1. What capability blind spots do traditional retail small stores have? 2. What problems did the COVID-19 'black swan' expose in traditional supply chains? 3. Why is chain and brand development the inevitable path for retail small stores?

Recently, New Distribution officially released the "2019-2020 FMCG Retail Small Store B2B Competitiveness Report" (hereinafter referred to as the "Report"). Through a sample survey of 6,030 stores in 112 cities nationwide, in addition to gaining a clearer and more comprehensive understanding of the survival status and procurement channel structure of China's 5.8 million small stores, more importantly, from the data changes, we can make judgments and predictions about the development trends of millions of retail small stores and future channel changes in China.

The Report shows that small stores in different tier markets have varying sensitivity to services and products; the lower the tier, the more attention small stores pay to products and services. Based on this, let's examine what the future direction for mom-and-pop retail small stores truly is.

-01- The pandemic accelerated the decline of traditional retail stores

Sales per square meter is an important indicator for measuring the operational level of a retail store; the higher the sales per square meter, the stronger the store's operational capability. In New Distribution's previous surveys of retail small stores, store owners aged 30-50 accounted for as high as 75.6%, and those over 50 accounted for 5.1%. Due to limitations in age, education, and other factors, small store owners often lack the ability to proactively improve sales per square meter, relying only on foot traffic brought by the store's location, "living off the land."

Secondly, the vast territory of China leads to unbalanced development across different tier markets. The higher the economic development, the more resources brand owners invest in manpower, logistics, etc., while in lower-tier markets there is little investment. This has led to the proliferation of counterfeit and substandard products in lower-tier markets, with "Kangshuai Fu" and "Six Walnuts" and other fake products rampant, while most small stores lack the ability to distinguish genuine from fake products.

On one hand, they cannot proactively improve store operational efficiency and profit levels; on the other hand, small stores cannot guarantee the authenticity of the goods they sell, so the decline of traditional retail stores is understandable. In addition, the domino effect brought by the pandemic acted as a catalyst, exposing all the hidden dangers in the daily operations of traditional retail small stores.

1. Fragile supply chains, halted by the pandemic

Affected by the pandemic, a large number of consumers were confined to their homes and restricted from going out, but consumer demand did not diminish. Many consumers who could go out found that small stores were out of stock and goods were insufficient. On one hand, due to traffic blockages, wholesalers and distributors could not replenish in time during the pandemic, but the deeper reason is that traditional fragmented wholesalers, when facing emergencies, cannot efficiently mobilize employees and logistics vehicles, nor can they achieve unified standards and timely replenishment, ultimately leading to widespread stockouts in retail stores during the pandemic.

2. Lack of one-stop procurement capability

Though small, the sparrow has all its organs. Although the single purchase volume of traditional small stores is extremely limited, they often need dozens or even hundreds of suppliers. Once suppliers are affected by the pandemic and cannot deliver, small stores, lacking bargaining power with upstream suppliers, cannot find alternative suppliers in a short time, resulting in large-scale stockouts.

3. Lack of online 2C operational capability, losing a large number of business opportunities

During the pandemic, consumers went out much less frequently, making home delivery of goods a rigid demand. As the physical retail units closest to consumers, traditional small stores should theoretically have seen an increase in business scale, but in reality, as the pandemic continued, offline business was hindered, and small stores lacked online and community operation capabilities, losing a large number of business opportunities and having to close down.

-02- Chain and brand development is the inevitable trend for retail small stores

Since operational capability, centralized procurement capability, and risk resistance capability are so poor, where is the development direction for traditional retail stores?

Returning to the Report, the New Distribution team made predictions on the future development trends of traditional retail small stores in China: Although traditional retail small stores will not completely disappear, branding and chain development will become an irreversible trend in their evolution, which is particularly evident in regions such as Jiangsu, Zhejiang, Shanghai, Guangdong, and Hunan.

Taking Shanghai as an example, as one of the cities with the highest level of economic development in China, Shanghai has undoubtedly become a battleground for convenience store companies. The three major foreign convenience store brands—FamilyMart, Lawson, and 7-Eleven—alone cover more than 3,000 stores, and local convenience store brands such as C-store, Haode, Liangyou, Kuai Ke, and Kedi are countless.

In South China, this situation is even more pronounced. Convenience stores represented by Meiyijia, Tianfu, Furongxingsheng, and Yizhan are spread across the streets and alleys of Guangdong and Hunan. The chain and brand development of retail stores has become a common practice, leading many people who want to open a store to first think of choosing a convenience store brand to join before starting a business.

Compared with traditional scattered stores, through franchising, small stores can not only obtain the brand endorsement of convenience store brand companies, but more importantly, they can receive comprehensive product support and operational guidance. For those without retail experience, joining a mature convenience store brand is an excellent way to get started quickly.

In recent years, with the acceleration of digitalization penetrating various industries, B2B has also begun to penetrate the upstream and downstream of the industry chain. As an important part of the FMCG supply chain, many B2B platforms have also joined the ranks of "incorporating" retail small stores. Compared with traditional chain convenience store companies, B2B, with the support of internet teams and digital genes, can also provide more empowerment to stores to a certain extent.

Taking JD New Channel as an example, its complete supply chain system, online operational capability brought by internet genes, and the "traffic attraction" capability of the JD brand are not available to most chain retail enterprises.

New Distribution believes that JD New Channel's empowerment for retail small stores is comprehensive:

1. High-quality products

JD New Channel has cooperated with more than 8,500 brands. It will also unite more high-quality suppliers to introduce more products and services suitable for small store scenarios into stores. Through JD New Channel's Huiyan big data system, brand owners can accurately grasp the sales data and flow of all products in real time, thereby ensuring product quality from the source and eliminating the emergence of "fake" products.

2. One-stop procurement

The products listed on the JD Zhangguibao APP cover all categories of traditional retail store operations, helping store owners achieve one-stop purchasing. JD's strong supply chain advantages were also reflected during the pandemic. New Channel not only coordinated with upstream partners such as brand owners, joint warehouses, and platform merchants to quickly replenish, but also provided over 100 million yuan in purchase subsidies to users nationwide, helping stores order products at lower prices and reduce operating costs.

3. Comprehensive services

Based on intensive cultivation on the supply side, New Channel has also expanded its layout in offline scenarios more broadly and deeply, and through standardized output of capabilities in supply, operations, marketing, and traffic to stores, it enhances the service level of offline stores, further upgrades consumers' offline shopping experience, and helps stores form competitive soft power.

4. Online 2C capability

A JD convenience store in Jinan, Shandong, took online orders through the JD Bianli Go mini-program during the pandemic and carried out contactless delivery offline.

Compared with traditional retail chain brands, JD's internet genes have "opened a cheat code" for the online operations of retail small stores. Especially during the pandemic, New Channel accelerated the expansion of online channels, helping more stores join O2O channels such as JD Bianli GO and Meituan as soon as possible, actively carry out online sales, and adopt safer fulfillment methods such as contactless pickup offline, seizing business opportunities during the pandemic.

5. Store brand image empowerment

As a Chinese e-commerce giant, JD's "authentic" brand image has been deeply rooted in people's minds. As an extension of the JD brand offline, JD convenience stores undoubtedly enhance the trust between consumers and stores, helping stores reduce costs and increase efficiency.

It is worth mentioning that in December 2019, on the occasion of its fourth anniversary, JD New Channel officially announced the "Six Unifications" strategy, strengthening the unification of image identification, store management, facility configuration, service standards, product procurement, and logistics distribution in many fields such as convenience stores, mother-and-baby stores, tobacco and liquor stores, restaurants, and unmanned shelves. This will undoubtedly elevate the daily operation and management of stores to a new level and height.

There is no doubt that with the improvement of consumption levels, traditional retail small stores will inevitably be replaced by more professional, digital, and efficient chain retail stores, and B2B platforms represented by JD New Channel will inevitably become a force that cannot be ignored in the digital upgrade of traditional stores.

For B2B platforms, the value generated by simply supplying goods is limited. Only by deeply engaging in all aspects of operation, management, operation, and service, truly controlling stores, and helping stores form full-scenario service capabilities, omni-channel coverage capabilities, and full-network marketing capabilities can they truly empower stores. In this process, accepting "incorporation" and achieving branding and chain development will inevitably be the path that retail small stores cannot bypass.

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