---
title: "Instant Retail Will Ultimately Return to Local Supply"
description: "Why is instant retail developing faster in first- and second-tier cities? The recent buzz around instant retail has sparked key questions: Is the key to its development the fulfillment capability supporting 'instant' delivery, or the more fundamental local supply? The answer lies in local supply, as delivery speed is merely the entry threshold, while the richness of local supply determines the ceiling of instant retail's growth."
author: "孟祥飞"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2022-09-10"
language: "en"
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# Instant Retail Will Ultimately Return to Local Supply

> Why is instant retail developing faster in first- and second-tier cities? The recent buzz around instant retail has sparked key questions: Is the key to its development the fulfillment capability supporting 'instant' delivery, or the more fundamental local supply? The answer lies in local supply, as delivery speed is merely the entry threshold, while the richness of local supply determines the ceiling of instant retail's growth.

Why is instant retail developing faster in first- and second-tier cities? The recent buzz around instant retail has sparked some core questions: Is the key to its development the fulfillment capability that supports 'instant' delivery, or the more fundamental local supply?

Late-night urgent mosquito repellent, a forgotten adapter during a business trip, painkillers not stocked at home, or simply the consumer demand when feeling too lazy or homebound to go out... Instant retail has entered the consumer market with its unique attribute of '30-minute instant delivery.' While repeatedly helping consumers solve life's annoyances, it is also pushing the retail industry to a new level.

Current research on instant retail often falls into a misconception of 'seeing only the instant, not the retail,' that is, being overly attracted by the superficial 'speed' of delivery while neglecting the retail essence behind it.

Consumption ultimately returns to goods and services. Therefore, the key to answering the above questions lies in: Where does the 'goods' in instant retail come from?

In fact, the premise of '30-minute delivery' is that these products with immediate and occasional demand, such as mosquito repellent, adapters, and painkillers, are available in physical stores within 5 kilometers of the consumer, enabling a complete experience from purchase to satisfaction.

Without local supply from physical stores, no matter how fast the delivery speed, it would be spinning its wheels. The extent of local supply that physical stores can provide determines the ceiling of the instant retail format's development in that area. When the local retail format is more prosperous, more densely laid out, and lower in cost, instant retail can continuously meet more consumer demands and burst with stronger vitality.

Therefore, a more in-depth research perspective is: **Delivery capability is only the basic threshold; local supply is the key to determining the future development space of instant retail.**

**01 Misconception in Instant Retail: Seeing Only the Instant, Not the Retail**

Regarding instant retail, the industry generally accepts the definition as a retail format that uses the high-speed fulfillment capability of instant logistics to expand and connect local retail supply such as physical merchants and warehouses, serving consumers' immediate needs.

Its most intuitive features are fast delivery, generally within 1 hour, corresponding to instant delivery; and short delivery distance, with goods mainly supplied from offline physical stores within 5 kilometers of the consumer, corresponding to local supply.

However, in some industry analyses, the 'short delivery distance' feature of local supply is easily overlooked because the visible effect is still fast delivery. As a result, in industry research on instant retail, the importance of instant delivery is repeatedly discussed.

An example is that companies with instant delivery capabilities such as Dada, Fengniao Delivery, and SF City Express are often included in the instant retail category, but strictly speaking, are these companies formal players in instant retail? The answer is clearly no.

Compared with core instant retail players like JD.com and Meituan, which are instant retail platforms, Dada, Fengniao, and SF are actually just one link in the instant retail format. The fundamental difference is that the latter do not connect to local supply, or their supply is not rich enough. Taking SF City Express as an example, although it has launched a 'buy for me' service, the supply is scarce, orders are not saturated, so delivery costs are higher, and the business is difficult to sustain.

Retail is terminal to people, and instant retail highly depends on whether physical stores near consumers can provide sufficiently rich product supply. Taking Meituan as an example, its advantage in instant retail lies on one hand in the instant delivery capacity accumulated from delivery, and more importantly, in Meituan's long-term deep cultivation of local life services, accumulating the ability to connect various offline physical formats.

For instance, if a consumer urgently needs a belt, and a nearby physical store offers the product on an online retail platform, the consumer can complete an instant order to buy the belt. When more than one store nearby can supply belts, the consumer has a better shopping experience of online selection and price comparison, achieving a more efficient and cost-effective consumption experience.

Conversely, if there is currently no local supply of belts near the consumer, even with sufficient delivery capacity, the consumer's instant retail demand cannot be met. But we often overlook the importance of local supply because of the eye-catching timeliness.

**02 Fulfillment and Delivery Are Infrastructure; Local Supply Determines the Development Ceiling**

As early as 2014, young people in China had already become familiar with food delivery. At that time, the core of the model consisted of four parties: demand side, supply side, delivery side, and platform. Today, the industry is hotly discussing instant retail, which is simply understood as an extension of food delivery categories—from 'food delivery to home' to 'everything to home'—and its core remains the above four participants.

The model seems unchanged, but why has the wave of instant retail concentratedly erupted this year? Some attribute this to the pandemic. During the pandemic, express delivery was blocked, and only local supply and local delivery could still flow, which for the first time stimulated large-scale instant retail demand at the micro level—during the pandemic, everyone used food delivery as express delivery to ensure the circulation of daily necessities.

But in fact, the pandemic is only a catalyst. Such exogenous shocks accelerate the formation of trends but do not change the direction of trends.

Fundamentally, instant retail is driven by consumer demand. Traditional e-commerce mainly solved large-scale, standardized planned demand, while immediate and scattered demand was actually unmet. Catalyzed by the pandemic, the mismatch between immediate demand and supply became prominent, further stimulating and amplifying immediate demand.

So why could it not be solved before, but can be solved now? Because after the development of offline physical commerce, supply has caught up.

Figure: National Bureau of Statistics data shows that China's urbanization rate has continued to rise steadily, reaching 64.72% in 2021.

The widespread deployment of the internet has allowed a large number of Chinese consumers to experience the convenience of online shopping, and even in some remote areas, online shopping has been popularized. Most crucially, China's physical commercial forms have made tremendous progress, and urban consumption formats have been greatly enriched. By 2021, China's urbanization rate reached 64.72%, while in 2010 it was less than 50%, indicating the rapid development and high prosperity of social production and service levels.

The '2019 China Convenience Store Development Report' released by the China Chain Store & Franchise Association shows that in 2018, the top 100 convenience store companies in China achieved sales of 226.4 billion yuan, an increase of 19%; the number of convenience store outlets nationwide reached 122,000. According to National Bureau of Statistics data, 20 years ago in 2002, there were fewer than 3,400 convenience stores nationwide, supermarkets just exceeded 10,000, and department stores were only 1,551.

It is the extremely rich offline supply that provides the soil for the development of instant retail. The number of convenience stores has increased tenfold, which means that theoretically, local supply has increased tenfold, and the number of products consumers can choose from has also increased tenfold. When the commercial forms near consumers are sufficient to support their complete consumption needs, coupled with the delivery capability of 30-minute delivery, the instant retail format thrives.

As urbanization further accelerates and the construction of 15-minute living circles accelerates in various places, offline retail formats will continue to enrich, and instant retail will also usher in greater macro opportunities.

As for instant delivery, it is a complex system involving 'warehousing, picking, and distribution,' but this system is only the basic threshold for instant retail. From next-day delivery, 1-hour delivery to 30-minute delivery, instant delivery capability has always been a way or bridge connecting goods and consumers. This capability with sharing attributes will eventually become an industry standard, like e-commerce express logistics, and integrate into the industry's infrastructure.

**03 The Future of Instant Retail Will Compete on the Density of Local Supply**

Instant retail relies on local supply for its existence. The richness of the offline physical retail formats in a region often determines the development space of instant retail.

It is also because the commercial prosperity of each region differs that an imbalance between regional demand and supply is naturally inevitable. For example, first- and second-tier cities have relatively complete offline physical richness, so instant retail formats naturally develop faster. Communities with more surrounding supermarkets and stores will also have a better instant retail service experience, such as more online product choices, higher cost-effectiveness, faster delivery speed, and so on.

Overall, the instant retail format is still in a stage of insufficient supply, which also brings opportunities for local retailers and local brands. Because demand often shows a concentrated outbreak trend in a short period, but the filling and development of the supply side is lagging and slow, so in the early stages of instant retail development, some regions may see excessive demand and insufficient supply, leading some retail participants to spontaneously establish new physical forms to make up for supply, such as new physical forms like flash warehouses, as well as self-operated models like JD Daojia and Meituan Maicai.

Figure: A delivery rider is delivering an instant retail order from an offline convenience store.

Unlike the 'zero-sum game' competition model between e-commerce and physical retail in the past, instant retail and physical retail complement each other and thrive together. First, instant retail has become an incremental channel for small physical stores. For example, a small supermarket in Tongzhou, Beijing, recently reported by CCTV, achieved monthly sales of one million yuan through instant retail; for example, Sephora stores saw a 695% surge in Meituan orders on Qixi Festival, enjoying holiday dividends that offline stores had never experienced before. Similar retailers, brands, or warehouse networks with regional physical warehousing and service capabilities are the first wave of beneficiaries of instant retail, including small and micro formats such as convenience stores and grocery stores, as well as medium and large supermarkets, and brand offline direct-operated stores.

Second, in the instant retail model, local physical retail such as convenience stores and offline stores directly provide product retail services to consumers. Therefore, the richness of local supply, quality stability, and cost advantages compared to e-commerce platforms naturally become an important part of determining consumer experience. Only when the local retail format is more prosperous, more densely laid out, and lower in cost can instant retail meet more consumer demands.

Ultimately, the instant retail format will enter a virtuous cycle. In areas where local physical retail is prosperous, new formats such as instant retail will emerge, and this new format will in turn feed the further growth of local physical retail. The revitalization and development of the local physical economy will continue to boost a new round of growth spiral. Instant retail and physical retail are essentially symbiotic and mutually prosperous.

This cycle has already begun to take shape. For example, according to a report by Nanguo Morning Post, from January to July this year, Meituan data showed that instant retail orders for convenience stores in Guangxi increased by 42% year-on-year, large supermarkets by 119%, and mom-and-pop grocery stores by 317%.

Therefore, the key to the further development of the instant retail model is the richness of local supply, and the future is about the competition of local physical density.

In an ideal future scenario, local supply is highly developed, all consumers' immediate needs can be instantly met, almost all product categories can be included in the scope of instant retail, and there is abundant supply to choose from. Moreover, with the maturity of the format and the development of technology, delivery capabilities can be further improved, unlocking higher efficiency, lower costs, and more scenarios.

Source: Cayman 4000 (ID: kaiman4000)


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