---
title: "How Should FMCG Manufacturers Position 'New Retail O2O'—As a Channel, or as E-commerce Was a Decade Ago?"
description: "Over the past five years, e-commerce has rapidly developed, changing consumers' shopping places and habits, and cultivating a digital-era 'consumer mindset.' The COVID-19 pandemic in 2020 further accelerated the shift to online, with many physical retailers expanding their online operations. This article discusses how FMCG manufacturers should position New Retail O2O—whether as an independent channel or as an extension of e-commerce and offline retail—and analyzes the consumers, products, and scenarios involved."
author: "欧以正"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-11-01"
language: "en"
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# How Should FMCG Manufacturers Position 'New Retail O2O'—As a Channel, or as E-commerce Was a Decade Ago?

> Over the past five years, e-commerce has rapidly developed, changing consumers' shopping places and habits, and cultivating a digital-era 'consumer mindset.' The COVID-19 pandemic in 2020 further accelerated the shift to online, with many physical retailers expanding their online operations. This article discusses how FMCG manufacturers should position New Retail O2O—whether as an independent channel or as an extension of e-commerce and offline retail—and analyzes the consumers, products, and scenarios involved.

**Click to read the original article for details.**

In the past five years, e-commerce channels have developed rapidly, changing consumers' shopping places and behavioral habits, and cultivating a 'consumer mindset' for the digital era.

The sudden COVID-19 pandemic in 2020 had a further huge impact on the retail industry. Many shopping malls and restaurants proactively or passively accelerated their online businesses. **Whether it was cooperating with O2O platforms, building their own online mini-programs, or frequently conducting live-streaming and WeChat community business, these were all self-rescue measures for physical retail during the pandemic.**

This reminds people of how SARS in 2003 directly drove the explosive growth of e-commerce. This pandemic has also directly accelerated the new retail transformation of offline retail, making it more digital, more integrated, and more diversified.

One undeniable point is that through the past decade of e-commerce continuously 'educating and cultivating' consumer behavior, coupled with this pandemic, **consumers' shopping behavior will become more online-oriented, and this seems irreversible at present.**

With the push of the new retail wave, outside the traditional pattern of FMCG, platform-based O2O models such as Hema, JD Daojia, Meituan Flash Purchase, Ele.me Supermarket Channel, Taoxianda, and Duodian have emerged. At the same time, traditional supermarkets represented by Walmart, Yonghui, and RT-Mart have begun to try and develop their own O2O platform models.

In the first half of 2020, supermarket O2O overall growth exceeded 120%. Although growth declined after the pandemic, the full-year growth is expected to be over 100%. For the FMCG industry, in the past, over 90% of revenue came from offline channels. During the pandemic, the O2O channel has become a new performance growth point, accounting for about 20% of retailers' business. **According to the Lianshang.com Retail Research Center, the O2O market size is expected to reach 1.4 trillion yuan in 2020.**

In this new situation, major FMCG manufacturers are also following the trend, accelerating their layout or increasing investment in O2O business. Whether through investment, establishment of strategic cooperation with platforms, or organizational structure changes, it shows brand owners' strategic development thinking and determination.

So, **what is the future development prospect of O2O? Will it gradually become an independent channel in the retail market, or will it be an auxiliary derivative of e-commerce or offline retail?** How should FMCG brand manufacturers position New Retail O2O? Let's discuss together.

**-01-**
Let's first look at the 'people,' i.e., who are O2O consumers and where do they come from?

According to Kantar's O2O report for the first half of 2020, O2O consumer penetration is 68%, with an estimated 430 million people. The main consumer profile is aged 25-35, with monthly income above 8,000 yuan, mostly married with children, and women account for over 60%.

Nielsen reports show that in first-tier cities, the O2O model has a significant impact on consumer shopping behavior. Among them, 42% of consumers think shopping is more convenient, 35% think it replaces traditional retail, and 29% have increased their purchase frequency.

Currently, over 80% of Chinese consumers are multi-channel shoppers, with the weight of different channels varying by city. Only 20% of consumers shop through a single channel.

**For O2O consumers, from the perspective of the overall retail market, I personally believe it is not purely new increment, but existing volume converted from other channels. However, for a single brand or customer, it includes both existing volume and increment converted from other brands or channels.**

Simply put, it can be divided into several parts:

**1) Retailers' existing offline consumers shift online**

Retailers, by developing their own platforms (such as Walmart Daojia, RT-Mart Youxian, etc.) or cooperating with public platforms (JD Daojia, Taoxianda, Ele.me, Meituan, etc.), encourage and drive consumers to shop online through in-store promotional materials, out-of-store advertising, community ground promotion, and strong promotions like full reduction and flash sales.

Some may wonder what the benefits are for retailers. Actually, there are many benefits:

First, given the irreversible trend of consumers shopping online, proactively making consumers online but within their own 'territory' can avoid losing consumers.

Second, after consumers go online, retailers can grasp more consumer data. Through mid-platform big data analysis, they can achieve personalized and customized services and product offerings.

Third, retailers can optimize costs. As in-store traffic decreases, per-capita in-store output will decline. By expanding online business, they can further optimize personnel and other hardware, and even use smaller store formats in the future to improve overall sales per square meter (for example, Walmart has opened Huixuan community supermarkets).

**2) Online consumers shift from e-commerce to O2O new retail**

From the perspective of shoppers' needs, whether in offline supermarkets or online B2C supermarkets, the two biggest needs are replenishment (over 70%) and stockpiling (over 50%), and these needs are consistent.

Basic O2O platform experiences, such as 'product delivery time,' 'whether the needed products are available,' 'delivery fees,' and 'promotional intensity,' will influence consumers' platform selection decisions. These are also the most important factors consumers consider when choosing an O2O platform.

Before the emergence of O2O platforms, if consumers did not want to go to physical stores to buy daily necessities and food other than fresh produce, the main platforms available were Tmall Supermarket and JD Supermarket. However, e-commerce platforms generally required at least half a day or even more than a day for delivery.

At the same time, due to operating cost considerations, e-commerce supermarkets mainly recommend large-pack products to consumers, which may exceed their needs (for example, a consumer wants to buy a pack of snacks, but on the platform it is easier to find a combination of 10 packs). For fresh ingredients, consumers still choose physical supermarkets or wet markets to ensure freshness.

After the emergence of O2O platforms, consumers can buy daily or even weekly necessities on the platform at once. A large portion of consumers have returned from original e-commerce platforms to O2O platforms. This is what is called consumers voting with their feet.

Following this trend, e-commerce platforms have also used their relationships with O2O platforms to launch targeted projects to ensure consumers still shop within their own territory. Tmall's same-city retail projects, such as Tmall One-Hour Delivery and Tmall Half-Day Delivery, are carried out through the Taoxianda platform and offline retailers mainly RT-Mart. JD's 'Wujing Tianze' plan also cooperates with JD Daojia, recommending products available from offline retailers on JD Daojia to consumers in traffic distribution.

**3) Offline channel consumers convert from other retailers through platforms**

On O2O platforms, the most popular supermarket store types among consumers are hypermarkets (92%), while small supermarkets and convenience stores are only 54% and 58%. In the ranking of the most popular retailers, the top five are all well-known chain hypermarkets.

From the perspective of consumer shopping choices, when there is already an O2O shopping place that can deliver goods to home within half an hour or 45 minutes, why waste time walking to a convenience store or small community supermarket near the community to buy goods?

Even if these stores also exist on the platform, whether in terms of the number of products available or price (for the same product, convenience stores and small supermarkets are usually 10% to 20% more expensive than large retailers), consumers who originally shopped at convenience stores or small supermarkets for convenience will naturally switch to other channels when they have better and more convenient options.

**In addition, among retailers in the same business district, there will also be consumer shifts through online platforms.**

For example, the nearest supermarket to Consumer A's home is Carrefour, 1 km away, followed by RT-Mart, 2.5 km away. A usually shops at Carrefour mainly because of the distance, but RT-Mart provides a better shopping experience. However, for convenience, shopping at Carrefour remains A's main choice.

But when O2O platforms appear, the difference between 2.5 km and 1 km is almost negligible on the phone screen; both are completed by clicking. In this case, A increasingly chooses to shop at RT-Mart's O2O store. Thus, through the O2O platform, RT-Mart has converted Consumer A.

**Summary: For the overall retail market, O2O consumers are existing volume, but for different channels and merchants focusing on different channels, it is an increment. Therefore, manufacturers should judge the significance of O2O for their own business growth based on their own situation.**

**-02-**
Let's also look at the difference between the 'products' on O2O and those offline and in traditional e-commerce.

Offline retailers usually have about 50,000 SKUs. In terms of categories, besides the core categories that O2O focuses on, such as daily distribution and cold chain, fresh fruits, meat, eggs and aquatic products, snacks, daily cleaning, rice, flour and oil, there are also non-core categories like home appliances, books, and textiles.

At the same time, within the same category, O2O requires precise control of goods due to picking and delivery efficiency requirements. **Therefore, in terms of the number of products supplied: e-commerce > offline retailers > O2O online stores (3,500-5,000 products).**

Although it is less than one-tenth of the total products in offline stores, the products listed online are often the core single items in terms of brand sales weight, contributing about 80% of business.

For brand owners, because the products available on O2O platforms are more concentrated, limited, and more branded, if consumers previously chose some emerging brands when shopping on e-commerce platforms or offline channels, but these brands do not appear on O2O platforms (either not distributed offline, or distributed but not listed on O2O due to insufficient sales weight),

**a large portion of consumers will switch to buying products available on O2O platforms, especially for products with low differentiation and strong impulse purchase drivers. This will help big brands increase their penetration and market share among consumers, and is also a source of increment for brand business.**

In addition to core single items, the characteristics of O2O platform consumers (younger, higher income) also give retailers and brand owners the opportunity to appropriately add some personalized products that conform to consumer trends, just like Hema often launches fresh products directly sourced from production areas (such as pre-sale free-range chickens, pre-sale winter bamboo shoots).

Or imported or customized products that cannot be bought at other snack stores, to meet the needs of main consumers. At the same time, through e-commerce-style pre-sale models and big data analysis, it also better helps the supply chain backend to optimize and improve efficiency.

For O2O platforms, the ownership of goods still belongs to retailers. The platform does not have the right to decide which products are sold; it can only influence retailers to make the most reasonable choices through data and activities. From this point, retailers will consider the stores on the platform as an extension of the retailer online.

**Although for platforms, not controlling goods avoids heavy assets (warehousing, logistics, hardware costs) to a certain extent, they are indeed constrained by retailers' choices in goods. Whether it is Watsons, Walmart, or other top retailers, they have always required brand owners to allocate resources invested on the platform through them.**

In March this year, Walmart issued a formal notice to brand owners, requiring fees for products sold online at Walmart (including Walmart stores on JD Daojia, JD Walmart flagship store, etc.), otherwise they would be removed from the shelves.

This happened before the 415 JD Daojia anniversary celebration. For some suppliers who did not cooperate, Walmart did remove them after the specified time, ultimately affecting the overall performance of related brand owners on JD Daojia in April. Although most brands later restored their original online distribution, who can guarantee that similar things will not happen again, especially when retailers are indeed operating online business at a 'loss'?

The triangular relationship in the O2O model (platform-brand-retailer) is more complex than the brand-e-commerce relationship in e-commerce. Retailers will increasingly want to use the 'goods' right to demand higher initiative in future cooperation with brands and platforms.

**Although not controlling goods is currently the consistent practice of O2O platforms, it cannot be ruled out that O2O platforms will not develop their own 'goods-controlling' business at an appropriate time in the future.**

In May this year, Meituan launched Meituan Maicai. According to observations, Meituan Maicai's model has its own procurement and management model (more similar to Miss Fresh and Dingdong Maicai). Regardless of future success, as the O2O platform with the largest daily active users, Meituan has taken the lead in making an attempt, which has certain reference significance for other platforms.

**After O2O accumulates more data in the future, it will definitely use data in the form of 'C2B' to influence retailers and brand owners, using finer geographical granularity to develop products more suitable for consumers and more reasonable product combinations.**

**-03-**
From the perspective of 'place,' compared with e-commerce and offline retailers, O2O, due to its 'instant' attribute, can faster and better create and meet current needs. Consumers have basically achieved the convenience of shopping anytime, anywhere. It can be said that as long as there is a screen and network, transactions can be completed.

**In the future, with the further maturity and development of AR/VR technology, consumption scenarios will achieve true ubiquity, and what you see is what you get.** This will also greatly enhance the consumption experience of 'people.' This extension of enhancing experience and increasing consumer stickiness is also an important touchpoint that e-commerce and offline retailers hope to further 'capture' or 'maintain' consumers.

Brands and platforms should, based on data analysis, study how to create scenarios and tap potential needs, so that consumers can have more joint purchases, more reasonable but gradually increasing average order values, and higher shopping frequency. Through this, they can achieve that 'existing' consumers converted from any channel can generate more 'new increments.'

**Final Thoughts:**
In summary, regarding whether New Retail O2O is a channel or e-commerce from ten years ago, I believe everyone has their own thoughts.

Personally, **from the perspective of where consumers complete purchases, O2O can be defined as a separate channel.**

But from the state of cooperation between O2O platforms and e-commerce and offline retailers, it is more like a channel extension based on new technologies and new demands. This extension, like e-commerce ten or fifteen years ago, meets the new needs of post-80s, post-90s, and even Generation Z consumers, and has great space for further iteration in the future.

For brand manufacturers, what needs to be considered is not just the development of a single channel, but based on the brand's own characteristics, **continuously innovate around core consumer needs, combine consumption scenarios, think globally about category layout and channel layout, and use the tripartite cooperation of e-commerce, O2O platforms, and retailers to maximize brand investment efficiency.**


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