Click the image for details. Article reposted from Pintu Business Review, ID: pintu360

Introduction: The author has been involved in e-commerce since 2009 and started an internet e-commerce venture in 2011, helping traditional industries integrate and transform with the internet. After witnessing the tremendous impact and disruption of new economy and new models represented by BAT on traditional distribution, retail, data, and finance, the author reflects on the maze of China's new retail and explores the underlying drivers, following the opening of Beijing's first unmanned convenience store, Yishijia.

During my entrepreneurial journey, many traditional enterprises unwilling to change and transform fell behind, and their traditional offline advantages did not translate online. Conversely, some traditional enterprises that actively embraced the internet and e-commerce achieved curve-overtaking online. After 2014, with the listing of platform e-commerce companies, the era of B2C competition ended. In the post-e-commerce era, Alibaba proposed new retail and aggressively expanded into offline business. With the rise of new consumer markets and the maturation of new technologies, offline retail formats have become new scenarios for service and technological innovation.

However, just as traditional enterprises viewed e-commerce, traditional retail enterprises harbor fear, skepticism, and denial towards new services and technological innovation. I have exchanged different thoughts and views with many in the industry and found that the differences stem from varying understandings and cognitions of business. Therefore, I have summarized my recent thoughts and views on retail services.

The key to seeing through the new retail maze is not to judge any new retail species based on past knowledge and understanding, but to actively embrace change, learn from the development experience of foreign retail businesses, recognize the key factors in retail evolution, and establish new business cognition.

From New York's Retail Landscape to China's Retail Trends

From the mainstream six channel formats dominating retail services in metropolitan New York:

First, Whole Foods' fresh food-centric kitchen retail service center. This type features one-stop fresh food services, emphasizing certified and organic food, with consumers accepting higher markups, primarily serving household grocery needs.

Second, CVS and Walgreen, focusing on drugstore, health foods, fresh food, and daily chemical products, meeting the health product procurement needs of professional consumers. This also reflects the strong demand for health products among American consumers and market opportunities from an aging population.

Third, one-stop food services combining dining, coffee, and convenience consumption, similar to convenience store formats, meeting individual consumers' meal and light meal needs. Similar to convenience stores in China and Taiwan, interestingly, 7-Eleven in the U.S. does not have the advantageous position it holds in Japan and Taiwan, primarily because American grocery stores have rapidly evolved to complete the retail + dining service transformation.

Fourth, other brand and category retail stores, including department stores, services, and furniture. Apple, Footlocker, Tiffany, JCPenney, Macy's, Gap, H&M, etc., are retail dominators in their respective territories.

Fifth, chain store service systems, represented by Starbucks, Dunkin' Donuts, McDonald's, and bakery-café services.

Sixth, café one-stop coffee and steak services, with relatively dispersed brand stores offering differentiated products and services, with consumption scenarios centered on experience, socializing, and dining.

Seventh, Costco, Walmart, etc., meeting suburban one-stop shopping needs with warehouse club models, offering advantages in low prices and overall supply chain services.

Implications for China's retail formats:

First, high-frequency coffee, bread, and food have become the main competitive markets across various categories. The boundaries between dining and convenience stores are extremely blurred, and composite convenience store formats will erode single-format businesses.

Second, supermarket opportunities lie in special categories like fresh food and drugstore items, characterized by supply chain professionalism and service differentiation. Drugstore chains with control over backend supply chains will have long-term advantages in dominating special categories.

Third, special categories like Starbucks provide premiums for service and brand consumption, thus possessing strong consumer recognition, emotion, perception, social, and experience value, giving them strong competitive power. The coffee market is segmented into a $1.5 low-end market and a $5 high-premium market, with essentially no middle ground. High-frequency convenience store consumption will capture a large share of the mid-to-low-end coffee market.

Fourth, the U.S. retail landscape is diverse, with warehouse clubs being only a part. In China, the proportion of large warehouse-style supermarkets is too high and will decline rapidly in the future, while small formats with service functions will replace homogenized supermarket models.

Fifth, agricultural wholesale markets or regional agricultural markets will ultimately disappear in mega-cities. In New York, Barcelona, and Taipei, most wholesale and retail markets have been replaced by specialized transport vehicles. Although this process is long and painful, the outcome is inevitable. Thus, most cities retain wholesale markets for tourism, experience, and special cultural preservation, but they are far from their original market significance.

Understanding China's New Retail Market with 'Five New Thinking'

Entering 2017, new retail service formats represented by Hema Fresh and small convenience store formats like 7-Eleven have become new retail trends in China. When I discussed these interesting topics and formats with many industry and financial journalists, I found that the richness and diversity of China's new business environment have far exceeded other countries. Especially after China integrated mobile internet technology and smart hardware technology into scenario innovation, coupled with a massive user base, any new business model seems to have highly imaginative commercial prospects.

When new formats and species first appear, we often exhibit two extreme views. On one hand, representatives of traditional business often one-sidedly deny them, relying on traditional business foundations and experience, showing excessive resistance and rejection to new formats and services. On the other hand, representatives of media and capital give excessive irrational reports and praise to many innovative business enterprises. These are not conducive to the healthy development of Chinese innovative enterprises. In my view, to rationally see through new business innovation models, one must first establish correct business cognition and assumptions.

For example, the recent hotly debated unmanned convenience store model in capital and industry circles. The pessimistic camp presents various viewpoints, criticizing the model's problems from store cost and operational profit calculations to user experience and product promotion costs, to the extent that Kai-Fu Lee recently called for more tolerance for new unmanned convenience stores rather than dismissing them outright. This requires us to possess five new business thinking modes:

New Technology: We have taken stock of the retail infrastructure affecting retail innovation, including RFID tag technology, chip processors, cloud computing, sensors, robotics, computer vision, intelligent video analysis, speech recognition, automatic speech processing, emotion recognition, data mining, AR/VR, biometric payment, mobile payment, machine learning, and deep learning, covering over a dozen technology fields and involving more than 200 technology service companies. These can improve various aspects of retail scenarios, including product recognition, self-checkout, product navigation, indoor positioning, video surveillance, supply chain management, CRM data, customer service, customer identification, and behavior tracking.

From this perspective, with the intelligence and digitalization of retail infrastructure, the trend towards smart stores is inevitable. In this sense, unmanned convenience store companies like F5 and BingoBox are just the beginning of tech-driven smart retail stores.

New Demographics: China's demographic dividend from labor has passed, but the consumption dividend from its population is just beginning. The rise of the middle class is driving demand for quality consumption upgrades; the shifting needs of different age groups are driving rapid growth and decline in various market segments. For example, the rapid growth of the maternal and infant product market benefits from the baby boom of the post-80s generation; while the post-00s and other emerging generations are gradually entering the consumer market, bringing new consumption concepts and markets.

Population consumption upgrades and diversification are driving retail formats towards small-format and quality service trends. Retail stores, in addition to product display, merchandising, and sales, also need to provide diversified and convenient services, such as convenience stores selling more fresh food, fruits, coffee, and other high-value-added products and services.

New Cities: According to the latest population statistics, the net inflow of population into Beijing, Shanghai, Guangzhou, and Shenzhen has significantly slowed, while cities like Hangzhou, Chengdu, Nanjing, and Xi'an have begun to formulate new talent attraction strategies and industrial support policies, with rapid population inflows, becoming new first-tier cities.

These new first-tier cities bring new urbanization and retail markets. Compared to first-tier cities, new first-tier cities have lower rent and public costs, yet have substantial population demand. Therefore, more and more retail enterprises are beginning to rely on new first-tier markets to expand their retail territories, and new first-tier cities have become the second front for retail service innovation.

New Services: In markets with developed convenience store formats like Japan and Taiwan, small-format retail stores play a role in serving the last mile for consumers. In addition to product sales and services, convenience stores offer coffee, financial services, express delivery, and various other services.

There are two reasons for this: 1. The customer frequency and efficiency required by retail make convenience store formats substitute for other low-frequency, inefficient formats; 2. Population aging and time cost factors have led retail formats to carry more service forms.

For example, in the U.S. retail landscape, in addition to the combination of central kitchens and retail stores, there is also the combination of drugstores and retail formats. In China, it is foreseeable that composite formats such as retail + dining services, retail + community services, and retail + medical health services will emerge.

New Capital: Internet, traditional retail, new service enterprises, VC, and industrial capital are all positioning themselves in the retail market from multiple angles. JD.com, Alibaba, logistics, B2B, foreign capital, and various other players are entering the main retail battlefield with substantial capital. From this perspective, the retail battlefield requires huge investment and has long cycles, far from a game for small capital. Moreover, the battle is influenced by many factors, and different investment entities have their own resources and strategic visions, leading to richer and more complex innovation and evolution in China's future new retail market.

From an entrepreneur's perspective, on one hand, talent from retail + internet is flooding into the new retail market, with many executives from internet and retail companies starting businesses, such as the founder of Hema Fresh, a former internet executive. This makes retail market competition more professional, raising the threshold for retail investment and entrepreneurship, and capital demands higher standards for startup projects. Therefore, from both capital and practitioner perspectives, this is a game for the few.

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