The young Chinese online supermarket Yihaodian, which got its start in 2008, has exploded onto the e-commerce stage after tweaking and experimenting with new business strategies.
Annual sales leapt from 4.17 million yuan (US$660,000) during the supermarket's first year, to 805 million yuan (US$127 million) in 2010 and to 2.72 billion yuan in 2011 (US$431 million). Yihaodian has won capital investment from global retailing giant Walmart and has become the subject of a case study course at the American retailer's MBA program.
Yihaodian — meaning "No. 1 Store" — was co-founded by current chairman Yu Gang, who formerly served as a senior supply chain executive at Dell and Amazon, and his former Dell colleague Liu Junling, who is now the online retailer's CEO.
Instead of adopting a fancy or flamboyant business format, Yihaodian has chosen to "bring people a better lifestyle." It sets as the core of its business model "providing one-stop home shopping solutions for customers who need not step outside." Yihaodian currently offers 150,000 products, about six times that offered by Walmart or Carrefour brick-and-mortar stores. Average prices are 3-5% lower than in traditional supermarkets, according to the Chinese-language Economic Observer.
The company has five large warehouses — in Shanghai, Beijing, Guangzhou, Wuhan and Chengdu — with more than 130 of its own distribution centers in 34 major cities. It aims to expand its distribution network to 100 cities by the end of 2012. What's more, it is set to increase the number of products offered to 500,000 by the end of December. Yihaodian also provides services such as flight booking and bill payment. Medical services and pharmaceutical supplies are also available at its website.
After leaving Dell in 2007, Yu and Liu rented a small room in Shanghai's Pudong area, using it as an office in which they mapped out their business plan. They launched the Yihaodian website in July 2008.
The pair pays careful attention to customer service. The company is constantly conducting market surveys to solicit customer feedback, and assigns specific teams to carry out improvements based on suggestions from clients. Employee performance is evaluated mainly on service to customers.
After establishing an efficient logistics network, Yihaodian is able to offer overnight delivery to most cities in the Yangtze and Pearl River delta regions in coastal China. Deliveries to top-tier cities like Shanghai and Beijing can be completed in just half a day. Logistics is one area in which the supermarket has reacted to suggestions, now offering "three deliveries in one day" service and delivery at designated times and locations, both requested by customers.
Yihaodian, dissatisfied with software products available on the market, has also invested in building its own team to develop software that can efficiently process the wide range of information that goes through its system.
The company allocates 30-40% of its investment capital for expanding warehouse and delivery networks, 30% on IT development, and less than 10% on advertising and marketing, much lower than average for the e-commerce industry. Chairman Yu explained that Yihaodian sticks to the principle of cost-effective spending with a focus placed on more essential operations.