Image source: Oriental IC A small storefront, a sign with the owner's nickname "So-and-so's Grocery", one or two freezers filled with cold drinks and ice cream, a glass counter displaying cigarette packs and valuable goods, a few shelves stacked with various food, beverages, and condiments, selling in the front and living in the back—this is the most common image of a mom-and-pop store in Chinese memory. They are at the very end of the traditional retail chain, yet they are the closest to consumers. Long before supermarkets, hypermarkets, and modern convenience stores appeared, mom-and-pop stores were rooted in corners of Chinese cities, towns, and villages in an extremely scattered manner, and were once the most frequented shopping places. With the rise of e-commerce and the increasing number of chain supermarkets and convenience stores, mom-and-pop stores gradually faded from people's sight. But in the past two years, these once obscure mom-and-pop stores have returned to the spotlight of the retail stage, becoming targets that major companies are vying to win over. From Alibaba, JD.com, Zhongshang Huimin, Zhanghe Tianxia, to Wangfujing Department Store... whether e-commerce, B2B companies, or traditional retail enterprises, they are all trying to extend their reach into the "nerve endings" of the retail world—mom-and-pop stores. The typical appearance of a mom-and-pop store Mom-and-pop stores are actually another name for grocery stores. Northerners habitually call them mom-and-pop stores or small shops, Cantonese call them "store" (士多店), and Shanghainese call them "cigarette paper stores" (烟纸店). Despite the different names, their positioning and functions are very similar. Most are located in prominent positions in residential areas, because they rent ordinary residential houses and have low operating costs. Their products are mainly food, beverages, tobacco, and daily necessities. The owners are familiar with the surrounding area, have a stable network of regular customers, and follow an almost unchanged business model. The lack of business philosophy, scattered supply channels, and low efficiency are common problems for mom-and-pop stores. But because they are extremely scattered, have long business hours, and are close enough to community consumers, these mom-and-pop stores have advantages that modern chain convenience stores cannot replace. According to data from Kantar Retail, there are currently nearly 7 million small shops in China, including mom-and-pop stores, which contribute 40% of the shipment volume of the entire retail channel. Among them, about 30% of mom-and-pop stores are in townships and villages, and 46% are in third-tier cities and county-level cities. Leveraging their advantages in supply chain, data, and logistics, using mom-and-pop stores as the origin to radiate a community, and then connecting them into a network, and in the future integrating more extended services beyond products—this is the plan of major companies in laying out their strategies for mom-and-pop stores. B2B companies like Zhanghe Tianxia and Zhongshang Huimin were among the early starters, but it was e-commerce giants like Alibaba and JD.com that truly pushed mom-and-pop stores into the spotlight. In July 2014, Alibaba's Retail Link (零售通) platform was officially launched; at the end of 2015, Alibaba's old rival JD.com established the New Channel (新通路) division; in April this year, Liu Qiangdong announced via his personal Toutiao account that JD.com would open more than 1 million JD convenience stores nationwide in the next five years, half of them in rural areas. Their initial goals are the same: reduce intermediate links and let as many small shops as possible purchase goods from their own shopping platforms. "Internet companies' traffic has reached full capacity, and they need to seek new growth space. Mom-and-pop stores are huge in volume and very fragmented, so everyone is exploring how to effectively integrate them," said Xu Jin, partner of Strategy&, part of PwC, explaining the reasons behind e-commerce giants' active layout for mom-and-pop stores. According to iResearch's report, online shopping sales growth in 2016 was 23.9%, slowing down nearly 13 percentage points compared to 2015. From trying every means to put various goods and services online to serving mom-and-pop stores, JD.com and Alibaba have broken their previous established model of directly selling goods to consumers. In terms of specific operating models, the leaders in this battle for mom-and-pop stores are divided into two categories. The self-operated model represented by JD New Channel and Zhongshang Huimin, and the platform model represented by Retail Link and Zhanghe Tianxia. The former, like JD.com, buys goods first and then resells them through the trading platform "Zhangguibao" (掌柜宝). Because it is essentially the same as traditional large distributors, it wants to replace existing distributors and wholesalers and dominate the market; the latter only builds a trading platform where merchants sell goods and store owners place orders. Increasing procurement scale, reducing purchase costs, and earning price differences are the profit models of the former; the latter mainly relies on selling more goods to mom-and-pop stores and obtaining sales rebates from merchants. Deng Wenli, owner of Jiaxing Haojie Supermarket, first purchased goods online in early 2016. Li Xiaodong, who came to her on a motorcycle, introduced her to Retail Link with a business card and a few flyers. Responsible for developing offline physical retail stores including mom-and-pop stores, guiding and persuading store owners to purchase goods through the Retail Link platform, providing services to contracted stores, and helping them improve store operations—Retail Link recruited a group of third-party partners to undertake these responsibilities, calling them "City Partners" (城市搭档), and Li Xiaodong is one of them. In fact, city partners are the ground promotion team Retail Link prepared to win over mom-and-pop stores. After learning that through Retail Link she could purchase directly from factories, products were authentic, and some products had price advantages, Deng Wenli decided to give it a try. This shrewd businesswoman had run several mom-and-pop convenience stores in Shanghai. In the first half of 2015, she and her husband rented a 60-square-meter storefront in the center of Jiaxing, Zhejiang, and named it Haojie Supermarket. The store mainly sold cigarettes, alcohol, beverages, snacks, and daily necessities, with supply channels mainly from nearby wholesale markets and familiar distributors, all typical of ordinary mom-and-pop stores. "In fact, a lot of profits are taken by intermediate links. Each hand-off earns a profit. Different products have different profit margins." Li Xiaodong, a Retail Link city partner, told Interface News that in addition to profit stacking, the traditional distribution system also has problems such as mixing genuine and fake goods and severe product homogenization. Moreover, for mom-and-pop stores, purchasing from wholesale markets and distributors has many inconveniences. "Different products require purchasing from different distributors, and you have to pick up the goods yourself or wait for the distributor to deliver, so every time we stock up on goods," Deng Wenli said. One of the benefits of Retail Link is that the minimum order quantity is low, giving small shops more opportunities to try new products. When she sees new products on the market, she will selectively order a few to test-sell in the store, and if the market response is good, she will increase orders. Fresh products and flexible purchasing mechanisms have differentiated Haojie Supermarket from surrounding stores. Once, a Taiwanese tourist came to Deng Wenli's store specifically on a friend's recommendation. "His friend had been to my store before and unexpectedly found what he wanted, so he recommended us when he returned." Selling differentiated products has also benefited Deng Wenli. "When communicating with peers, they say business is getting worse, but I feel it's getting better because my products are different from other stores, with imported beverages and snacks. What others don't have, I have, so repeat customers naturally increase." But joining Retail Link does not mean mom-and-pop stores will abandon traditional distribution channels. Affected by factors such as price and product variety, traditional distributors and wholesalers remain important channels that store owners rely on. At the same time, traditional distributors are also actively maintaining relationships with mom-and-pop store owners. For some stores with good locations and large purchase volumes, they will proactively provide cash "rebates" and other incentives in exchange for these stores continuing to purchase from them. "I don't buy everything from Retail Link; some things are not available on Retail Link," Deng Wenli said similarly. In addition to Alibaba and JD.com, on this track of competing for mom-and-pop stores, Zhanghe Tianxia and Zhongshang Huimin had already started earlier. Founded in 2013, Zhongshang Huimin is an enterprise with community O2O operation services as its core. Community supermarkets and mom-and-pop stores can purchase goods through its platform, essentially reducing distribution links and making channels flatter. Currently, Zhongshang Huimin has more than 40 modern logistics distribution bases in 22 provinces and cities across the country. Earlier this year, Zhongshang Huimin also announced strategic investment and controlling stake in community e-commerce company Aixianfeng (爱鲜蜂), which mainly solves the last-mile delivery problem between traditional convenience stores and O2O community services. Zhang Yong operates a "Zhongshang Huimin Convenience Store" near Liujiayao on the South Third Ring Road in Beijing. This 80-square-meter store has been open for ten years, and it has been less than a year since it hung the Zhongshang Huimin sign. The joining process was not complicated at all: sign a one-year contract, pay a 14,000 yuan deposit, which is returned in 12 monthly installments, and purchase most products from Zhongshang Huimin. After the contract expires, Zhang Yong can decide whether to change the sign. Zhang Yong's store According to Zhang Yong, the store's monthly rent is 9,000 yuan, with average daily sales of 3,000 to 4,000 yuan, nearly half of which comes from cigarette sales. Hanging the Zhongshang Huimin sign did not increase the store's business much, but he often receives product discount notifications, and orders have rebates, given in the form of coupons. The more you order, the higher the rebate. If you can get the rebate, the price is cheaper than other channels. "Zhongshang Huimin has been around the longest, and it feels okay. You can just order what you need," Zhang Yong said, pointing to the ordering platform on the counter that looks like an iPad. "I generally order online now. Every platform has cheap and expensive items. JD.com and Alibaba have some cheap varieties, so I buy where it's cheaper." "Price sensitivity" is a common trait among mom-and-pop store owners. Comparing prices among various supply channels is something the owner of Beijing Xicheng Lubo Food Store does every day. He knows about Zhanghe Tianxia and Huimin Wang, and recently downloaded Huoquanquan (货圈全) to compare prices whenever he has time. "Food and beverage prices are very transparent; you have to compare. A one-piece (usually a box) saving of one or two yuan is profit margin. Now there are many software options, so you can compare freely. Products are similar, so I go where it's cheaper." "This is one of our current difficulties," Li Xiaodong told Interface News. Store owners care more about product prices, especially for best-selling items, but Retail Link cannot guarantee the lowest price. To attract more store owners to join, Li Xiaodong constantly promotes platform activities like "30 yuan red envelope for new users" and "spend more, get more" to store owners. "Only when more and more store owners start purchasing on Retail Link will Retail Link have greater bargaining power with brands and manufacturers, and the channel can be opened up." In this regard, JD.com's self-operated model of buying goods outright gives it more room for pricing flexibility. When he first joined Retail Link, Li Xiaodong basically drove around Jiaxing city every day, looking for mom-and-pop stores and introducing Retail Link to store owners. After being rejected, he would go back after a while. "At first, many people thought we were scammers, but over time, when they saw surrounding stores starting to use Retail Link, they knew (we weren't)." With more and more market participants, comparisons are inevitable. A Zhongshang Huimin salesperson told Interface News: "JD.com's advantage is mainly fast delivery, but their policies are definitely not as good as ours. Their delivery threshold is also slightly lower; they deliver for 79 yuan. We require 500 yuan, but you wouldn't order that little, right? Zhongshang Huimin, especially in the beverage category, has a strong advantage. If you reach 8,000 yuan in monthly purchases, the rebate is 2.6 points higher than ordinary customers; if not, it's the ordinary rebate." For companies, persuading mom-and-pop stores to adopt their platform is just the beginning of the layout. "If we only consider how to provide products to retail small shops, that would be too shallow for Retail Link," Retail Link said in an interview with Interface News. "What we consider is how to upgrade mom-and-pop stores, help them enter the DT era, and make selling intelligent and data-driven. We have a large amount of C-end data, such as Taobao, Tmall, Alipay, etc. We can know what consumers around this small shop like to buy, what their spending power is, and even what hobbies they have. We can recommend products to small shops in a targeted manner, even achieving 'thousand stores, thousand faces'. Next, we will also connect to Taobao Daodian (淘宝到家) to give mom-and-pop stores more room for expansion. Currently, some small shops have already linked to Taobao Daodian and Taobao convenience stores, and online sales can even account for half of their revenue. This is one of Retail Link's unique competitive advantages." In this process, Retail Link is also promoting the construction of city warehouses. In addition to the existing 10 or so city warehouses, it will advance to 30 to 40 warehouses this year, and in the future, it will establish 250 warehousing and distribution systems nationwide. These are the foundation for Retail Link to provide store owners with competitively priced products and guaranteed delivery experiences such as scheduled delivery. According to the plan, going forward, Retail Link will also provide support to mom-and-pop stores in finance, data, logistics, payment, value-added services, and other aspects to help them upgrade and transform. "We hope that through the power of technology, mom-and-pop stores can surpass original chain convenience stores and become internet service stations. It will be the convenience store, supermarket, Cainiao station, bank, travel agency, post office, etc., downstairs from your home," said a relevant person in charge at Retail Link. In Xu Jin's view, "Compared with traditional channels, whoever can provide lower prices and better service will get the attention of store owners. The industry now feels threatened by JD.com because JD.com has a high level of logistics and promotes township and village areas. If it can also achieve good service and excellent prices, it may disrupt the current distribution system." Over the past few decades, brand manufacturers have established their own traditional channel distribution networks, but they are not resistant to JD.com and Alibaba's efforts to integrate mom-and-pop stores. According to Retail Link, currently, Ferrero, PepsiCo Foods, APP Gold Hongye, Nestlé, Mars, Perfetti Van Melle, Sofy, COFCO, Unilever, P&G, Johnson & Johnson, and other brands have tried selling some products on Retail Link. Gold Hongye, which produces Qingfeng tissue, is one of the early brands to join Retail Link. The former's products on Retail Link are mostly concentrated in daily necessities, such as Qingfeng Yuanmu Pure series. A relevant person in charge of the brand told Interface News that the company hopes to shorten the distance between the brand and consumers and improve efficiency through the Retail Link platform. "The new opportunity is that the increase in terminal sales outlets effectively supplements existing channels. Now Qingfeng's business on Retail Link is growing very fast." Nestlé products are generally available in mom-and-pop stores through secondary distribution or wholesale markets. This food giant collectively calls platforms like Retail Link and Zhangguibao "EB2B platforms" and takes a quite positive attitude toward the emergence of these new platforms. Chen Xiaodong, Senior Vice President of Nestlé Greater China and Head of Food Retail for Mainland China, shared his views with Interface News: EB2B platforms are completely transparent trading platforms that, through big data, allow brand sales to be traceable. By cooperating with EB2B, brands can obtain relevant data, based on which they can understand the real feedback from shoppers on products in a certain type of store in a certain region. These data are of positive significance for brands to improve their products and services. The emergence of such platforms means that brands can free up a considerable amount of manpower and focus more on after-sales service and brand promotion. This way, they can truly devote more energy to providing better services to shoppers and consumers, which is good news for both brands and consumers. "We welcome this upgrade of the industry format." From the brand's perspective, Nestlé has also found that the rise of platforms like Retail Link has put pressure on traditional distributors. Some traditional large distributors have begun to build their own EB2B platforms and are considering how to upgrade consumer services. "But we believe this pressure and competition are benign. It may push traditional distributors to continuously seek upgrades. So we think the final result will be a win-win-win: brand owners, traditional distributors, and some emerging EB2B platform companies will all provide better services. The ultimate beneficiaries will be consumers. " Chen Xiaodong said: "However, EB2B-type companies themselves are still in the exploration process, and their development requires long-term observation. Traditional sales channels and the current emerging B2B platforms may develop in a converging trend in the future." According to public data, currently, more than 500 brands have signed brand direct supply agreements with JD New Channel, and Zhangguibao has 50,000 convenience store users; Retail Link, which once said it would cover 1 million retail small shops in three years, has also covered more than 300,000 small shops, mainly mom-and-pop stores; Zhongshang Huimin, which received 1.3 billion yuan in Series B financing in September last year, has also developed 400,000 stores including mom-and-pop stores. After opening up the situation, starting this year, Zhongshang Huimin has even stopped sending signs to franchise stores. Major companies' actions to harvest mom-and-pop stores are continuing. Deng Wenli has noticed that more peers are using Retail Link. Shortly after joining Retail Link, she visited Retail Link's cooperative manufacturers. At that time, there were only 5 store owners including her in a van, but on the most recent factory visit, a bus was packed with about 50 people. Early adopters of Retail Link were those who had some understanding of e-commerce and were willing to try new things. When more and more store owners use Retail Link to purchase goods, surrounding store owners will also want to try it, including platform users like Deng Wenli, who will recommend platforms they find useful to acquaintances. What Deng Wenli is most satisfied with is that Retail Link provides small shops with interest-free credit sales services and training on shelf placement and sales skills. "I have about 30,000 yuan in credit sales quota, and after I went to Hangzhou for training last time, the business skills provided by Retail Link have indeed been effective in attracting customers to buy." City partners like Li Xiaodong also receive comprehensive training and support from the Retail Link platform. In the future, the capability modules that Retail Link's development requires of partners will be taught to city partners through lectures, expansion activities, and events. Then, through city partners, this information is passed on to mom-and-pop store owners. "After early cultivation, in three to five years, this market may have 3-5 players left, and Retail Link will definitely be one of them." Like Retail Link, all companies participating in this battle for mom-and-pop stores are busy striving for the final winner's throne. Source: Interface News -END-