This article is republished with permission from AI Finance and Economics (ID: aicjnews); Author: Shao Lanjie, Editor: Sun Jing.
This pandemic period is probably the biggest "harvest" moment for physical retailers since they launched online channels.
-01- A Comeback Battle
After seven or eight years of entanglement with online channels, Wang Tian, chairman of Hunan Better Life, finally won a comeback battle.
As the founder of the "first private supermarket stock," Wang Tian previously believed that online operations could only be done at a loss. However, in February this year, Better Life, "without spending money on traffic or offering many subsidies, everything was done as a normal business," after deducting various costs, actually made a slight profit.
"In one month, we recovered lost ground, and even had a bit extra." Wang Tian should be quite satisfied with this data. From 2015 to 2019, Better Life was continuously impacted by online business, with comparable store growth in the supermarket business at around negative 2 percentage points each year. But just last month, comparable store growth for online + offline exceeded 10 percentage points.
Better Life decided to go all-in on online on January 25. That day, Wang Tian urgently convened a senior management meeting with one core message: "Mobilize all forces to develop online business." Subsequently, Better Life launched community group buying and registered "Xiaobu Youxian."
The pandemic rapidly shifted consumer shopping from "going to the store" to "delivery to home," activating retailers' courage to continue online operations.
Due to being at home, citizen Zhang Haitao joined a crowdsourcing platform as a part-time worker, grabbing online orders from nearby supermarkets for delivery. "A friend introduced me; he previously delivered food, but now there are more grocery delivery orders than food delivery. For food delivery, the fee is fixed, but for supermarket orders, the larger the purchase amount, the more delivery fee we get."
In Zhang Detao's order grabbing, orders from the "Yonghui Life" app seemed more special: "The page notes that from rider pickup to delivery, it must not exceed 45 minutes." In contrast, orders from Yonghui Supermarket on the JD Daojia platform usually prompt him that delivery will take 60-70 minutes.
"Yonghui orders have higher delivery requirements, 20-25 minutes shorter than JD Daojia," Zhang Detao explained. "Yonghui orders" are those from the Yonghui Life app, typically delivered exclusively by Yonghui Supermarket's in-store delivery staff. When operations are overwhelmed, new orders flow to the platform for others to grab.
A year ago, the situation was the opposite. In January 2019, a consumer living on the South Third Ring Road in Beijing placed an order on "Yonghui Life" but didn't receive delivery that day. The next day, when she called the store, staff told her that the Yonghui Life backend was slow and suggested she use JD Daojia in the future.
The same contrast appeared in products. At this time last year, fresh products on the Yonghui Life app were insufficient. Store staff explained, "Offline foot traffic is too heavy, and we don't have the energy to maintain online properly. The bulk items sold offline are also inconvenient to sell online, so there are fewer products."
Now, the Yonghui Life app not only matches JD Daojia in product richness but also has price advantages on some items. For example, on March 12, a box of 250ml*12 Yili Jindian pure milk was originally priced at 65 yuan. On JD Daojia, after a direct 8.39% discount, the price was 54.5 yuan, plus a 5 yuan shipping coupon and 0.8 yuan packaging fee, the final purchase price was 55.3 yuan.
The same product on Yonghui Life, after a 6.1% discount, was 39.9 yuan, plus a "buy one get 5 yuan off" promotion, with 6 yuan shipping, the final price was 40.9 yuan. If you spent 58 yuan to get free shipping, this item would only cost 34.9 yuan.
Undoubtedly, the Yonghui Life app, launched in August 2017, has "revived" and, as a "direct" channel, has more price advantages; it also offers pre-sale items not available in stores, such as Huawei phones and Australian mango gift boxes. Zhang Haitao recalled, "This only appeared during the Chinese New Year period."
Online channels that suddenly appeared during the New Year were not limited to "Yonghui Life." On February 5, Hefei Fresh Legend's app was urgently launched. This app, developed two years ago, was previously used only for membership management, after-sales service, price promises, and guarantees. After the sudden outbreak, Fresh Legend founder Wang Wei decided to respond flexibly to changes, strengthen online sales efforts, and thus turned to online sales, "optimizing the ordering module and strengthening its promotion so consumers know about it and find it easy to use."
In early February, Carrefour's "1-hour delivery" was integrated into Suning.com's app, followed by the launch of "same-city half-day delivery" service, and then Carrefour's mini-program went live. On February 24, based on "Walmart Home," Walmart launched "Community Home" in Wuhan.
This is probably the biggest "harvest" moment for physical retailers since they launched online channels. During the Spring Festival, Walmart's overall O2O "home delivery" performance surged, with sales increasing over 4 times year-on-year. Among them, the "Walmart Home" channel grew rapidly, with order volume up to 15 times year-on-year; within a few days, Better Life's online sales soared from hundreds of thousands to 7 million yuan; on February 8, Yonghui Supermarket's nationwide online orders exceeded 300,000. Carrefour's mini-program gained 500,000 users in one week...
AI technology service companies felt this collective enthusiasm the fastest. For example, Fourth Paradigm received a wave of retail enterprise consultations after the New Year and held a closed-door senior management meeting attended by enterprise CIOs and CEOs. Zhou Kaituo, the business product manager, said that one retail giant they serve saw a surge in orders during the pandemic, with enormous pressure on picking and logistics, requiring more online capabilities for supply-demand matching.
At the same time, these clients are investing more in their own traffic than before. Zhou Kaituo noticed, "The pandemic is changing everyone's strategic investment priorities. When online traffic surges, if you're the boss, you'd also want to keep users and traffic within your own platform. Although this demand has always been strong, now everyone is considering: the pandemic will pass eventually, what then?"
-02- Transition
Third-party platforms are just a transition?
Zhou Kaituo has dealt with retail enterprises for many years. In his impression, the original self-built online channels of physical retailers were seen by bosses as strategic businesses—whether they are useful today is unknown, but they should be useful, so they were only prepared strategically; but now, in the short term, onlineization is very important both strategically and tactically.
A simple example: during the pandemic, they spent a week on an application scenario improvement project for the aforementioned retail giant: by modifying product presentation, guiding users to products with less picking pressure, balancing the picking workload. The effect was immediate.
In fact, from a strategic perspective, physical retailers' exploration of self-built online channels began more than a decade ago.
In November 2004, China Resources Vanguard launched the e-commerce platform "Vanguard Moore," mainly providing online shopping and life services to Hong Kong and Macau. In 2009, Vanguard Moore expanded to mainland China and overseas. However, Vanguard Moore ceased operations in 2013, during the most intense period of confrontation between physical retail and e-commerce.
In 2012, Jack Ma and Wang Jianlin set up a 100 million yuan bet on whether e-commerce would account for more than 50% of China's retail market share by 2020. At that time, domestic e-commerce was in its infancy, and one e-commerce camp was led by physical retailers.
Walmart, in 2011, bought 20% of "No.1 Store" from Ping An, when "No.1 Store" was thriving as an online supermarket. The following year, Walmart officially announced controlling interest in No.1 Store. Based on its fresh food origins, in 2013, Yonghui Supermarket briefly launched the "Bantian" platform, defined as a fresh e-commerce platform, but it died within less than 100 days. Later, Yonghui Supermarket also tried forms like "Yonghui Micro Store."
According to statistics from the China Chain Store & Franchise Association, although retail sales of the top 100 retailers exceeded 2 trillion yuan in 2013, the growth rate for the first time was single-digit, only 9.9%. The proportion of top 100 retail sales to total retail sales of consumer goods also dropped from 10.8% in 2009 to 8.7%, partly due to e-commerce diversion. Online retail increased from 801.9 billion yuan in 2011 to 1.8851 trillion yuan in 2013.
Physical stores' exploration of e-commerce initially took the form of B2C, investing real money to build an online mall and then promoting it in the "spend money like water" way of e-commerce. But on one hand, every penny spent by physical stores came from selling goods one by one; when it became harder for physical stores to make money, few companies could withstand the endless investment.
Moreover, it wasn't just about money; in the B2C era, online and offline were completely different mindsets—one earning from purchase-sale price differences, the other prioritizing traffic. Feiniu.com, launched in 2014, was a typical "rich second generation," backed by RT-Mart, with cumulative investment exceeding 1 billion yuan in the first two years and losses exceeding 300 million yuan. At the time, RT-Mart Group Chairman and Feiniu.com CEO Huang Mingduan regarded Feiniu.com as RT-Mart's future growth engine and explicitly stated it could afford losses for another 5-7 years.
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However, time didn't give him the chance to lose money. In November 2017, Alibaba acquired Sun Art Retail, which includes RT-Mart. Three months later, Feiniu.com was completely shut down.
Physical retailers' self-built e-commerce in the B2C era almost all failed, even leading to a saying in the industry: "Don't be led into the ditch by e-commerce." Around 2015, O2O delivery-to-home platforms gradually emerged, making physical stores restless again. Compared to B2C, delivery-to-home is a lighter model; initially, merchants only need to put products online, and later gradually integrate inventory, but this brings up a sensitive topic.
If fully integrated, all product and sales data passing through third-party platforms are corporate trade secrets. How to ensure they are not leaked or exploited? O2O appears to be just an additional online channel for enterprises, but in reality, it's part of digitalization. How to define and attribute the data accumulated through online channels is also a complicated topic.
"Large online platforms' subsidies have obvious purposes; once you connect, all data becomes theirs. The current third-party model is just a transition, not a long-term model," said Liu Xiaowen, founder of a chain fresh food store, who has not yet connected to third-party platforms for home delivery services, waiting for a more mature model to emerge.
One factor influencing decisions is whether O2O brings new traffic and growth points to physical stores. "E-commerce is inherently for this; whether it makes money is another matter. Among physical stores truly doing home delivery, which one has made money?" Liu Xiaowen believes that mainstream third-party platforms not only take a few percentage points from sales but also attach many tasks to stores, such as picking fees, system integration, and inventory maintenance. For physical stores without information system support, this is a huge investment of manpower, financial resources, and materials, and not a wise choice.
"Adopting home delivery business definitely helps sales growth; a 10-20% increase is possible, but from a profit perspective, it will definitely be lower than now, and the first condition for enterprise survival is profitability." In Liu Xiaowen's view, small enterprises with 1-2 billion yuan in sales might be close to death if they rashly build their own home delivery services. Enterprises with annual sales of over 10 billion yuan might try various online home delivery channels; they have diversified businesses and can afford losses, so they can gamble.
-03- Traffic
Why not make good use of your own traffic?
"The pandemic will pass eventually. We have a client that makes a food recipe app; during the pandemic, they completed three years of KPIs in three days, but how to retain customers next?" Zhou Kaituo found that clients' latest demands for technology share a common theme: "How to turn traffic into users, users into members, and members into continuous consumers."
Especially as the cost of acquiring new customers online is rising, using technology to improve shopping experience and thus increase retention is a new challenge. This is a more economical model, and only then use technology to acquire new customers; "otherwise, you lose money on every new customer."
At an online meeting of the China Chain Store & Franchise Association on February 26, Chen Wenyuan, President and CEO of Walmart (China) Investment Co., Ltd., believed that after the pandemic, even if normal levels resume, offline traffic will still be affected, and all formats have opportunities for rapid online development.
But he also mentioned the need to review the operating model and financial performance of stores and home delivery business. Since the category structure and channel structure have changed significantly, if the revenue per home delivery order minus costs is not profitable, it's not a good operating model.
Wang Tian believes that Better Life has now truly achieved the operation of private traffic without losses. "Now 70% of traffic and transaction volume comes from our own Better Go. On February 28, with 70,000 orders and 7 million yuan in business, half of it came entirely from our 20 million member pool."
Building self-operated apps, official accounts, and mini-programs is seen as a way for enterprises to use private traffic for online channel construction, and it's also this wave of self-built online channels.
Carrefour has also made its choice. "Suning.com, Suning Xiaodian, and Carrefour mini-program—these three Suning Carrefour's own traffic ports—will definitely become our biggest growth point in 2020," said Tian Rui, CEO of Suning Carrefour, in a media interview: "Third-party platforms are more of a merchant mindset for us. They are platforms, but we at Suning believe we are also a platform. Why not use our own traffic well?"
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The pandemic gave enterprises a perfect opportunity that only existed in imagination: low-cost customer acquisition, high average order value, and high repurchase rate. But this won't last forever. During the pandemic, the urgently launched Fresh Legend app and mini-program saw total online sales grow 4-5 times, with the ratio doubling. However, Wang Wei predicts that after the pandemic, although there will be some online dividend retained, it will basically return to original levels.
Better Life is also internally discussing how to consolidate achievements in the post-pandemic era. Wang Tian is clear that after the pandemic ends, some people may return offline, and the average order value will drop from the current 100 yuan to 80-90 yuan, but he explicitly stated, "We will not let go of this hard-won achievement and opportunity."
(Note: Zhang Detao and Liu Xiaowen are pseudonyms)
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