---
title: "Rethinking the Logic of the Shelf"
description: "The article discusses how the logic of shelves differs between online and offline retail, emphasizing that offline shelves must be adjusted by time and customer group, while online platforms use algorithms to offer personalized product combinations. It introduces the concept of three generations of retail models in China and argues that the emergence of the third generation (e.g., community group buying, discount stores, interest e-commerce) has fundamentally changed the value chain, transaction logic, and the importance of scenarios, requiring brands and distributors to adopt a three-dimensional channel perspective."
author: "赵波"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-10-05"
language: "en"
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---

# Rethinking the Logic of the Shelf

> The article discusses how the logic of shelves differs between online and offline retail, emphasizing that offline shelves must be adjusted by time and customer group, while online platforms use algorithms to offer personalized product combinations. It introduces the concept of three generations of retail models in China and argues that the emergence of the third generation (e.g., community group buying, discount stores, interest e-commerce) has fundamentally changed the value chain, transaction logic, and the importance of scenarios, requiring brands and distributors to adopt a three-dimensional channel perspective.

**Different Operating Logics Online and Offline**

Earlier, I had a conversation with Su Xiaoxin, President of Zhongshang Huimin. He shared a phenomenon he observed while visiting the market in Taiwan: 7-Eleven convenience stores are very small, and with limited shelf space, the cold cabinet shelves are adjusted five times a day. They must constantly change the product mix on the shelves to meet the consumption needs of nearby customers at different times of the day. For example, they sell rice balls in the morning, coffee in the late morning, boxed lunches at noon, afternoon tea in the afternoon, bento boxes in the evening, and beer for late-night snacks. This inspired me: the product mix on the shelf is the retailer's solution to consumer demand.

Offline shelves must be adjusted according to time and customer group to meet user needs. Online, consumers have limited attention and cannot spend much time browsing many products, but platforms can provide various search or algorithmic mechanisms to help you find satisfactory products. Therefore, e-commerce platforms must achieve "thousands of people, thousands of faces" (personalization), providing product combinations based on different user profiles, behaviors, habits, and locations to meet user needs. You see, although the essence of shelves—both online and offline—is to provide demand solutions, the operating logic is significantly different.

**Distribution and Sell-Through**

Marketing work can be broadly summarized into two aspects: distribution and sell-through.

In offline trade marketing, people usually talk about channels and terminals, rarely mentioning shelves. But if you think carefully, aren't all our marketing activities essentially centered around shelves? Whether it's distribution or sell-through, it's actually a series of marketing management tasks implemented on retail store shelves.

We actively drive sales representatives to get more products into more terminal stores, and also to achieve product visibility and multi-point displays along consumer traffic paths. Every marketer should be familiar with this, but have you ever thought that this is a marketing management model built on a relatively single type of retail format with a huge number of stores? In other words, this model can only adapt to very few types of channel terminals. For brand owners, planned consumer goods categories only need to focus on modern trade. Immediate consumption categories only need deep distribution in traditional channels (mom-and-pop stores + restaurants). For distributors, the business logic of products, inventory, market, personnel, incentives, etc., is relatively simple. The value chain from factory to consumer is also very clear and simple: Brand → Distributor → Sub-distributor → Retailer → Consumer. As long as the brand manages this value chain well, even without advertising, the business can easily reach hundreds of millions or even tens of billions in revenue.

**Three Generations of Retail Models**

Today's channels are not only numerous but also chaotic: price chaos, supply chain chaos, market demand chaos, and terminal management chaos. When people face a new market, they often don't have a clear idea of how to enter it. On one hand, they have no good methods to deal with declining sales in existing markets; on the other hand, they have mixed feelings about the price chaos in new channels. Many people overlook a core issue behind these contradictions: China's retail has already entered the third generation of retail models.

**First Generation Retail Model (1979- ): Mom-and-Pop Stores + Wholesale Markets**

Representatives: Guangzhou Baiyun Wholesale Market, Hunan Gaoqiao Large Market, Chengdu Hehuachi Wholesale Market, Jinan Duandian Wholesale Market, and over 6 million mom-and-pop stores across the country. This era was the happiest time for China's FMCG industry. Many first-line brands were born and rose during this period. Brand owners only needed to do deep distribution and manage wholesale markets well to make a fortune. If product quality was not too bad, and they advertised on CCTV, they could easily become a national brand.

**Second Generation Retail Model (1997- ): CVS + KA + Platform E-commerce**

Representatives:
> Hypermarkets: Walmart, Carrefour, RT-Mart, Wumart, etc.; Convenience stores: Meiyijia, Tianfu, Lawson, FamilyMart, 7-Eleven, Meitian, Jinhu, Tangjiu, Hongqi, 36524, etc.;
>
> Platform e-commerce: Taobao, Tmall, JD.com.

In 1997, Dongguan Sugar and Wine Group opened the first Meiyijia store in Dongguan, Guangdong. In the same year, RT-Mart entered China and opened its first hypermarket, basically marking the beginning of China's second-generation retail model. The birth of China's KA and CVS was somewhat premature because, given China's consumption capacity, these business forms were only suitable for cities like Beijing and Shanghai. These two formats developed slowly for 10 years; Meiyijia didn't reach its first 1,000 stores until 2007 in Guangdong. But 2007 was still a beginning for the second generation because Taobao only officially started online operations in 2006. No one expected that whether it was online Tmall/Taobao or offline RT-Mart, Meiyijia, Hongqi, Meitian, or Japanese 7-Eleven, Lawson, FamilyMart... From 1998 to 2008, it was the most glorious decade for the second generation of retail, and also the decade of China's fastest economic development. Meiyijia grew from 1,000 to 10,000 stores in these 10 years, and RT-Mart reached its sales peak in 2018.

[Image source: Meiyijia official website]

With national economic development and improved quality of life, the second-generation retail model met consumers' demand for "more, faster, better, and cheaper." Consumers began to focus on consumption experience, started to demand brand and product quality, were willing to pay a premium for better products, and were willing to spend more time experiencing the consumption process.

**Third Generation Retail Model (2018- ): Front Warehouses (Community Group Buying + Flash Warehouses) + Discount/Membership Stores (Bulk Snacks + Hard Discount + Membership) + Interest E-commerce (Category + KOL + Content)**

Representatives:
> Front warehouses: PUPU, Miss Fresh, Meituan Flash Warehouse, Taocaicai, Meituan Meicai, Duoduo Maicai;
>
> Discount/Membership stores: HotMaxx, ALDI, Ailingshi, Snacks Busy, Zhao Yiming Snacks, Sam's Club, M Membership Store;
>
> Interest e-commerce: Douyin E-commerce, Kuaishou E-commerce.

Starting in 2016, Furong Xingsheng began piloting community group buying in Hunan; PUPU appeared in South China; Miss Fresh and many other front-warehouse store models appeared in the North. In 2018, Douyin emerged, announcing the official birth of interest e-commerce. Starting in 2022, a large number of bulk snack stores and hard discount stores began to appear. Sam's Club, after moving slowly for nearly ten years, suddenly accelerated and opened stores nationwide.

Since the population began to decline officially in 2021, and domestic per capita GDP crossed the $10,000 mark during this period, market supply became very abundant, even excessive. Ubiquitous shopping channels and almost undifferentiated shopping experiences led to a disenchantment with brands. People no longer only believed in big brands; they could also use algorithms to find the cheapest products with one click. During this period, consumers began to have new demands.

**The third-generation retail model is significantly different from the previous two: they use the most advanced internet technology, better infrastructure, and meet the needs of consumers who are more demanding about time and products.**

Each time a new retail model appears, the complexity of channel management for brand owners increases exponentially. What's more troublesome is that although these three generations compete, due to the depth and uneven development of China's market economy, they do not replace each other but coexist in the same region.

**Scenarios Become Increasingly Important**

If we look at channels from the perspective of delivery, the past channel was two-dimensional, based on time and space. Although CVS and hypermarkets were complex to cooperate with, traditional distributors could still operate because the supply chain and value chain were not complicated by new retail models. Platform e-commerce like Tmall and Taobao had some impact on traditional offline, but fortunately, this retail model had a relatively single business type and was relatively controllable. But when the third-generation retail model appeared, everything changed.

**Because delivery is no longer important; transaction becomes more important.**

If you look at channels from the perspective of transaction, the logic of channels changes from two-dimensional to three-dimensional. Whether you are at home, school, office, or on a bus, it doesn't affect your ability to buy any product in the world. Whether it's morning, afternoon, or late at night, it doesn't affect your ability to buy any product nearby. Because the business logic has changed from "goods don't move, people move" to "people don't move, goods move."

Yes, the shelf I mentioned earlier can no longer refer only to traditional offline store shelves. Electronic shelves have completely changed the business logic. Electronic shelves bring not only transaction convenience but also the entire delivery (supply chain) has undergone earth-shaking changes with the form of transaction. I have summarized these changes into three points:

**1. The value chain is significantly shortened.**
**2. The transaction logic has changed.**
**3. Scenarios become increasingly important.**

What do these three sentences mean? Let me explain one by one.

**1. Shortened value chain:** Today, electronic shelves can achieve one-to-many large-scale transactions, and logistics can achieve low-cost delivery. So for the same business volume, you don't need so many distributors. For example, SanDunBan coffee can sell over a billion yuan online a year without needing distributors. Social trust is improving, product quality is getting better, and platform algorithms and rules make consumers not only trust brands but also algorithms. Have you heard of Yuanming Sauce Wine? It's normal if you haven't; it's not a famous wine. It only sells on Toutiao and Douyin. It doesn't need history or culture to endorse it; it focuses on affordable sauce wine. Although you haven't heard of it, consumers probably don't worry about buying counterfeit goods. Information transparency is increasing, making it difficult to profit from information asymmetry. This means many information brokers can no longer make money from information gaps. As long as conditions allow, everyone prefers direct transactions. Central warehouses and logistics (trunk, branch, warehousing, picking, and distribution) are well-developed, with drop-shipping and one-click direct delivery networks, reducing the need for multiple handling. Community group buying and discount stores, after aggregating huge traffic, demand lower prices from upstream. If they can't get them, they directly cooperate with brand owners, bypassing the traditional value network built by brand owners. The shortening of the value chain is essentially due to the reduction of information entropy and the improvement of the social supply chain, driving the entire value chain to operate more efficiently.

**2. The transaction logic has undergone essential changes:** The logic of community group buying, Li Jiaqi, and Sam's Club is essentially the same: they help consumers select products. They may not know who the consumer is, but through massive traffic aggregation, they force the supply chain to provide better and cheaper products. This kind of shelf is not something you can get on just because you are a big brand; you can only get on if they think you are suitable. This suitability is not just about low price; low price is one type of consumer demand. Consumers have many other needs: quality, symbolic, emotional, etc. Let me talk about the second change: when you buy something on Douyin, is it really what you need? Or does the algorithm think you need it? I mentioned this phenomenon in a previous article called "transfer of choice." It means that with information overload on the internet, people don't have the time or ability to select products or judge the quality of unfamiliar products. They can only hand over their choice to algorithms, letting algorithms make choices for them. If Taobao/Tmall is where you propose a need and it helps you choose, then Douyin e-commerce recommends products whether you need them or not, as long as it thinks you need them. And the quality is good, the price is cheap, and maybe it makes you happy. Would you buy it?

These two changes are very significant features of the third generation of retail. Because of the transfer of choice, people irreversibly enter information cocoons. Different cocoons have different consumption needs and transaction logics. To sell products to consumers under the third-generation retail model, we must re-understand the transaction logic of each shelf.

**3. Scenarios become increasingly important:** In the first two generations of retail, most goods were in supermarkets, and consumers went to supermarkets to shop. The shopping place and time were relatively fixed. In the third generation, there is a very important variable: all shelves have "gone online," not only offline but also online, and some shelves are not offline at all. I talked to people from Meituan, and they said that in the middle of the night, consumers might need not beer and condoms, but maybe mahjong and dice, or quilts and slippers. These products were previously sold in hypermarkets or wholesale markets. When shopping becomes convenient, people don't care much about specific purchase times; the need for stockpiling decreases significantly, and purchases are likely to happen when the need arises. So today, we need to re-understand the meaning of scenarios. When "goods don't move, people move" becomes "people don't move, goods move," it's a revolutionary change. Many companies seriously underestimate the importance of this:

* In the past, the transaction place was fixed; now it's uncertain.
* In the past, the person in the transaction was likely the buyer; now it's likely the consumer.
* In the past, marketing was brand-driven in transaction scenarios; now it's pain-point-driven in consumption scenarios.
* "People don't move, goods move" means transactions can happen anytime, based on scenario-driven needs. So scenario equals channel, and channel equals transaction.
* Scenario ≈ Channel.

**Channels Become Three-Dimensional**

In the past, the "people, goods, and place" were two-dimensional, based on time and space. Today, they are three-dimensional: time + space + scenario. The three-dimensional logic is fundamentally different from the two-dimensional: the two-dimensional is centered on the transaction place, while the three-dimensional is centered on the consumption place. **We must use a three-dimensional channel mindset to view today's shelves.**

So when you operate a market, you see different channel types, but from the consumer's perspective, they can buy anywhere. The reason for purchase has become 4C: Customer, Cost, Convenience, and Communication. At this point, the logic of pricing and channel tactics in the 4P are no longer dominated by you but set according to consumers' scenario needs. And we need to design the sell-through model (eOBPPC) for each shelf based on user needs and behaviors.

Have you noticed that today I didn't talk about channels or terminals, but about scenarios and shelves? I hope to pull you out of traditional thinking patterns in this way.

**Several Supply Chain Models**

Each generation of retail model corresponds to a different supply chain model.

**First Generation Retail Model: Distributor + Sub-distributor + Wholesaler**
**Second Generation Retail Model: Brand Direct + Distributor + TP (Tmall Partner)**
**Third Generation Retail Model: Brand Direct Supply + Super Supply Chain + TP + Distributor**

There are two changes in the third generation. First, from factory direct operation to direct supply, because brand owners have less and less say in the third-generation retail model. Second, the emergence of one-stop supply chain models, which are the B2B platforms we often talk about now. They have enough SKUs, high efficiency, and low costs, greatly reducing the difficulty of supply chain management for retailers.

There is also a hidden issue: **the third-generation model will significantly squeeze the living space of mom-and-pop stores and distributors.** Traditional distribution models, especially single-brand agency models, cannot provide valuable services and capabilities in the third-generation retail model because their business model is too simple. They can only do some corresponding business in the first and second generations, and the road will become narrower. Mom-and-pop stores are the same; fortunately, their low-cost operation model can be compressed but not eliminated. I make a bold prediction: **in the next ten years, the number of mom-and-pop stores in China will shrink to about 3 million, and they will be in lower-tier markets.**


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