Source: Third Eye Retail Author: Zhao Xiangyang
"In the past 20 years, traditional retail enterprises have not completed the transformation of 'self-centered' to 'customer-centric' values, and 'returning to the essence of business' has become an empty phrase." Chen Liping, a professor at the Capital University of Economics and Business, said.
On December 4, at the "2021 Fresh Food Class" hosted by "The Third Eye retail", Chen Liping shared his latest thoughts on the retail industry.
Chen Liping believes that the current difficulties encountered by traditional retail enterprises are caused by many reasons, but the most important one is that there is a problem with corporate values.
"The traditional retail enterprise practice is to use the supplier's funds to develop their business by charging the entry fee, setting the account period, etc., and collect more entry fees after the business grows." This is typical game theory behavior, and now this way can't be played." Chen Liping said.
The zero-supply relationship is a common problem in the industry, why does Chen Liping believe that it is the root cause of the plight of traditional retail enterprises? Grasp the future of retail why pay close attention to demographic changes? Where does the future of brick-and-mortar stores go?
With the above questions in mind, "The Third Eye on Retail" exclusively interviewed Chen Liping, a professor at the Capital University of Economics and Business.
Self-centered values
It has become the DNA of traditional retail enterprises
"The Third Eye on Retail": The problem of zero-supply relationship is not a new thing, why should it be elevated to the height of corporate values?
Chen Liping: Let's sort out the ideas. The main profit model of traditional retail enterprises, especially hypermarket formats, is to make a profit by charging channel fees and setting account periods. Retailers charge suppliers about 40 percent of their gross profits through the front and back office, and the remaining 60 percent wait about 90 days before returning to suppliers. Retailers use the cash flow from the 90-day account period to open new stores, start microfinance companies, and even develop real estate. In other words, retailers use suppliers' funds to grow their businesses, and when the business grows, they charge more entry fees, which is typical game theory behavior.
In this process, in order to protect their own interests, suppliers must pass on to consumers in the form of commodity prices, resulting in an inflated retail price of commodities. For retailers, since the risk is passed on to the supplier, taking other people's money to develop their own business, in exchange, it will lose the right to operate the goods, pricing power, and even the right to serve. In the end, it will lead to two results, one is the gradual decline in the customer collection capacity of supermarkets and the decline in passenger flow; the other is that high-quality suppliers flee hypermarkets and store hollowing out. The two interact and fall into a vicious circle. In the current fierce competitive environment, this model is difficult to sustain.
"The Third Eye on Retail": Over the years, the industry has been constantly calling for "returning to the essence of business", what do you think the essence of business refers to, and why is it difficult to return?
Chen Liping: I think there are three levels to the essence of business. The first is to create value for customers, the second is to pass value to customers, and the third is to maintain the relationship between the company and customers, that is, the real sense of "consumer-centric".
Under the traditional zero-supply model, supermarkets rely on their own advantageous position to expand without taking any business risks, which is a profit model driven by self-centered values. In the past 20 years, traditional retail enterprises have not completed the transformation from "self-centered" to "customer-centric" values, and "returning to the essence of business" has become an empty phrase.
"The Third Eye on Retail": Do you think traditional retail companies can change the "self-centered" values and return to the "customer-centric"?
Chen Liping: The value of "self-centeredness" has become the DNA of traditional retail enterprises, which has long penetrated into all aspects of the organization, not the boss wants to change it, at least this generation of retail people is not expected, to see if the next generation of retail entrepreneurs is possible to achieve.
Urbanization has brought a crisis to county retail enterprises
"The Third Eye on Retail": You have been paying attention to the aging and low birthrate of the Chinese population, what new discoveries have you made recently?
Chen Liping: One figure worth paying attention to is that China's total fertility rate is already lower than That of Japan. China's total fertility rate has been declining year by year, from about 6 before 1970 to about 2 in 1990, to about 1.5 after 2010, and then to 1.3 in 2020. Japan's total fertility rate in 2020 is 1.34. It is expected that by 2022, Chinese will enter a negative growth stage. I think this is a major shift, heralding the age of aging.
"The Third Eye on Retail": What changes have the changes in China's population brought to the physical retail industry?
Chen Liping: Demographic changes have led to the diversification of consumer demand, and several key points are worth noting.
First, household miniaturization has led to a decline in the consumption power of fresh categories in the narrow sense such as vegetables, fruits, meat, rice, noodles, grains, and oils, while the consumption expenditure on semi-finished products, processed foods, and catering has increased. Taking Japan's data as an example, the proportion of household fresh expenditure in Japan fell from 34.4% in 1990 to 24.7% in 2020; the proportion of processed food expenditure increased from 43% in 1990 to 54% in 2020.
Second, the data show that by 2035, China's population over 60 years old will exceed 400 million, and China will enter an era of comprehensive aging. In the era of population aging, consumers want to store more varieties and a small number of varieties, and the expenditure on healthy foods such as low sugar, salt reduction, and fat reduction has increased. But at the same time, the aging population has put forward further requirements for store services, which means that the cost of store operations and the difficulty of management have increased.
Third, the rise of the "Z era" consumer class, along with the generation of food pursuit of Westernization, convenience, the future will break out of the huge new opportunities for consumption. But I think this new opportunity belongs more to competitive food processing companies with new product development capabilities than to traditional retail companies.
"The Third Eye on Retail": With the demographic changes, what other external operating environments deserve the attention of retail enterprises?
Chen Liping: China's urbanization development has led to a rapid shift of population to central cities, and this siphon effect brings potential risks to county retail enterprises. Taking Jiangsu as an example, the population loss rate in northern Jiangsu has reached 7.58%; in Shanxi Province, China, a large number of people have migrated to the Jinzhong region. In these outflow cities, especially some county-level cities, most of the outflow is young, female, and the most consuming group.
It can be said that in the short term, community group buying may become the most powerful competitor of traditional supermarkets, but in the long run, population loss is the biggest crisis of county supermarkets.
Retail companies need to have "understanding" the most
The Third Eye on Retail: Back to the essence of business, what do you think is most important?
Chen Liping: The retail industry should return to the essence of business, that is, how to better create value for customers. I believe that enterprises should first change their concepts, and the KPI of future retail enterprise development should be changed from the traditional market share orientation to the customer management ability orientation, and finally form a restructuring of the offline supermarket business model.
The Third Eye on Retail: If you were to define the retail enterprise of the future, what capabilities do you think it should have?
Chen Liping: The core is understanding.
The ability of future retail enterprises is mainly the ability to obtain customers and retain customers, which are refined as follows: first of all, the ability to understand customers; secondly, the ability to interpret customer needs into goods and services, customer needs are often vague, how to express them through goods and services; and finally, based on professional commodity knowledge, the ability to formulate commodity strategies for different customer needs. Considering that most of the physical stores in the future will be stores based on small business districts, this ability to develop products for different customer needs is particularly important.
"The Third Eye Looks at Retail": Commodity power is a concept that has been frequently mentioned in the past two years, what do you think is commodity power?
Chen Liping: For physical stores, the root of commodity power comes from enhancing the value of customers cooking at home, which is composed of five dimensions. One is cost performance, especially in the north, upper, guangzhou, shenzhen and other first-tier large cities, high housing prices suppress the purchasing power of consumers in other aspects, cost performance has become the first element of commodity power; second, convenience, small families and singleness make convenience a major attribute of goods; the third is health, consumers are surrounded by more and more industrialized food, so that they are very concerned about the health of food; fourth, delicious; fifth, freshness.
In summary, commodity power is not only a certain aspect of the good can be achieved, but a comprehensive presentation of multiple dimensions. For example, Aeon Japan simplifies home cooking by creating refrigerated semi-finished dishes, so that it is delicious, healthy and inexpensive.
"The Third Eye on Retail": The traditional zero-supply relationship has become backward production capacity, so what do you think are the characteristics of the new, symbiotic zero-supply relationship?
Chen Liping: The new zero-supply relationship is defined from the following aspects. First, from the perspective of cooperation basis, the traditional zero-supply relationship is based on the agreement on the terms of the transaction, while the new zero-supply relationship is based on information sharing and strategic agreement; second, from the perspective of profitability, the traditional zero-supply relationship is passed on as a cost (with the help of the dominant position to oppress suppliers), while the new zero-supply relationship is based on the overall optimization of supply chain costs; from the perspective of the realization of win-win cooperation, the traditional zero-supply relationship is based on the supplier's best efforts to meet the retailer's transaction conditions (Party A and Party relationship) From the perspective of circulation mode, the traditional zero-supply relationship retail and wholesale are separated; while the new zero-supply relationship retail and wholesale are integrated. 【End】