HISTORY REPEATS ITSELF AS MEITUAN XIAO XIANG OPENS OFFLINE STORES

In 2019, I led a group of Dutch supermarket entrepreneurs on a ChinaTechTrip tour to China. One afternoon, I showed them three supermarkets that China’s leading internet companies had launched:

▶️ Hema (Freshippo) by Alibaba

▶️ 7Fresh by Jingdong (JD)

▶️ Xiao Xiang (Ella) by Meituan

7Fresha and Xiao Xiang (literally ‘little elephant’) were clearly ‘inspired’ by Hema. But while the 7Fresh store at Dazu Plaza impressed the group, they were less enthusiastic about Xiao Xiang, which felt like a ‘poor man’s Hema’. Like Hema, it had a variety of seafood swimming in basins and offered home delivery through its app. But compared to Hema, it all just looked a bit shabby in the store.

Meituan had limited offline management capabilities and misjudged the scale of demand. Therefore, it wasn’t a big surprise when the seven Xiao Xiang (Ella) stores disappeared one by one.

The logo with the little elephant survived in the emblem of Meituan Maicai, Meituan’s grocery delivery store that uses a front-end warehouse approach, like its main competitor Dingdong Maicai. More recently, Meituan Maicai was rebranded to Meituan Xiao Xiang, resurrecting the name of the former offline supermarkets.

Instant retail in China is in full motion. JD launched a food delivery service to enhance the density of its instant retail offerings (I recently published an extensive report on the topic on Tech Buzz China). Fresh and Hema are both opening front-end warehouses, replicating the 'large store + cloud warehouse' model of Sam’s Club. In the front-end warehouse model, consumers place orders through an app and receive their purchases home-delivered within 30-60 minutes.

And now we have come full circle again, as Meituan, which already has front-end warehouses, is planning to open Xiao Xiang offline stores. The business models are converging and getting more homogenous.

Over the past few years, Xiao Xiang has established a strong brand and presence in the grocery delivery market. It is number 1 in the pure front-end warehouse market, with a 30 billion annual GMV. However, it is not fully profitable yet and is now giving offline another try to create an additional income channel.

This time, Meituan is not benchmarking the large Hema Fresh supermarkets (targeting the middle class) but Alibaba's Hema NB (formerly Hema Outlet) supermarkets (targeting the so-called ‘sinking market’ of lower-income cities and urban regions). Xiao Xiang now wants to utilise the supply chain it has built for the front-end warehouses to offer a good selection at low prices through such stores. But Meituan still misses the experience of offline business, so it has started a recruitment drive.

It remains to be seen if Meituan will succeed this time around. Who knows, after more than six years, I might soon be taking foreigners to a Xiao Xiang store again …

Pictures are of the former incarnation of Xiao Xiang.

-Ed