" plan, JD.com acquired Yihaodian and launched a 1 billion yuan promotion, and Suning Supermarket launched its "30 Billion Nanjing Strategy" and is about to launch a super New Year's goods festival. Starting with Tmall Supermarket distributing 50-yuan new-user coupons in Beijing in 2015, and developing into Suning Supermarket distributing 100-yuan shopping coupons (regardless of new or old customers) in Nanjing in 2016, the focus of the money-burning war has shifted from ride-hailing to online supermarkets.
E-commerce platforms treat online supermarkets as an important weapon to acquire new customers and activate old ones. For Tmall, Suning, and JD.com, the purpose of operating online supermarkets is not to make a profit, and they can tolerate a certain degree of loss. The high-frequency nature of supermarket categories can increase the density of last-mile orders and reduce the overall delivery cost of the e-commerce platform.
A noteworthy phenomenon in online supermarkets is that many brand owners are changing product packaging to suit the characteristics of online supermarkets, launching customized large packages to guide and cultivate customers' stockpiling habits. Large packages not only differentiate from offline channels but also reduce e-commerce packaging and delivery costs, increase average order value, and lower the proportion of delivery costs. As customized products become more common and consumers develop the habit of stockpiling on online supermarkets, online supermarkets may become a mainstream FMCG retail channel in the future.
02. O2O Supermarkets
In my opinion, O2O supermarkets (such as Hema Fresh) may also become a mainstream channel in the future. Hema Fresh opened its first store in early 2016, and by the end of the year, it had opened 6-10 stores in Shanghai, while also entering Beijing and South China. According to Hema Fresh founder Hou Yi, "The model is mature; we are running for our lives."
Hema Fresh's first store has an average of over 4,000 online orders per day, with an average order value of 70 yuan. This is the confidence behind Hou Yi's claim that the model is mature. I suspect that Alibaba's push for "New Retail" this year, and its abandonment of the term "e-commerce," is due to the confidence that Hema Fresh's achievements gave to Jack Ma.
Some peers still view Hema Fresh as a traditional fresh e-commerce company, saying that each delivery costs dozens of yuan. In fact, Hema Fresh only delivers within a 5-kilometer radius of its stores, with the fastest delivery in 30 minutes. Each delivery person can deliver 40-50 orders per day, and the delivery cost per order is 5-8 yuan. For Hema Fresh, with an average order value of 70 yuan and a gross margin of 20%, online orders can be profitable.
I am optimistic about the Hema Fresh model for three reasons. First, the order volume is large, with over 4,000 online orders per store, and these are normal consumer demands. Second, the data model can be profitable, with gross profit covering fulfillment costs. Third, the model still has room for optimization; new Hema stores have increased back-of-house area and adjusted product categories. Fourth, the future imagination space is large: once store layout is completed in a city and online delivery covers the entire city, this network can load many businesses.
I believe that O2O supermarkets may evolve into a form of "city warehouse + central large store + community small store + open platform." The tiered stores plus an APP form a closed loop, meeting consumers' needs for convenient shopping, one-stop family shopping, stockpiling, and long-tail shopping, keeping consumers within the loop.
03. WeChat Business
Finally, let's talk about WeChat business. Compared with online supermarkets and O2O supermarkets, the prospects for WeChat business are still unclear. For WeChat business to develop healthily, it must abandon the methods of recruiting agents and pressuring inventory. There are two breakthroughs.
The first breakthrough is to achieve low traffic costs. The fulfillment cost of WeChat business is the same as that of Taobao merchants. If the traffic cost of WeChat business can be lower than that of Taobao merchants, then WeChat business may become a mainstream shopping channel. To reduce traffic costs, it is necessary to build a social channel brand, not just rely on high commission mechanisms for agents.
The second breakthrough for WeChat business is not to start from reducing traffic costs, but from increasing product premium. Traditional brands rely on location, store image, advertising, etc., to build brand image. WeChat business uses social channels to spread the brand. If it fully understands the characteristics of social channels and uses new methods to build brand image, it may also develop enough fans to form a brand premium.
Tomorrow: The FMCG Retail Landscape in 10 Years - Will Change Happen?
Today's retail trends determine the future retail landscape. What will the FMCG retail landscape look like in 10 years? There should be the following three possibilities:
Continuation of Current Trends: 35% Probability
If in 10 years, online supermarkets still have a relatively low market share, and if O2O supermarkets (like Hema Fresh) do not become a mainstream retail format,
then the FMCG retail landscape will be similar to that of Japan today. Convenience stores may become the number one retail format, fresh fruit specialty stores and premium fresh supermarkets will be the first choice for fresh shopping, and various specialty stores will be exquisite and detailed, forming community commerce.
Hypermarkets will become suburbanized and membership-based. Consumers will shop at hypermarkets less frequently, but the average transaction value will increase. There will be more warehouse clubs like Sam's Club.
Rise of Online Supermarkets: 30% Probability
Within 10 years, autonomous driving should become widespread. Combined with AI and warehousing, the fulfillment cost of online supermarkets will decrease. The costs of online supermarket warehouses, trunk lines, and last mile are in a ratio of 2:1:1. The last-mile delivery cost will decrease as order density increases. If the order density of the last mile exceeds a certain threshold, parcel stations may appear to further reduce last-mile costs and improve the experience.
At the same time, brand owners will change product specifications and packaging according to the characteristics of online supermarkets to increase average order value. Online supermarkets may ultimately be able to reduce fulfillment costs while increasing average order value, enhancing competitiveness, and becoming the first platform for one-stop shopping (except for mass fresh produce) and stockpiling needs. In this scenario, hypermarkets will be eliminated.
At that time, the entire FMCG retail landscape will become: convenient shopping goes to convenience stores, fresh shopping goes to specialty stores, one-stop shopping and stockpiling go to online supermarkets, and long-tail shopping goes to e-commerce platforms. Hypermarkets will become an obsolete retail format.
O2O Supermarkets Become Closed-Loop Platforms: 35% Probability
In the business world, there is a rule called "high frequency eats low frequency." Why do consumers no longer buy ordinary digital cameras and MP3 players? Because high-frequency smartphones have replaced them.
Suppose an O2O supermarket opens 15 stores in a city, covering all urban areas. Due to the high frequency of fresh produce shopping, online orders alone exceed 100,000 per day. At this point, the APP and delivery network become traffic entry points, enabling many businesses. Just as Taobao gave rise to Tmall, Alipay, Cainiao Network, Cloud Computing, and Tmall Supermarket, similarly, on top of O2O supermarkets, food delivery channels, express delivery networks, cross-industry alliances, community store-based instant delivery, central warehouse-based half-day delivery, and open platforms may develop.
At this point, O2O supermarkets (like the Hema model) may become a high-frequency shopping platform, forming a three-dimensional store network of "central warehouse + central store + community store." Combined with online supermarkets and open platforms, they will keep consumers in a closed loop, becoming the mainstream FMCG retail channel, fully meeting the needs for convenient shopping, fresh shopping, one-stop shopping, and long-tail shopping, maximizing the "high frequency eats low frequency" rule.
Summary
The so-called "strategy" is to stand in the future and look at the present. This article speculates on three possible future retail landscapes. Currently, we may be at the starting point of FMCG retail transformation. "Change" is the only constant theme. The chain supermarkets we take for granted were born only a few decades ago. Ultimately, supermarkets will inevitably change or disappear, but the breakthrough point still needs to be sought and practiced by retailers.
As retailers, we must understand change and adapt to it to maximize our self-worth. Learning, practicing, thinking, summarizing, and writing are essential to form systematic cognition, predict the future more accurately, and lead or follow change. What are your views on the direction of retail channel transformation and the breakthrough point? Welcome to communicate with me.
-END-
China's best learning platform for FMCG distributors Dedicated to providing professional, practical, and actionable tutorials for enterprises and distributors Committed to helping Chinese FMCG distributors grow rapidly The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get the corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent Article Selection | 002 Distributor Market Operations | 003 Terminal Visit Management | 004 Sales Supervisor Skills | 005 Sales Improvement Techniques | 006 Channel Expansion | 007 Managing Distributors | 008 Distributor Development | 009 Distributor Internal Operations Management | 010 Team Management | 011 Efficient Distribution Techniques | 012 Sales Manager's 18 Skills | 013 KA Operation Methods and Strategies | 014 First Lesson for New Salespeople | 015 Internet, Brands | 016 Distributor B2B Transformation | [Long press QR code to follow]