Organizer: Lianshang.com New Retail Advisory Group Host: Yun Yangzi Online supermarkets will have a significant impact on physical supermarkets in the coming years. Tmall Supermarket plans to reach 100 billion yuan in three years, and JD Supermarket plans to reach 100 billion yuan in two years. Question: Will hypermarkets be killed off in the coming years? Lianshang.com New Retail Advisory Group organized a big discussion, full of dry goods. Host: Yun Yangzi, Deputy Director of Lianshang Retail Research Center Tmall Supermarket aims for 10-fold growth to 100 billion yuan in three years, which will greatly impact physical supermarkets. The basic idea might be: unite community supermarkets to kill off hypermarkets! Question: Will hypermarkets be eliminated in the coming years? Guest 1: Yuan Wai, O2O Operations Expert at a Large E-commerce Company E-commerce platforms want market share, and the result may be that some categories occupy top positions. Organizationally, they start laying out city warehouses to meet some users' planned needs. These categories mainly include items that people don't want to go to hypermarkets for, items they know without going, and some standardized food and fresh produce. Overall, it's still B2C, solved by warehousing and distribution. Online: They do standardized products, solving part of the demand, then gradually cultivate user habits, expand the category, and use city warehouses to deliver to users via express delivery. Hypermarkets: Channels distribute products to hypermarkets, which then use their people and time to radiate 3-5 kilometers. This form meets the one-stop shopping needs of some people. But our income structure has changed, and demands are starting to stratify. E-commerce cuts into part of the demand, transferring what originally required going to hypermarkets to e-commerce. Standardized items like Jinlongyu oil and toilet paper no longer need hypermarket experience, while vegetables and other items that need experience still require visiting hypermarkets or supermarkets. Now the category structure of hypermarkets and online categories overlap a lot, so from the perspective of customer groups and categories, many parts of hypermarkets have already been replaced online, especially for post-75s, post-80s, and post-90s. Hypermarkets have become places for weekend outings. Regarding Tmall Supermarket uniting with communities, I'm not very familiar. Alibaba currently has no such strategy. This year, we've seen news that Alibaba has newly laid out 11 large warehouses in first- and second-tier cities, combined with existing city warehouse layouts, to achieve same-day or next-day delivery. Currently, it's still a warehousing and distribution model, capable of single-point configuration, not yet closely integrated with communities. Perhaps it's the next level goal. Next, hypermarket rents are about the same as warehouse rents. Users don't necessarily need to go to hypermarkets for regular categories; they can solve it at home. Hypermarkets' spatial function will become warehousing, the number of hypermarkets will decline, and some categories will be compressed. Of course, hypermarkets have different functions in different city tiers. The value of FMCG plus fresh produce remains, and large items like appliances, due to the credit endorsement of shopping malls, should still exist for a considerable period. In third-, fourth-, and fifth-tier cities, hypermarkets will still play a significant role for a long time. In second-tier cities, hypermarkets basically won't choose locations in city centers, and existing urban stores are closing due to low efficiency. Looking at Yonghui, Hualian, etc., we find that new stores are chosen in large communities and urban-rural fringes. With community shopping centers of 50,000-60,000 square meters, supporting a hypermarket is not a problem. In first-tier cities, demand stratification is obvious: convenience, quality, and planned needs. Fresh produce, which drives traffic in hypermarkets, can now be taken out and placed in community standard supermarkets. This is not a problem that hypermarkets or e-commerce can solve well. People start considering time costs; they won't sacrifice time to save 50 cents. Customers will choose convenience and use the saved time for other things. If Tmall Supermarket can achieve 3-4 warehouses per city, deliver within 2-3 hours, and combine with community supermarkets to meet daily needs, then it can replace hypermarkets. Therefore, under changes in demand and organizational structure, hypermarkets may have a difficult 3-5 year transition period. Compress categories that need compressing, lay out communities and logistics, and transform existing service concepts. After this painful period, there should still be opportunities. Guest 2: Zhang Chenyong, Author of "Retail O2O: Mindset, Tactics, and Practice" Communicating with some chain supermarket decision-makers, they generally believe that the online supermarket war has little impact on them, because online supermarkets' tactics are subsidies and investment, and their efficiency and cost cannot compete with offline supermarkets. Many fresh e-commerce and online supermarket players have already been sacrificed. Tmall Supermarket and No.1 Store's model is no different from the martyrs. FMCG is destined to be the territory of offline supermarkets. Currently, online supermarkets are indeed less efficient than physical supermarkets. The 20 yuan per order delivery and packaging cost alone means online supermarkets can't beat physical supermarkets. But the future development path of online supermarkets may change, evolving from the current "central warehouse distribution" to "same-city dedicated warehouse + store delivery," allowing them to compete with physical supermarkets in cost and efficiency, becoming disruptors of the retail industry. The core competitiveness of FMCG retail is cost, efficiency, and experience. No one should oppose this axiom. Why are supermarkets the most mainstream retail format? Why do traditional wet markets still hold 60% of fresh produce market share? Because they have cost and efficiency advantages. Hypermarkets have an average gross margin of about 20% (front-end + back-end) and a net profit of about 3%. That means hypermarkets complete the FMCG retail process with 17% operating costs. However you calculate online supermarkets, operating costs are hard to lower below offline supermarkets. Online supermarket costs consist of delivery (including warehousing), packaging, promotion, operations, etc. A certain online supermarket has an average order value of 120 yuan, with 8-10 items per order, including liquid items that need anti-collision packaging and filling. Instant noodles, biscuits, beverages, etc., have low unit prices, high weight, and are easily damaged. So with central warehouse distribution, after sorting and packaging, costs are hard to reduce. Tmall Supermarket uses landing distribution to ensure same-day or next-day delivery, delivering to the door, which costs more than ordinary express. Promotion and traffic acquisition costs cannot be ignored. Tmall Supermarket claimed to invest 1 billion yuan in Beijing last year, giving each new customer a 50 yuan shopping voucher. Tmall Supermarket, backed by Taobao's huge traffic, also spends heavily on promotion. Online supermarket operating costs decrease as sales increase. Tmall Supermarket has only a team of over 100 people, so the main costs are promotion and delivery packaging. The breakthrough for online supermarkets lies in reducing promotion and delivery costs. Replacing the current "central warehouse" distribution with "same-city dedicated warehouse + store delivery" might greatly reduce delivery packaging and promotion costs. Perhaps this is the model and opportunity for online supermarkets to disrupt offline supermarkets. So, to summarize, I have a few points.

  1. If Tmall Supermarket, No.1 Store, and JD Supermarket maintain their current models, they cannot kill off hypermarkets, because current online supermarket operating costs and efficiency are not as competitive as hypermarkets. Hypermarkets complete the sales process with 17% costs, while online supermarkets have fulfillment costs exceeding 20 yuan per order.
  2. Online supermarket costs have significant optimization space, and the model may evolve. If order density further increases, it might shift from central warehouse shipping to same-city dedicated warehouses plus store delivery. In high-density areas, combining with offline stores can achieve a 1+1>2 effect. At that point, online supermarkets' cost efficiency may be more competitive than hypermarkets, truly causing a huge impact. Guest 3: Wang Jianfeng, E-commerce Project Leader at Yurun Group, former RT-Mart Store Manager Our topic is: Will hypermarkets be killed off in the coming years? That's equivalent to "How long can hypermarkets survive?" My view: The hypermarket industry urgently needs transformation and upgrading, otherwise it won't survive long. Hypermarkets face several problems:
  3. Impact from e-commerce on profits,
  4. Impact from sales divergence in segmented industries like convenience stores, specialty restaurants, snack shops, seafood shops, fruit shops, etc.
  5. Impact from rent and personnel costs. But the biggest fatal impact is: failure to keep up with changes in consumer behavior. China's population is 1.373 billion, with 60-70% being netizens. Among netizens, 70% shop online. Among online shoppers, 90% use mobile phones, about 600 million people. In 2015, the ratio of in-store consumption to home consumption was 1:5. In 2016, the ratio is 1:4. From Hangzhou data, by 2020, it might be 1:1. Remember in 2013, Ma Yun and Wang Jianlin bet 100 million yuan on "online wins or offline wins." If that bet is still valid, Ma Yun will win. Compared to last year, online consumption doubled from 2.1 trillion to 4 trillion yuan. E-commerce consumption is the only high-end industry in China compared to the US, surpassing the US for two consecutive years. It's expected that by 2018, it will be more than double the US, and by 2022, it will exceed the sum of the US, Japan, Germany, UK, France, Italy, and South Korea. Currently, supermarkets need to solve two problems: First, the customer problem: Where have customers gone? The answer: Customers are in bed. Customers can buy anything by tapping their phones. Customers in bed—this is the new normal in the internet age, and hypermarkets must adapt. Second, the product problem. This year, cross-border e-commerce scale grew from 5.46 trillion yuan last year to 6.6 trillion yuan. The globalization of products is developing rapidly, possibly completing in 2-3 years. Hypermarkets face many difficulties, besides e-commerce impact, also from sales divergence in segmented industries like convenience stores, specialty restaurants, snack shops, seafood shops, fruit shops, etc. Unaffordable rent and personnel costs cause retreat and lag, restricting hypermarket development. Southeast Asian fruits, Australian beef and mutton, French wine, Chilean cherries, American avocados, Canadian lobster, Russian salmon and tuna and hairtail, Argentine red shrimp, Chilean white shrimp, German infant formula, Swiss watches... All these can be purchased online. During Spring Festival, even couplets and blessing paintings were bought online. Online and offline will eventually find a balance, perhaps 1:1 or another ratio. This depends on the efficiency and balance of various categories online and offline. The 1:1 ratio is a huge space for the internet, but for hypermarket stock, it's painful contraction. We see Tmall Supermarket aiming for 100 billion yuan. I visited Alibaba on the 18th and believe they can do it. 100 billion yuan can surpass China Resources and RT-Mart. It can become the top hypermarket. In summary, I believe hypermarket competition will become extremely fierce and complex. The entire industry needs internet-based industrial upgrading. Guest 4: Wang Guoping, Member of Lianshang.com Hundred Talents Personally, I think the impact is not significant; first- and second-tier cities will upgrade operations. Take Yonghui as an example, adopting the red-label to green-label upgrade model. Green-label stores integrate dining and other formats to better meet the needs of first- and second-tier customers. Some products that can't adapt to the market will be removed from first- and second-tier stores, achieving a reorganized state, changing the previous simple replication of hypermarkets. Although Yonghui green-label stores haven't achieved profitability, this kind of play will increase, including flower shops, laundry shops, lottery shops, etc., which may become new partners for hypermarkets. New formats entering hypermarkets will continuously reduce rent costs and even generate profits. There are many ways to play in hypermarkets. First- and second-tier hypermarkets will undergo a new round of customer segmentation with e-commerce, each taking what they need. In lower-tier cities, hypermarket space is still huge, with much room to explore. Retailers like Walmart continue to sink into lower-tier cities, and overall performance is still good. Hypermarkets most affected are those with aging management, which are internal issues, not related to e-commerce. In recent years, we've seen a situation where the strong get stronger. Hypermarkets that can't keep up will be squeezed by competitors and basically die in industry reshuffling. Additional Guest 1: Shang Jia, Member of Lianshang.com Hundred Talents Viewpoint 1: Both online and offline have huge cost pressures. The key is network explosiveness. In the future, those who integrate to digest costs and improve efficiency will win! Viewpoint 2: The offline crisis lies in its own costs and insufficient change. Under external diversion, there's more outflow than inflow, and efficiency crisis is severe! Currently, labor costs are rising, rental costs are too high, and with category and channel differentiation, customer traffic is declining significantly, highlighting the scissors gap between costs and revenue. Property efficiency is insufficient. The two profit sources of off-site leasing and supplier back-end fees are under attack, and front-end gross margins face low-margin competition. Viewpoint 3: Hypermarkets still have their physical advantages (not necessarily experience advantages). With sufficient residents in the physical business circle, there's some survival space! Hypermarkets will continuously adjust their cost structures! Within the physical business circle, they are not static! I agree that hypermarkets should reduce in-store area to improve convenience and service content. I see many supermarkets learning from Hema Fresh, expanding their pan-business circle, and providing the same logistics delivery experience as Tmall and JD, but currently there's a mind-share impact! The physical and experiential performance offline is relatively poor, and it's hard to systematically improve! But it's the direction! Viewpoint 4: The two online giants undoubtedly have platform black hole effects, so from market share, consumer era choices, and traffic monetization ecosystems, they have advantages. Their impact on retail definitely exists! Viewpoint 5: The impact of online on offline supermarkets is completed by the entire online sector, not just JD and Alibaba's Tmall! Alibaba and Tmall's impact is on the entire commercial retail. Or rather, Tmall and JD are two-to-many problems, so they have increments, but it's hard to kill an entire format! Viewpoint 6: In the future, Tmall and JD themselves will face cost surge problems, and they will encounter the same business logic difficulties. Viewpoint 7: The core might be the consumption value and experience that enterprises provide to customers! Business has always been about the survival of the excellent, those who adapt to consumption lifestyle trends, not about the survival of formats! Additional Guest 2: Wu Hongwei, Deputy Director of Category Management at Wenfeng Group I think they won't be killed off, because consumer groups are different, scenarios are different, and demands are different. But hypermarkets should actively transform, avoid their weaknesses, and not ignore impacts or trends, nor lose their footing.
  6. They need to transform in response to online impact;
  7. They need to face impacts from specialty stores or cross-border and micro-innovative merchants. Additional Guest 3: Zhou Yong, Professor at Shanghai Business School, Director of Lianshang Retail Research Center First, e-commerce can't kill off physical stores no matter what. Second, both e-commerce and physical stores face severe cost pressures. Third, hypermarkets have different necessities in different cities. Hypermarkets may shrink, and categories urgently need adjustment, otherwise they'll die ugly!... Additional Guest 4: Tong Yan, Individual Store Owner The cat-and-dog war in the sky first affects the lions in the sky. I think the JD-Alibaba war first impacts other online supermarkets; that's the direct competition. First, ask Suning.com, Feiniu.com, and Vipshop how they'll respond. Specialty stores have the biggest impact on supermarkets. Remember 8 years ago: how much sales and profit did infant formula provide for supermarkets, with all the promoters and gift activities? There was no e-commerce then. Now fruits and bulk snacks could become the second infant formula, impacted not by the internet but by the mushrooming fruit shops and bulk snack shops. Now the biggest threat to physical stores online is the physical stores on online platforms, like JD Daojia, Taobao Daojia, and Meituan's physical stores—online physical stores that can deliver in 1-2 hours. Additional Guest 5: Bao Yuezhong, Innovation Consultant at Yeshen Retail I think the biggest impact on hypermarkets comes from these two aspects. First, changes in the consumer market and product market. Hypermarkets appeared in China 20 years ago when GDP was 7 trillion yuan; now it's nearly 70 trillion. Per capita income was 3,000 yuan then; now it's 30,000 yuan, and a large middle class has emerged. The market consumption environment has changed greatly, but hypermarkets have remained basically unchanged for 20 years, with some categories gradually shrinking. Hypermarkets must either undergo thorough reform or be eliminated. Currently, the post-90s and post-00s pursue convenience and personalization, gradually abandoning hypermarkets. So the change in market consumption environment is the primary factor affecting hypermarkets. Second, changes in the product market will bring significant impact to the retail industry. In recent years, the product market has become extremely rich. Under this situation, one trend is deep development, especially in daily necessities, maternal and baby products, sports goods, etc. Food is also prominent in seasonings and snacks. Originally, we classified products into large, medium, and small categories; now we may need more categories to clearly present products. In this context, some mature categories like maternal and baby products, fitness equipment, outdoor goods, and snack foods are gradually leaving large stores to become specialty stores. Now it's inevitable that these products leave large stores; large stores can't present them well. Currently, it's judged that deep development of the product market is an inevitable trend, meaning more categories will separate from hypermarkets to specialty stores. Therefore, these two changes constitute a huge impact on hypermarkets. Either shrink to a few thousand square meters or make other transformations. Summary: Host Yun Yangzi Based on the guests' viewpoints, we can look at it from several angles.
  8. From commercial real estate and city perspectives, in the coming years, hypermarkets in first- and second-tier cities will be in trouble, but those in third-, fourth-, and fifth-tier cities still have opportunities.
  9. From the consumer perspective, convenience demand is increasing, and price sensitivity is decreasing, meaning community supermarkets and online supermarkets will do better in the future, while hypermarkets' future is somewhat uncertain.
  10. From the competition perspective, specialty stores and community supermarkets have been carving up the hypermarket market, and now an online supermarket is coming, with a high-profile stance of price wars. The competitive environment for hypermarkets will intensify in the coming years. All industry experts agree on one point: the hypermarket format must be optimized, even transformed. -END- The best FMCG distributor learning platform in China Focusing on providing professional, practical, and applicable 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 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 Volume Improvement Tips | 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 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]