As travel restrictions ease, retailers should seek inspiration from around the world and especially from the ever-innovative Chinese market, says senior partner at Bain & Company Jonathon Ringer.

Freshippo Hema

Alibaba-owned Hema store integrates online and offline

The overseas road trip used to be a regular event for retail executive teams. A valuable source of fresh thinking and new ideas, these trips were an opportunity to see the latest retail innovations first hand, observe alternative approaches to common problems and compare notes with non-competing retailers in other markets.

Travel restrictions and the need to focus on the local pandemic response have put this type of trip on hold over the last 18 months.

But the need for fresh ideas remains as strong as ever and as restrictions ease, I would encourage retailers to look east to really stretch their thinking. China is the most exciting hub for retail innovation, much of it at a scale and a speed that we can barely imagine.

Retail observers in the UK will be familiar with the Alibaba-owned Hema format (or Freshippo, using its English name). We’ve seen the videos of customers using their smartphones in the store and of baskets being carried along ceiling-mounted conveyor belts ready for rapid home delivery. It is easy to dismiss as hype, but these stores are Alibaba’s bold attempt to reinvent the physical grocery store and truly integrate the offline with the online. 

The Freshippo stores combine market, grocery store, food court, warehouse and fulfilment centre all in one location. It isn’t just a pick-from-store model tagged onto a normal shop; nearly 50% of the store space is dedicated to back-office activities (way more than most retail outlets, even those that support in-store picking and fulfilment) and estimates suggest that in some stores more than 70% of revenues are derived from online orders.  

Freshippo

Hema stores are truly innovative

Quality fresh food is showcased throughout, recognising the role it plays in drawing in customers, and about 30% of the front-of-store space is dedicated to cooking and in-store dining.

Combine all this with beautiful store design, integrated in-store smartphone technology and rapid delivery and you have what Kingfisher CEO and Asia retail veteran Thierry Garnier described as “probably the most innovative concept in the world”.

It isn’t hype. It is likely that the economics remain challenging but after just five years there are already 260 Hema stores across China with ongoing experimentation in their model and format. 

UK trailing behind China still

Of course, the innovation extends far beyond Alibaba and Chinese ecommerce rival JD. My colleague Jonathan Cheng, who leads Bain’s retail practice in China, points to proximity ecommerce as the other major theme which is transforming the market.

O2O (online to offline) as it is often called, uses a digital interface to connect local customers directly to local inventory (goods or services). 

In the UK, we are just beginning to get our heads around a similar phenomenon: the emergence of rapid grocery delivery players and the role that foodservice aggregators (for example Deliveroo and Uber Eats) might play in core retail.

The O2O space is more advanced in China and the emerging winner is Meituan. The numbers are staggering. Founded in only 2010, Meituan already has 600 million active users and 7 million merchants.

All products and services are location-based and can be transacted digitally, with delivery within 30 minutes – it is the ultimate convenience format. Meituan’s core business is restaurant food delivery but it has extended into hotel bookings, online groceries, ebikes and other services.

At this scale, Meituan can fund bold innovation. Two recent experiments include in-app videos and order-sharing. The videos are promotions for Meituan merchants with users earning virtual coins (which can be converted to cash) for watching the videos in full. Order-sharing (Fanxiaoquan) is a social feature, allowing users to share their food orders with friends.

Friends can then comment and “like” the food orders and even order the same food themselves at the click of a button. Both features create stickiness for the Meituan app. Given its model, Meituan is also at the forefront of experimentation with autonomous delivery (“magic pods”) and drone delivery. It already equips delivery drivers with “smart helmets” to increase safety and facilitate communication.

Pinduoduo logo

Pinduoduo’s logo

Another O2O business that might be below the radar for many European retail observers is Pinduoduo. What is distinctive about its offer is the insertion of a community and social aspect into the shopping experience. Users can share what they have browsed/purchased and can join up with fellow users to create “teams” in order to enjoy a lower price.

The attraction of getting a deal, a strong focus on daily promotions at extraordinary prices, and elements of gamification make the shopping experience fun. Its growth has been exponential: after only starting out in 2015, it had 788 million active users in 2020 (more even than Alibaba). Its success with less affluent customers outside of tier one and two cities has prompted Taobao (part of Alibaba) and JD to introduce their own discount apps.

Pinduoduo

Pinduoduo’s homepage – it offers a community and social aspect into the shopping experience

Hopefully, it will soon be time to dust off the road trip and China should be the first stop on the itinerary. The market is different and not all elements will read across to the UK, but the scale, pace and boldness of innovation should be the source of new ideas and fresh thinking.