Crazy? Retail O2O Could Eat Taobao and JD By Zhang Chenyong of Zitengyuan People in O2O generally know a saying: "High-frequency beats low-frequency." For example, almost no one buys ordinary digital cameras or MP3 players now because high-frequency smartphones have replaced them. Tencent News gets more traffic than Sina and Sohu because of QQ's news pop-ups; QQ is simply too high-frequency. What if we apply the "high-frequency beats low-frequency" principle to e-commerce? The king of e-commerce, Taobao, has users shopping on average less than 2 times per month; the dark horse of e-commerce, JD, has users shopping less than 1 time per month. If there were a shopping platform where users shop 10-15 times per month, what would happen? Would it eat Taobao and JD? As long as this platform establishes a self-operated half-day delivery zone (JD model) and an open platform zone (Taobao model), users would gradually migrate, ultimately eating Taobao and JD and reshaping the retail ecosystem. To make users shop frequently on a platform, it must operate fresh produce and supermarket FMCG goods, and users must treat it as their primary shopping channel; otherwise, achieving 10-15 high-frequency shopping trips per month is impossible. Difficulties Facing the Yihaodian Model and JD Daojia Model Online supermarkets represented by "Yihaodian" and supermarket fast-delivery platforms represented by "JD Daojia" both want to achieve this (high-frequency shopping platform), but it's actually very difficult. This article first analyzes the difficulties facing Yihaodian and JD Daojia, then describes how to achieve a new high-frequency shopping model. If this model holds, then this article is a masterpiece predicting the future of retail; if not, well, it doesn't matter—it's just an article, and no one will remember it. First, the Yihaodian online supermarket model: the problem is high cost. Delivery and packaging costs alone account for 15-25% of sales. Add promotion and operations, and costs are far higher than traditional offline supermarkets. Offline supermarkets and online supermarkets are both channels for distributing FMCG goods, competing on cost and efficiency. Unable to reduce costs, online supermarkets that struggle with fresh produce cannot become the primary shopping channel for the masses, and naturally cannot become high-frequency shopping platforms. Recently, supermarket fast delivery has been hot: JD Daojia, Dmall, Flash Buy, 19e Delivery, Fresh Bee, Loukou, etc., are all running in this field. They partner with offline supermarkets (some with convenience stores or self-built micro-warehouses). Consumers order via app, and delivery personnel pick up goods from the supermarket and deliver. Compared to Yihaodian's online supermarket, supermarket fast-delivery platforms deliver faster and have lower delivery and packaging costs. However, since they pick up goods from offline supermarkets, gross margins are very thin. Partner supermarkets basically don't give rebates to fast-delivery platforms; not only no rebates, but to attract customers, some platforms subsidize promotions on goods. JD Daojia gives new users a 50-yuan coupon; Duodian has a long-term 5% discount on all items; Community 001 gives 230 yuan for a 200 yuan recharge. Chinese consumers are unwilling to pay extra for fast delivery, so delivery fees are also a loss borne by the platforms. Pioneer Community 001 burned cash too aggressively, ran out of steam, and is on the verge of bankruptcy. The key to success for supermarket fast-delivery platforms is whether order volume per outlet can exceed a threshold. Only by exceeding the threshold can they shift from partnership to self-operation, stock micro-warehouses, improve gross margins, and break even. But reaching the threshold is hard, and partnering with supermarkets isn't just about solving supply chain issues; picking up goods and setting up points in supermarkets itself serves as promotion and traffic generation. For more on the supermarket fast-delivery model, see my previous article "Supermarket O2O Fast-Delivery Model May Reshape Retail Ecosystem." Key to High-Frequency Shopping Platform "High-frequency" is the keyword of this business model. What kind of business model can achieve 10-15 shopping trips per month per customer? The secret is to use an app to integrate community stores, online platforms, and alliance merchants, using a combined format to meet diverse consumer needs. That is, on one app, users can order for fast delivery from community stores, pay and earn points when shopping at stores (community stores and alliance merchants), and also meet one-stop and long-tail shopping needs on the online platform. The shopping frequency for a single need may not be high, but the combined frequency can reach 10-15 trips per month. These combinations are not simple business stacking but organic integration, with strong links between several consumption scenarios, mutually reinforcing. They also reduce online platform promotion and logistics costs, and can stick with customers, keeping them in a closed-loop omnichannel. Only a combined format can meet diverse needs; a single channel cannot suit all categories. Facts show that long-tail, non-standard categories suit Taobao's open platform model; standard goods like electronics and 3C suit JD's self-operated model; fresh produce and FMCG suit store and supermarket channels. Convenience shopping goes to convenience stores, family bulk shopping to hypermarkets, long-tail shopping to Taobao and Tmall. This is not a rule set by anyone, but the result of automatic evolution of category channels. The business model described in this article respects the logic of category channels: categories suitable for stores remain in stores, categories suitable for online are fulfilled via online shopping, with online and offline freely switching and complementing each other. Consumers can freely choose channels based on actual circumstances; the same product may suit different channels in different situations. Everything is left to consumer choice. Business Model Description This business model consists of an app, community stores, an online platform, and alliance merchants. Community stores are similar to convenience stores (possibly operating fresh produce). The online platform is in the form of an online supermarket (the basis for expanding to JD and Taobao models). Alliance merchants refer to businesses around community stores (e.g., restaurants, beauty salons, housekeeping). The strong link among these formats is a one-way high-rebate points system. Points can only be earned through shopping on the online platform and spending at alliance merchants, with 5% to 30% of the purchase amount rebated as points in the app. Points can only be used at community stores, directly offsetting product prices. For example, a cola with a retail price of 3 yuan can be paid via app for 2 yuan plus 10 points. The consumption scenario starts at community stores. Consumers see that all products in the store have two prices. As long as they download the app and register, they get points and enjoy member prices. Some consumers will inevitably try downloading and installing the app. Once the app is installed, they can receive push notifications for products or services, guiding them to shop online or at alliance merchants. Shopping and spending earn points, which attract consumers and link different consumption scenarios, hence the design of one-way high rebates. The first step is stores enticing customers to install and register the app; the second step is online marketing driving shopping or spending at alliance merchants. These two points are based on the high value of points (offsetting 10% to 40% of store product prices, with rebates of 5% to 30%) and the sensitive, essential nature of store products. Where do the point discounts consumers enjoy come from? Is it borne by the stores? Of course not. The rebate points from the online platform come from its promotion costs and savings in packaging and delivery costs; the points from alliance merchants come from their promotion costs. If a community store can bring 30 orders per day to the online platform, then centralized delivery can be used: goods go directly from warehouse to store, and are delivered together with the store's daily restocking, without separate packaging per order. This saves promotion, packaging, and delivery costs. Promotion and delivery are the two largest cost components for online platforms. Through community store promotion and delivery, 8-15% of comprehensive costs can be saved; these are the source of rebate points. Why would alliance merchants be willing to give rebate points? Because the app brings them customers. A single community store plus online platform can develop several hundred community members, who are more likely to visit alliance merchants (near the community store). Services like car washing and beauty have high gross margins; as long as it truly brings customers, rebating 10-30% in points is no problem for merchants. The addition of alliance merchants in turn enhances the value of points, making them more attractive to members. A valuable business model either saves costs or improves experience. This article has said so much to argue that this business model can both reduce costs (promotion and delivery packaging) and improve experience (better last-mile delivery). If Taobao and JD have any flaws, it's high last-mile delivery costs and poor experience. This project starts from the last mile, uses community stores to stick with users, builds dense community networks and a high-frequency shopping platform, eats Taobao and JD, and reshapes the retail ecosystem.