“Self-Procurement” Saves KA, “Group Wholesale” Saves Small Stores?

-01- During market research, I suddenly discovered the new model of “group wholesale” (tuanpi), and it resonated with me! What is the difference between group buying and group wholesale? The target customers are different. Community group buying targets household users (2C), while community group wholesale targets street retail stores (2B). The value of group wholesale is that it constructs a new supply chain system for the retail industry. “Group wholesale saves small stores” is just my personal conjecture. Whether group wholesale can ultimately save small stores depends on its development. However, the business logic of “group wholesale” can save small stores. If “group wholesale” is not successful, similar business logic will emerge in the future. Because the market has needs.

-02- What problem does group wholesale solve? The supply chain problem of China's retail industry. Therefore, let's start with the miserable current situation of China's retail industry. China's retail industry has serious problems. The foremost is customer loss. Retail stores suffer severe customer loss, at least 5% annually. Is this problem solvable? No! This is not a problem of individual stores, but a trend issue for the industry. It affects both large and small stores, regardless of retail format. If you try to save, the decline may slow down; if not, the decline is more severe. Whether you save or not, customers are still leaving. The internet has created many new channels, each diverting traffic from traditional channels, making loss inevitable. Not being able to save doesn't mean not trying, but we need to clarify the main rescue methods. Under the condition of continuous customer loss in retail, how can the retail industry save itself? “Self-procurement” is saving KA, and in the future, “group wholesale” may save small stores.

-03- First, let's talk about a vivid case. While China's traditional retail is declining severely, Pangdonglai in Xuchang, Henan, is doing well and has become a legend. Influenced by Pangdonglai, the “Four-Party Joint Procurement” (Xuchang Pangdonglai, Xinyang Xiya Hemai, Nanyang Wandelong, Luoyang Dazhang) is also doing well. They share a common feature: a much higher “self-procurement rate” than peers. How much higher than peers? I don't have accurate data, but rumors say it is very high, beyond imagination. “Four-Party Joint Procurement” is key in “joint procurement.” Joint procurement increases the self-procurement rate. What is the value of self-procurement in retail? It means the supply chain is in your own hands; you go to the source to find goods. Didn't KA's supply chain originally belong to them? Door-to-door delivery and going out to “select goods” are different. The supply chain of waiting at home for goods is homogeneous, while the supply chain of going out to “select” (choose goods) is differentiated. What are the benefits of high self-procurement? It is high gross margin. High gross margin is due to supply chain differentiation. How much higher is the gross margin from self-procurement? At least 10% higher. Some say even higher, such as self-procurement gross margins reaching 35%, 40%, or even higher. Remember, the extra gross margin is net profit. It is precisely because of such high self-procurement rates and gross margins that Pangdonglai's “high salary system” (about double the industry average) and the “corporate culture” of “extreme service” relying on high salaries can achieve a positive cycle. High self-procurement rate → high gross margin → high salary → corporate culture → customer stickiness → high revenue. This is the value of high self-procurement rates and high gross margins in retail. High self-procurement rates also change the store operation model. No more brand salesperson terminal interception or interference, giving customers a free shopping atmosphere. I have always emphasized that terminal salespersons benefit brand owners, harm the terminal, and interfere with users. Two harms, one benefit. I believe the term “salesperson” will gradually disappear in the future. Therefore, self-procurement is not just a simple supply chain issue; it brings changes to KA's operating system and profit model.

-04- Why is KA's self-procurement rate so important? The prevalence of KA brought a phenomenon: retailers' brands cover manufacturers' brands. In short, because you trust Walmart, you also trust all brands in Walmart, including unknown ones. This may be what is commonly called “love me, love my dog.” Because of this phenomenon, Western KAs have many private labels. Retail profits mainly come from private labels. The reason Pangdonglai's self-procurement supply chain works is that trust in Pangdonglai extends to its self-procured products. China's product exports to the world are also related to KA's private labels. Good Chinese products, labeled with KA private labels, go to the world. The core value of self-procurement is the question of to whom the brand premium belongs. Only with premium can there be high profits. For retailers' private labels, the premium belongs to the retailer. In Chinese KA, the premium mainly belongs to brand owners. In a self-procurement supply chain, the brand premium belongs to the retail store. Therefore, self-procurement is the profit model of retail. In traditional business structure, people believe brand owners create value, and commerce transmits value. The premium belongs to the value creator. Retailers' self-procurement and private labels not only transmit value but also create value, thus they can obtain higher premiums. Many emerging brands in China have risen recently as a result of retailers' “selection” (choosing goods). In the past, it was difficult for emerging brands to enter KA; now, as long as the product is good, there is an opportunity to enter KA through “selection.”

-05- KA can self-procure, but what about small stores? Small stores not only need to solve the supply chain problem of self-procurement but also the problem of insufficient shelf space after SKU increase. In the past, small stores also had “self-procurement,” such as going to wholesale markets to buy goods, or second-tier distributors delivering unknown small brands. Overall, it was small-scale and did not support small stores in changing product structure and profit levels. Community group buying targets household users, so who does group wholesale target? Small stores. Group wholesale is about selecting goods for small stores, or providing a platform for selection. A selection platform different from the traditional distribution system, allowing goods that lack channel capability but have good products to reach the terminal directly. In plain terms, group wholesale is building a new channel to supply goods to the terminal. For a long time, small retail stores have had poor business and many complaints. From the professional perspective of self-procurement supply chain, small stores lack the capability. Supply chain issues may not even be fully understood by many KAs. So, does group wholesale clearly understand its mission to solve small stores' supply chain problems? Not necessarily! The biggest problem for small stores is that no channel provides them with a high-quality and high-margin supply chain. This is my conclusion from long-term channel practice. Recently, during market research, I visited a “group wholesale” platform. Originally a regional community group buying, squeezed by big platforms, they switched from group buying to “group wholesale.” It is said to be doing well. Suddenly, I seemed to have found the savior of small stores. So I resonated! Group wholesale is the “joint self-procurement” for small stores! It is similar to the logic of Henan's “Four-Party Joint Procurement.” China has no shortage of unknown good products, such as many factories that OEM for the West, but they have not formed a supply chain system reaching the terminal. Last year, I went to Yiwu and found that Yiwu has changed. The number of people has decreased, but the circulation volume is not small. Yiwu's “live-streaming village” essentially serves as a supply chain for small stores. The live-streaming village has B2C, but possibly more B2B. I sincerely hope that “group wholesale” can serve as a supply chain for small stores. If small stores have a continuous and stable supply chain, they may be revitalized. Of course, I don't know if group wholesale can save small stores in the future. But the logic of group wholesale can save small stores. If the value of group wholesale is the small store supply chain, then it should not attract users with low-price subsidies like community group buying, but rather create higher gross margin space for small stores through a high-quality supply chain. I believe this is the value group wholesale should have. Please note that community group buying targets consumers (C-end), while group wholesale targets small stores (B-end). The characteristic of C-end is “rational sensibility,” while B-end is “sensual rationality.” 2B is harder than 2C.

-06- Even if group wholesale solves the supply chain problem for small stores, they still face the problem of too few shelves. Small stores are small in area, with few shelves and few SKUs. This problem can also be addressed through group wholesale. Because small stores have limited area, the SKUs on shelves are basically head brands. But the problem with head brands is low gross margin due to price transparency. At the same time, small stores have limited area, so even if group wholesale provides a self-procurement supply chain, they cannot accommodate too many SKUs. Therefore, solving the small store problem also relies on “new store commerce.” New store commerce is dual-store: offline store and online cloud store. The offline store has limited shelves, displaying head SKUs. The online cloud store has unlimited shelves, displaying low-frequency, high-value, high-margin products. Community group buying is also an online cloud store, but one not controlled by the group leader. The online cloud store provided by group wholesale should be truly controlled by small stores. The offline store serves customers within the business circle radius, while the online cloud store serves strong relationship customers. One is store visit, the other is home delivery. Or both store visit and home delivery. The offline store shares costs and builds relationships; the online cloud store gains increments and creates profits. In the future, group wholesale + group buying may be the standard configuration for small stores. Group wholesale provides the supply chain to small stores, and the cloud store (online group buying store) provides an online marketplace to users.

-07- The combination of group wholesale and the “dual-store” of new store commerce is of extraordinary significance. In traditional retail, there is an unbreakable economic concept of “differential rent.” High store revenue, besides product selection and operation, depends on two hardware conditions: store location and area. A good location brings high foot traffic and good sales. However, rent is correspondingly high. High revenue is offset by high rent. A large store area means more SKUs, a larger business circle, and higher revenue. But a large area also means higher rent. Store rent is differential rent. Good locations have high rent; large areas have high rent. Rent is graded. This is differential rent. Facing differential rent, traditional retail has no solution. However, group wholesale and “dual-store” can crack it! The cracking is manifested in two aspects: one is the contradiction between store area and SKUs; the other is the contradiction between business circle and location. The above cracking methods can be summarized as: dual customer relationships, dual stores. Dual customer relationships solve the location problem, and dual stores solve the SKU problem.

-08- Last Friday, I researched the “Zhongyuan Group Wholesale Alliance” in Zhengzhou. The reason for the research was that I left a comment “group wholesale is good” on their Moments, and was invited. Listening to the founder talk about group wholesale, combined with my thoughts on channels and retail, I found it very valuable. I chatted with friends in my “Marketing Digitalization Community” for an afternoon, and unexpectedly it stimulated everyone's thinking, with sparks flying. I hope “group wholesale” does not follow the old path of “group buying.” “Community group buying” has forgotten its original intention. Group wholesale should provide value in the channel, not a traffic mindset, where the survivor wins. In addition, “group wholesale” is enough; the “community” in “community group wholesale” is a bit redundant.

Source: Teacher Liu's Digital New Marketing Author: Liu Chunxiong Tips will be paid 400-2000 yuan upon adoption.