---
title: "Will Carrefour and Walmart Be Eaten by Tmall, Suning, and JD Online Supermarkets?"
description: "The history of online supermarkets is full of blood and tears, from the failure of E-Guo China in 2000 and Webvan in 2001 to the collapse of over a hundred online supermarkets by 2010. Despite current high growth driven by massive investments from e-commerce giants, online supermarkets face challenges in efficiency and cost, making it unlikely they will surpass hypermarkets in market share within the next decade unless they innovate, such as through stock-up shopping platforms or integration with fresh food stores."
author: "张陈勇"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-12-23"
language: "en"
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---

# Will Carrefour and Walmart Be Eaten by Tmall, Suning, and JD Online Supermarkets?

> The history of online supermarkets is full of blood and tears, from the failure of E-Guo China in 2000 and Webvan in 2001 to the collapse of over a hundred online supermarkets by 2010. Despite current high growth driven by massive investments from e-commerce giants, online supermarkets face challenges in efficiency and cost, making it unlikely they will surpass hypermarkets in market share within the next decade unless they innovate, such as through stock-up shopping platforms or integration with fresh food stores.

The history of online supermarkets is full of blood and tears. In 2000, Beijing's E-Guo China launched "E-Guo One Hour," a bold attempt over a decade ago, with 400 of its 500 employees being delivery personnel, ultimately ending in failure. At the same time, there was an American online supermarket called Webvan, which had invested $1.2 billion and closed down in 2001.

The first round of failures did not scare off followers. Established in 2006, Lazy Guy Supermarket, Big Warehouse invested by the Fortune 500 Sinar Mas Group, and Houmart Online Supermarket and Meilianmei Online Supermarket invested by retail giants—various online supermarkets rarely succeeded. In 2010, I compiled a list of over a hundred online supermarket URLs and published it on Paidai.com; looking back now, almost all have perished.

I can confidently say that I have written the most and most in-depth articles about online supermarkets. I have been following online supermarkets since 2007, participated in several online supermarket projects, and my reason for writing is to summarize and think. Only when the content is valuable do I pick up my pen. This article is no different. It will analyze whether the recently popular online supermarkets can become a mainstream FMCG channel and whether they might eliminate hypermarkets, and briefly discuss two breakthrough points for online supermarkets.

**Online Supermarkets Have a Low Base but Large Space**

In the online supermarket field, the main players are Tmall Supermarket, Suning Supermarket, JD Supermarket, Yihaodian, and Feiniu.com. The combined sales of the major online supermarkets in 2016 are estimated to be less than 100 billion yuan. Although JD Supermarket claims its sales exceed 50 billion yuan, this figure does not come solely from the JD Supermarket channel but from the entire JD consumer goods division. The scale of several hundred billion yuan for online supermarkets corresponds to the entire FMCG market, with a very low penetration rate and significant room for growth.

China has 1.3 billion people, all with supermarket consumption needs, but only 400 million have online shopping habits. Even if all 400 million converted to online supermarket customers and 50% of their FMCG consumption shifted online, the final share of online supermarkets would be around 15% based on population ratio.

The above calculation is not precise because the 400 million online shoppers are mainly in cities, with stronger purchasing power and influence, and they represent their families. If their purchasing power is three times the average, the final share of online supermarkets could reach 50% of total FMCG sales. Therefore, from a market space perspective, online supermarkets could completely become a mainstream FMCG channel.

**Rapid Growth of Online Supermarkets Mainly Due to Huge Investments**

Currently, online supermarket sales are growing rapidly. For example, Tmall Supermarket had sales of around 3 billion yuan in 2014, reaching 10 billion in 2015. With a three-year target of 100 billion, Tmall Supermarket's 2016 sales should be between 20-30 billion yuan, with annual growth of 300%, far higher than the overall e-commerce growth rate.

One reason for the rapid growth in recent years is the massive investment by e-commerce giants. Tmall Supermarket's "Double 20 Billion Plan" distributed 50-yuan shopping vouchers and held 50% off promotions. Suning Supermarket's Nanjing Strategy invested 3 billion yuan, distributing 100-yuan shopping vouchers in Nanjing.

Hypermarkets have an average gross margin of around 20%, or about 25% excluding fresh produce. Online supermarkets currently have an estimated average gross margin of less than 10% due to heavy promotions and a high proportion of promotional items.

A typical online supermarket has a delivery cost of 15 yuan per order, packaging cost of 3 yuan, traffic cost of 5 yuan, and operational cost of 5 yuan, totaling 28 yuan. If the average order value is 150 yuan and the gross margin is 10%, then each order loses 14 yuan. (These numbers are estimates; actual figures are more complex.)

**The Core of Whether Online Supermarkets Can Become a Mainstream Retail Channel Is Efficiency and Cost**

Using losses to exchange for rapid growth cannot last forever. One day, online supermarkets will return to normal promotions, and the gross margin will rise to 20%. The growth rate and market share after increasing gross margin will demonstrate the true competitiveness of online supermarkets.

For online supermarkets to become a mainstream channel, they must compete for the market of offline supermarkets. The essence of FMCG channel competition is efficiency and cost. From the data analysis above, compared with offline supermarkets, online supermarkets currently do not have an advantage in efficiency and cost.

I believe that if online supermarkets cannot improve efficiency and reduce costs, it will not be easy for them to become a mainstream FMCG channel. Many customers who currently patronize online supermarkets may leave once promotional intensity decreases.

**Can Online Supermarkets Significantly Reduce Costs?**

Whether online supermarkets can improve efficiency and reduce costs is key to becoming a mainstream channel. The costs of online supermarkets include traffic costs, operational costs, warehouse costs, packaging costs, line-haul costs, and last-mile delivery costs. The average order value and order density also affect cost efficiency.

"Traffic costs" and "operational costs" decrease with sales growth due to economies of scale. Promotional discounts are part of traffic costs; currently, traffic costs are relatively high but will return to normal in the future.

"Warehouse costs" and "packaging costs" have limited room for reduction. There is little space for optimization in slotting and picking; receiving, picking, and packing still require manual labor. In the last 10 years, robots are still inferior to humans in some aspects.

"Line-haul costs" will decrease with the adoption of autonomous driving, but line-haul costs account for 25% of fulfillment costs, so the impact on overall cost reduction is not significant, and autonomous driving will take about 10 years to become widespread.

"Last-mile delivery" costs decrease with increased order density. Currently, the last-mile cost for express delivery companies like STO, YTO, ZTO, and Yunda is 1-2 yuan per order, while for online supermarkets it is 3-5 yuan. If order density increases, the last-mile cost for online supermarkets could drop to 2-4 yuan.

Currently, the average order value for online supermarkets is between 100-170 yuan, much higher than hypermarkets. The higher the average order value, the lower the fulfillment cost ratio. Increasing average order value is an effective means to enhance competitiveness. Online supermarkets are promoting large-pack customized products to cultivate consumers' stock-up shopping habits, which effectively raises average order value.

Overall, there is room for cost reduction in operational costs, line-haul transportation, and last-mile delivery. It is estimated that in the future, the overall fulfillment cost of online supermarkets could decrease by about 40%.

It is estimated that the future order cost for online supermarkets will be: traffic cost 2 yuan + warehouse cost 5 yuan + line-haul cost 2 yuan + last-mile cost 3 yuan + packaging cost 3 yuan + operational cost 2 yuan = 17 yuan. At this point, the efficiency of online supermarkets will be roughly equivalent to that of hypermarkets.

**Future Predictions for Online Supermarkets**

The key to whether online supermarkets can become a mainstream channel is efficiency and cost. The room for cost reduction is limited, and ultimately, they will be on par with hypermarkets in efficiency.

Based on the above, I believe that if there is no breakthrough in the online supermarket model, it will be difficult for their final market share to exceed that of hypermarkets. Hypermarkets have advantages in operating mass fresh produce and providing a better "browsing" experience, while online supermarkets offer convenience and ease.

I speculate that the development path of online supermarkets may be: in the next few years, due to heavy investment by e-commerce giants, online supermarkets could capture more than 10% of the FMCG market share. Then, as investment weakens, the growth rate will decline. Unless there is a model breakthrough, within the next 10 years, online supermarkets are unlikely to exceed 20% of the FMCG channel share.

Some people earn only 20 yuan per hour, while others earn 100 yuan per hour. For the latter type of consumer, online supermarkets are more valuable because their time cost is higher. Online supermarkets will grow with changes in consumer structure, but this process will be relatively slow.

**Two Breakthrough Points for Online Supermarkets**

I have been following and practicing online supermarket projects in recent years. Regarding innovation in online supermarkets, I believe there are two methods worth trying, briefly explained in this section.

**1. Stock-up Shopping Platform**

The biggest cost for online supermarkets is fulfillment cost (warehousing, delivery, packaging). Every order involves a delivery process, so the higher the average order value, the lower the fulfillment cost ratio. The first approach is to encourage higher average order value by turning the online supermarket into a wholesale stock-up shopping platform.

Specifically, set two prices under each product: a normal selling price and a stock-up price. The normal selling price is the same as current online supermarkets, with free shipping for orders above a certain amount. The stock-up price is on average 5-15% lower than the normal price. To enjoy the stock-up price, consumers must pay an additional 10 yuan service fee.

Since the service fee is a fixed amount, the more consumers buy each time, the lower the service fee ratio, thus incentivizing them to buy more.

Along with setting stock-up prices, increase the availability of large-pack products, such as daily chemicals, paper products, milk, grain and oil, cleaning supplies, and pastries, which are suitable for large-pack sales, making it easier for consumers to reach the threshold. These large-pack products can be custom-packaged to save secondary packaging and reduce packaging costs.

Currently, the rapid growth of online supermarkets is based on heavy subsidies from e-commerce giants. Once promotional intensity decreases, there is a risk of customer loss. Therefore, it is necessary to create suitable shopping scenarios tailored to the characteristics of online supermarkets. My suggestion is to build a stock-up shopping platform.

**2. Reconstructing a New Retail Format**

This year, Alibaba is promoting "New Retail." Alibaba CEO Daniel Zhang said the core of New Retail is "reconstruction," breaking down and recombining various formats and categories. Hema Fresh is an example that fits this reconstruction idea.

This second approach is also about "reconstruction": integrating online supermarkets with fresh food stores (mainly fresh produce, fruit, and frozen products) to create a 1+1>2 effect.

Consumers use the APP to shop at the online supermarket and pick up goods at the fresh food store. But it's not just turning the fresh food store into a pickup point; it's a deep integration of the two formats. Here's how:

  * Modify the layout and shelves of the fresh food store: reserve the top of wall shelves (1.7-1.9 meters high) for storing online order pickups and promotional displays, without occupying fresh produce display space and providing visible promotion.
  * The fresh food store drives traffic online: the online supermarket APP can pre-order products sold in the fresh food store. Order the first day, and the next day, select products based on the pre-order, and enjoy discounts at checkout. Pre-ordering reduces waste and increases sales, which is the source of discounts. The main purpose is to attract fresh food store customers to use the APP. When pre-ordering fruit, they can also order any other products from the online supermarket. (For the store's discount loss, the online supermarket can subsidize offline with savings from traffic and delivery costs.)
  * Change the packaging of online supermarket orders: abandon disposable cardboard boxes and use plastic crates. Each order's items are placed in one plastic crate, delivered centrally to the fresh food store daily. When customers pick up, open the crate and transfer items to plastic bags for the customer. The next day, when the central warehouse delivers to the store, the crates are collected. This not only improves customer experience but also saves packaging costs, reduces one sorting process from warehouse to store, and provides better product protection.
  * Seal the plastic crates with tamper-evident seals and use RFID chip sensing technology to reduce counting and handover processes. Each crate has a number, and the status of the crate and the orders it contains are recorded in the system, improving accuracy and saving labor. (Currently, online shopping cardboard boxes are single-use, making RFID technology difficult to use, resulting in low sorting and handover efficiency and accuracy.)
  * Centralized delivery from warehouse to store: if a store has 30 orders today, the warehouse picks all 30 orders and delivers them together to the store. Compared with traditional online supermarket delivery, this eliminates the last-mile delivery and reduces delivery costs.
  * After goods arrive at the fresh food store, the APP sends a notification. Consumers can choose to pick up at the store, pay an additional 3 yuan for centralized delivery to home, or pay 5 yuan for scheduled delivery to home. The combination of online supermarket and fresh food store meets different delivery needs. (In fact, most previous online orders did not truly achieve door-to-door delivery.)
  * Why combine fresh food stores with online supermarkets? First, mass fresh produce is difficult for online supermarkets to operate, so online and offline products do not conflict. Second, fruit and fresh produce are the highest-frequency shopping needs. If consumers go to hypermarkets for fresh produce, they are likely to buy other items as well, reducing the likelihood of shopping online. The "fresh food store + online supermarket" forms a closed loop, basically meeting all household consumption needs.
  * The fresh food store and online supermarket are mutually reinforcing: when consumers pick up packages at the store, it brings foot traffic, and the store's existing customers can be converted to online supermarket customers.
  * Products sold in the fresh food store can be replenished through central warehouse delivery, sent together with online orders, reducing the store's procurement costs.

In summary, this approach integrates online supermarkets with fresh food stores, reducing traffic and fulfillment costs, improving customer experience, and bringing foot traffic to the store. The combination forms a closed loop, basically meeting all daily household consumption needs.

**Conclusion:**

As an FMCG retail practitioner, I observe that this era is witnessing dramatic changes in FMCG channels. Hypermarkets are declining, convenience stores and specialty stores are emerging, and online supermarkets (Tmall, Suning, JD) and O2O supermarkets (like Hema Fresh) have appeared. The future of FMCG retail formats is full of infinite possibilities and opportunities.

This article analyzed the future possibilities of online supermarkets and briefly explained two breakthrough points. In reality, the development of online supermarkets is influenced by the entire FMCG retail landscape. In the future, online supermarkets may also combine with O2O supermarkets or other models may emerge. I welcome communication with peers to discuss and share insights.

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