E-commerce still doesn't understand rural areas, and subsidy fraud is rampant
Looking out through the front window, there is a narrow and muddy dirt road, with nearly ripe cornfields on both sides. Zhao Gang (pseudonym), a delivery worker for a certain vertical B2B agricultural e-commerce company, sitting in the front, turned his head back with difficulty: "This road has a nickname called 'gone when it rains.' Fortunately, today's rain is relatively light, otherwise we would have to walk into the village."
After about twenty minutes of bumping along, a small convenience store with no name appeared at the end of the road. The walls of this lonely little shop were covered with advertising signs and slogans such as "Caojiagou E-commerce Service Station," "Jinsui Huinong Tong," and "China Co-op." Diagonally across from this convenience store, on the wall of the public toilet, were: "Get rich through labor, run your household frugally with JD.com" and "Need sales channels? Go to Baidu."
This is a common sight in rural areas now, and behind these slogans and small convenience stores lies the rural dream of Chinese internet companies such as Alibaba and JD.com.
The ultimate goal of Alibaba's Rural Taobao is to achieve a "smart countryside," solving multiple functions including buying and selling, job seeking, and even completing medical care and travel through Alibaba's large platform; while JD.com delivers "Running Chicken" along with its "finance, fresh food, mall and other departments" to rural areas, attempting to build a closed loop of production, raising and sales through the "JD Running Chicken" project; beyond e-commerce platforms, internet giants such as Baidu and NetEase carry out marketing communications in the rural market by painting walls.
"Are all these free?" After hearing this super plan of Rural Taobao, Zhao Gang was silent for a moment and then asked in return. In fact, during Tencent Technology's visits to various places, it found that Zhao Gang's doubt represents the still widespread phenomena of mismatched demand and information asymmetry between Chinese farmers and major e-commerce platforms.
The ant army behind the standoff between the two giants
The two biggest players in the rural e-commerce market are Alibaba's Rural Taobao and JD.com, and around these two giants are gathered the chasers represented by Suning and Gome (Weibo), as well as purely rural e-commerce players represented by Ganje.com and Maimaibao.
In 2014, Alibaba and JD.com successively laid out their rural e-commerce operations.
On the eve of Alibaba's listing in the United States, Alibaba Group Executive Chairman Jack Ma (Weibo) led a team to visit the headquarters of rural e-commerce company Ganje.com, and successively sent several waves of Alibaba executives and expert teams for on-site inspections; after listing in the United States, Alibaba explicitly proposed taking agriculture-related e-commerce as one of its key future development directions, and in October 2014 announced the launch of the "Thousand Counties and Ten Thousand Villages Plan" rural strategy, planning to invest 10 billion yuan over the next 3 to 5 years to establish 1,000 county-level service centers and 100,000 village-level service stations; at the end of that same year, relevant leaders from the Ministry of Agriculture inspected JD.com, pointing out that JD.com's agricultural materials e-commerce should be made a pilot; in March 2015, JD.com's rural e-commerce-related project was established, and on August 11 the rural e-commerce channel went online, with main categories focusing on seeds, pesticides, fertilizers, agricultural machinery and tools, and so on.
According to data provided by Alibaba, as of August 2016, Rural Taobao had landed in 29 provinces, opened more than 300 county-level service centers and nearly 18,000 village points, with nearly 20,000 Rural Taobao partners and Tao helpers.
From Alibaba's perspective, the development of rural e-commerce must leverage the advantages of e-commerce, realize the two-way circulation function of "online goods going to the countryside" and "agricultural products entering the cities," and attract talent to return and start businesses, thereby achieving a modern and intelligent "smart countryside."
JD.com, Suning, Gome and others entering the rural market rely on their own leading advantages in commodities, especially in the home appliance industry. Data from market research institutions show that in 2012 the rural market for the television industry surpassed the urban market for the first time, accounting for more than 50%. In recent years, the scale of the urban home appliance market has been declining year on year, while the rural market scale has maintained growth.
Several purely agricultural e-commerce companies represented by Ganje.com have aimed at direct cooperation with relevant government departments, with categories more concentrated on the e-commerce transformation of original rural brands, rather than simply bringing urban goods down to rural areas.
2C or 2B, the choice is not easy
It is nothing new that Liu Qiangdong (Weibo) has rural sentiments. It is said in industry circles that when JD.com recruits employees, it gives priority to those with rural backgrounds. Wang Xiaosong, president of JD.com's fresh food business unit, said directly: "In the future, a large space for e-commerce will come from the rural market. If this piece is not activated, the development of e-commerce will quickly encounter a bottleneck."
In entering the rural market, e-commerce giants have gone through a process that, though not long, has been quite tortuous. Starting in 2013, the growth rate of the e-commerce market in large and medium-sized Chinese cities began to slow, and e-commerce giants turned their attention to the undeveloped rural market. At this time, the main methods were large-scale wall painting plus regional television and radio advertising. At this stage, the main goal of e-commerce was to build brand awareness, but constrained by supporting conditions such as logistics and payment, after brand reach, the downward flow of goods was not easy.
Starting at the end of 2014, e-commerce platforms that realized the problem began to further sink their channels downward: Suning reorganized more than 200 home appliance repair and after-sales service stores originally scattered around the country, enabling them to provide services such as placing orders on behalf of customers for rural market consumers, and used them as last-mile delivery stations; Alibaba, through its Cainiao Network, further extended its delivery network.
However, at present, the vast majority of e-commerce platforms mainly target C-end users, and this is not the main model of the rural retail network. Some data show that over the years, in China's agricultural product circulation structure, wholesale markets have always been "dominant," accounting for nearly 80% of total circulation, farmers' markets accounting for about 15%, and supermarkets about 5%; in terms of goods flowing downward, according to data provided by several supermarkets mainly selling to villages and towns, among the goods farmers get, the third-tier or even later tiers account for a considerable proportion, and some goods directly facing farmers are often unbranded and unlicensed products.
According to the history of world agricultural development, the United States in the 1930s, and the European Union and Japan in the 1950s, these countries and regions with relatively developed market economies all encountered to varying degrees a series of economic and social problems caused by fluctuations in agricultural product markets, which in turn forced them to take important steps in building the circulation structure of agricultural product markets.
In China, with the economic downturn and the need for supply-side reform, traditional agriculture is also leaping toward modern agriculture, and building a new structure for agricultural product market circulation is an obstacle that cannot be bypassed, with e-commerce channels becoming an important means of building that new circulation structure.
This means that if e-commerce platforms represented by JD.com and Rural Taobao directly connect with consumers in daily consumer goods, they will encounter strong backlash from local agents.
Rural areas and e-commerce, which is whose pill
In 2015, the State Council, Ministry of Commerce, Ministry of Agriculture, National Development and Reform Commission, Postal Bureau and multiple other ministries and commissions successively issued 13 important documents on rural and e-commerce development. Among them, the State Council issued 4 documents directly concerning the promotion of rural e-commerce development, showing the positioning of rural e-commerce entering the horizon of national strategic development.
Data show that rural areas currently have 900 million people, of whom more than 600 million are permanent residents, and the home appliance market alone exceeds one trillion. Li Heming, head of JD.com's rural e-commerce strategy, told Tencent Technology that JD.com has cumulatively signed strategic cooperation agreements with more than 200 counties in more than 50 prefecture-level cities across 8 provinces.
Compared with traditional markets, some categories represented by home appliances have greater room for growth in the rural market. With Suning as a representative, covering the rural market through e-commerce can save the huge expenses of opening stores, and there is no need to fall into the dilemma of online e-commerce and offline physical stores fighting each other as in the past when developing e-commerce in first- and second-tier cities.
But a new question is whether rural areas will necessarily welcome the entry of e-commerce.
Take an example provided by an e-commerce platform to Tencent Technology: there was a young woman in Anhui who returned to her hometown and sold trichosanthes seeds. Sales were good, and later it influenced the entire town to join, with more than a hundred households selling trichosanthes seeds together.
The e-commerce platform's evaluation of this matter was: what rural areas lack today is not capital, not policy, but people who understand science and people who know how to lead them to wealth. This is "the arrival of a spark."
For the same story, Zhang Tao (pseudonym), head of a chain supermarket in a fourth-tier city, told Tencent Technology: "This is a good story, but it has nothing to do with e-commerce. It depends more on the overall progress of society." Zhang Tao further explained to Tencent Technology that rural commercial circulation should not blindly rely on e-commerce, but should absorb e-commerce's flattening and shorten the length of the commercial chain, and naturally prices will fall.
Relatively speaking, e-commerce is drooling over the vast rural market.
A set of data released by the Beijing Municipal Bureau of Statistics on March 16 is thought-provoking: in January to February, Beijing's total retail sales of consumer goods were 161.69 billion yuan, a year-on-year increase of 1%, with the growth rate down 6.8 percentage points from the same period in 2015. This was a rare low point in the growth rate of total retail sales in history, while online retail in January to February saw a year-on-year increase of -10%, also the first year-on-year negative growth.
According to data released by the Beijing Municipal Bureau of Statistics, in January to February 2015, Beijing's online retail grew 62% year on year, and the full-year year-on-year growth was as high as 40.2%. These numbers may mean that e-commerce platforms in urban areas have moved from explosive growth to moderate growth.
At present, competition in cities is fierce, with JD.com, Suning.com and Gome all losing money to win the market, while many brands surviving on the Alibaba system are also in a period of sharply rising marketing costs and slow user growth. Relatively speaking, the rural market has become an important booster that cannot be abandoned.
E-commerce still lacks understanding of rural areas
According to Tencent Technology's visits and surveys in multiple rural areas, Alibaba and JD.com have already established very complete brand awareness in rural areas, thanks to these platforms' advertising on mainstream satellite TV channels as well as wall painting and ground promotion in villages.
But beyond these advertising offensives, large e-commerce platforms do not have a very good reputation in rural areas. A small convenience store owner described JD.com to Tencent Technology as: "Expensive." And the term used to describe Rural Taobao was: "Lots of fake goods." Ironically, on the shelves of this convenience store were several knockoff brands such as "Xiahaojia" and "Yongdong."
This is the practical problem large e-commerce platforms encounter when developing the rural market. These teams built around rapid urban promotion as their core do not understand the current situation in rural areas, nor do they know how to establish their own e-commerce channels in rural areas. They are all copying the methods used to develop urban channels.
In addition, e-commerce has become accustomed to price wars, while rural groups are currently overly sensitive to e-commerce prices. Tencent Technology saw many shops and sales channels bargaining over one or two mao. At present, there are mainly two offline shopping channels in rural areas: first, the recently emerging village-to-village supermarket project, and second, traditional markets. The common feature of both channels is low prices, generally lower than urban supermarket prices, and some even lower than e-commerce prices.
In terms of agricultural products going upward, according to Tencent Technology's understanding, e-commerce platforms still mostly maintain their inherent thinking, emphasizing traffic and hit products. But an agricultural expert told Tencent Technology that agricultural products have always had a relatively fixed purchasing system and output, and their profits themselves are not high, so there is no way to carry out e-commerce promotional activities that "lose money to gain attention." Some grain products also require related reserve work, and do not fit e-commerce's sales method of sales volume as king.
Subsidy fraud is rampant
What is even more noteworthy is that rural e-commerce is by no means a pure land.
In Tencent Technology's visits to rural shops, Rural Taobao points and JD.com cooperation points were not uncommon. According to materials provided by Alibaba, its information channel for cooperation with the government is: work with the government to complete the entire hardware equipment for partners, build a village-level service station at the village point, and in each village service station place a computer, a large screen, a shelf, along with VR design, storefront decoration, and electricity and network access. Partners only need to return single-handedly and start a business at home at zero cost, serving neighbors.
In another village centered on JD.com, Tencent Technology found several small supermarkets cooperating with JD.com, with the common point being a computer and a large screen. According to materials provided by JD.com, this model involves playing JD.com-related product advertisements in the supermarket, with the shopkeeper assisting in placing orders, and JD.com giving a certain amount of discount.
However, whether Rural Taobao or JD.com, Tencent Technology did not find any actual orders generated during its visits. On the screen in one small supermarket, the shopkeeper's child was playing League of Legends; another small supermarket had turned the screen into a monitor; and another had its screen turned off, with the shopkeeper admitting: "I don't know how to use it, and keeping it on wastes electricity." In addition, these shopkeepers all said that almost no orders had been generated, because in an era when smartphones are widespread, most users who really want to buy have already made their purchases at home.
The question is, why is this model so widespread?
Perhaps JD.com Group CEO Liu Qiangdong's statement at the 2015 China (Sichuan) E-commerce Development Summit is the reason for the spread of this model: "Now many e-commerce companies are using rural e-commerce to defraud local subsidies. You can ask about this too. Many e-commerce platforms have signed many contracts with local provinces, got signatures from governors and county heads, and obtained support funds."
According to a notice on project fund subsidies issued by a local government that Tencent Technology learned about: the subsidy targets are e-commerce platform construction, including industry vertical platforms, logistics information service platforms, life service e-commerce platforms and other major projects with supporting roles; the subsidy standard is no more than 50% of the total costs of platform projects such as equipment purchase, system development and application promotion, and in principle a single project subsidy shall not exceed 1 million yuan.
Beyond government subsidies, some methods such as pyramid schemes and fraud have also put on the cloak of e-commerce and revived in rural areas. Take the recently emerging "My Free Web" in western Zhejiang as an example. This website claims "you shop, he pays," and its business model is to attract users by making all goods free, but its fees involve charging first and then rebating according to the number of people the user brings in, suspected of multi-level pyramid selling and illegal fundraising. Other e-commerce platforms using this method have even directly absconded. In one place in Hebei, there was once an e-commerce platform that signed contracts with many convenience stores, where depositing 1,500 yuan allowed one to take goods worth 2,000 yuan. After some convenience stores got a taste of the benefits, the e-commerce platform absconded with the funds.
Finance may be more profitable than e-commerce itself
Although rural e-commerce is still in its initial stage, e-commerce platforms have one after another chosen to extend their tentacles downward. Besides expanding the number of users, perhaps the layout in the financial sector is also an important reason.
According to a survey by the Chinese Academy of Social Sciences, only 27% of farming households can obtain loans through formal channels, and more than 40% of farming households with financial needs find it difficult to obtain loans. Facing the problem of difficulty in obtaining loans for farming households, institutions such as rural credit cooperatives and supply and marketing cooperatives have long and slow loan approval times, making it difficult to meet the financing needs of farming households. According to data from the Chinese Academy of Social Sciences' blue book on "Three Rural Issues" internet finance, the "Three Rural Issues" financial gap is as high as 3.05 trillion yuan.
Some migrant workers returning home and farmer college students aiming at e-commerce entrepreneurship also face the problem of difficult financing. The development of some rural e-commerce entrepreneurs often cannot get effective support from financial institutions. When starting their businesses, entrepreneurs mainly rely on their own funds, and after opening, the lack of working capital is quite prominent.
Wang Tao, a relevant person in charge at Ant Financial, told Tencent Technology: "Rural Taobao is an important entry point for us to develop rural finance." At present, Ant Financial provides three major categories of financial services to "Three Rural Issues" users: Wangnong Loan, Wangnong Insurance and Wangnong Pay. As of the end of June this year, rural loan business had been carried out in nearly 6,000 village points in 250 counties across 25 provinces. Ant Financial has cumulatively served more than 22 million "Three Rural Issues" users and provided about 280 billion yuan in cumulative funding support.
JD.com, meanwhile, directly targeted industry. According to Hong Jie, head of JD.com rural finance: "JD Finance provides each poor household with a 4,500 yuan interest-free loan, provides services such as chicks and feed and quarantine, raises them through the model of agricultural cooperatives plus poor households free-range farming, and JD.com is responsible for recovery and sales. The county government and enterprises together provide technical support to farming households, forming a closed loop of e-commerce poverty alleviation. In 2016, JD.com plans to try 10,000 free-range chickens in Wuyi County, and after summarizing the results, promote it comprehensively."