Click to read the original text for details New retail small stores, which have been busy with rapid expansion, are facing dangers brought by price wars. Recently, the notion of a new retail ebb tide has quietly emerged, and some in the industry believe that the era of new retail frenzy is a thing of the past. It is unclear when the wind started blowing, but phrases like "the new retail window has closed," "new retail ebb tide," and "new retail has fallen from grace" frequently appear in media articles. As the saying goes, "no wind, no waves." The rise of the new retail ebb tide narrative is also because the once booming new retail has indeed shown signs of retreat, such as the store closures of Hema and Freshippo. A couple of years ago, new retail was in full swing, and internet giants like Alibaba, JD.com, and Suning had all set up their new retail small stores in bustling commercial areas of first- and second-tier cities. At that time, the expansion of new retail small stores was very rapid. But now, looking back, the current new retail small stores seem to have gradually reached a turning point. Reviewing the past: The frenzied expansion of giants' new retail small stores Since new retail was pushed to the forefront, new retail small stores have become the standard configuration for internet giants to deploy new retail. The so-called new retail small stores are actually community convenience stores that have undergone new retail transformation. At that time, internet companies such as Alibaba, JD.com, and Suning rapidly expanded their retail small stores in major cities. For a time, Tmall Xiaodian, JD Xiaodian, Suning Xiaodian, and other new retail standard configurations, along with traditional convenience stores like 7-Eleven and Quanshi, were scattered across every corner of prosperous cities. Recalling 2018, major internet companies were very focused on deploying new retail small stores. As for Suning, its ambition to expand new retail small stores was well known. It is understood that at that time, Bian Nong, vice president of Suning Retail Group in charge of "big fast-moving consumer goods," made a statement: In 2018, Suning Xiaodian would reach more than 5,000 stores. By the end of 2018, Suning had opened more than 8,000 new stores. Alibaba's deployment of new retail small stores was equally aggressive, but its approach differed somewhat from Suning Xiaodian. In August last year, Alibaba's Retail Link released the Tmall Xiaodian brand authorization plan, helping traditional small stores with differentiated products to precisely stock, expand services, connect online, and improve operational efficiency and competitiveness. In other words, Alibaba "transformed" traditional small stores through empowerment via Retail Link, turning them into its own new retail small stores. It is understood that as of last September, Alibaba's Retail Link covered more than 1 million small stores. In less than a year, Alibaba's new retail small stores went from zero to one million, demonstrating the speed of its expansion. As for JD.com, a couple of years ago it also planned to open 1 million convenience stores within five years. JD Xiaodian adopted a franchise model for mom-and-pop stores. As of last March, Liu Qiangdong stated at the 2018 China "Internet+" Digital Summit that JD was opening 1,000 new convenience stores per week. It is not hard to see that JD was also on the path of expanding new retail small stores. However, two years have passed, and when we look at the present, we find that the frenzied expansion of new retail small stores is now facing price wars. Looking at the present: Giants' new retail small stores face price wars In the past, internet giants frantically deployed new retail small stores. During the deployment, Alibaba, Suning, and JD each had their own strategies, but one thing was common: they seemed to prefer bustling commercial areas when deploying new retail small stores. This idea coincided with traditional convenience stores, so we find that new retail small stores and traditional convenience stores cluster together in the same commercial areas. At this point, a price war between new retail small stores and traditional convenience stores is imminent. According to relevant reports, at the beginning of this year, traditional convenience stores launched a new bento series with prices ranging from 8.8 yuan to 15.8 yuan, and to outdo new retail small stores, their average prices were reduced by 30%-40% from the original. Subsequently, Bianlifeng and others also launched a 14-day "buy one get one free" promotion for boxed meals. Then new retail small stores followed suit, triggering a chain reaction of "ultra-low-price bentos." Obviously, the bento prices "fought out" by new retail small stores and traditional convenience stores do not conform to normal business laws and logic. Everyone is fighting to grab users, "killing a thousand enemies and losing eight hundred of their own." The result is that everyone is losing money, especially the rapidly expanding new retail small stores. New retail small stores open new stores before old ones are profitable, so losses are inevitable. It is understood that Suning Xiaodian has been in a loss-making state after rapid expansion. According to relevant financial reports, in the first half of 2018, Suning Xiaodian's revenue was only about 140 million yuan, but its losses reached about 300 million yuan. In fact, it is not just Suning Xiaodian; due to frenzied expansion, other new retail small stores are also facing the problems of "price wars" and "opening new stores before old ones are profitable." For the domestic convenience store industry, the best payback period for a store is one and a half to two years; for worse ones, it may take four to five years, but if it exceeds five years without breaking even, the store may be forced to close. The current price wars faced by new retail small stores exacerbate this possibility. Regarding price wars, Zhang Sheng, vice president of Lawson China, once said that price wars are a prelude to convenience store closures. The reverse acquisition of 7-Eleven in the United States by 7-Eleven Japan, as well as the collapse of other well-known chain enterprises, were all due to price wars. Therefore, new retail small stores, which have been busy with rapid expansion, are facing dangers brought by price wars. So, what is the reason behind the price wars of new retail small stores? Price war is an unavoidable choice for new retail small stores There are actually two reasons for the price wars encountered by new retail small stores. On the surface, the reason new retail small stores encounter price wars is the overlap in site selection in popular commercial areas, and everyone is fighting for market share, so they do not hesitate to burn money to compete on price. Because the density of new retail small stores and other traditional convenience stores in bustling commercial areas is too high, and the products they sell are similar. The degree of product homogeneity between new retail small stores and traditional convenience stores is very high, basically consisting of food and fast-moving consumer goods with high purchase frequency and daily rigid demand. So when these small stores selling the same products gather together, they start to compete on price. In fact, there is another deep reason for the price wars encountered by new retail small stores: At present, it is a critical period for new retail exploration. Since the new retail small store model has not yet been proven, everyone has to use the "hardcore" approach of price wars to gain more survival opportunities. After all, no one can yet determine what the best model for new retail small stores is, so all current new retail small store models are trial balloons. Since they are trial balloons, they are naturally more willing to try various possibilities. In other words, the trial models still need optimization and adjustment, so new retail small stores are in a stage of constant adjustment. For a long time, the entire new retail small store sector has inherited the new retail industry's usual practice of burning money to attract traffic and grab market share, that is, regardless of whether the emerging model is truly feasible, everyone rolls up their sleeves and goes all out, opening stores and expanding, until everything ends in a mess. Under rapid expansion, new retail small stores have to achieve store counts, so site selection is hasty, resulting in many poorly located stores. Let's compare a set of data: FamilyMart took 10 years to open 2,500 stores; Meiyijia took 20 years to open 15,000 stores; while Suning Xiaodian opened 8,000 stores in just one or two years. It can be seen that compared with the more steady expansion pace of FamilyMart and Meiyijia, Suning Xiaodian's expansion speed has a strong internet flavor. The overly rapid expansion of new retail small stores is often accompanied by the problem of imprecise site selection. It is understood that Suning Xiaodian has entered many new communities with occupancy rates below 70%, resulting in low foot traffic and poor performance, and it takes one or two years to nurture such stores. In addition, Suning Xiaodian, backed by Suning and its strong financial advantages, uses high prices to grab location resources in high-traffic communities, leading to soaring costs. And many sequelae after rapid expansion are common problems faced by the entire new retail industry. At the 2019 China International Retail Innovation Conference, Carrefour, Suning, and other companies revealed problems in new retail practice, such as upstream-downstream disconnection, low gross margins, and big data remaining superficial. Therefore, the price war can be said to be one of the many sequelae of the rapid expansion of new retail small stores, and its root cause is that the new retail small store model has not yet been proven. Is the next step for new retail small stores to "go downward"? In general, the new retail small store format is still in the polishing stage. So how should existing new retail small stores behave at this stage? Should they continue to burn money to expand? Or should they readjust their direction? In fact, for a model with convenience store characteristics like new retail small stores, companies should compete on how to provide better services at the same cost, rather than the lower the product price, the better. The approach of competing on price will only end in mutual destruction. Short-term low prices may be able to fight to death some companies without sufficient capital backing, but in the process of price competition, they themselves also suffer considerable losses. Instead of clustering in bustling commercial areas, it is better to focus more on the sinking market, making relatively sparse areas or second- and third-tier city markets the development focus. According to the "2019 China Convenience Store Development Index" released on May 13, the convenience store market in first-tier cities is becoming saturated and the difficulty of opening stores is increasing, but the market space in second- and third-tier cities is relatively large. The report covers 36 cities, including 30 provincial capitals and municipalities directly under the central government (excluding Lhasa), as well as 4 separately listed cities and 2 other cities. The report also shows that in first-tier cities like Guangzhou and Shanghai, there is one convenience store for every 3,000 people, while in second-tier cities like Nanning and Hefei, the convenience store saturation is 15,000 people per store. It can be seen that the convenience store market potential in second- and third-tier cities is huge. Therefore, focusing on the second- and third-tier city markets should be a wise choice for new retail small stores, because the competitive pressure is much smaller, and perhaps they can more flexibly leverage the retail advantages of the giants. In addition, new retail small stores should also differentiate themselves from traditional convenience stores, accelerate the integration of online and offline, and fulfill the original intention of new retail to share online and offline traffic. In any case, fully leveraging the advantages of online-offline integration is beneficial and harmless for new retail small stores to accelerate the model's success. Source: Liu Kuang public account (ID: liukuang110)