Source: Photon Planet (ID: TMTweb)
"How many people actually spend a long time picking vegetables on an app just to save a few yuan or cents? Fresh food e-commerce will only be a supplement to our dining table; it cannot replace offline physical stores," a fresh food industry insider told Photon Planet.
A bustling market often reveals the essence of life, and the wet market has always been the most vibrant place in a city. But for many, visiting a traditional wet market is now a thing of the past.
Wet markets are becoming fewer in cities, replaced by large agricultural markets, supermarkets, hypermarkets, and fresh food supermarkets. The shift from markets to supermarkets reflects a generational change in consumption scenarios. Now, with the accelerated development of fresh food e-commerce during the pandemic, offline supermarkets even feared being overshadowed.
The traditional offline retail system is undergoing transformation, and community group buying is seen as the trigger. During the pandemic, online demand surged, and with giants entering the fray, community group buying heated up, causing temporary setbacks for offline supermarkets. Views such as "community group buying will lead to the closure of at least 30% of large and medium-sized supermarkets" and "the decline in offline supermarket performance is all due to community group buying" have emerged. But is this really the case?
The stock price trends of large offline supermarkets like Yonghui are considered evidence supporting these views. In April last year, Yonghui Supermarket's stock price was as high as 11.05 yuan, with a market value exceeding 100 billion yuan. However, almost with the rise of community group buying, Yonghui's stock price began to decline, and now it has fallen below 4 yuan, with market value evaporating by about 70 billion yuan.
Recently, Yonghui released its third-quarter financial report, showing revenue of 69.835 billion yuan for the first three quarters, a year-on-year decrease of 3.9%; net loss of 2.178 billion yuan, compared with a net profit of 2.028 billion yuan in the same period last year, turning from profit to loss. The third quarter saw a net loss of 1.095 billion yuan, also turning from profit to loss. As the pandemic improved and community group buying cooled down, Yonghui still failed to emerge from the mire, and the claim that "community group buying led to the decline of offline supermarkets" seems debatable.
With the continuous penetration of e-commerce, the transformation of offline supermarkets is only a test that was bound to come.
Community Group Buying Awakens Supermarkets
Behavioral psychology research shows that repeating an action for more than 21 days forms a habit, and 90 days is enough to form a stable habit. The pandemic gave rise to the growth of community group buying, which directly cultivated users' habit of buying groceries online.
With the successive bankruptcies of Tongcheng Life and Shixianghui, and the strategic contraction of Shihuituan and Chengxin Youxuan, community group buying has gradually cooled down. As a result, community group buying has faced rounds of scrutiny over quality, model, and profitability.
If asked again what impact community group buying has brought to the industry, a practitioner said: "Now users are accustomed to buying groceries online." Undoubtedly, it has brought a new consumption model, further digitizing high-frequency needs such as fresh vegetables and daily goods.
But this is not the fundamental reason for the decline in offline supermarket performance.
Regarding the decline of offline supermarkets, a Yonghui insider analyzed to Photon Planet: "Externally, the development of e-commerce has the greatest impact on offline supermarkets, but this mainly affects sales of department store goods, not fresh vegetables and other consumables. In recent years, the rise of fresh food e-commerce has attracted young consumers, further reducing their frequency of shopping at supermarkets."
With the development of the internet, especially the rise of young consumer groups represented by Generation Z, new consumer demands have emerged. The fading halo of offline supermarkets is partly due to the times. This is not a confrontation between online and offline, but a change in people's consumption habits. Just as many young people no longer go to KTV, they don't replace it with online singing apps like Changba or Tian Tian K Ge; instead, they turn to script murder or escape rooms nearby.
Community group buying has around 1,000 SKUs, while offline supermarkets have over 10,000. Whether in terms of category or market size, community group buying is unlikely to directly impact offline supermarkets.
What defeats a supermarket is not the next supermarket or community group buying, but itself. For example, in the case of Yonghui Supermarket, "rapid expansion, inadequate management, is one of the main reasons for poor performance of new stores."
In 2020, national expansion was one of Yonghui's keywords. As domestic COVID-19 prevention and control improved, Yonghui Supermarket pressed the "accelerator" on expansion. In December alone, Yonghui opened 34 new stores across 30 cities.
This year, it opened 28 new supermarket stores in the first half, totaling 1,026 stores (including 20 renovated warehouse stores), with 202 stores in reserve. In the third quarter, it opened 20 new stores nationwide. The pandemic did not stop its expansion.
"At least 30% of Yonghui's store managers lack management skills." When new stores open, managers from old stores are transferred to new stores, and deputy managers are often promoted directly to store managers. In this process, many people can rise through connections even if they lack the capability.
This phenomenon is not uncommon in the expansion of traditional supermarkets, reflecting weaknesses in corporate training and development systems. The rigidity of management systems in these traditional enterprises further leads to a culture that values personal relationships over performance assessment.
"Generally, it takes several years to fully understand and master the operations of a store. In the past two years, there have been many cases where Yonghui stores failed due to inadequate store manager management, leading to closures," said the Yonghui employee.
As e-commerce penetration accelerates, offline supermarkets see the trend, but it is unrealistic to change decades-old business models overnight. However, through previous attempts, they have become more certain of the value of online-offline integration, and they must break through despite difficulties.
Take Yonghui as an example: offline, it has tried "Super Species," "Yonghui Mini," and "warehouse stores"; online, it includes its own app and third-party home delivery services. It keeps trying, but the results are not obvious, which is also a main reason for the losses.
As its financial report states, in addition to external factors like the pandemic and community group buying, the company actively adjusted its structure and reduced inventory in the first half, leading to a decline in revenue and gross margin in the first three quarters.
Additionally, an employee of Lianhua Supermarket said: "The increase in external competition means consumers have higher expectations for service. If offline supermarkets do not provide a better user experience than community group buying, their demise is normal." Frontline employees in offline supermarkets often earn the lowest wages while doing the hardest work. The emergence of new business models will also impose higher demands on the management and service of offline supermarkets.
New models like community group buying are awakening traditional supermarkets with rigid thinking, and the latter have begun to try to step out of their paralysis.
The Gap Left by Supermarkets Is Being Filled
Nearly 20 years of e-commerce development has not replaced the offline real economy, and offline supermarkets and community group buying are not mutually exclusive.
The community group buying business launched by internet giants is not benchmarked against offline supermarkets in function or positioning; the goal is to cover lower-tier markets.
A person from the strategy department of a community group buying platform said: "Giants are optimistic about the community group buying model mainly because it has wide coverage and can capture consumer groups and traffic in townships and other lower-tier markets." As mobile internet matures, user growth on various platforms has peaked, but lower-tier markets still have room for development, and the needs of groups like the elderly are yet to be met. Therefore, platforms are using their trump cards, and while the whole population becomes networked, it also reflects internet platforms' thirst for growth.
A community group buying platform conducted a market survey and found that after the rise of community group buying, shipments from distributors to supermarkets in cities and counties did not decrease. Instead, community group buying promoted many products at low prices, expanding the overall market demand to some extent. Because supply channels in townships are relatively single, community group buying is largely a supplement.
"Top community group buying platforms can now reach administrative villages," said the community group buying insider. When community group buying has sunk to townships and villages, its value should be reassessed.
Lin Xiu is a resident of a town in the southwest. Photon Planet learned from her that this summer, the town began using Duoduo Maicai and Meituan Youxuan to buy goods. "At first, people didn't know how to use them, but the owner of the convenience store downstairs was the group leader. Since neighbors were familiar, she taught many people to use them, saying groceries were cheap. I now use them often and can buy things not available in the town supermarket."
Lin Xiu said: "Order now, pick up the next day. It's quite fast, much faster than buying things online."
In economically developed cities with many 996 workers, community group buying has been questioned for its sustainability due to issues like no home delivery and inconsistent quality. But when combined with lower-tier markets, new possibilities seem to emerge.
At this stage, the economic value that community group buying brings to platforms is still debatable, but it has social value in supplementing consumer demand in lower-tier markets.
Previously, community group buying platforms expanded markets through subsidies, making profitability difficult, and some players exited. However, this business model will continue to exist, and under ongoing regulation, it will move toward orderly development and return to the essence of retail.
Shihuituan and Chengxin Youxuan have strategically contracted but retained advantageous regions; Xing Sheng You Xuan does not follow the path of burning money to grab market share, focusing instead on running a profitable model in existing regions. It can be seen that the industry is returning to calm and moving toward refined operations.
Chen Yi is an office worker in a provincial capital. She told Photon Planet: "I rarely use community group buying to buy groceries, only occasionally when I'm sure I won't work overtime the next day and can pick up in time. I use it less for two reasons: first, for office workers, it's less immediate; second, quality is inconsistent."
Chen Yi's daily necessities are purchased through a combination of offline and online channels. When she has time, she goes to large supermarkets like Hema and Carrefour, but such offline channels are used about twice a month for bulk purchases, mainly buying easy-to-store daily necessities that meet daily needs. When busy, she uses Meituan Maicai, JD Daojia, Hema App, etc., to buy vegetables for home delivery, saving time.
In her view, online grocery shopping is more of a supplement to her offline bulk purchases. Online platforms are limited by category and quality, and even with convenient home delivery, they cannot meet all her life needs.
"Offline shopping is a process of enjoying life and pursuing quality, bringing satisfaction and happiness. Online shopping is for survival, ensuring there are vegetables to cook when busy," Chen Yi said.
The emergence of community e-commerce meets the specific needs of different user groups in specific consumption scenarios. It has developed in an era where both e-commerce and offline retail are highly developed, proving its value. However, this model still needs to prove its commercial sustainability, or it will eventually die out.
Seeking the Second Growth Curve
A former employee of a community group buying company told Photon Planet that as community group buying continues to sink, it does bring convenience to some people, but currently, the industry's losses are basically over 20%.
"In lower-tier markets, infrastructure cannot support the current business volume, and terminal logistics costs are high. Community group buying has released value in lower-tier markets, but costs and benefits are still asymmetric. It will be a slow process to make it work, and the future is full of uncertainty."
The rise of community group buying has sparked a trend of buying groceries online, and offline supermarkets have seen the inevitable trend of transitioning online. Once done well, they will usher in a second growth curve.
Traditional offline supermarkets have been gradually promoting onlineization in recent years, such as entering food delivery platforms and e-commerce platforms, launching apps or mini-programs, but the focus has always been offline, with online channels barely operated.
However, this situation has changed significantly since last year. An employee of Yonghui Supermarket in Jiangxi said that two months after the pandemic began, Yonghui started investing heavily in e-commerce. As far as he knows, by this year, all Yonghui stores covered by e-commerce have fully supported online business, with promotional activities, special offers, and flash sales almost never stopping.
According to the financial report, in the first three quarters of 2021, Yonghui's online sales reached 9.97 billion yuan, a year-on-year increase of 52.56%, accounting for 13.9%; the "Yonghui Life" self-operated home delivery business covered 962 stores, achieving sales of 5.37 billion yuan, a year-on-year increase of 19.5%, with an average daily order volume of 271,000 and a monthly average repurchase rate of 48.25%; third-party platform home delivery covered 897 stores, achieving sales of 4.6 billion yuan, with an average daily order volume of 176,000.
Screenshot of Yonghui Life mini-program page
Low prices and convenience are major factors attracting consumers to community group buying, and traditional supermarkets are following suit in their online transformation, trying to attract consumers with discounts and convenience.
Not only large offline supermarkets have increased investment in online business, but many community supermarkets and offline pharmacies are also part of this transformation wave.
An insider at a mini-program development service provider told Photon Planet: "After the pandemic, there has been a significant increase in offline stores wanting to build mini-programs, including chain supermarkets, community supermarkets, fresh food supermarkets, and pharmacies." In the past two years, private domain traffic operations centered on WeChat have created opportunities for many small and medium merchants, and mini-programs have become the first choice for many merchants' online transformation.
The insider believes that the advantages of offline merchants using mini-programs for community e-commerce are: first, operational and sales data are in the hands of merchants, which helps analyze consumer preferences and flexibly adjust operations; second, integrating online and offline channels helps enhance user stickiness and operate private domain traffic; third, online marketing methods are more diverse and can cover a broader user group.
Although the order volume and coverage of offline supermarkets transitioning to community e-commerce are not on the same scale as top community group buying platforms, their offline base is solid enough. Once online-offline integration works, their advantages are incomparable. Apart from the delivery link, there is little heavy asset investment, and costs are not high.
In contrast, community group buying builds almost the entire process from scratch, with large upfront investment. The pure online community group buying model is currently in a knockout stage, with only a few top platforms on the stage, and their future is full of unknowns.
For offline supermarkets, transitioning online adds an optional service for existing consumers. The ultimate success will largely depend on service quality in areas like quality control and delivery.
Are you "watching" me?