Source: Zhuang Shuai Retail E-commerce Channel (ID: zhuangshuaiec)
Community e-commerce is helping traditional supermarkets build new advantages and achieve new growth!
In fact, traditional supermarkets have been in a fiercely competitive stage since five years ago. This is due to two reasons:
First, traditional e-commerce platforms urgently need new growth, so they have targeted fresh produce and FMCG categories, the main categories of traditional supermarkets.
Second, the development of mobile internet and the formation of new applications, with WeChat as the main battlefield, have enabled new e-commerce forces to compete with centralized traditional supermarkets.
According to financial report data, in the first half of this year, among 18 major listed supermarket companies, 7 experienced declines in both revenue and net profit: Yonghui Superstores, Lianhua Supermarket, Beijing Jingkelong, Renrenle, Sanjiang Shopping Club, Jiangxi Guoguang Chain, and Andeli. Among them, Sanjiang Shopping Club had the largest revenue decline, and Andeli had the largest net profit decline.
Although traditional supermarkets are aware of the intensifying competition and have made some efforts, due to the long cycle of understanding new markets, new competitors, new models, and new technologies, they appear even more unprepared when community e-commerce, with its lighter model and faster development, emerges.
In my research, the innovative model of community e-commerce can also help traditional supermarkets build new competitive advantages and achieve new growth.
In fact, many traditional supermarkets have also been advancing their online transformation and testing new formats such as community e-commerce.
Among the 18 listed leading traditional supermarkets, 6 companies including Yonghui, Zhongbai, Tianhong, Better Life, and Xinhua Department Store are actively deploying new formats such as convenience stores/community stores and warehouse membership stores, closely integrating with community e-commerce to improve profitability and shorten the investment cycle for new formats. Additionally, 16 companies have connected to home delivery platforms or launched home delivery businesses.
However, during this critical transformation, the industry generally predicts that most traditional supermarkets will still suffer huge losses for two to three quarters, because large listed traditional supermarkets, like internet and e-commerce platforms, have an investment cycle of one to two years or even longer for new formats and models.
Two Major Opportunities for Traditional Supermarkets to Innovate with Community E-commerce
As China's laws and regulations continue to improve, and antitrust penalties are implemented, the unconventional "subsidy" price wars and "choose one of two" practices will no longer apply, leading to healthy competition and orderly development.
When exploring new models of community e-commerce, internet companies will inevitably compete with traditional supermarkets on equal footing across multiple dimensions, including model innovation, platform construction, group leader maintenance, technology investment, supply chain construction, and marketing innovation.
Moreover, community e-commerce relies on the WeChat ecosystem, with WeChat groups and mini-programs as the main platforms. The technical requirements and investment are not as high as for standalone apps, and the low technical threshold actually allows many traditional supermarkets to avoid their weakness in technology.
Most traditional supermarkets have advantages in brand, supply chain, and offline physical stores over most internet companies.
In addition, community e-commerce has a significant promotional effect on small retail formats such as community stores, convenience stores, and membership stores. Traditional supermarkets have not done well in this area, which is precisely where the development opportunity lies.
There are two major opportunities for combining community e-commerce with traditional supermarkets.
One: A good time to promote the creation of new formats.
New community stores/convenience stores like Bianlifeng can reduce costs, increase order volume, and even achieve profitability in the short term in the region by leveraging community e-commerce and online food delivery platforms.
According to official internal information from Bianlifeng, in May 2020, three years after its establishment, Bianlifeng announced "overall profitability in the Beijing region."
In 2021, it further expanded its profitable city map. In several cities entered before 2018, including Shanghai, Nanjing, Tianjin, and Langfang, Bianlifeng achieved profitability in all of them.
This opportunity is highly attractive to traditional supermarkets.
Walmart and Carrefour, two global supermarket giants, have always wanted to expand community stores and convenience store formats, but the traditional store opening model has high costs and long profit cycles. However, the profit cycle for O2O supermarkets and digital convenience/community stores has been greatly shortened.
Taking community fresh food stores as an example, CCFA research data shows that although the gross margin of traditional community fresh food stores is as high as 22.1%, after considering all costs, the net profit is a loss of 6.7%.
The gross margin of community e-commerce is only 15% to 20%. After deducting 1% to 5% fulfillment costs, about 2% shrinkage, and 5% to 10% group leader commission costs, the net profit margin can reach 3% to 10%!
Community stores/convenience stores (O2O supermarkets) that have launched community e-commerce can achieve a profit margin of 2.8%.
▲CCFA survey data on community fresh food store costs
After all, Xingyou优选, which innovated the community e-commerce model, is a traditional retailer doing convenience store franchise chains. That is, the large-scale development of Xingyou优选 has proven: Community stores/convenience stores are the most suitable retail format for community e-commerce, whether in terms of organization, process, or business model.
Wumart's convenience/community stores, Jingkelong's community stores, and Yonghui's Super Species have all been trying community e-commerce. Walmart discovered that community e-commerce has advantages such as low customer acquisition costs, low operational difficulty, and no technical barriers, and announced the restart of its offline community store project.
The first half of 2021 financial report data also shows that convenience stores and community stores became the formats with the most new store openings:
The 18 listed leading supermarket companies opened a total of 686 new stores, with an average of 38 new stores per company. Among them, Hongqi Chain, Lianhua Supermarket, and Zhongbai Group each opened more than 100 new stores, and Jiajiayue, Tianhong, and Yonghui each opened more than 20 new stores.
Among them, Hongqi Chain, which belongs to the convenience store format, opened the most new stores among the 18 companies, with 264 new stores and an average area of about 121 square meters.
Zhongbai Group opened 113 new stores, with convenience stores accounting for nearly 70% (78 stores), bringing the total to 556.
In terms of revenue, convenience stores also grew against the trend: According to Lianhua Supermarket's financial report, in the first half of the year, Lianhua's hypermarket format revenue fell about 9.64%, supermarket format fell about 8.28%, but convenience store format grew about 32.99%.
▲Lianshang's review of the opening and closing of stores by major supermarket companies in the first half of 2021
Next is the warehouse membership store project, which uses community e-commerce to serve members, improves member loyalty and repurchase rates through WeChat groups, and uses warehouse membership stores as forward transit warehouses to provide distribution services to community/convenience stores and carry out home delivery business, forming a complete retail system with multi-format collaborative innovation and development.
In May 2021, Yonghui Superstores opened its first warehouse store in Fuzhou, positioned for people's livelihood. As of the end of June 2021, Yonghui had 20 warehouse stores opened after remodeling nationwide.
Zhongbai Group's Zhongbai Warehouse reached 196 stores in the first half of this year, accelerating the innovative development of warehouse supermarkets and creating the first "Zhongbai Cloud Store."
These are things that traditional e-commerce and internet giants cannot establish in the short term.
The second major opportunity is: coordinated development of regional and national markets, and winning more lower-tier markets at low cost and high efficiency.
For regional supermarkets, leveraging the community e-commerce model can not only enter new formats to gain new growth, strengthen core competitiveness in regional markets, and provide regional differentiated products and services to local community users to cope with competition from national chain supermarkets and e-commerce platforms;
Similarly, leveraging the advantages of regional supply chains and physical operations, they can deeply cooperate with e-commerce platforms and national chain supermarkets through the community e-commerce model.
National chain supermarkets can also strengthen regional localized operations through the community e-commerce model, or collaborate with existing regional retailers through the community e-commerce model.
In lower-tier markets where opening large supermarkets has low input-output ratios, they can cooperate with local physical stores through the community e-commerce model to provide a richer selection of national brand products and services, thereby increasing market share and competitiveness in lower-tier markets.
Better Life, which deeply cultivates regional markets, after experiencing the impact of the pandemic and innovative formats, has seen rapid development of its online business through transformation.
As of the end of June, the company had 27.71 million digital members, contributing 71.5% of total sales; first-half online GMV was 3.037 billion yuan, exceeding the 2.33 billion yuan for the whole of 2019 before the pandemic, achieving coordinated development of regional markets and the national online market. It launched the community group buying platform "Xiaobu Youxian" to further gain lower-tier market users through the community e-commerce model.
Better Life stated that the company will build digital capabilities with the blueprint of "front-end scenarios, mid-platform capabilities, and back-end strategy integration, creating platform-based, integrated collaborative combat capabilities," open stores cautiously, focus on community neighborhood center formats, vigorously develop group buying business, and continuously improve market competitiveness.
Yonghui Superstores also began promoting community e-commerce in more than 300 regional stores in third- and fourth-tier cities in 2020, and within more than a month of launch, accumulated over 70,000 users and over 100,000 valid orders.
Traditional Supermarkets Have Large Growth Space for Home Delivery Business
If traditional e-commerce and emerging online platforms such as community e-commerce and live-streaming e-commerce continue to put pressure on traditional supermarkets, then the home delivery model is one of the best modes for direct cooperation between traditional supermarkets and online platforms. By leveraging the platform's large user base and complete warehousing and distribution services, traditional supermarkets can achieve low-cost new growth through home delivery platforms.
Traditional supermarkets hardly need to make any investment; they simply connect their stores to various home delivery platforms and list their products.
Based on my research on successful transformation cases of traditional supermarkets, traditional supermarkets can start home delivery business by partnering with JD Daojia, Meituan Flash Purchase, Duodian, Taoxianda, or building their own mini-programs or apps.
Many national chain supermarkets such as Yonghui Superstores, Walmart, Wumart, and Carrefour have been deeply cooperating with home delivery platforms for five or six years and have achieved significant performance growth. It is estimated that by 2025, the market size of the home delivery model will exceed 900 billion yuan.
Zhongbai Group opened its first "Zhongbai Cloud Store" in April 2021, selecting locations in areas where existing online platforms have gaps and offline warehouse stores are not covered. It mainly operates online home delivery platforms, and has already launched three home delivery platforms: Duodian, JD Daojia, and Taoxianda, covering a range of up to 5 kilometers. After users place orders online, the cloud store picks and packs, and the platform delivers to home.
Xinhua Department Store is also actively expanding online and offline channels for its supermarket business, leveraging the digital operation of the "Duodian" home delivery platform to reach a new level, gradually establishing a digital membership system to make marketing and services more precise. Duodian's online supermarket delivery services cover nearly 80 stores across various cities and counties in Ningxia.
In the first half of 2021, Xinhua Department Store's online business order volume exceeded 2.1 million orders, with online sales reaching 121 million yuan, a year-on-year increase of 48%.
Many traditional supermarkets have also built their own independent home delivery platforms (such as Yonghui Life, which also opens offline convenience/community stores). However, considering investment scale, operating cycle, maintenance costs, customer acquisition costs, and technical requirements, traditional supermarkets with fewer than 500 chain stores should be cautious about building their own home delivery apps.
Financial report data for the first half of 2021 shows that Yonghui Superstores' online sales reached 6.81 billion yuan, a year-on-year increase of 49.3%, accounting for 14.1% of main revenue. As of the end of June 2021, the "Yonghui Life" app covered nearly 1,000 stores, with 72.2 million members.
Tianhong's online sales increased 57% year-on-year; platform service revenue increased 49% year-on-year. Tianhong's overall digital members reached about 33.7 million, with digital member sales accounting for 79%. Monthly active members on the app and mini-program exceeded 4.42 million, a year-on-year increase of 47%. Online product sales and digital service revenue GMV exceeded 2.7 billion yuan.
Of course, even traditional supermarkets like Yonghui Superstores, Wumart, and Tianhong that build their own home delivery apps and mini-programs also choose to deeply cooperate with home delivery platforms such as JD Daojia, Meituan Flash Purchase, Duodian, and Taoxianda.
Final Thoughts:
Traditional supermarkets have not encountered particularly strong cross-industry competitive forces in their development over the past decade or so. They have achieved phased victories in competition with similar foreign-funded supermarkets. After the current painful period ends, they will inevitably usher in new growth through more open innovative formats and business models that integrate online and offline development.
The CCFA's "2020 China Supermarket Top 100" list also mentioned that the top 100 supermarkets increased online sales by improving online product SKUs, carrying out community group buying, and live-streaming business. The average number of online SKUs for the top 100 supermarkets increased from over 8,300 to over 11,000; 60% of companies carried out community group buying business and formed group leader teams mainly composed of their own employees.
After all, with the progress of urbanization in China and the fact that per capita GDP in many cities has reached the level of developed countries, lifestyles will become more diverse, and user needs will be more stratified, ultimately allowing diverse retail formats to have development space and coexist in the long term.
Are you "watching" me?