Yang Xiujuan Instant retail has emerged as a new "windfall" opportunity. According to the "2022 China Instant Retail Development Report" released by the China Chain Store & Franchise Association, the instant retail industry grew at a compound annual rate of 81% from 2016 to 2021, starting from a low base of tens of billions. It is projected that after 2021, with a high base of hundreds of billions, the industry will surpass the trillion-yuan market threshold by 2025, growing at a compound annual rate of 51%. Wang Puzhong, Senior Vice President of Meituan and President of the Home Delivery Business Group, also stated at Meituan's recent Instant Retail Industry Conference that whether it's fruits, fresh produce, snacks, beverages, flowers, or even mother and baby products and 3C electronics, the current growth rates are very fast, far exceeding the growth rate of total retail sales and traditional e-commerce. In 2023, the entire instant retail industry scale will exceed 500 billion yuan, and in the future, the industry scale will reach 1 trillion yuan. Instant retail is growing rapidly at a rate rarely seen globally. While offline supermarkets and retail brands are caught in internal competition, online instant retail has become a new incremental engine. Zhang Yibo, Global Partner and Managing Director at BCG and Head of the China Retail Sector, said, "This is indeed an increment where 1+1 is greater than 2, but it also comes with difficulty where 1+1 is greater than 2." Facing the rapidly growing instant retail market, how can offline supermarkets and brands expand their battlefield and regain the lost three years? This is both an opportunity and a challenge.
Offline Supermarkets in Saturation
Instant Retail as a Lifeline
According to data from the Ministry of Commerce, in the first half of this year, national online retail sales reached 7.16 trillion yuan, a year-on-year increase of 13.1%. B2C online retail sales increased by 14.7% year-on-year, accounting for 80.6% of online retail sales. The number of online retail platforms reached 24.585 million, a year-on-year increase of 1.5%. The steady growth of the online retail market has brought good opportunities for the development of instant retail. In the first half of this year, 43% of consumers used instant retail, and this number is continuously rising. For increasingly saturated offline supermarkets, this is a new incremental channel. The supermarket industry has been quite challenging over the past few years, and it's not an exaggeration to call it a harsh winter. Lin Yongqiang, Chairman of Jianguanye Investment Co., Ltd. and Chairman of Guan Supermarket, said, "We are a regional chain supermarket. In the current market state, the word we hear most often in the market is 'involution'—it's very competitive." Lin Yongqiang's chain supermarket operates in the eastern coastal and southwestern regions. According to him, taking Fuzhou as an example, new methods have had a significant impact on traditional local retail. Especially after the pandemic, the transmission of new retail methods has been faster. "Perhaps due to the involution or various consumption sentiment reasons, this state has arrived more quickly." Lin Yongqiang has led his chain supermarket to adopt an omnichannel layout. However, he discovered that new sales methods have reached lower-tier markets—the so-called 18th-tier cities—where new retail models, such as discount stores, have emerged. In small counties with populations of 30,000 to 50,000, five or six discount stores suddenly appear. This rapid change is driving Lin Yongqiang to continuously optimize and update his operating model. "Having been in retail for over 20 years, starting with counter-style sales and then moving to open-shelf, every stage has been constantly changing. I personally like this change. But what remains unchanged is product organization and operational efficiency," Lin Yongqiang said. Originally, Lin Yongqiang insisted on being big and comprehensive, but now he is gradually shifting towards small and beautiful, even making major adjustments in category structure, focusing only on areas with comparative advantages that can quickly improve operational efficiency and supply chain efficiency. In addition, Lin Yongqiang is actively organizing alliances of small and medium-sized enterprises to develop private brands and even undergoing organizational changes at the backend. To adapt to the drastic changes, he is constantly seeking ways to break through, which is what he is currently striving to do. At present, Lin Yongqiang is transitioning to the discount store business, but he has found that while customers recognize the prices, more customers are asking whether delivery to home is possible. But there is a problem: with gross margins of only 15-20 points, how can they cover the costs of discount stores, especially hard discount stores, including all marketing and operational costs, plus additional fulfillment costs? For Lin Yongqiang, this is a problem that remains unsolved. As consumers' demand for instant needs increases and service requirements become more diversified, instant retail is showing trends and characteristics of increasingly rich product categories, expanding service areas, continuously growing customer groups, and more diverse consumption scenarios. "My personal judgment is that instant retail will experience a blowout in the short term," Lin Yongqiang said. But for retail enterprises, including discount stores, what is more important is how to find a balance among cost, service, and brand. More retail enterprises like Guan Supermarket are rushing into the instant retail market.
Giants Compete, Battling for Instant Delivery Capabilities
With the high explosion of instant retail, platform giants such as Meituan, JD.com, and Alibaba have flooded in, intensifying the competition for offline retail merchants, brands, and users. In 2015, JD.com launched JD Daojia, with over 100,000 offline stores including Walmart, Yonghui Superstores, and China Resources Vanguard. JD.com has made it clear that it will convert its 580 million active users on the main site into instant retail users and has set phased goals at the business level. After acquiring Dada, JD Daojia and JD Hourly Delivery accelerated their growth, achieving "hourly delivery of all categories of good products" for consumers in over 1,800 counties, districts, and cities nationwide. Wang Xiong, Head of JD Retail Group's Strategy and Comprehensive Support Department, once said, "The integration of omnichannel is just beginning, and the big opportunity for the entire industry lies here. This is why JD.com is doing instant retail." Meituan, which started as a food delivery platform, has inherent delivery advantages in instant retail. In 2018, Meituan launched its independent brand Meituan Flash Purchase, clearly positioning it as an instant retail platform with an average 30-minute "everything to home" delivery. In the second quarter of 2023, Meituan's instant delivery orders surged, increasing by 31.6% year-on-year to 5.4 billion orders. Instant retail has become Meituan's new growth curve. Wang Puzhong, Senior Vice President of Meituan and President of the Home Delivery Business Group, said, "Currently, GDP growth and social retail growth are under pressure. But in recent months, Meituan Flash Purchase's year-on-year growth, even considering the high base from last year's pandemic, still exceeds 26%." In 2021, Wang Puzhong stated that Meituan aimed to capture 400 billion yuan in market share over the next five years. At the just-concluded Instant Retail Industry Conference this year, Meituan stated that it had already achieved 175 billion yuan in the past four quarters, with growth faster and more obvious than the industry average. To date, Meituan Flash Purchase has over 4,600 retailers, 370,000 local small merchants, and more than 350 partner brands. To improve fulfillment capabilities, despite having over 6 million riders, Meituan has further cooperated with third-party instant delivery platforms such as SF City, Shansong, and UU Running this year. Seeing the broad market prospects, Taobao, Tmall, and Hema have also increased their "hourly delivery" services this year. In March, to improve buyer logistics delivery experience and meet merchants' "same-city delivery" hourly delivery needs, Taobao planned to add a "hourly delivery" service specification. Tmall Supermarket's "half-day delivery" plans to cover 20 cities nationwide. Hema announced it would provide the fastest one-hour delivery service for areas within 3-5 kilometers. Emerging e-commerce platforms, Douyin and Pinduoduo, are also not to be outdone. Douyin launched its instant retail service "hourly delivery," expanding pilot cities from Shenzhen to Wuhan and Tianjin. Pinduoduo is recruiting merchants with 42-hour delivery capabilities, planning to enter the instant retail market. Instant retail has become an important track for giants to increase their layout. Whether it's JD.com, Meituan, Taobao, Douyin, or Pinduoduo, they are all continuously upgrading their instant delivery capabilities to consolidate competitiveness. On the one hand, instant retail can cover and activate more users; on the other hand, rapidly developing instant retail can bring new growth businesses to platforms that are already facing growth bottlenecks.
Opportunities, Challenges, and Misconceptions
For instant retail, offline retail merchants and online platforms are full of momentum, but they still face constraints such as delivery timeliness, urban-rural differences, and digital capabilities. In the mid-game of competition, minute-level fulfillment capability has become a killer feature for platforms and merchants. But behind this, a large amount of digital infrastructure is needed. Wang Puzhong said, "After 2020, a large number of supermarkets and hypermarkets built online systems and set up independent front warehouses. For example, Sam's Club. Generally, stores with over 20% of space for warehousing, and the best ones even exceed 25%. Our flash warehouses are also developing faster and faster, without the baggage of past efficiency, traffic flow, display, and pricing." However, according to Wang Puzhong, this process is difficult. Especially for traditional retailers, they are not only fighting physical constraints but also fighting past ways of thinking and behavior, breaking habits and things they were good at. He believes that in the field of instant retail, relying on offline retail to compete with remote delivery express e-commerce on price is irrational behavior because the economic models of the two sides are different. The ultimate competition in instant retail is the improvement of efficiency, experience, and product power. There is a saying in the industry: "It's easy to do everything, but hard to do well. It's easy to be big, but hard to be small." From pure offline retail to instant retail, each transformation tests the retailer's internal organizational change capability. And this all requires digital management. As Xiao Kun, Head of Meituan Flash Purchase Business, said, "We need to manage the process well enough to make every area more traceable, and we must digitize." He said that for brand owners, there are three aspects. First, organizational evolution: P&G took the lead in establishing an instant retail business unit. Including Unilever, more than 50% of brands are undergoing organizational upgrades. Second, continuous consumer education: consumers have extremely clear needs for our scenarios. Third, product evolution: changing demands give rise to product evolution. For example, how can fresh beer fulfill quickly in the instant retail environment? How to distribute better? Product innovation is very important. The competition in the instant retail market ultimately comes down to "retail + technology." For instant retail platforms and brand retailers, breaking down offline retail data silos and achieving local traffic distribution, retail digitalization, and service operations through data-driven approaches are essential to expand consumer demand, improve local supply capabilities, and ultimately bring new increments.