Xunlei Cheng Hao: New retail, many people misjudge the value of "grab and go"

So how do investors view new retail? The following is Cheng Hao’s original text:

New retail is very popular now, and there are many discussions on various viewpoints. In fact, there are many tracks in this field: some help retail stores to do refined operations, and some do unmanned retail. The latter can be further divided into smart vending machines, unmanned shelves in offices, unmanned cabinets (similar to refrigerator experience), and unmanned convenience stores (Amazon Go type), etc.

Some of them are 2B, some are 2C. In short, there are many tracks, we will not discuss them one by one, I will just talk to you about some of my views on products like Amazon Go. In fact, there are many articles on this topic, and many people do not recognize the value of this matter. Their analysis is mainly based on the purpose of saving labor costs, which is actually quite reasonable. But I want to talk about my point of view from another perspective.

First of all, we need to distinguish between two concepts: one is "grab and go" and the other is "unmanned retail". The former is the consumer experience brought by new technology, and the latter is the retail method brought by new technology. "Grab and go" does not mean unmanned, and can also be applied to manned stores. Its value is not to replace all labor, but to improve the consumer experience. (At most, it can replace part of the labor, such as reducing the number of cashiers in supermarkets and reducing the number of clerks from two to one in convenience stores)

Because from the perspective of cost saving, this account is actually not worth it:

• The so-called unmanned retail only realizes unmanned operation on the consumer side, but there are still many manual links in the background that cannot be saved. You need someone to be responsible for sorting the goods, and someone to be responsible for putting the goods on the shelves. In addition, someone needs to clean the shelves regularly, and someone needs to tidy up the messy shelves, etc. These are daily tasks, and it is actually quite difficult to achieve unmanned operation. In addition, if there is someone in the store, the theft rate will definitely be much lower.

• The value of convenience store clerks is not limited to selling things. They can also do many other things, such as sending and receiving express delivery, delivering goods to customers’ homes, selling financial products, etc., which is also one of the value-added services of convenience stores. If you replace them with "grab and go", then the value-added services will also disappear. Moreover, hot food products, which are the most profitable in convenience stores, are not easy to sell without clerks. Of course, there may be automated solutions for selling cooked food in the future.

Therefore, I believe that the value of Amazon Go is not to replace store clerks, at least not in the short term, nor is it to reduce rent. I will not elaborate on this point.

Of course, I don’t agree with the “grab and go” concept because it still has no value if it doesn’t involve people. The long-term value of this technology is that it improves the user shopping experience (from the perspective of user experience, supermarkets need “grab and go” more than convenience stores), and it will develop into the infrastructure of smart retail in the future.

Second: In the future, “grab and go” will be the infrastructure of smart retail, just like credit cards and mobile payments.

My second point is that “grab and go” will become the infrastructure of smart retail. In the future, large supermarkets and convenience store chains will all adopt this technology.

Why do I say this? The reason is similar to credit cards. Credit cards essentially increase the cost for sellers. In China, merchants have to pay a 1% handling fee to UnionPay, and in the United States they have to pay 3% to MasterCard or Visa. This fee is borne by the seller and paid to the credit card company. This is also why many fast food restaurants in the United States do not accept credit cards and must use cash. Similarly, many sellers on Taobao do not accept credit card payments unless the buyer voluntarily bears the handling fee.

But why did most businesses eventually buy POS machines and accept credit card payments? The reason is that people like it. People don't want to carry so much cash, and credit cards can also be used for overdrafts. People like it, so they will force you, the merchant, to accept this consumption method. Of course, credit cards are also valuable to businesses. After all, it is troublesome for businesses to collect a lot of cash and manage accounts.

So I think that in the future, the "grab and go" technology will be like credit cards. Although it has costs for merchants, because consumers like it, supermarkets and convenience stores will be forced to accept it and it will become their infrastructure. Imagine that you are a convenience store, and when all the convenience stores around you have "grab and go", will you not use it?

For the technology providers who "take it and go", the potential charging model in the future is the same as that of credit cards. No matter what your store sells, I will charge you 1% of the technical service fee. And as time goes by, the cost of technological transformation will decrease.

Third: Since it is infrastructure, retail giants such as Alibaba and JD.com will definitely invest heavily in it

This is easy to understand. E-commerce related infrastructure has always been Alibaba's specialty. Taobao, Tmall, Alipay, and Cainiao were all built to serve e-commerce. But e-commerce is now saturated, and the broader space is offline retail (although e-commerce has developed rapidly in the past 20 years, it only accounts for about 10% of the total retail sales in society).

What is the infrastructure of offline retail? First of all, it is mobile payment, and in the future, "grab and go" will also be the same. Imagine that you are a merchant or a brand store, with both online and offline businesses. You use Alibaba's Tmall, Alipay and Cainiao online, and Alibaba's mobile payment and "grab and go" offline. Isn't this very natural?

Therefore, Alibaba, Tencent, and JD.com all attach great importance to this field. Alibaba launched its own Hema Fresh, teamed up with Bailian, and bought RT-Mart. Tencent is about to invest heavily in Yonghui. These are all strategic investments. They value the new retail ecosystem formed by the integration of online and offline.

The same is true abroad. In June this year, Amazon acquired Whole Foods for $13.7 billion. In the past, if I wanted to buy fresh food, I couldn't ask Amazon to deliver it to me. No one could stand it if it took three days to arrive. Now that there are offline supermarkets Whole Foods stores, you can place an order on Amazon and it can basically be delivered to your home within three hours.

Fourth: Should entrepreneurs choose 2C or 2B?

• 2C means directly opening unmanned convenience stores. The advantage is that you can do full-stack business, but the disadvantage is that you are in competition with other convenience stores. No matter how good the "grab and go" technology is, it can only be used by yourself. Moreover, the domestic convenience store market is too scattered, and it is actually difficult to scale up if you do 2C yourself.

• 2B means you don’t need to open your own store, but choose to cooperate with convenience stores and supermarkets such as 7-11, Lawson, and FamilyMart to provide technical services. The advantage is that you can serve a large market, but the disadvantage is that your potential competitors are giants such as Alibaba that have switched from online to offline. But there are still opportunities here. China’s offline retail market is large and scattered. If you eat a corner of Pizza, it may be quite big, and there is also a chance to be acquired by a giant.

Having talked about so much business logic, from a technical perspective, the current technical maturity of “grab and go” is actually not that high. The same is true for Amazon Go. The main reason is that there are too many corner cases, such as obstruction, picking up an item and putting it in another place, two people picking up an item at the same time, a family picking up items and the father paying the bill, etc.

Therefore, the commercialization process of Amazon Go-like products is not as fast as imagined (some sub-sectors such as unmanned lockers may be closer to money because the scenarios are much simpler. The specific user experience is to scan the code to open the locker, and the fee will be deducted after taking the goods and closing the door, which is similar to the experience of opening a refrigerator). Of course, this field is not like driverless cars, which must achieve 99.99% reliability to be commercialized (see "Algorithms do not determine everything! Thunder founder Cheng Hao talks about domestic robot entrepreneurship"), so it will definitely not be as far from real-world applications as driverless cars.

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