On August 24, Zheng Hongyan, Vice President of JD Group and President of JD New Channel Business Unit, attended the FDIC 2018 China FMCG Digital Innovation Conference hosted by New Distribution and guided by the China Electronic Commerce Association, and delivered a keynote speech titled "Tapping Data Productivity." During the break, Zheng Hongyan accepted an exclusive interview with New Distribution, hoping his views and opinions could bring some thoughts to everyone.
1 Full-Chain Layout: From Digitalization to Datafication Since its inception, FMCG B2B has been widely considered to reduce the circulation layers of the entire supply chain. However, looking at the entire FMCG industry, we can easily find the following characteristics: low temperature, short shelf life, multiple SKUs, high frequency, etc. Because the characteristics of each category of goods are different, the order delivery logic, logistics system, and market service system are completely different. The delivery scenarios in high-tier and low-tier markets are also different. The pain point in high-tier markets is warehousing, while in low-tier markets it is distribution. This determines that a single delivery system cannot satisfy all delivery scenarios.
JD New Channel started early to lay out a series of digital systems serving brand owners and retail terminals, including the Huiyan Big Data System, the Xingzhe Sales Promotion Platform, the Field Service Management System, the Store Labeling System, the Smart Store Management System, and the JD Convenience GO Mini Program, basically covering the full-chain digital camp of channels, supply chain, stores, field service, and consumers. Zheng Hongyan told New Distribution, "JD Mall has accumulated a large amount of data and experience in serving consumers online. What New Channel needs to do is to precipitate the online experience and data, share it with all offline partners, and then build an open, decentralized information platform."
Zheng Hongyan emphasized, "These data systems are open to brand owners. If opened, brand owners can see them, and competitors will not see them. After we connect the backend data, my data is yours, and your data is still yours. What is the purpose of all this? We want to digitize the entire operation, move more partner services and products online for digitalization. We don't want to simply move products from the left pocket to the right pocket. We hope to truly generate value for brand owners and partners."
2 Scenario-Based Operation: Building a Half-Hour Living Circle From a retail perspective, the closer to the C-end consumer, the more complex the market retail scenarios become. For different consumption scenarios, the product structure and category structure are different, and the positioning of retail brands will also show great differences. Taking the Japanese retail industry as an example, Lawson's main audience is young people, 7-Eleven mainly targets middle-aged and elderly people, while FamilyMart mainly serves family users. A clear target group determines the positioning of a retail brand in the market. However, compared with Japanese convenience store brands, domestic convenience store brands still have a big gap.
"Stores need a certain process and time to meet the requirements of convenience store brands," Zheng Hongyan said. "Since we started JD Convenience Stores last year, we have covered all parts of the country except Hong Kong, Macao, and Taiwan in just over a year. This speed of store expansion is much faster than many traditional chain retail enterprises. Moreover, the properties of these stores are not ours, and most store employees have not actually received professional training. When they choose to cooperate with us, the first consideration is whether their business can improve on the original basis. First, we must ensure that our field service personnel have the opportunity to communicate with store owners, and then we will subtly influence and change their store operation and management methods. This requires a certain amount of time to accumulate, gradually turning quantitative change into qualitative change. When the scale and influence of our stores gradually increase, we will slowly reduce the speed of store expansion and then pursue qualitative change in stores."
Zheng Hongyan told New Distribution, "In the past, we operated products and traffic centered on people. When our core audience gets closer to C-end consumers, the focus of our online and offline operations in the future becomes meeting consumer needs in different scenarios. In the past, the 'place' was nothing more than several major e-commerce platforms online. Although they targeted different user groups, all apps were almost the same. Now with the addition of offline scenarios, users' purchase and consumption scenarios have become diverse and complex. Different types of stores have different business hours, different product structures, different service contents, and consumers' reactions also vary greatly."
For example, when consumers buy a beauty product online, they will definitely compare prices among different e-commerce platforms, but offline, consumers first consider the store's service and experience. Another example: Coca-Cola in a convenience store may sell for 3.5 yuan, in a supermarket it may sell for 3 yuan, but in a restaurant the same Coca-Cola may sell for 5 yuan, and in airports and train stations it may sell for 8 yuan or even higher. In this case, consumers' consumption needs have not changed, the product itself has not changed, but the consumption scenario has changed greatly.
So how does JD New Channel meet the needs of users in different scenarios?
"Online, JD has already obtained sufficient user consumption information, and New Channel can connect consumers' offline consumption data, so we can get a more three-dimensional and comprehensive user profile, and then complete the construction of the entire supply chain, forming a closed loop of online and offline full scenarios.
"In the early days, the small stores we operated could serve 3 kilometers, but later we gradually found it became 1 kilometer, 500 meters, 300 meters. The density of small stores is getting higher and higher. Now the number of small stores in China is relatively large. At this time, consumers' choices depend on the distance to the store. For example, sometimes I can cross the entire city to watch a movie, but if the traffic is too heavy today, I will find a nearby cinema." Zheng Hongyan said that the concept of consumption has begun to shift from space to time. Therefore, JD New Channel strives to meet all consumers' product consumption and service consumption needs on the JD New Channel platform within half an hour.
Originally, our product interface was divided by category, such as beverages, daily chemicals, and washing products, but in the future, our scenarios will be adjusted to consumer-centric life scenarios such as "respecting the elderly" and "loving pets," reshaping scenarios through C2B, and then providing consumers with a complete set of life solutions. So the core of our operation is the attributes of consumers in different scenarios, followed by satisfying consumers' shopping experience in that scenario. This is also the focus of JD New Channel's future development."
As an important strategy of JD New Channel, JD Convenience Stores undertake the important function of meeting consumer needs in different scenarios.
The half-hour living circle currently built by JD Convenience Stores is to provide consumers with as comprehensive and complete services as possible according to different consumption scenarios. Unlike most current retail formats, JD Convenience Stores can not only sell products displayed in the store, but also sell a huge number of products from JD online on behalf of consumers. In addition to product retail business, it also builds a "retail as a service" ecosystem, providing value-added business modules such as life services, financial services, commercial services, and public welfare services, such as parcel collection, recharge and payment, housekeeping and repair, insurance and wealth management, document printing, and charitable donations.
3 FMCG B2B: Operational Capability and Supply Chain Capability Remain Top Priorities According to New Distribution statistics, the coverage rate of FMCG B2B in mainstream urban markets in China has reached more than 60%. This means that multi-channel and multi-platform procurement and ordering by small stores has become the norm, and how to enhance store stickiness has become a problem that many B2B platforms have to face.
Today's Chinese channel distributors carry many functions that cannot be replaced by others. Zheng Hongyan believes that B2B can provide information flow and even part of the supply chain capability for stores, but in the logistics capability at the end of the most detailed capillaries, it is difficult for Chinese wholesalers to be replaced by other methods. It is a crucial link. Channel distributors can still find their productivity in this data map. The digital capabilities they lacked in the past can now be empowered by New Channel, allowing channel distributors and brand owners to continue to provide services while possessing capabilities they did not have before.
"In the past, we did a lot of digitalization. Today we begin to datafy it and put it to use. The concept of people, goods, and places does not exist independently, but can be converted in the same dimension. JD New Channel digitizes the needs and characteristics of brand owners, channel distributors, retailers, and consumers, then lists them in a row for data-driven development."
For example, JD New Channel has built a complete online sales system for partner stores, namely the JD Convenience GO Mini Program, to help small stores move their products from offline to online. Through the mini program, some stores have already achieved growth in customers and revenue. Even if the store's operating area is limited, the JD Convenience GO Mini Program can help the store expand its product categories infinitely. By combining the store's physical warehouse with the platform's virtual warehouse, plus backend technical operations, it truly breaks the space limitations of small store operations and empowers the store. This operational capability and backend support system can form competitive barriers between platforms.
Currently, B2B platforms represented by Furong Xingsheng have set up cloud warehouses for small stores. That is, the store owner initiates a group purchase for a certain product among store users. When the number of participating users reaches a certain level, the platform purchases the product, then delivers it to the small store, and the store owner delivers it to the group purchase users. The advantage of this business model is that for short-shelf-life, high-value products such as fresh fruits and aquatic products, it can effectively reduce platform losses and increase gross profit, but it also faces problems such as weak store stickiness and inability to form competitive barriers between platforms.
"JD helps brand owners with a full-network delivery solution, not just for a single channel or a single region. It can not only meet the increasingly personalized needs of consumers, but also cooperate with traditional channel distributors to help brand owners with distribution. This is also a capability that many regional B2B platforms do not have."
For some strong brands such as Coca-Cola and Master Kong, which do not need to spend too many resources on channel brand promotion, JD New Channel helps these brands reduce the cost of market construction on the original basis, while improving channel efficiency and refining the existing market.
"Brand owners and B2B platforms have different capabilities in the market. We will cut the differences in this regard. We will not destroy the existing distribution system and channel structure of brand owners, but supplement their weak parts and links."
For some large brand owners, some products within the enterprise have too high a sales proportion in the market, which leads to low enthusiasm for new products among both channels and related salespeople. This has also become one of the main reasons why many brand owners cannot push new products.
"In the traditional market channel, brand owners often need a complete distribution system and a well-established distribution architecture. However, traditional retail small stores generally operate only about 3,000 SKUs, which leads to high costs for new product distribution but low success rates. New Channel is capable of helping brand owners achieve new product distribution.
"In the final analysis, supply chain is still the main service that platforms provide to stores. In the absence of differentiated competitive advantages, the platform's bargaining power and interactive relationship with upstream brand owners constitute the platform's core competitiveness," Zheng Hongyan said.
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