Shift affects online, offline
mom and pop, and suppliers
Market Insight Consultant
Kantar Consulting, China
With the slowdown in the rate of China’s economic growth, compared with a few years ago, businesses, especially key retail sectors, are struggling to adjust to this “New Normal.” Intensifying competition has forced retailers and manufacturers to reform their business models in line with the core of retail: shopper-oriented service with efficiency.
Purchasing behaviors of key consumer groups are consistently evolving. While people born in the 70’s and 80’s are largely driving consumption, younger people gradually have become the new priority for brand attention. Meanwhile, the middle-aged and elderly, who have both wealth and leisure time, are more open to new products and services.
Moreover, the popularity of smart phones and increasing 4G availability lead to high mobile internet penetration. Shoppers are “always on,” and mobile commerce now accounts for over 85 percent of the total e-commerce gross merchandise volume. The boundary between online and offline is vanishing, and the concept of omnichannel is evolving. Those omni-shoppers want extreme experience: a responsive and empathic shopping experience while always being in control.
With the rise of omnichannel, integration and consolidation between online and offline retail deepened, and became blurred. As online and offline operators moved into each other’s spaces we needed a term to describe the changed reality. It was provided by Alibaba Chairman Jack Ma, who labeled the phenomenon New Retail.
In 2017, e-commerce giant Alibaba expanded its physical footprint by acquiring shares of offline retail giants Lianhua Supermarket and Sun Art Retail Group, and investing heavily in Hema supermarket. JD.com enhanced its collaboration with Yonghui Superstores and Walmart, to combine complementary strengths in supply chain, product range, logistics, and shopping experience.
Meanwhile, other retail giants, like CR Vanguard, which primarily operates bricks and mortar stores, have started to invest in their online businesses to fulfill shopper needs for anytime-and- anywhere convenience. Manufacturers, on the other hand, have put great effort into adjusting their channel strategies by customizing their product portfolios, pricing, promotions, communication, and services to fit the characteristics of different online and offline channels. In short, all participants are adapting to New Retail, striving to create the best experiences for omni-shoppers.
Roles of retail channels are also changing. Besides selling, physical stores now emphasize more display, experience, and personalized value-added services. Kidswant, China’s largest maternity and baby specialty retailer, is an excellent example of a retail brand that understands its customers and serves them with a well-considered combination of sales, service, and experience.
E-commerce beyond a sales channel
And e-commerce is evolving beyond a sole sales channel. More precisely, Alibaba with abundant resources and great competence, is rapidly expanding from an online marketplace that facilitates selling products, to a comprehensive platform that continues to sell merchandise, but also provides an array of services.
Alibaba describes this initiative as Uni Marketing, the effort to understand the needs and purchasing cycles of every single consumer within Alibaba’s ecosystem, both online and offline. In a similar way, JD.com is optimizing the potential advantages from its cooperation with Tencent, to provide brands with integrated marketing backed by the most powerful social media data and tools in the China.
In addition, new channels are emerging in the New Retail context. The O2O takeaway platform—online ordering and physical delivery—has become one of the most frequently-used concepts in China, with ultra-high user stickiness. And those takeaway platforms are more than just service providers of catering deliveries.
O2O takeaway platforms help business partners, such as physical supermarkets, increase online ordering, and rapidly fulfill orders with fast store-to-home grocery deliveries. Leading players, such as Ele.me and Meituan, are now able to fulfill an order within 30 minutes, meaning that this channel can meet the immediate needs of shoppers, an accomplishment that had eluded e-commerce until now.
Ecosystems embrace mom and pop
The retail revolution, driven by internet, is even penetrating mom and pop stores, a highly fragmented channel that accounts for almost half China’s sales of fast moving consumer goods (FMCG) from over 600 million outlets across different regions and city tiers in China. In the past, this market could not be well covered and served by brands due to the fragmentation. But now a new business model has emerged. Named Online B2B, this model builds direct connections between manufacturers and local mom and pop stores by moving the procurement online to improve distribution efficiency and upgrade the stores.
This Online B2B model gained great exposure from the participation of Alibaba and JD.com. Besides winning in this B2B market, the Alibaba and JD.com also aim to bring those offline mom and pop stores and their shoppers onto their ecosystems. In this marriage of e-commerce giants and mom and pop merchants, the most cutting-edge retail and the most traditional retail converge, producing improved merchandise, experience, and efficiency that benefits brands and consumers.
To fully benefit from the New Retail era, manufacturers and retailers need to change their mindset and take a shopper-oriented approach. They need to put themselves in the omni-shoppers’ shoes to observe what they really want from retail, and from each channel—and respond. Roles of physical stores and e-commerce should be redefined, and portfolio, price, promotion, and communication mechanisms should be tailored to each channel accordingly. Today, whether your operation is more like Alibaba and JD.com, Walmart, or a mom and pop operation, success requires a flexible organization, capable of fully leveraging emerging channels and niche touch points to engage shoppers throughout their journeys.