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Author: Li Mengran Editor: Lv Xinyi Producer: Retail Business Finance

In order to get rid of the constraints of super top anchors, Yu Minhong pointed out a clear way for Oriental Selection: focus the operation on the supply chain side, and create a self-operated brand with the highest ROI but the most difficult to implement. At the same time, relying on 800 New Oriental ground teaching points, explore the opening of online and offline integrated service stores, membership stores, and flagship stores.

This means that Oriental Selection has focused on the dimensions of "goods" and "venue". In fact, the route planned by Yu Minhong for Oriental Selection originated from his sober thinking when the live broadcast room just became popular in 2022.

At that time, he wrote in "Old Yu's Chat" that the business model based on external platforms was not reliable. The subsequent public opinion frenzy and market shock caused by the "Little Composition" incident made Yu Minhong more alert: he must take the "initiative" into his own hands.

What New Oriental, known as the "aircraft carrier of education and training", lacks the least is field resources. Let nature take its course and layout service stores, membership stores and flagship stores become the best options for Oriental to select and continue writing its business story.

Whether it is traditional supermarkets that are actively transforming (adjusting or self-reforming) due to operational pressure, or brand membership stores and discount stores that are rapidly expanding their territory, the fertile field of physical retail needs cross-border players and more importantly, path innovation, but a low entry threshold does not mean a low threshold for breaking out.

Even the "new retail benchmark" Hema has experienced strategic vacillations and trial and error in its exploration of the membership store format and the "membership system", let alone Oriental Selection, which does not have any "retail genes". Will the fiercely competitive membership store track leave it a seat?

01 Copy the model or reshape the path?

In the past two years, the development of Sam's Club and Costco in China has accelerated, and warehouse-style paid membership stores have become a track that many supermarket companies are betting on. The data from the "2023 China Supermarket TOP100" list recently released by the China Chain Store Association also shows that among the retail formats in which the top 100 companies are involved, the operating conditions of membership stores are significantly better than other formats.

With the entry of players such as Hema, Hualian, RT-Mart, Fudi, and Jiajiayue, this track has entered a reshuffle period of stock game. Of course, there are also players who have taken a different approach in the membership store track, such as Yonghui, which opened the first "zero membership fee" warehouse-style supermarket in Yunnan.

Faced with the two membership store models of paid and non-paid, how will Oriental Selection approach the market?

From the signals released so far, we can see that in October last year, Dongfang Zhenxuan launched a "selected membership" priced at 199 yuan per year on its own APP, and the idea of ​​a paid membership store has taken shape. Therefore, Dongfang Zhenxuan's next layout of offline membership stores is likely to follow the paid system.

The membership fee seems to raise the "threshold" for consumers to enter the store, but in fact it is the "soul" of the membership store model.

First, the warehouse membership model uses extremely low gross profit margins and streamlined SKUs to achieve procurement scale advantages, thereby controlling product pricing. With profits far below market commodity prices, membership fees become the core source of income for membership stores.

Take Costco as an example. According to the 2024Q3 financial report, Costco's net sales were US$57.39 billion and its net profit was US$1.68 billion. The number of paid members was 74.5 million, and the revenue from membership was US$1.12 billion. Membership revenue accounted for more than half of the net profit. This is also the core reason why Sam's Club and Costco began to strictly check membership cards to control non-member consumers from "taking advantage of loopholes".

Secondly, the Oriental Selected Membership Model has achieved phased results.

Public information shows that the Oriental Selection APP has accumulated a membership base of more than 200,000. In addition, the customers who choose New Oriental Education and Training often have a certain willingness to consume and are able to pay for membership fees. Moreover, based on the potential customer base, the offline member population portrait of Oriental Selection is more accurate, which is naturally suitable for private domain traffic operations.

Image source: TikTok

In response to this, Oriental Selection has launched a series of marketing plans to increase the frequency and stickiness of customer repurchases, such as offering a 12% discount on hundreds of self-operated products, issuing a member-only coupon of "12 yuan off for purchases over 100 yuan" every month, and distributing limited-time coupon packages totaling 66 yuan.

From this perspective, starting with the paid membership store model and strengthening private domain traffic operations will be one of the corners of Oriental Selection's exploration of offline stores.

However, it is undeniable that there are different business models online and offline, and the online "sales" ability of Oriental Selection cannot completely become the first-mover advantage of its offline stores. Especially in terms of core capabilities such as site design, product selection control, and supply chain layout, Oriental Selection is still in a "blank stage".

Furthermore, Oriental Selection wants to build offline stores with the help of about 800 teaching points, trying to "catalyze" the start of offline stores through the people and venues cultivated by the teaching business. However, the location selection logic of teaching points and membership stores is very different. If Oriental Selection only copies the payment model without making path innovations, it will face multiple challenges.

02 The right time, right place, and right people

Just as New Oriental transformed into live streaming and actively pursued the trend, Oriental Selection chose to move offline based on "the right time, the right place and the right people".

"The right time" refers to the vigorous development of the membership store industry. With the establishment and rise of foreign and local membership stores, paid shopping in membership stores has initially formed a consumer mindset in the market, which can be seen from the growing performance of membership stores.

Take Sam's Club as an example. Comparing Walmart's financial reports for fiscal years 2023 and 2024, Sam's Club's share of Walmart's revenue increased from 12.84% in fiscal year 2023 to 13.8% in fiscal year 2024, and its revenue increased from 73.556 billion yuan to 84.345 billion yuan. According to Sam's Club's plan, it is expected that by the end of 2024, Sam's Club will have more than 54 stores nationwide. China's performance has become the top priority of Walmart's revenue, and Chinese consumers' acceptance of membership stores has increased.

Image source: Walmart China

The market environment has boosted the desire of Oriental Selection to expand its territory. Specifically, although the approximately 800 New Oriental teaching locations may not all have the conditions to open offline membership stores, they also provide space and options for the rapid growth of new formats, that is, the relatively abundant location resources have provided support for Oriental Selection to develop offline stores.

Furthermore, Dongfang Zhenxuan has been trying to develop instant retail. In April this year, Dongfang Zhenxuan and JD.com jointly launched an instant retail business with delivery within 1 hour. JD.com is responsible for the fulfillment link, while Dongfang Zhenxuan is responsible for online sales.

The rise of instant retail has made consumers accustomed to the "everything delivered to home" shopping method. Therefore, when exploring the offline membership model, Oriental Selection can add online channels and further strengthen the instant fulfillment service by benchmarking Sam's "Extreme Speed". In addition, larger teaching sites can adopt the "store-warehouse integration" operation, while smaller ones can exist independently as "warehouses".

The location advantage and the improvement of the instant fulfillment system give Oriental Selection a great "geographical advantage" in the layout of offline membership stores. The customer resources accumulated based on New Oriental's education and training and Oriental Selection's live streaming e-commerce model can empower this new business exploration from the "harmony" level.

The target customer groups served by New Oriental teaching points are often families who are willing to invest in education, that is, they have extra funds to develop other cultural life, and their consumption capacity is particularly consistent with the membership store format. In addition, most membership stores use large-volume family packs as common purchasing units, which overlaps with the user resources accumulated by New Oriental's past education and training. Finally, the "knowledge-driven" model created by Oriental Selection at the beginning has determined the profile of its target customer groups to a certain extent: first, those born in the 1980s and 1990s have become the main audience groups; second, female users account for nearly 70%; third, first- and second-tier cities account for 51%.

In short, Oriental Selection entered the market after the membership store model was proven feasible by the market, reducing the risk of its own layout. The maturity of supporting facilities has broadened the radiation radius of its offline stores. Combined with the first-mover advantage of accumulated customer base, Oriental Selection has caught up with the "good days" of membership stores.

03 How strong is "Sam's Club"?

On the product side, Oriental Selection regards Sam's Club as a benchmark. In Yu Minhong's earliest business plan, he actually positioned Oriental Selection as "an online version of Sam's Club".

It is not difficult to find that many products of Oriental Selection and Sam's Club are highly similar, including but not limited to Sam's Club's popular products such as Swiss rolls, beef patties, sea salt soda crackers, etc.

Image source: Xiaohongshu

Some consumers bluntly stated that "Sam's Club and Oriental Selection have the same parent company", and posted the manufacturer information of Oriental Selection and Sam's Club products, and found that the same products came from the same manufacturer.

Image source: Xiaohongshu

Obviously, Dongfang Zhenxuan is eager to create a "Chinese version of Sam's Club". But the reason why Sam's Club has become a giant is not just because of a few "hot products", but the supply chain strength behind the hot products. In the competition of this dimension, how should Dongfang Zhenxuan "benchmark"?

Food safety issues of Oriental Zhenxuan's own brands have been at the center of public opinion. The "trough meat incident" and the "white shrimp sulfur dioxide incident" have not yet completely subsided... The repeated food safety issues of fresh products indirectly illustrate the weak quality control capabilities of Oriental Zhenxuan's own brands, which is rare among the top membership store brands.

In terms of commodity prices, Oriental Selection previously caused heated discussions for selling overpriced agricultural products. Oriental Selection's statement that "low grain prices hurt farmers" seemed to be taking the high-quality and high-price route, but in fact it exposed Oriental Selection's lack of bargaining power over commodities and the weakness of its supply chain system capabilities.

The control over product selection is "weak" and there is "no" control over pricing. So what else can Oriental Selection do besides shouting the slogan of "benchmarking Sam's Club"?

In fact, Oriental Selection also realized the importance of the supply chain. In April 2022, Oriental Selection launched its first self-operated product "Seedless Golden Pillow Durian Meat", and since then embarked on the road of self-operation; in fiscal year 2023, Oriental Selection's self-operated products have a total of 120 suppliers across the country, and selected special products from all over the country, such as rice from Wuchang, Heilongjiang, beef jerky from Chifeng, Inner Mongolia, and gray dates from Xi'an, Shaanxi; in January 2023, Oriental Selection announced that it would invest 17.52 million yuan to expand its own sausage factory.

Supply chain strength is the core bargaining chip for corporate competition, and the large-scale expansion of Oriental Selection's offline membership stores particularly emphasizes the construction and layout of a national supply chain system. How more than 800 teaching locations should operate in coordination will test Yu Minhong's retail wisdom.

While retail companies are deploying online and reaching a wider range of users with a light-asset operation model, Oriental Selection, which was born online, is doing the opposite and starting to deploy heavy-asset offline operations. However, the "one light and one heavy" brings not only challenges on the financial side to Oriental Selection, but also more importantly, how can Oriental Selection, which has no retail genes, break through?

Returning to the membership store format, strong players like Yonghui, Gao Xin Retail, and Hema have not yet formed the ability to restrain Sam's Club. The "young boy" Oriental Selection's first sword was aimed at Sam's Club. Even with the "right time, right place, and right people", the external trend can only serve as "icing on the cake" in the end.

"Retail Business Finance" believes that Oriental Selection must forge a unique path that is different from traditional membership stores and can unleash the advantages of its original resources. As to whether it can make a name for itself, we will have to wait and see.