Second and third tier city grocery market is still a blue ocean, and YunCaiYuan found the way to conquer

Grocery in second and third-tier cities is still a blue ocean.

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The trillion-dollar grocery industry has high frequency, huge demand and potential.

The new grocery business model puts a high emphasis on supply chain and logistics where economies of scale can be achieved once the foundation is laid. However, China is huge. In second- and third-tier cities, most of the grocery purchases are still satisfied by mom-and-pop shop or neighbourhood supermarket. The current situation is difficult to scale and online purchase is still a blue ocean. What kind of opportunities will startups have?

Recently, KrASIA’s parent company, 36Kr, got in touched with neighbourhood grocery store “YunCaiYuan” in Jinan, the capital of Shandong province in Eastern China. In less than two years, YunCaiYuan opened more than 80 shops there. It claims that its monthly income exceeded 10 million yuan, and 85% of the stores were profitable. YunCaiYuan plans to open up to 120 stores in 2018 and eventually penetrate the market extensively by having 500 stores.

Recently, YunCaiYuan completed tens of millions RMB Series A financing, and the investors are Xinghan Capital, Chunxiao Capital and Meihua Venture Capital. Previously, Meihua Venture Capital, Xinghan Capital, and Black Hole Investment also participated in the Angel round and Pre Series A funding.

YunCaiYuan focuses a lot on logistics and area penetration. Founder Xiong Bin believes that the grocery industry is more likely to have regional main players in the future. YunCaiYuan focuses on standardization, digitalization and omnichannel operation, taking charge of supply chain and becoming a recognized brand within the targeted areas.

B2B experience to ensure upstream competitiveness

YunCaiYuan started in 2016. In the first two years, it mainly focused on store-type adjustments and established a standardized system. After this model was verified, it opened over 50 stores in the first half of the year.

Before YunCaiYuan, the early team members ran an agricultural B2B startup and served over 3,000 mom-and-pop shops. They found that in the agricultural sector, the greater opportunity is to establish a controllable retail terminal or brand downstream.

Based on the previous B2B experience, YunCaiYuan first built supply chains for several core items (ie, products with large circulation and high price sensitivity in the current season), such as year-round potatoes, tomatoes, and in-season watermelons, peaches and so on. These products will be transported directly from the origin to the urban cold chain centre of YunCaiYuan, and then from warehouse to store, reducing the circulation process and ensuring price competitiveness.

A YunCaiYuan store is usually 100-200 square meters, and the SKU is between 500-800, which meets the needs of consumers for “three meals a day”. The 100 square meter store covers about 1000 households. Xiong Bin told 36Kr that the selections are automatically matched from the standard SKU library based on the consumption data.

Considering the different payment habits of different consumers, YunCaiYuan also has different ways of acquiring traffic. At present, the proportion of middle-age and old-age customers who go to the store is still very high and having them to sign up as a pre-paid VIP member is still difficult. Young people prefer mobile payment, and the consumption scene is also more diverse. YunCaiYuan cooperates with delivery services such as Ele.me, Mei Tuan and JD Daojia. Besides, YunCaiYuan offers group purchase service through WeChat groups and WeChat Mini-Program, and customers come to the store to collect the grocery they group bought.

Xiong Bin said that fresh food stores still have to meet the needs of users in different scenarios. At present, offline stores account for 90% of the total, but with the optimization of distribution in second- and third-tier cities and the further upgrading of consumption concepts, online services in the future will attract a large number of young people, and the proportion is expected to continue to grow.

“Only when I reach 100 stores, I dare to say that we have a very stable localized supply chain service”

It is not easy to do a neighbourhood-based store that can be scaled up. Most of the shops by YunCaiYuan are directly operated, and a small number of cooperative methods called “hosted franchise” are adopted, that is, the participants provide funds and orders, and YunCaiYuan is responsible for the operations. Xiong Bin told 36kr, YunCaiYuan cannot blindly follow the franchise model, the people, goods and warehouse must be under our control, in order to ensure quality control. As for now, they are aiming for 100 stores in Jinan. In the future, YunCaiYuan hopes to continue to penetrate through the city as a unit through the proven model.

Here’s an introduction about the management team. Most of the members come from the Internet, agriculture and retail industry. The founder Xiong Bin was the co-founder of YunNongChang. He has 10 years of continuous entrepreneurial experience in the Internet and 5 years of agricultural experience. Co-founder and CEO XuKang was the deputy general manager of a listed company of Wuhan ZhongBai Supermarket and has rich experience in the retail field.

Fusing the idea of centralized neighbourhood distribution and the fact that fresh food is a family necessity, this can be a popular business. With the rise of the concept of unmanned retail, the idea of container grocery store has also been explored within neighbourhoods. 36Kr has reported about supermarket businesses such as CaiHongXingQiu, XianDaoWu and SanDanShengXian. Different forms of retail concept can satisfy the needs of consumers in different scenarios. The competition between them lies in their efficiency in the supply chain.