Source: Ran Finance (ID: rancaijing)

Author: Li Ming, Editor: Wei Jia The trivial task of buying groceries has caught the attention of tech giants. In mid-January, Meituan quietly launched an app called "Meituan Maicai"; on March 28, Alibaba's Hema Fresh opened a "wet market" in Shanghai named Hema Caishi; on March 30, at Alibaba's local life fresh produce partner conference, Ele.me and popular fresh e-commerce Dingdong Maicai reached a strategic cooperation and announced that their grocery business had expanded to 100 cities nationwide. In the impression of most post-80s and post-90s young people, the wet market business is not "sexy." It is the main battlefield for square-dancing uncles and aunties, who queue up early in the morning to snap up fresh vegetables, leaving behind a pile of withered leaves and stems. With the internet eyeing wet markets, increasingly lazy young people are finally getting their due. In Shanghai, you can sit at home, move your fingers, and fresh vegetables, eggs, or even live fish and shrimp will be delivered within half an hour. In Beijing, Meituan Maicai has already launched grocery services in Tiantongyuan and Beiyuan areas. Unlike the star fresh e-commerce player Miss Fresh, they focus on "selling vegetables." The internet has disrupted many things, and e-commerce has taken down many categories, but it has never fully conquered fresh produce. Low gross margins, high spoilage, and complex supply chains are the difficulties of fresh produce entrepreneurship, especially in wet markets. In other words, this is the last "hard bone" in the e-commerce field. But at the same time, it may also be the last value depression. Now, four forces—fresh e-commerce, fresh food delivery, community fresh stores, and community group buying—are besieging traditional wet markets. In the future, besides moving fruit stalls to your doorstep, they can also bring the wet market into your home. New Players Enter Many people are used to ordering meals online, but not necessarily buying groceries online. At Pu'anju Wet Market near Pu Huangyu subway station in Beijing, some vegetables on the stalls are sold on-site, while others are sold through delivery platforms like Ele.me and Meituan. These vegetable stalls of varying sizes are called "Cai Gongshe," "Siji Shengxian," and "E Xiansheng" on the delivery platforms. Users place orders through the delivery platform, delivery workers pick up the vegetables on-site, and then deliver them to the doorstep. The vegetables are still from the wet market, but they have been moved online. This model is not new. As early as two or three years ago, wet market vendors began to join delivery platforms one after another. Compared with food delivery, the biggest change is that the delivery target has shifted from meals to vegetables. Today, there are many wet markets like Pu'anju in Beijing. (Photo of Sister Liu's stall at Pu'anju Wet Market) This is the first form of the internet's close contact with wet markets. The second type of rapidly rising wet market player is vertical fresh e-commerce. Dingdong Maicai focuses on vegetables, distinguishing itself from comprehensive delivery platforms. In addition, Dingdong Maicai operates as a self-operated model with integrated procurement, supply, and sales. In terms of supply chain, Dingdong Maicai adopts a model of building front warehouses in residential areas to improve order response speed and achieve rapid turnover. Under the front warehouse model, vegetables ordered by users from the APP are directly shipped from the front warehouse near the residential area and delivered by couriers to ensure freshness and timeliness. Founded in 2017, Dingdong Maicai is not the pioneer of the front warehouse model. Before it, Miss Fresh had already run the model successfully and grown into a unicorn in fresh e-commerce. However, Miss Fresh has a more comprehensive and richer product range, covering a wider range of consumption scenarios. Similar to Miss Fresh's "APP + community front warehouse" model, the launched Meituan Maicai adopts an "APP + convenience service station" model, expanding business based on business districts and communities. The third type of player vigorously entering the grocery business is community fresh stores. In 2016, Alibaba's Hema Fresh opened its first store in Shanghai, focusing on fresh categories and becoming a new retail sample. In January this year, it was reported that Hema Fresh was developing a "community wet market" format, planning to spin off its Hema Fresh Daily Fresh private brand into a community supermarket format similar to a wet market. This news was confirmed in March and landed under the name Hema Caishi. In addition to the new species derived from the hypermarket format, more small-scale community fresh stores are also rushing in. Yipin Fresh completed a Series B financing led by Tencent in March. According to public introductions, Yipin Fresh benchmarks against community wet markets. Additionally, convenience stores are actively entering. On March 28, Lawson and Shounong signed a strategic cooperation agreement, announcing the establishment of a joint venture to jointly enter the community fresh convenience retail market. Another type of rising new player is community group buying. As the biggest capital outlet in 2018, almost all community group buying projects start with fresh produce, revolve around family consumption scenarios, and gradually expand to a "basket" of services. However, compared with fresh e-commerce focusing on grocery shopping, most community group buying is pre-order mode with next-day delivery, not solving immediate consumption needs. Xu Xin, founder of Capital Today, once said that the fresh produce market is 6 trillion yuan, with 80% in wet markets and 20% in hypermarkets. As wet markets, mainly in the form of mom-and-pop stores, gradually decline, new formats will form a siege against wet markets. Giants Enter for Traffic In the past few years, investment enthusiasm in the fresh produce field has not diminished. As the last fortress of e-commerce, from O2O to new species to community group buying, fresh produce entrepreneurship projects have emerged one after another. But this time, why wet markets? Post-80s and post-90s have become the main consumers, becoming increasingly homebound and lazy. This was a judgment made by Xu Xin in a public speech in January this year. In her view, consumption changes caused by user laziness are one of the backgrounds for the arrival of spring for fresh e-commerce. For urban white-collar workers who need to cook after work, time and convenience are factors they need to prioritize. Compared with traditional wet markets, this is precisely the advantage of grocery e-commerce. When the price and quality of similar dishes are not much different, or even more cost-effective, it is not difficult to understand users turning to online. Compared with going to the wet market to compete with uncles and aunties for vegetables, staying at home and swiping your phone to wait for vegetables to arrive is obviously more comfortable. However, the demand to shift from offline to online has already been solved by delivery platforms. The core selling point of this wave of fresh e-commerce is more than that. A shopkeeper at Pu'anju Wet Market, Ms. Liu, joined Ele.me in 2017, moving her vegetable stall online, and later also joined Meituan. Ms. Liu told Ran Finance that the delivery platform increased her sales by about 30%. "People nowadays want convenience, and few young people come to the store," she said. This is the increment that platforms bring to traditional wet markets, but the problems are also obvious. Order numbers are unstable, and Ms. Liu's vegetable stall often sees situations where users place orders but the vegetables in the store are already sold out. When traditional wet markets embrace the internet, supply chain difficulties become prominent. In contrast, direct-operated e-commerce like Dingdong Maicai has higher control over products and better user experience. Combining with vegetables has made front warehouses a small hotspot in 2019. However, whether it is delivery platforms or fresh e-commerce, they are not new things. What truly brought wet markets into the public eye is the entry of giants. Meituan, Alibaba, and Tencent have all entered the "wet market" in different forms this year. After Hema Fresh CEO Hou Yi admitted that Dingdong Maicai put pressure on Hema Fresh, Hema Caishi officially debuted. Meituan directly launched Meituan Maicai, but whether in terms of model or strategy, Meituan Maicai has certain similarities with Dingdong Maicai. Tencent chose to enter through investment, and Yipin Fresh is another fresh produce company that received Tencent investment after Miss Fresh. "Hema and Xiaoxiang also need to expand into higher-frequency vegetable categories because they bring traffic, and their existing delivery capacity can be directly used," an e-commerce industry analyst told Ran Finance. In Xu Xin's view, traditional retail channels have stopped growing, the internet has entered the second half, customer acquisition costs are getting higher and higher, and the possibility of burning money to grow into a super platform has greatly decreased. The thirst for traffic has made vegetables, a high-frequency, rigid-demand category that is difficult for e-commerce to penetrate, a fortress that giants must capture. According to Hou Yi, this is about creating "the hustle and bustle of life." Can They Overcome the Profit Hurdle? Difficulty in making a profit is a major challenge facing most fresh e-commerce companies. The fresh O2O that was hot in 2014 mostly died because they could not make a profit and failed to run through the business model. Even Miss Fresh, which achieved monthly revenue exceeding 280 million yuan in 2017, only made a profit in first-tier cities. Due to the low average order value of vegetables, high spoilage, and high fulfillment costs, it always gives the impression of hard and tiring work. For example, if a user orders 10 yuan of vegetables through a fresh e-commerce APP, with a 25% gross margin, the platform can only earn 2.5 yuan from this order. If delivery costs, warehousing costs, and personnel expenses are also considered, this order will inevitably lose money. Therefore, in past fresh e-commerce entrepreneurship, fresh produce has long been used as a traffic-driving category. Guotai Junan Securities estimated the profit model of Dingdong Maicai. Based on an average order value of 50 yuan, 750 orders per warehouse per day, and monthly sales of 1.24 million yuan per warehouse, Dingdong Maicai's front-end net profit margin is -5.3%. This means that under the current model, grocery e-commerce like Dingdong Maicai is in a loss-making state. At the same time, Guotai Junan Securities pointed out that in the front warehouse model, profitability mainly depends on order density and average order value. This means that grocery fresh e-commerce can only turn losses into profits by achieving sufficient point coverage, having enough order volume support, and increasing average order value. At present, there is no national fresh e-commerce brand, and most are still in the stage of expanding points. But there are also voices that burning money for expansion in the early stage is necessary. "After all, we are at the outlet. At this stage, capital does not look at profitability, mainly at growth," the above analyst said. In contrast, fresh platforms like Ele.me and Meituan that have launched grocery businesses seem not to need to consider profitability in the short term. At the March fresh partner conference, Koubei Ele.me announced that its grocery business had been rolled out in 100 cities nationwide in 2018 and would be promoted to 500 cities. (Ele.me delivery worker picking up vegetables at the wet market) Under Ele.me's open platform model, vendors like Ms. Liu at Pu'anju Wet Market become one of countless vegetable merchants on the platform. Similar to food delivery, the profitability of this kind of grocery delivery platform mainly comes from commission deductions from the merchants. Ms. Liu revealed to Ran Finance that her vegetable stall exists on Ele.me under the brand "Cai Gongshe," which is a wet market agent operator. Vendors like her establish cooperation with Cai Gongshe to join delivery platforms like Ele.me, and the platform and operator each deduct a commission from the stall's sales. "The platform takes 10%, and the operator takes 10%," she revealed. If the open platform is more about integrating merchants from traditional wet markets, community fresh stores position themselves as large wet markets. For giants, short-term profitability is not an urgent matter. Alibaba's Hema Fresh and Meituan's Xiaoxiang Fresh, these new retail-oriented new species, may be playing a bigger game. Some analysis suggests that Meituan's launch of Meituan Maicai can share Meituan's delivery and technical infrastructure, and in the long run, it will complement Xiaoxiang Fresh, forming synergy. In any case, giants and startups have set their sights on the wet market. Whether it is a cake or a hard bone, they will invest resources to compete, and traditional wet markets will inevitably face impact and transformation. -END-