JD 7Fresh and the front warehouse have confirmed the completion of the integration, and it is possible that an immediate retail price war will be launched on Double Eleven?

People close to JD.com disclosed that JD 7Fresh Supermarket has completed the integration of front warehouses, and the fulfillment efficiency and service experience of online orders will be significantly improved. Recently, some media tried to purchase some goods through the self-operated grocery shopping entrance on the JD App. When the goods were delivered, the packaging and delivery services were provided by JD 7Fresh. Previously, the services of this self-operated grocery shopping entrance were provided by JD's front warehouse business.

The goods ordered through the self-operated grocery shopping entrance of the JD App are provided by JD 7Fresh 

Online and Offline Integration Strategy: Is It the Future of Instant Retail?

It is undeniable that the current instant retail market is still a market full of imagination.

The latest report from the Market Research Institute of the Ministry of Commerce shows that as of 2023, the domestic instant delivery market size is 341 billion yuan, with a year-on-year growth of 24.8%. The instant e-commerce industry also maintains a high compound growth rate, with an average annual growth rate of more than 30%. It is expected that by 2027, the instant e-commerce market size will exceed 5 trillion yuan.

As an important weapon to compete in the instant retail market, the front warehouse is also the entry point for many players to enter this track. The so-called front warehouse refers to a model that is different from the traditional warehouse that is far away from the final consumer group and builds a warehouse near the community. This model can greatly improve the timeliness while ensuring the freshness of fresh products. At the same time, compared with offline stores, the management of the warehouse is simpler and can save more operating costs.

This concept was initially born with the fresh food e-commerce platform 10 years ago. As early as 2015, Missfresh built the first front warehouse in Wangjing. After 2017, Dingdong Maicai, Pupu Supermarket, Meituan Maicai, etc. were successively born. However, after a short period of prosperity, the front warehouse model soon suffered a fiasco.

Looking back at the early stories of the front warehouse, it is not difficult to see that the high cost and operational difficulty are the decisive factors that limit its development. In order to achieve rapid delivery, the front warehouse often needs to establish multiple sites in the city or closely cooperate with offline stores, which adds a lot of costs. While traditional e-commerce can effectively reduce costs through large-scale procurement, centralized warehousing and logistics, thereby gaining a certain advantage in price. This also leads to the front warehouse facing huge challenges in attracting consumers, especially in expanding market share and improving user loyalty, just like climbing a steep mountain, every step is full of difficulties.

Even to this day, this problem has not been systematically solved. "Sometimes it is really convenient, but I pay more attention to cost performance, not just for 'fast'." "Especially for fresh food, the price comparison between the instant retail platform and the offline market is not a little bit different." "For daily life, it is finally found that the vegetable market and offline are better." "I don't understand, how can the instant retail platform be so expensive all the time?"... Such consumer evaluations are still quite common.

In order to control costs, some front warehouse platforms have chosen to compromise in another way: reducing both quality and price. This not only leaves a negative reputation for the brand, but also further triggers a crisis of trust among consumers. Previously, some media reported that consumers complained that a certain instant retail platform "The potatoes are pitifully small. If you see them with your own eyes, you definitely won't want them."

JD.com's choice to integrate the front warehouse with "JD 7Fresh" may take a new development path in the instant retail track.

As analyzed earlier, the two biggest difficulties currently faced by the front warehouse model are trust and cost. The differentiated advantages of JD 7Fresh can effectively make up for these shortcomings.

On the one hand, as a self-operated supermarket of JD.com, JD 7Fresh provides consumers with high-quality and cost-effective goods through strategies such as direct sourcing from the origin, strict quality control, self-owned brand development, and direct supply from wineries. The intuitive experience brought by the offline supermarket can enable consumers to quickly establish trust in the quality, thereby forming a positive reputation and effectively feeding back to the front warehouse. On the other hand, the online and offline integration model of offline supermarket + front warehouse can take advantage of each other's strengths, not only promoting the remodeling of the supply chain through direct sourcing from the origin, but also further exerting the scale effect to optimize the industrial chain cost and achieve a significant reduction in the procurement cost of unit goods.

Thus, JD 7Fresh has also formed a dual-track development model of establishing a reputation and shaping a sense of quality with offline supermarkets, and expanding the coverage and improving the delivery efficiency with front warehouses. Compared with the traditional single front warehouse, it is more competitive in the instant retail field. 

The Front Warehouse Becomes a New Battlefield for Giants. Will JD.com Once Again Play the Ace of "Cheap and Good"?

In fact, in addition to JD.com, e-commerce giants have also increased their investment in front warehouses this year.

"Meituan Maicai" was officially renamed "Xiaoxiang Supermarket" and uses the existing central warehouse capacity in first-tier cities to expand to surrounding second- and third-tier cities. According to relevant media reports, by the second quarter of this year, Meituan Xiaoxiang has opened more than 680 front warehouses, of which 550 are located in the four first-tier cities of Beijing, Shanghai, Guangzhou, and Shenzhen.

In August this year, Hema also restarted the front warehouse business shortly after the new CEO took office. According to Hema, "In cities where Hema stores are already very dense, there are still some areas that fresh food stores temporarily cannot cover. In order to further improve the user experience, Hema will pilot the use of front warehouses to encrypt the service radius."

Facing the increasingly lively track and fierce competitive landscape, there are indications that JD 7Fresh may take the "price offensive" as the first starting point.

It is not difficult to find in the pages of JD 7Fresh and JD's "Self-Operated Grocery Shopping" that the current "Breakthrough Price" occupies a prominent position, and the "Breakthrough Price" is the low-price symbol that JD 7Fresh has been continuously creating. It is worth noting that during the opening of JD.com's 11.11 on November 1, the aquatic products, fruits and vegetables, baking, meat, poultry and eggs, dairy products and other categories were extremely cheap on that day. Some of the products were even as low as 50% off. The JD 7Fresh directly sourced Yellow River Estuary Hairy Crabs were 19.9 yuan for two, the [Directly Sourced from the Origin] Xinjiang Korla Fragrant Pears were 4.4 yuan for 900g, and the chilled Norwegian Salmon Slices were as low as 88 yuan for 400g, and the Musang King Durian Layer Cake was 39.9 yuan.

The breakthrough price activity of JD 7Fresh quietly went online in the early morning of November 1

"The breakthrough price is really cheap and not afraid to compare". It can be seen that at least in the price competition of 11.11, JD 7Fresh has shown full sincerity. Looking to the future, whether this round of efforts by JD 7Fresh is a short-term tactical move aimed at "targeted blasting" of competitors, or whether it will take the "low-price" war as a long-term strategic direction, it is undoubtedly more concerned by the industry.

From the current situation analysis, the possibility of the latter is quite high.

First of all, the price war is becoming more and more "normalized".

This year, due to the slowdown of economic growth and the increase of economic downward pressure, consumer demand has performed less than expected. In order to boost demand and seize the market, many industries have started a price war. As far as we can see, the war has spread from the automotive industry to multiple industries such as e-commerce, coffee, drinking water, and catering.

For example, in the automotive industry, many new energy vehicle manufacturers have joined the "price war" camp in order to promote the sales of new energy vehicles and seize more market share, challenging traditional fuel vehicle manufacturers; in the coffee industry, many brands have achieved a Jedi counterattack through low-price and other value-for-money strategies.

Secondly, JD.com's determination to be low-price is obvious to all.

"Low price" is one of the most important weapons for JD.com's past success. During this year's Double Eleven, JD.com also announced that it will recruit at least 10,000 purchasing and sales personnel in the next three years to ensure that it provides consumers with more good products at low prices. As the vanguard of the group's instant retail, it is logical for JD 7Fresh to adhere to the low-price strategy.

In fact, the first store of JD 7Fresh opened in Shanghai in September this year has practiced the "store + warehouse" integration model and launched a variety of breakthrough price products such as 17.9 yuan per catty of durian, which are deeply loved by consumers. There are frequent situations of selling out. According to public information, the average daily passenger flow of this store exceeded 10,000 people in the first two weeks after its opening. Now with 11.11, JD 7Fresh may be about to expand the low-price strategy that has been effective in Shanghai to its national stores.

The opening of the first store of JD 7Fresh in Shanghai. Picture source: Network 

Further analyzing the business model, it can also be seen that JD 7Fresh does have the confidence to fight a price war. As we all know, in the end of a price war, what is tested is not only the purchase cost and procurement cost, but also the butterfly effect that will radiate to many links such as warehousing, logistics, manpower, and account period, which extremely tests the large-scale supply chain operation ability of the platform. JD.com, which has many years of rich self-operated experience and technical accumulation, obviously has a unique advantage in this field.

It seems that a new round of smoke in the instant retail battlefield may be ignited by JD 7Fresh. How will the close combat battle between the giants develop? Let's wait and see.