Dmall VS BAT: Another Way Of Thinking In The Chinese Online Fresh Produce Retailing Industry

摘要: In a market where online and offline forces collide all the time and all kinds of players, including BAT are all competing against each other, Dmall might become a game-changer with its powerful connections, huge resources and experienced founding members.

(Chinese Version)

Editor’s Note:
If you went to Wu Mart a lot, you might find their shop assistants always seeking opportunities to advertise for an app called Dmall. In the past, traditional supermarkets were often caught in a dilemma: those that stuck to traditional business model were waiting to die, while those that chose to integrate with online retailers ultimately were looking for trouble. The cooperation between Wu Mart and Dmall, however, might provide us another way of thinking. Fundamentally, Dmall is a logistics service provider, yet it is more than that. What exactly is Dmall’s business plan? Will Dmall strike a balance in a market where various players, including BAT were looking for a piece of the pie. The following in-depth report, written by our journalist Guo Juan, might give you a clue.

It was an ordinary evening of September. In no time, the sales peak would end in this Wu Mart located in Chaoyang District. However, if you look closer, you might find that several Dmall’s deliverymen, all wearing orange T-shirts, were sorting out parcels for Dmall’s users who placed their orders just a few hours ago, or even an hour ago maybe on their way back home. After receiving orders, Dmall’s deliverymen, together with Wu Mart’s related personnel, would pick goods and package them as ordered. Within an hour, these parcels would be delivered to users’ home.

This is exactly what Dmall’s work flow look like: relying on supermarkets’ storage, selling mainly fresh produce, and building a logistics service team by itself. “In the past few years, several online retailing giants have stood out in various sectors, except in the fresh produce sector, so I predicted that a “unicorn” will stand out in the next 3 to 5 years selling mainly fresh produce and domestic products”, Liu Jiangfeng, the founder of Dmall and former president of Huawei suggested.

According to Frost & Sullivan, a consulting firm providing market research and analysis, driven by the increasing need for fresh produce, favorable policies of the Chinese government and abundant capital, the market volume of the Chinese online fresh produce retailing market is expected to reach 100 billion RMB (15.8 billion USD) within the next five years.

However, the fresh produce sector was left behind for some reason: the low profit margin and the high demand for logistics service. As is well known, fresh produce needs to be delivered with cold-chain technology. Even so, fresh produce might not be delivered to consumers in good condition. Liu Jiangfeng mentioned in a speech, saying that: “Consumers were very critical over the quality of fresh produce, and might get unsatisfied with our service even when only 1 out of 10 times the fresh produce were not kept in good condition when delivered.”

As did Xiaomi, the founding members of Dmall are all pretty talented and experienced: Liu Jiangfeng, Former president of Huawei; Li Wenzhi, former president of Huawei Overseas Division; Lin Jie, former vice president of JD; Han Xin, former general manager of US Development Center of Vip.com; Zhang Feng, an expert in Uber and Instacart’s business models and supervisor of E-Commerce division of Wu Mart, etc. According to a respondent of Dmall, it had already raised 100 million USD from angel investor IDG, while Wu Mart remained a strategic partner of Dmall.

On the front end, Dmall is connected to the inventory of supermarkets’, so that the inventory and stock volume of supermarkets’ can be synchronized to Dmall’s app and WeChat Official Account; on the back end, Lin Jie, jokingly referred to as the most educated deliveryman ever, built Dmall’s won logistics service system and had mustered a team of 2,500 deliverymen in Dmall. He told the media that Dmall’s logistics service was built not based on the traditional centralized, one-to-many model, but rather a de-centralized, many-to-many model.

The dilemma

Dmall’s posters and roll-ups can still be seen in several Wu Mart’s supermarkets across Beijing. Since Dmall and Wu Mart announced to cooperate this May, 150 Wu Mart’s outlets have been integrated to Dmall’s services. In addition, some supermarkets even set up checkout lines especially for Dmall users.

“We are still not sure about our business model, so we are open to any possibilities and any kinds of cooperation,” a supervisor at Dmall suggested in an interview. Statistics suggest that sales had increased by 30% compared to four months ago through their cooperation with Dmall. In the past, traditional supermarkets were often caught in a dilemma: those that stuck to traditional business model were waiting for death, while those that chose to integrate with online retailers ultimately were looking for trouble. Last year, Feiniu.com attempted to help supermarkets jump out of this vicious cycle by allowing consumers to buy goods from RT-MART’s official websites, Feiniu’s app and WeChat Official Account and pick up their goods at RT-MART. Yet, a year later, Huang Mingrui, the CEO of Feiniu.com revealed that Feiniu.com registered a net loss of 164 million RMB in 2014.

Last year, Feng Hui, the senior manager of National Information Center of Yonghui Superstores told the media that: “We are still uncertain about which model to adopt. For Yonghui, both B2C and O2O model are not the best way to improve consumers’ experience at Yonghui’s superstores.”

In this case, the cooperation between Wu Mart and Dmall, however, might provide us another way of thinking: seeking help from third-party platforms. When studying abroad, Zhang Feng came to realize that the gap between offline and online retailing was narrowing. After studying the software company Instacart, so-called the model of sharing economy in retailing business, he found that the company had less than 100 employees but was able to integrate to major American supermarkets on the one hand, and build a crowd-logistics service system on the other hand. Statistics suggested that the market value of Instacart had hit 2 billion USD by the end of 2014, and the company had raised 275 million USD in total after three rounds of crowd-raising.

Mr. Zhang liked Instacart’s business model very much and was doing related work when he came back. However, he found it pretty hard to apply the model to Wu MART, which was still bound by traditional way of thinking. Li Wenzhi, former president of Overseas Division of Huawei, was responsible for Dmall’s general administration, personnel and business development. He believed that:

“The clash of two different ways of thinking is the ultimate reason why supermarkets failed to integrate e-commerce, whether through B2C or O2O model. While huge money need to be spent in developing technologies, integrating resources, boards of traditional supermarkets are too careful to invest heavily in these areas, let alone to shift to the new way of thinking.”

For insiders, traditional supermarkets need to get rid of their prudence and embrace cooperation with third-party forces that are more familiar with the Internet way of thinking and understand the market and consumers better. It was reported that Feiniu.com was also shifting its way of thinking and attracting supermarkets besides RT-MART to turn its balance sheet green. Coincidentally, it also chose to focus on the fresh produce sector, as did Dmall. How so?

As a matter of fact, fresh produce sector was the only place where online retailers failed to penetrate. Since the beginning of 2014, all major online retailers have been cashing in in the sector, but “99% of online fresh produce retailer are losing money,” as was suggested by Li Changming, a researcher at China Retailing Industry Fresh Produce Research Center.

It seemed that online retailers were not omnipotent. Traditional supermarkets, however, might play a role in the online fresh produce retailing market. For example, Yonghui Superstores started as a fresh produce supplier, but later expanded to supermarkets similar to RT-MART, Wu Mart and opened 314 chain stores across China. Over years, Yonghui had accumulated rich experience in managing the supply chain, which might constitute part of its core competitiveness.

Benefits of technology

On the surface, Dmall looks like merely a logistics service provider for supermarkets. Yet, it was so much more than that.

If you open Dmall’s app, you will first receive a list of recommendations based on your location. In addition, you can click the supermarket or store as you like, and receive the most updated inventory of the store. At present, Wu Mart’s supermarkets are the majority, but METRO and STARBUCKS COFFEE’s outlets can also be found on Dmall. To keep the inventory on Dmall updated, a special technology team was set up. Han Xin, the co-founder of Dmall, was the head of this team.

He revealed that there were two types of talents in his team: traditional IT talents and Internet talents. The former were supposed to integrate Dmall to supermarkets’s enterprise resource planning (ERP) systems. For Mr. Han, Dmall was more like a technology exporter to supermarkets, because they have the technology to keep the inventory updated with special plug-ins for different kinds of ERPs and cashier systems. “At first, it could be really hard to develop different plug-ins for different systems, but as time went by, we’ve developed several types of plug-ins for all major ERP and cashier systems, so we get to expand pretty fast later on.”

As is known to all, inventory data is top secret for supermarkets. So what drove these supermarkets to disclose their data to Dmall? By cooperating with Dmall, supermarkets saved the money in developing technologies of their own. All they need to do is deploy an order picker to coordinate with Dmall’s deliverymen. In addition, Dmall was stimulating customers’ needs and stirred them to spend more money in supermarkets. Han Xin revealed that the average expense had increased by 30% according to statistics of the past month.

The body of offline customers and online customers differed a lot but did overlap sometimes. In the past, consumers used to go to supermarkets in weekends and during holidays and purchased via supermarkets’ online B2C-based store only when the weather was bad. Today, however, customers can buy everything they want in the online store of the supermarket they prefer and get their goods delivered by Dmall’s deliverymen in time. In an interview, a middle-age lady told me that she chose to shop on Dmall because she could enjoy higher discount, free delivery service when the order reach 58 RMB, and free delivery of heavier goods such as watermelon, cooking oil, etc.

At present, a consumer can buy a handful of goods at pretty low price fourth a day. That’s also when the sales jumped. Oftentimes, these goods will be sold out within one or two hours. At 21 o’clock, when most supermarkets are already closed, consumers get to purchase goods on Dmall at pretty low price. Some supermarkets open earlier to pick, package and deliver goods ordered at 21 o’clock last night in time.

“Internet prolongs the business hours of supermarkets,” said Lin Jie. To further illustrate, he drew two lines to me: one for the guest flow of traditional supermarkets, the other for the guest flow of supermarkets linked to Dmall. The former was horizontal for most of the time and only jumped during weekends, while the latter jumps all the time in a week. “Dmall’s goal is not to replace traditional supermarkets, but ally with them and provide consumers with seamless offline and online user experience,” he added.

His words were confirmed by Nielsen, an American global information and measurement company. According to its report, 46% of Chinese interviewees were willing to shop online and get their goods delivered door-to-door, much higher than the average level around the world (25%).

“The era of interactive commerce has come. Today, customers are no longer satisfied with shopping merely offline or online, but will choose whatever ways they’d like to. In this case, retailers and manufacturers need to develop online and offline retailing platform at the same time and meet customers’ need whenever, wherever they’d like to,” Fan Yijin, the general manager of Nielsen China, suggested.

Allying with supermarkets

With that being said, traditional supermarkets are still closed down one after another. Statistics suggest that 4 outlets of Ito Yokado have been closed since 2015, 10% of Tesco PLC’s outlets have been closed, while 30% of Walmart’s outlets are also reported to be closed soon.

Online retailers are also cashing in and opening online supermarkets, however, their supply chains are separate from traditional supermarkets’. Generally, online retailers will buy goods themselves and deliver them to different cities and communities across China. It follows that these online supermarkets are grabbing customers from traditional supermarkets.

Dmall, however, is heavily based on supermarkets’ supply chain. Supermarkets provide goods, and in return Dmall provides the technology to seamless shopping experience both online and offline and in-time logistics service. Indeed, Dmall looks like the Chinese Instacart.

In addition, Dmall turns Wu Mart’s paper ads digital, saving huge sum of money and efforts. In the past, Wu Mart used to spend over 100 million RMB (around 15.8 million USD) delivering paper ads to communities. Moreover, Wu Mart had to set up checking teams to make sure if their paper ads were delivered to residents, not thrown away in dustbins.

By turning paper ads online, Dmall gets to monitor the hits and turnover rates of ads on apps and WeChat Official Account. However, Dmall is not simply turning paper ads online, but combining them with commercial lines, jokes, eye-catching titles. These efforts proved quite effective. When I looked at the via times of Dmall WeChat Official Accoutn’s posts in the past 10 days, I found that the highest view times reached 100,000, while the lowest also reached 20,000.

Mr. Han cited another example to show me the huge impact of an effective advertising strategy. For this year’s Chinese Valentine’s Day, Dmall promoted the discount activity in Wu Mart’s supermarkets during the day, and discount activity on Dmall at night. The strategy proved effective when both offline Wu Mart supermarkets and online Dmall platform were packed with customers and orders on the Valentine’s Day. “We didn’t expect that, but we are glad to see that customers love to be given different choices.”

Yet, there is one difference between Instacart and Dmall. While Instacart adopted a crowd-logistics service system, Dmall built an entire logistics service team of its own. “We did so due to our cost and efficiency concerns,” Lin Jie explained.

It seems that crowd-logistics service system won’t necessarily lower the cost in China.

“The average salary for deliverymen under a crowd-logistics system is 6 to 8 RMB per order, much lower than hourly wage of first-tier cities. How can you expect deliverymen to be motivated enough?”

Besides, it could be difficult to control the service quality of deliverymen under a crowd-logistics system. “We need to set up a highly-competent and trained team of deliverymen to directly face our customers and impress them with the excellent service attitudes, smile and good manners of our deliverymen”, Mr. Lin explained.

Adora Cheung, CEO of an American O2O household service platform Homejoy, explained the reason why the platform ultimately failed, saying that household service personnel need to be trained and professional, but the capabilities of contracted employees under a crowd-household service system vary a lot. Besides, they often turn to courts to ask for the same salary as official employees.

Now we can understand why Dmall decided to build a logistics service team of its own. At present, 120 delivery sites have been set up within the 5th ring of Beijing, and over 3 million users have been attracted to Dmall’s platform with low-cost door-to-door marketing activities.

The future

Dmall was launched only this May, but soon started to cooperate with Alibaba and Suning three months later. A bright future must be awaiting Dmall out there.

Obviously, integrating online and offline retailing platforms have become a common practice in the Chinese retailing industry. BAT and JD have all been investing heavily in the sector: while Baidu invested 20 billion RMB (around 3.1 billion USD) in Nuomi to show its ambition to “connect to the world”, JD was invested by Tencent and benefiting from the huge traffic of Tencent. At the same time, JD also invested in Fruitday and Yonghui Superstores to seek for a piece of the pie.

In a market where online and offline forces collide all the time and all kinds of players, including BAT are all competing against each other, Dmall might become a game-changer with its powerful connections, huge resources and experienced founding members.


[The article is published and edited with authorization from the author @Guo Juan, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at ECHO), working for TMTpost.




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