"We firmly believe that the endgame of the retail industry is everything delivered to home." Wang Xing, who has always emphasized business without borders, solemnly put a full stop to the future of the retail industry in Meituan's 2021 chairman's report. For this final battle, Meituan adjusted its corporate strategy from "Food + Platform" proposed three years ago to "Retail + Technology."

From service e-commerce to physical goods e-commerce, Meituan's understanding of retail is instant gratification.

Based on local life communities, it includes supermarkets, pharmacies, fruit shops, flower shops, pet stores, mother and baby stores, service stores, beauty stores, etc., within a few kilometers, and then uses surplus delivery capacity outside peak meal times to do 30-minute home delivery retail business.

In this logic, instant gratification service capability + offline physical partner stores become Meituan's spear to attack traditional e-commerce. To forge this spear, Meituan made a strategic loss of nearly 40 billion yuan in one year.

As defenders, traditional e-commerce platforms mainly Alibaba and JD.com have not been idle.

Alibaba upgraded its organizational structure in 2021, forming a life services segment from three location-based services (Amap, Ele.me, Fliggy) in the restructuring.

Through a new segment-based governance model, it integrates and enhances organizational synergy in new retail to improve customer service experience. Compared to Wang Xing's vision of everything delivered to home as the retail endgame, Alibaba clearly emphasizes organizational capability.

As early as a 2015 speech, Zhang Yong said that all business competition eventually becomes organizational competition. Responding to Meituan's attack on physical goods e-commerce with organizational innovation is Alibaba's answer.

JD.com, on the other hand, focused on three adjustments.

First, on the entry side, it integrated existing entries like JD Daojia and JD Fresh into "Hourly Purchase" (Xiaoshi Gou), forming a unified consumer brand; on the fulfillment side, it further consolidated delivery capabilities by increasing its stake in Dada; on the innovation side, it rolled out JD New Department Stores nationwide and tested food delivery services in some cities.

With all mainstream platforms entering the fray, instant retail, which has passed the market growth verification period, has come to the midfield stage of the platform economy. At this stage, delivery to home becomes a rigid demand, and scale effects once again become the focus of platform competition.

When competition emphasizes scale effects, fulfillment level is no longer just faster delivery, but becomes a comprehensive instant gratification service capability involving warehouse picking, product richness, and delivery efficiency. In this Three Kingdoms battle of instant retail initiated by Meituan, emphasizing the "fast" mantra, it ultimately returns to balancing the traditional retail product relationship represented by "more, fast, good, and economical."

01 Meituan Reinforces Supply: Focusing on the "More" Mantra

In Meituan's meeting report, instant retail is translated as Everything Now. Using Now as the core expression of instant retail fulfillment capability represents Meituan's reuse of local life capabilities, aiming to emphasize faster instant delivery speed than Alibaba's near-field e-commerce and JD.com's same-city retail.

Faster delivery capability is a strong entry point for Meituan's migration from service e-commerce to physical goods e-commerce. Therefore, the flash purchase business (Meituan Flash Purchase), representing Meituan's non-food delivery capability, covered 2,800 counties, districts, and cities by the end of 2021, with GMV reaching 81.4 billion yuan, a year-on-year increase of 66%, and 2.36 million users, far exceeding competitors in the industry.

But more users and more orders do not mean higher profits.

According to Zheshang Securities' estimate of Meituan Flash Purchase's UE (unit economics) model, the average loss per order in 2021 was about 2.88 yuan. Although narrowed from the average loss of about 4 yuan per order in 2020, reducing losses and improving the UE model of the flash purchase business remain the main problems Meituan needs to solve.

From food delivery to physical goods e-commerce, in the instant retail track, Meituan needs to solve the problem of goods: first, shallow inventory in single stores; second, expanding categories under limited brands and products.

According to the UE model of instant retail, in the 1.0 era, direct-operated models like Miss Fresh were constrained by limited fresh food categories, ultimately unable to increase average order value and ending in losses.

When Meituan launched instant retail 2.0 with a platform model for everything delivered to home, reusing food delivery fulfillment capabilities, whether it can build enough warehouses in the same city and improve category richness determines whether scale effects can ultimately be formed.

At the 2021 Meituan Flash Purchase Digital Retail Conference, it announced the launch of the "Billion Brand Growth Plan" for brand owners and the "Hundred Cities, Ten Thousand Stores Action" for chain supermarkets, aiming to help 100 brands achieve transaction volume exceeding 1 billion yuan on Meituan Flash Purchase in the next five years.

Cooperating with more offline physical stores and increasing the number of non-food merchants on the platform can obviously bring more goods to the platform on the supply side.

Taking chain convenience stores as an example, during the high-growth period of instant retail, public data shows that the demand-side instant retail market size grew from 83 billion yuan in 2019 to 151 billion yuan in 2020, and in the same year, the supply-side convenience store online service rate increased by 11% to 73%.

After faster delivery speed (30-60 minutes) reaches the ceiling, more goods are becoming the main factor driving high growth in the instant retail market.

Enriching product variety and reusing Meituan's food delivery ground promotion capability to bring more non-food businesses onto the platform is essentially the same as the food delivery business: expanding online service increments for existing stock resources. In addition to offline store cooperation, lightning warehouses that only do online business are another way for Meituan to supplement product richness.

As an innovative business incubated by Meituan, lightning warehouses mainly build warehouses with merchants through franchise cooperation, positioned as 24-hour online convenience stores, operating 3,000-5,000 SKUs, mainly covering daily necessities, FMCG categories, and some high-margin long-tail products like swimsuits.

Unlike traditional offline convenience stores, lightning warehouses mainly focus on food delivery operations, emphasizing online services, with more SKUs and different structures, not covering fresh food, mainly using socialized resource warehouses, open franchising rather than self-operation.

As of June 2022, Meituan lightning warehouses covered more than 100 cities nationwide, with more than 500 partner merchants and over 1,000 stores built by merchants. According to media reports, Meituan Flash Purchase plans to open 10,000 lightning warehouses from 2022 to 2024 and support 200 merchants with revenue exceeding 100 million yuan.

According to this growth rate, Meituan is clearly using a model similar to front warehouses, quickly replenishing warehouses through investment and franchise models, increasing goods capability to improve product structure and supplement product richness.

However, some industry insiders believe that acquiring existing front warehouse resources through acquisition is also a faster way.

According to Tencent News reports, in 2019, Tencent brokered Meituan's acquisition of Miss Fresh, but at that time the fresh food e-commerce track was booming, and the two sides ultimately did not reach an agreement. Now that the fresh food e-commerce track has cooled, Miss Fresh has fallen to the brink of delisting after its IPO, and there were even rumors of privatization earlier.

At this time, if Meituan acquires Miss Fresh, it can supplement front warehouse resources, and the latter can also escape difficulties and join the new track of instant retail.

But this potential acquisition target is currently not optimistic. With the rapid contraction of closing front warehouse business in 9 cities in 3 days, leaving only 4 cities, how much of Miss Fresh's front warehouse resources can be reused becomes the key to whether the speculation can land.

02 Alibaba Coordination: Hard to See a Backbone

Meituan, transforming from service e-commerce, mainly emphasizes supplementing more goods capability during the midfield outbreak stage. Alibaba, for instant retail, emphasizes coordination among various segments.

Adhering to the idea of nationwide operation with one inventory, Alibaba's instant retail does not lack goods, and in fulfillment capability, it has 30-minute delivery (Hummingbird) covering all-weather and half-day delivery (based on Cainiao's same-city logistics).

But for Alibaba, resource richness does not mean strong combat effectiveness. Lacking a backbone is becoming a manifestation that Alibaba does not have a main force in the instant retail track.

According to media reports, Alibaba internally divides retail into "regional retail, local retail, and same-city retail," corresponding to Taobao and Tmall nationwide, local life within a 3-kilometer radius centered on people, and the same-city retail business group centered on cities.

Theoretically, local life within a 3-kilometer radius centered on people is the main force most capable of matching the instant retail track.

But after Ele.me fell behind in the food delivery business, Alibaba's local life business began to show a state where the travel business mainly based on Amap, the hotel and travel business mainly based on Fliggy, and Ele.me's food delivery business are running side by side.

Under the constraint of weakness in the food delivery business, Alibaba's local life services segment is actually difficult to pull out a main force that can directly compete with Meituan.

Upgraded from the Tmall Supermarket business group, the Same-City Retail Business Group, established in April 2020, includes Tmall Supermarket, Taoxianda, and local life (Ele.me) new retail businesses. From the perspective of resource coordination capability, it is undoubtedly the best choice for the main force of instant retail.

Among them, Tmall Supermarket, positioned as a local life online retail supermarket, launched the last-mile battle after its strategic upgrade in 2019; Taoxianda, an instant retail e-commerce platform positioned as "supermarket products delivered within an hour," was also merged into the Tmall Supermarket business group in the same year; Ele.me's new retail business is the supermarket retail business launched under the guidance of the new retail strategy after Alibaba completed the acquisition.

Although the three have been coordinated for a long time, it seems difficult to say they have formed effective synergy. On the competitive side, even after multiple internal reforms and coordination, they still have not become resistance to Meituan's instant retail business. Internally, it is also hard to say it is ideal.

Taking Taoxianda as an example, it was pushed to the forefront in the previous Alibaba "female employee allegedly sexually assaulted by male superior" incident, and was pointed out to be in a weak market share position.

In its most recent appearance in Alibaba's financial report, as of March 31, 2021, excluding Sun Art Retail, Taoxianda helped 42 retail chain supermarkets open online stores, providing services in 145 cities in China, and helped more than 168 retail chain stores and supermarkets achieve digitalization of marketing projects.

According to the performance in the financial report, the number of partner merchants and city services provided lags behind Meituan and JD.com. Moreover, although positioned as an instant retail e-commerce platform, Taoxianda's main core capability is helping traditional supermarkets digitally transform in the backend, with no advantage in frontend fulfillment services or user traffic operations.

To a certain extent, Tmall Supermarket, Taoxianda, and Ele.me's new retail business are all products of Alibaba's internal horse racing period in new retail. With the decline of the new retail trend, internal organizational changes have merged and upgraded into the Same-City Retail Business Group, but as historical legacy products, how to find a strong main line leader in business coordination currently has no answer.

03 JD Drives Traffic: Traffic Migration from Low Frequency to High Frequency

In instant retail, JD.com mainly uses JD Daojia as the core, with fulfillment capability mainly from Dada, a third-party delivery company invested by the group, and goods capability mainly based on JD's self-operated product system.

In 2021, JD.com reorganized all its instant retail businesses, launching Hourly Purchase with its subsidiary Dada, becoming a unified brand for consumers.

After the upgrade, at the product level, when consumers shop on JD, they can choose products with the Hourly Purchase label based on their location, which are shipped from stores within 3-5 kilometers of the user's POI and delivered within 1 hour.

At the business level, JD Hourly Purchase further links more product categories based on merchants connected by JD Daojia, with delivery fulfillment undertaken by Dada Now.

In organizational capability, according to media reports, in March this year, JD.com established the Same-City Purchase Business Department, integrating JD Daojia, the original JD Retail omni-channel to-home business department, etc., with the task of expanding various to-home and to-store business scenarios. The department is independent of other business groups, with Vice President He Huijian as the head.

After the adjustment, JD Daojia does not lack goods, has delivery, and is more focused in organization and business. But compared to Meituan and Alibaba, JD.com, lacking local life business, has a traffic path of low frequency hitting high frequency in instant retail, so more traffic becomes the main focus.

First, on the product side, after the launch of JD Hourly Purchase last year, the traffic entry for same-city retail business was launched on the main JD APP, listed as the "Nearby" channel alongside the homepage.

Second, in innovative business, according to LatePost, JD.com is about to test food delivery, rolled out through the JD Daojia APP, with delivery by Dada, with the first stop in cities like Zhengzhou. This business will be responsible by the food delivery business department under JD Same-City, achieving traffic migration from low dimension to high frequency through the entry of high-frequency businesses like food delivery.

Finally, after ending the 8-year marriage with Tencent for traffic resources, on June 29 this year, JD.com renewed a 3-year strategic cooperation agreement with Tencent.

WeChat continues to open its traffic door to JD.com, and JD.com reciprocates with generous consideration, including issuing Class A common shares worth up to $220 million. After the announcement, JD's stock price rose nearly 2% against the market trend, and multiple institutions including Goldman Sachs gave buy ratings.

At a time when the traditional e-commerce era is basically over, JD.com renewed its contract with Tencent again. Some analysts believe that on the one hand, it continues to consolidate the traffic entry foundation; on the other hand, in the competition of instant retail, it can also achieve latecomer advantage through efficient operation of WeChat traffic.

It is foreseeable that this final battle of retail, although the final outcome is not yet known, has come to the midfield stage. Whether it is the initiator Meituan or the defenders Alibaba and JD.com, all are sparing no effort.

Source: New Entropy (ID: baoliaohui), Author: Gu Nian

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