(Yicai Global) Feb. 17 – Several Chinese online-to-offline booze sellers have been opening bricks and mortar premises at an accelerating pace, with mom and pop stores likely to be the worst hit by the "land grabbing" trend.
Businesses involved in the trend include 1919.com, a leading O2O e-commerce alcohol sales platform in 2016, that currently has more than 900 stores and plans to open 1,000 more across China this year.
Similarly, Liquor Easy, backed by investment firm Legend Holdings Corp. [HKG:3396], announced it would increase its stores from 170 to 300 last year, per data Yicai Global received from the companies.
Another, Along (9zhida.com), from its headquarters in Northeast China, will push into North China markets with 500 new O2O offline stores in the northeast, Beijing, Tianjin and Hebei, its chairman Zhai Shan told our Yicai Global reporter.
"Five hundred stores are just the beginning", he said. "Ideally, Along wants to have a store every two kilometers in first-tier cities and every three kilometers in second-, third- and fourth-tier cities.
"Since its inception, the company has been upgrading its operating model with the focus placed on 'prototype' development", Zhai added. "Our 30 existing prototype stores have proven an effective solution to raising the profits of individual stores, and the gross margins of all stores are over 30 percent. The time is ripe for replicating this model to other markets."
"So far competition among alcohol-selling e-commerce businesses is still limited to brand building on the capital and traditional offline markets through business expansion based on store openings. Both 1919 and Along started out as traditional liquor chain operators and are familiar with the traditional liquor and spirits markets, enabling them to effectively integrate online operations with offline stores. Their models stand a very good chance of success." Xu Wei, Chairman of Higher Consult, told Yicai Global.
"Traditional distributors and stores will be worst hit by the store-opening race. Local tobacco and liquor stores and small/medium-sized distributors will be among the first to collapse," Along's Zhai said. "Retail prices offered by most traditional distributors are less competitive since they have already been marked up by three to four middlemen."
Similarly, Higher Consult's Xu predicts, "If 1919.com and Along were to start a price war, liquor shops close to their stores would be badly affected."