Source: Chief Business Review (ID: CHReview)
With the intensified prevention and control measures in March, Shenzhen and Shanghai successively entered lockdown mode. Starting in March, competing for groceries and takeout orders in Shanghai has become a daily routine for many residents in controlled communities. The anxiety caused by the inability to buy vegetables on social media is no less than the epidemic itself.
Fresh e-commerce, chain supermarkets, offline markets, and convenience stores—under the epidemic, all fresh food retail formats are facing unprecedented order pressure.
The concentrated rigid demand triggered by the epidemic is an opportunity to observe the existing fresh food retail formats. What are the advantages and disadvantages of different fresh food retail formats under the epidemic, including issues such as insufficient capacity, tight supply, and cost? Can fresh food retail break through in the future?
Fresh E-commerce and Community Group Buying Overwhelmed by Orders
Due to the expansion of city scale, traditional offline supermarket networks have clearly failed to keep up with the rigid demand for grocery shopping. Moreover, unexpected events like the epidemic have exposed the shortcomings of offline retail, which requires manpower and store maintenance.
As early as 2012, fresh e-commerce began seeking opportunities to replace traditional supermarkets, but due to the cost and capacity issues of fresh products, fresh e-commerce has never had a good development opportunity. Even the once-popular community group buying was just a flash in the pan for traffic acquisition.
Current fresh e-commerce can be divided into traditional fresh e-commerce, front-warehouse models, warehouse-store integration, and community group buying. Traditional fresh e-commerce refers to platforms established by traditional e-commerce giants using their existing logistics and distribution networks, such as Tmall Fresh and JD.com.
In terms of distribution mode, traditional fresh e-commerce is closer to traditional e-commerce, generally using large warehouses and sub-warehouses for distribution, relying on the existing logistics and express delivery networks.
The significant advantage of traditional fresh e-commerce is its relatively complete logistics network and low operating costs. However, due to the special requirements of fresh product transportation, the variety of products is limited. In the face of the epidemic, the lack of front warehouses also leads to longer delivery cycles.
The mainstream of current fresh e-commerce is the front-warehouse model, which improves the transportation cycle by establishing small warehouses that can store fresh products between several communities. These outlets do not conduct offline retail.
In the front warehouse, dedicated stock clerks place goods sent from the city sorting center on shelves, then pickers sort them into packages according to orders, and delivery personnel deliver them. Miss Fresh, Dingdong Maicai, and Meituan Maicai adopt this model.
The advantage of the front-warehouse model is clearly the large number of outlets and fast delivery, with regional delivery personnel conveniently completing the last-mile grocery needs of users. However, the disadvantage is that building a new logistics network is more costly than traditional e-commerce.
Under the epidemic, in addition to order pressure, another defect has emerged: too much manpower is involved in all links, including picking, sorting, and delivery. Most fresh food platforms still rely on manual labor. If workers in these links are quarantined, it is difficult to ensure smooth logistics.
A station manager of Dingdong Maicai in Shanghai said in an interview with the media that during the March epidemic in Shanghai, the order volume at almost every station was three to five times the usual amount. Once employees were quarantined, it was difficult to allocate riders, and sorters were overwhelmed, so temporary workers had to be hired to complete orders.
Facing the unavoidable cost of manpower and delivery, the community group buying model, which previously focused on pre-sale and self-pickup, seems to show advantages. According to a report by China Merchants Bank Research Institute, compared with the 7%-10% delivery cost of front warehouses (7-8 yuan per order), community group buying is only below 2%.
Group buying platforms generally have larger orders and fewer delivery trips, so their capacity seems higher than ordinary fresh food platforms. In terms of distribution mode, community group buying sets up fresh food self-pickup stations. After users place orders, goods are delivered to the community the next day for self-pickup. Meituan Select and Duoduo Maicai adopt this method.
But the advantages of group buying platforms are also disadvantages. With the surge in orders during the epidemic, media reported that most group buying platforms now take at least three times longer to sort and dispatch goods than the usual one and a half hours, and delivery times are also extended.
Orders that could be easily completed in the past are often delayed due to the epidemic. Moreover, under the epidemic, it is not as convenient as usual for group buying delivery points to reach residential buildings, so the consumer experience of community group buying has declined the fastest during the epidemic.
Convenience Stores Become the New Main Force in Retail
In addition to traditional fresh e-commerce models, younger consumer groups prefer warehouse-store integration models like Hema and convenience stores. In the past five years, large offline supermarkets have become the fastest-shrinking format among offline retail platforms. Statistics show that from 2016 to 2021, the number of large supermarket stores nationwide decreased by at least 10,000.
In contrast, convenience stores, as the format with the richest consumption scenarios, have seen a year-on-year growth of 12.90% in store numbers over the past five years.
Convenience stores can solve daily consumption needs, purchase fresh products, and provide three meals a day, making them almost the most scenario-rich offline retail format. Media revealed a flow survey record from March in Beijing, Chongqing, and Tianjin, showing that several cases had visited Bianlifeng for several consecutive days.
Company-convenience store-home: many office workers' life rhythm has become a three-point line.
Due to the ravages of COVID-19, most people's living radius has been forced to shrink. While many industries have stalled due to the epidemic, the convenience store industry has quietly become the main force in the retail market.
In terms of business area, a convenience store of several dozen square meters can meet daily consumption needs and also serve as a front warehouse for fresh e-commerce, with high efficiency per unit area.
Under the epidemic, most convenience stores have set up epidemic prevention material areas, where masks, disinfectant hand sanitizers, and alcohol wipes can be easily purchased. Convenience stores also serve as canteens for many office workers. Compared with restaurant dining, their independent fresh food supply chain and retail cloud platform enable them to maintain normal operations and circulation during epidemic control.
24-hour convenience stores also solve the three-meal problem for many overtime workers.
Another advantage is regional distribution. Convenience stores have wide coverage and many types. In first-tier cities, stores like Lawson, FamilyMart, and Bianlifeng have almost covered subway hubs, communities, scenic spots, and office buildings.
Compared with traditional retail formats like supermarkets, convenience stores update product categories more frequently, and with digital operations, they can adjust displayed products in a timely manner based on the needs of surrounding residents.
However, even convenience stores have become somewhat overwhelmed under the epidemic. Investment and financing data from iiMedia Research also shows that the amount of investment and financing in China's convenience store industry has increased year by year, but the number of investment and financing events has declined continuously after reaching a peak in 2017.
The operational problems of convenience stores themselves are high rent and poor management. Lawson's wave of store closures in Shanghai in 2020 involved these two factors. For convenience stores, if the location is unfavorable, cost control is not strict, or internal management is poor, they may not be able to continue operating.
In fact, in second- and third-tier cities, many well-known brand chain stores have opened and closed repeatedly, and various operational strategies are advancing through adjustments.
Facing the pressure of the epidemic, even warehouse-store integrated convenience stores have encountered manpower shortages and last-mile transportation issues.
If you are in a controlled community, ordering takeout from a convenience store often relies on third-party delivery platforms. If you directly order from a warehouse-store integrated store like Hema, you need luck to grab an order and wait a long time, because the capacity of most warehouse-store integrated merchants is far less than that of most fresh e-commerce and delivery platforms.
Unmanned Retail and Emergency Plans: The Future of Fresh Food Retail
Although the epidemic has increased revenue for fresh e-commerce, the cost of order fulfillment has also risen accordingly. On the supply side, dispatching resources from other regions has increased freight costs. In addition, emergency vegetable packages specially provided during the epidemic have changed the production chain of fresh e-commerce, and the entire fresh e-commerce industry urgently needs to develop new products.
Media analysis suggests that the optimized front-warehouse model has shown relatively prominent advantages in this epidemic. The advantage of the front-warehouse model is that fresh e-commerce is relatively closed and does not require offline operations. If manpower in various links can be reduced, and the distribution station is basically staffed by workers, it can ensure closed-loop management during the epidemic and facilitate delivery and sorting.
On March 28, the Shanghai Municipal Commission of Commerce responded to the public's supply guarantee by stating that it would specially approve some enterprises to operate normally, allow supply guarantee vehicles to pass normally, and allow supply guarantee personnel to work normally. It also issued "supply guarantee enterprise certificates" to enable these enterprises, including large warehouses, front warehouses, and distribution centers, to operate normally.
Industry insiders believe that if enterprises with outstanding supply guarantee capabilities can be included in emergency rescue and support plans, and emergency plans can be activated immediately when any extreme situation occurs, without the need for temporary upward reporting, they can start supplying communities. This could be a long-term measure to address the difficulty of buying groceries during home isolation in the epidemic.
For convenience stores, the previously popular unmanned retail stores will also be a development trend.
With the development of emerging technologies such as big data, artificial intelligence, and cloud computing, unmanned convenience stores, which can save labor costs and penetrate all-time consumption scenarios, may save more manpower, simplify manual processes, and leverage the benefits of online-offline integration.
Facing the major test of the epidemic, how fresh food retail can provide complete products while meeting consumers' expectations of delivery to home will be a topic for operators to consider in the future.
References:
- "The City is Full of Convenience Stores: Do We Really Need So Many?" iiMedia Research
- "Shanghai's Staggered Lockdown: How to Solve 'Grocery Grabbing Anxiety'" China Newsweek
- "Convenience Stores in Flow Surveys: Popularity" IQ Tax Research Center
Are you "watching" me?