First, a reminder: this article is difficult to read, but it is important for brand owners seeking a way out in the new retail environment.
- Five key conclusions of this article:
- New retail in some categories engages in "vertical integration," covering production, distribution, and retail, leaving no role for brand owners.
- New retail "connects with the C-end and captures users," achieving user privatization, which may allow retail brands to cover manufacturer brands, marginalizing brand owners.
- New retail's C2F (or C2B) logic means retailers may surpass brand owners in understanding user needs, weakening brand owners into mere producers, with added value shifting from brand owners to retailers or retail platforms.
- The dilemma of "doing XX is suicide, not doing XX is waiting for death" may reappear in the new retail era.
- The biggest beneficiaries of new retail may not be retailers but retail support platforms, mainly through financial gains.
01 In recent years, convenience stores have developed rapidly in big cities, such as 7-Eleven, FamilyMart, and Lawson. I found that in big cities, the largest source of revenue for convenience stores comes from "cooked food," which is high-frequency and essential.
I asked the largest cooked food producer in China: Why don't you supply them?
The boss replied: Convenience stores mainly have two types of products: daily necessities and cooked food. Because big cities have eliminated civil society, the traditional food ecosystem has disappeared, such as the breakfast, lunch, and dinner of "single dogs," so cooked food has become standard in convenience stores. Daily necessities don't make money; cooked food does. Because cooked food is profitable, they engage in "vertical integration," covering production, distribution, and retail to capture all profits.
Vertical integration, capturing all profits, leaves no role for brand owners. This is terrifying!
I suddenly understood. Cooked food production and retail stores were originally in a professional division of labor, one producing, one selling. But convenience stores broke this relationship and did vertical integration.
Retailers' vertical integration is a nightmare for brand owners.
Now Yonghui and Hema are also vertically integrating their fresh produce. Vertical integration means convenience stores are more interested in producers than brand owners.
Vertical integration also means that commercial brands (retail brands) cover manufacturer brands. Brand owners with added value risk becoming OEMs without added value.
The nightmare of new retail for brands is the coverage of manufacturer brands by retail brands. If retailers gain an absolute traffic pool, vertical integration is inevitable.
Vertical integration makes way for brand owners to step aside.
02 Liu Zhao, founder of Waiqin 365, said, "New retail is a nightmare for brand owners," and proposed that "brand owners must hold the gun."
All viewpoints have positions; this statement is clearly from the brand owner's perspective.
Currently, brand owners' marketing is in a "window period." The voice of new retail is rising, and many brand owners are embracing it. Proposing "new retail is a nightmare for brand owners" is timely, aiming to wake up those brand owners who are lost but chasing new retail trends.
The interests of brand owners and retailers are naturally hedged, and this does not change with the emergence of new retail. However, the subject of new retail here may not necessarily be retailers, but more likely retail support platforms.
We can recall the history of games between brand owners and retailers; it has always been so.
In the past, even retail giants like Walmart had a small share of retail. In the future, new retail platforms may integrate scattered retail institutions, which will be the beginning of hard times for brand owners.
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03 Let's start with traditional retail.
All retailers, whether street stores or KA, follow a rule in their product mix: use famous brands to attract traffic, and use non-famous brands to make money.
Street stores do this: sell famous brands when consumers specify them, and push high-margin non-famous brands when not specified. Famous brands have transparent prices and don't make money; non-famous brands have opaque prices and make money.
KA's logic is similar, but they charge various fees, such as entry fees, display fees, and shelf fees, totaling dozens.
For products like Coca-Cola, even if they don't make money, they must be displayed in the best position, while other brands are priced according to demand. Some brand owners sell for months but their sales revenue is not enough to cover KA fees; many weak brand owners have encountered this problem.
To use an analogy, retailers open a store, and if they have traffic, they charge; if not, they close. Early on, some suppliers resisted, but later they got used to it.
Getting used to it means compromise, not that there is no conflict of interest. So, at that time, a popular saying among KA was: "Not doing KA is waiting for death; doing KA is seeking death."
04 Now let's talk about traditional e-commerce.
Taobao initially empowered some merchants and supported some "Taobao brands," so Ma Yun shouted early on, "Make it easy to do business."
What does it mean to have no difficult business? Tmall's entry threshold is not high compared to traditional KA. That's a bit easier. However, how high e-commerce traffic fees are is an open secret, whether you do e-commerce or not.
Of course, some brands didn't pay much traffic fees because they bring their own traffic. Most traditional brands can't do that. But some new internet brands, which we call IPs, have achieved it because IPs bring their own traffic.
If you bring your own traffic, platforms welcome you because you can empower the platform. If you don't, you have to buy platform traffic.
Therefore, e-commerce merchants also have a saying: "Not doing e-commerce is waiting for death; doing e-commerce is seeking death."
Not doing XX is waiting for death; doing XX is seeking death. This saying will always apply, indicating that the interests of brand owners and retailers are naturally hedged.
05 Finally, let's look at new retail.
There are many definitions of new retail, but no consensus. My understanding is that things like unmanned retail, electronic payment, and new experiences are not the mainstream of new retail. New retail has two key points: one is connecting with the C-end and user privatization; the other is the consumption ecosystem.
In the past, the relationship between retailers and consumers was at most a membership relationship, often in a "disconnected state." "User disconnection" is a viewpoint proposed by new marketing expert Lin Feng, and I agree.
The benefit of mobile internet is that retailers can establish "online relationships" with consumers through internet tools, including apps, mini-programs, and communities.
When retailers have "online relationships" with users, they have a stronger ability to change user cognition and trigger traffic distribution. This ability will eventually become a "charging ability" against brand owners.
No matter how retail changes, the logic of retailers charging suppliers "differential rent" will not change. In the past, good locations charged high fees; now, quality traffic charges high fees. All this can be seen as differential rent. What is differential rent? It means good land should charge more rent.
We can view new retail as turning more land into quality "good land," which only results in charging suppliers more "rent."
The second key point is the ecosystem. An ecosystem means users interact frequently with new retail through online tools. Japanese convenience stores are powerful because they have become places for residents to pay bills. Chinese convenience stores are powerful because cooked food forms an ecosystem.
06 From a business radius perspective, retail has inherent advantages. If new retail completes user "onlineization" and achieves user privatization, it means new retail has a greater ability to "charge" brand owners (differential rent).
Mobile internet as a connection tool has three marketing values: First, through social platforms, brand owners have more resources to share product information and gain traffic attraction; second, brand owners can also use internet tools to achieve user "onlineization," thus completing user privatization; third, as long as users are online, they can obtain big data on user behavior and use AI to seize opportunities.
User privatization allows brand owners to achieve direct sales through short chains, such as social e-commerce, B2C, M2C; or through medium chains, such as KA, B2B; or through long chains for traffic, such as second-tier distributors.
The opponent's vital point is your own vital point. This is a Go term. Retailers have gained a voice through new retail, but that's not the most critical; the most critical is that they can complete user onlineization. Mobile internet is not a dedicated tool for retailers; it actually makes retailers lose their location advantage. Using internet tools to "connect with the C-end and capture users" is also what brand owners should do.
From the brand owner's perspective, I call this new marketing.
From the retailer's perspective, it can also be said: New marketing is a nightmare for new retail. Because new marketing has the ability to guide traffic, it can change from long-chain sales to short-chain sales, no longer selling through traditional retailers.
Of course, the result must be a balanced ecosystem, where no one is a nightmare for the other. Only if you don't work hard will others always be your nightmare.
07 If vertical integration is only suitable for some products, and user privatization only establishes connections, then the C2B or C2F business models based on user privatization could truly be a disaster for brand owners.
Producing good products makes you a manufacturer; producing products with connotation, added value, and the ability to guide consumer values makes you a brand owner.
The value of a brand owner is: in the product formation stage, it follows C2F logic, i.e., insight into demand; in the product marketing stage, it follows F2C (or B2C) logic, using values to change cognition.
Without the ability to use values to change consumer cognition, you cannot be called a brand owner, but a producer.
New retail's C2F logic is: retailers have insight into consumers, have the ability to use values to change consumer cognition, and then just let producers manufacture the products.
In plain terms, new retailers are doing what only brand owners used to do. In the past, retailers only thought about how to better sell products; now, they think about how to produce better products and then just hand orders to factories.
08 This article does not deny new retail in any way, but one family's joy is another's sorrow.
New retail does what brand owners do; can brand owners do what new retail does? It's possible.
New marketing expert Bao Yuezhong has been advocating new retail, and the new retail he talks about actually includes new marketing.
I think Teacher Bao's thinking has simplified internet commerce as new retail, with new retail leading internet commerce. From a retail perspective, there's nothing wrong with this thinking, after all, viewpoints have positions.
New marketing and new retail are intertwined; from different angles, the subjects and focuses differ.
I see new marketing in the new retail of Three Squirrels, Handu Yishe, and Baicaowei, and I see new retail in the new marketing of Jiang Xiaobai and Uni-President. It's not easy to separate the two.
The world is chaotic. When first understanding the world, it must be so.
Source: Teacher Liu's Forum -END-