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Last-Kilometer Business
A new model of community services is an opportunity for entrepreneurs
By Zhang Shasha  ·  2020-04-03  ·   Source: NO.15 APRIL 9, 2020
People buy vegetables at a community vegetable stall in Beijing while maintaining a safe distance on March 13 (XINHUA)

With the novel coronavirus disease (COVID-19) making people stay home and maintain social distance, lifestyles are changing. Some people have become indoor fitness enthusiasts, some voracious readers and many chefs.

Feng Xiaoyu is one of the emerging cooks who found her talent in food. The 29-year-old, a white-collar worker in Beijing, has started posting photographs of the dishes she makes at home, including tapioca milk tea, on social media.

"The happiest thing these days is strolling in supermarkets," Feng told Beijing Review. "Ordinary things like oil and rice we took for granted earlier now hold real power of healing."

Catalyst for change

Industry insiders say the pandemic has boosted "community business," a retail model providing daily necessities and services to people living within a 1-km circle.

"COVID-19 has altered people's lifestyles," Li Jiangtao, a research fellow with the Institute of Economics at Tsinghua University, told Beijing Review. In the past, city dwellers' consumption occurred mostly around their work areas. Now it has shifted to their living areas, triggering new business opportunities.

Supermarkets are a top beneficiary of this opportunity. In January alone, the sales at Yonghui Superstores, a grocery store chain with locations across the country, hit 12.5 billion yuan ($1.8 billion). It was equivalent to over 56 percent of its total sales in the first quarter of 2019.

Tech giant Alibaba's Hema Fresh, a fresh food e-commerce provider, announced a plan to launch 100 mini stores near residential communities across the nation, with the delivery distance shortened within 1.5 km.

Another change has been in people's work styles. Li said working remotely may continue even after there are no new infections. If people can work online wherever feasible, it will reduce commuting to the workplace and change the business center-concentrated consumption habit.

However, some think the newly found opportunities may not last long. "Community business will be robust in the short run, but after life returns to normal, people are more likely to prefer to return to previous business models unless the community business operation is excellent enough to retain consumers," Wang Ruoting, General Manager of Beijing InCity, a shopping mall, said at an online salon on March 20.

Li, however, thinks the new business ecosystem based on the community is here to stay. Drawn by community services, people will relocate their party destination to their houses or the neighborhood. As a result, the function of the community will change from being a place to live in, especially for the elderly, to one with functions allied to living—entertainment, catering and shopping.

"It is a transformation of people's views and values," he said.

Residents select fruits in a supermarket in Yinchuan in Ningxia Hui Autonomous Region, northwest China, on March 10 People buy vegetables at a community vegetable stall in Beijing while maintaining a safe distance on March 13 (XINHUA)

Upgrading consumption

Last year, the government released a document on optimizing community services and facilities as part of the consumption upgrade plan. Subsequently, some local commerce departments rolled out measures to advance the concept. Beijing issued a three-year plan to build 6,400 convenience stores so that every 1 million residents have access to 300 convenient stores. Nanchang, capital of Jiangxi Province in east China, and Fuzhou in Fujian Province, southeast China, promised financial support for opening convenience stores. Chengdu in Sichuan Province, southwest China, famous for its hotpot and giant pandas, included the community as one of the eight new consumption scenarios it is promoting to become an international consumption city.

However, the community business is still at a fledgling stage. According to the Beijing Chamber of Commerce, Beijing's consumption in communities accounted for 52 percent of the total volume of retail consumption in 2018. In developed countries and regions, the figure is 70-80 percent. Experts said in overall China, it is only 30 percent.

But it indicates huge potential for the new business model. It is estimated that by this year, the urban residential property in the country will reach 30 billion square meters with the market scale of community services reaching 13.5 trillion yuan ($1.9 trillion).

Wangshunge, a chain restaurant specializing in fish dishes, seized the new opportunity during the COVID-19 outbreak. From January-end, some of its Beijing branches began to set up vegetable stalls and opened online ordering platforms, originally to let off inventory pressure. It led to surprising performance both online and offline.

So they expanded their product portfolio and the stalls also began selling condiments such as pickled fish and sauces and precooked food. According to Zhang Yaqing, founder of Wangshunge, their takeaway sales have tripled. "The experience tells us we need to think more about our business model. We found there is great potential in communities. The retail stores in communities showed strong anti-risk capacity," Zhang told Beijing Business Today.

She is now getting ready to open more stores on streets and in communities, which will expand their functions as residents' canteen and fresh food convenience store, if needed. With the Beijing local government issuing policies to encourage community business, she aspires to diversify the restaurant and make it provide more convenience to customers.

Hurdles ahead

But despite the huge potential, there are many challenges to overcome before the community business can truly welcome its spring.

Logistics is a bottleneck for many retailers. While many other supermarkets ran short of supplies during the COVID-19 outbreak, Yonghui stood out due to its well-developed logistics system that covers 35 countries on five continents. Making full use of that, it brought over 3 million masks from Japan in January when drugstores were struggling to provide them.

The digital transformation started in 2015 with the launch of mobile applications, combining its online and offline channels. Its door-to-door services have cut customers' consumption time, laying a solid foundation for its delivery services during the epidemic.

But many companies have failed to seize the opportunity with their limited experience of utilizing online and offline tools, diversifying products and optimizing users' experience.

Li also said that while there are many convenience stores in communities, the general supply system is not complete. Moreover, there is a lack of standardized management, or dynamic placement of products, so that boxes and tins are scattered all over the place, leaving people with an impression of disorder.

In the past, people associated community business with one-storied street shops and vegetable markets, which were downscale and crammed. The impression derived from the lack of unified management and a proper schedule for the stores, Zhang Chenhao, a director with Savills, a real estate provider, told Winshang, an industry information provider.

Zhang said specialized business management teams should be involved in future community business to standardize operation and expansion. Residential housing companies should get in touch with commercial real estate agencies to create a replicable model for community business.

Community business can be extended to much more than retail. Li pointed out a gap in the model—community hospitals. "Community hospitals are still government-promoted instead of being community-driven. If we can change that, it will mobilize social resources and ease the pressure on the government, which should be the next step," he said.

At first, Feng had found the concept of community business unfamiliar but after her research, she knows its potential. She said it reminds her of a question a friend once asked her. She was asked which she would like to have near her community, an around-the-clock bookstore, a late-night cinema, a super outdoor food market, a cat coffee shop or a snack-specialty convenience store. Not just one but a combination of all would be the ideal model for future community business, she said.

Copyedited by Sudeshna Sarkar

Comments to zhangshsh@bjreview.com 

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