This Double 11, e-commerce can't do supermarkets anymore?

Another year's Double 11 is coming.

At the same time that major e-commerce platforms are competing for the "lowest price on the whole network", online supermarkets are "stealing".

Yonghui, Hema and even the old BBK supermarket have recently announced product price cuts, such as Yonghui opening discount stores in stores, and BBK transforming into discount stores as a whole, while Hema focuses on "different online and offline prices".

Yonghui Beijing Lugu store. Photo/Yu Yuan

Judging from the publicity strategies of each company, they not only compete with their peers, but also compete with online e-commerce platforms for customers, so that offline can regain their fireworks.

After being impacted by online e-commerce for many years, is offline physical retail going on a counteroffensive?

It's cheaper than online

Offline supermarkets are cheaper than online e-commerce, which was rare before, and it is now the Double 11 with crazy online price reductions.

Recently, China News Weekly saw in the Beijing Lugu store of Yonghui Supermarket that many shelves were labeled with "limited rush purchases", and the large font reminded consumers that the discounts here are even stronger, and they are sold out while supplies last.

Discounted milk in Yonghui's store. Photo/Yu Yuan

For example, the offline price of Sanyuan Extreme Pure Milk (250mlX12 boxes) is 39.9 yuan, while in Tmall Supermarket, the price of this product is 52.9 yuan, 39.9 yuan after the Double 11 10 billion subsidy, and the 5-liter Arowana peanut aroma edible plant blended oil is only 59.9 yuan here, which is also the same price as Tmall Supermarket.

The price of a Christmas tree-themed Senbao children's building block in Yonghui supermarket is 64.5 yuan, while on the e-commerce platform, the cheapest is 79 yuan, and there are many hundreds of yuan.

It is understood that this is the latest action of Yonghui Supermarket, that is, to add "authentic discount stores" in stores. Yonghui told China News Weekly that the so-called "genuine discount store" means that a part of the new products, Internet celebrity products and regular products are selected from the discount product pool every day, and then sold according to the specific situation according to the original price of the goods.

Coincidentally, Hema also wants to tear off the "expensive" label.

Recently, Hema announced that it will expand the discounted products to more than 5,000 products in one go, including dairy products, cleaning products, frozen aquatic products and other categories, with an average price reduction of 20%. For example, the original price of 20.5 yuan/200g garlic vermicelli scallops dropped directly to 9.9 yuan, and the original 39.9 yuan Knoppers milk hazelnut chocolate wafer biscuits only cost 29.9 yuan.

There is another feature of Hema this price reduction - different prices online and offline. When China News Weekly visited the Hema Fresh Beijing Yangzha Huandao store, it was found that posters of "offline exclusive prices" were posted in many areas of the store, such as the offline 16.9 yuan/300g fat beef roll, which was sold for 19.9 yuan in the Hema App, and the 300ml Avène spray was priced at 49 yuan in the store and 69 yuan in the Hema App.

And some products are not only cheaper than their own apps, but also cheaper than mainstream e-commerce platforms. The price of Hema's popular product Taixiang Soda (325mlX24) is 49.8 yuan, and the same product is 56 yuan in the Jingdong self-operated zone for imported water drinks, and the 3.8 yuan Oriental Leaf is also more than 10% cheaper than the price of four or five yuan online.

The once-suspended long-established supermarket BBK is also following in the footsteps of Yonghui Hema.

Recently, BBK announced the restart of stores across the country, starting from the Hunan base camp, and successively restarted 33 stores in Hunan, Guangxi and other places, and will complete the restart of supermarket stores across the country at the end of next month. It is worth noting that BBK will implement a retail strategy of low price discounts when reopening stores.

According to reports, on October 27, the fourth store of BBK supermarket Yueyang and the Changsha Jinxing Road store fully resumed normal business. When customers choose products, a yellow price tag also attracts many people. It turns out that this yellow price tag represents the promotional price, for example, the retail price of an oatmeal shows 33 yuan, but the actual price is actually 27.8 yuan, a decrease of about 15.7%.

Wang Fill, chairman of BBK Group, also said that BBK has made a major transformation to the entire supply chain, compared with the past, the restart of the variety of goods is richer, the price is cheaper, the average price is equivalent to the previous 85%.

It is not uncommon for supermarket price reductions to be promoted, and it is rare that it can be cheap all the time, so how long can it last this time?

Discounted transformation

In the past, there were two main reasons for the price reduction of offline supermarkets, one was to rely on super large quantities of purchases to bring down the unit price, and the other was to sacrifice profits and exchange subsidies for traffic.

But both models are unsustainable after entering the era of e-commerce. In terms of large purchase volume, who can compare to JD.com? In terms of abundant capital, which company dares to argue with Ali?

In this regard, Hou Yi, CEO of Freshippo, explained the recent price reduction in the circle of friends: "There is a high distribution cost online and a low cost offline, so it is reasonable that the offline price is lower than the online." ”

Objectively speaking, the cost of online is really not low, and the delivery fee is only part of the cost. Over the past few years, the cost of online customer acquisition has increased exponentially as mobile phone coverage has become saturated.

According to a research report by Everbright Securities, from 2018 to 2020, Alibaba's customer acquisition cost increased from 278 yuan to 929 yuan, and Pinduoduo increased from 77 yuan to 203 yuan. According to the 2021 Q4 financial report of Station B, the cost of a single customer acquisition in the quarter reached 391 yuan, an increase of 84% from 212 yuan in the same period last year.

In addition, for retailers like Hema Yonghui who also have home delivery business, they also have to bear store rent, water, electricity, labor and other expenses, and the cost will be higher.

The high cost of online may explain why online is expensive, but it is not a reason for offline price reductions or even cheaper than e-commerce.

From the price reduction strategies of Yonghui, Hema and BBK, it can be found that the three invariably mention the words "discount store" or "discount".

Chen Liping, a professor at the Capital University of Economics and Business, once said at the supermarket development strategy summit forum held by CCFA that discount stores are not a retail industry that only relies on low-price sales of goods, but an innovative format in the development of supermarkets. According to the industry's accepted definition, a discount store is a product that provides consumers with low prices on a continuous basis. Therefore, the core of the business innovation of discount stores is how to create a low-cost management system and system.

In fact, behind the large-scale expansion of discount stores, it is actually a subversion of the traditional supermarket model.

Hema told China News Weekly that for traditional supermarkets, selling goods is not their main way to make money, and channel fees, entry fees, stacking fees, and display fees are the main sources of profits.

In other words, the target customers of traditional supermarkets are not ordinary consumers, but the majority of suppliers.

Hema has a different model. Specifically, it is a shift from the previous KA model to a discount model.

In this model, the store no longer relies on intermediate wholesalers and agents, but directly finds the manufacturer, and saves costs by reducing intermediate links, so that the price has room to fall.

Photo/Visual China

The "Sugar Box", a bakery factory invested by Hema in Kunshan, Jiangsu Province, is the first bakery in China to realize the full-link production of "from one grain of wheat to one loaf", but the vertical supply chain alone is not enough.

In order to save money, Hema built this factory not far from the wharf, so that raw materials can be distributed nearby after arriving at the port, saving logistics costs; At the same time, the factory starts at night, "because the price of electricity is cheaper at night", which not only ensures the quality of the product, but also gives profits to consumers.

Yonghui is doing something similar. In the first half of the year, Yonghui Supermarket's own brand supply chain introduced more than 60 planting bases and source suppliers to jointly promote the innovation and research and development of its own brand, of which 34 strategic cooperation suppliers were formed, and 13 suppliers of order planting and production line underwriting were formed. According to the financial report, in the first half of this year, Yonghui Supermarket achieved operating income of 42.027 billion yuan, and its own brand sales reached 1.95 billion yuan.

The supply chain is at the core

Wen Zhihong, a chain management expert, told China News Weekly that the switch to discount stores is also the result of the supermarket format being forced backwards.

In recent years, e-commerce, with its convenience, speed and price advantages, has gradually changed consumers' shopping habits, making online shopping the mainstream, and the original consumers of physical supermarkets have been "blocked" at home.

Data show that in the first half of this year, among the eleven domestic physical retail listed companies, only 3 achieved revenue growth, and 3 companies with reduced profits, among which BBK and Renrenle fell into losses: BBK lost 449 million yuan in the first half of the year, a year-on-year decrease of 2162.98%, while Renrenle had a net loss of 309 million yuan, a loss increase of 31.03%.

In order to cope with the challenges posed by e-commerce, supermarkets are looking for new ways to survive, and the discount store model is one of the options. In addition to Yonghui Hema and others, other retail giants are also embracing discount stores.

In December 2021, the first member store of the supermarket chain brand Jiajiayue officially opened in Jinan Hongyang Plaza, which also marked Jiajiayue's entry into the warehouse membership store.

It is reported that the price of goods in the store is 10%-15% lower than that of regular stores. Since then, Jiajiayue has successively opened stores in Zhangqiu, Laiwu, Tengzhou, Zibo and other cities.

In the second half of 2022, Wumart opened a discount store "Meitao" in a shopping mall in Mentougou District, Beijing, mainly selling seasonal goods and unsold replacement goods.

These retailers have different approaches, ranging from stand-alone stores, shop-in-shops, to full-scale drops, but they all agree on the discount path.

According to the "2023-2028 China Discount Store Industry Competition Analysis and Development Prospect Forecast Report" released by the China Research Institute of Puhua Industry Research Institute, the market size of the discount retail industry in mainland China will reach 1.62 trillion yuan in 2021, with a CAGR (compound annual growth rate) of 4% in the past five years, and it is currently in a period of expansion.

The China Research Institute of Puhua Industry Research Institute also pointed out that discount stores will be the fastest growing format in the next 10 years, with a compound growth rate of 5.6% – much higher than the 2.5% of hypermarkets and even higher than the 5.5% of convenience stores.

Behind the popularity of discount retail, the consumption logic is changing. Kaiyuan Securities believes that behind the trend of discounting in the retail industry is the change in consumers' demand for essential consumer goods in the face of the new economic cycle and consumption environment, that is, the pursuit of the ultimate low-price satisfaction under the premise that the quality cannot be reduced.

In Hou Yi's view, the core competitiveness of retail enterprises lies in service capabilities, differentiation capabilities and price competitiveness, and price competitiveness is the core goal of change. It is understood that during the "moving mountain price" of Freshippo, the sales of the popular product durian mille-feuille cake in Shanghai once increased by 26 times year-on-year.

However, brick-and-mortar retail is still difficult to say of a victory in transformation. Wen Zhihong said that the transformation of discounting cannot be achieved overnight, and it needs to go through the process from part to whole, from online to offline. And as the change gradually sails into the deep waters, it is bound to encounter hard bones.

During the visit, China News Weekly found that whether it is Hema or Yonghui, discounted goods are concentrated in the field of standard products, but fresh products such as vegetables and fruits are less discounted, and fresh food is the easiest to differentiate from physical retail compared with e-commerce, and it is also the track with the greatest advantages.

Wen Zhihong said that low prices are the signboard of discount stores, and behind the low prices, the competition is the ability of supply chain operations. If there is no support from the corresponding supply chain, just by sacrificing profits in exchange for sales and traffic, then it will not last long, but may "drink to quench thirst".

Author: Yu Yuan