Xiaohongshu has small ambitions, but local businesses are getting anxious

In order to turn losses into profits, Ele.me has been constantly slimming down and streamlining its business system over the past three years, such as reducing the coverage of word-of-mouth business, focusing on profitable first- and second-tier cities, and discontinuing the "Ele.me Star Selection" APP that focuses on high-end food delivery. Under a series of reforms, Alibaba's local life group, represented by Ele.me, has greatly improved its losses.

Alibaba's latest financial report shows that in fiscal year 2024, the local life group's revenue increased to 59.802 billion yuan, a year-on-year increase of 19%; the loss was reduced to 9.802 billion yuan, a further reduction of more than 25% compared with the previous fiscal year. At the same time, keywords such as "improved user stickiness, strong growth in non-meal orders, increased average order amount, positive unit economic benefits, and rapidly narrowing losses" appeared in the financial report, highlighting the results of Ele.me's slimming down.

Under such circumstances, it is not easy for Xiaohongshu's local life business, which is still in the "early stage" of cultivating consumer mentality, to "head-on" and grab the takeaway or catering cake from strong competitors. Therefore, in Kas's opinion, perhaps the platform should listen more to the "voices" of merchants on the site, change its perspective, and focus on hotels, cultural tourism and other lines, which is a wiser choice.

A few days ago, Mengqi posted a "help post" on Xiaohongshu asking for recommendations on Gansu attractions and food, hoping to get help from netizens and have a successful trip without any setbacks.

Unexpectedly, instead of the expected responses from locals or enthusiastic netizens, the first to appear in the comment section were from various travel companies: "Hello, are you planning to travel to the northwest? We are a local tour operator in Qinghai, and we offer small tour groups... Is it convenient for you to take a walk? You can compare itineraries and prices~". In less than half an hour, the number of replies to this post exceeded 30. The "enthusiasm" of the merchants really surprised her.

According to Kas's observation, there are more and more similar "wild merchants" on Xiaohongshu. They run around in various comment areas every day, hoping to find potential users and try their best to facilitate the conversion of these users from online consumption needs to actual offline purchases.

While merchants are gearing up, Xiaohongshu itself is also quietly making its plans. Although it seems that it has not officially "come to the table" at this stage, Xiaohongshu, which has already completed the e-commerce closed loop, may very well target local life next.

01 Merchants "occupy" the comment area

To this day, in the minds of many netizens, the most important role played by Xiaohongshu is still a holy place for "planting grass", so no matter whether it is a big brand or a small business, they have never given up operating on Xiaohongshu.

For local lifestyle merchants, Xiaohongshu is more than just a place to buy products. Compared with other platforms, Xiaohongshu notes focus on being "refined" and "practical", making its content more attractive, making it easier for people to visit stores and check in, and more likely to make actual purchases.

Sharp merchants will naturally not ignore this huge traffic entrance. On the one hand, they attract the attention of netizens by posting photos of various beautiful scenery and delicious food, as well as related travel notes and guides, and actively make users interested in it.

When Kas searched for Hohhot tourism, he was attracted by a highly praised note that appeared at the top of the list. The note, titled "Who understands? Finally someone has explained Inner Mongolia tourism clearly", came from the official account of the travel agency @Hi Travel. The cover is a self-made chart with clear logic, showing various well-known attractions from Hohhot to Ulanqab. In the text part, the blogger expanded on the special landscapes, local food, transportation routes, clothing and equipment, and other angles, and introduced the costs and advantages of traveling to Inner Mongolia in all aspects.

Image source: @Hi趣旅行小红书 screenshot

Compared with ordinary people's travel records, this note is comprehensive in content and accurate in information, and is indeed more meaningful for reference for netizens. People in the comment section also constantly ask the blogger for detailed information such as price and departure date.

On the other hand, there are also many businesses active in the comment section of amateur bloggers, actively responding to every netizen who is accidentally attracted by the products, and working hard to recommend their own products, hoping to "pick up the bargain" of these users.

@小苏不爱吃肉 posted a group of photos of herself visiting Xiangsha Bay. In her notes, the azure blue swimming pool in the vast desert looked particularly clear. Against the backdrop of blue sky and white clouds, the blogger's action of looking up and laughing became more free and lively.

There is no doubt that beautiful scenery and pictures have an appeal to netizens. In addition to expressing their praise for the photos and the bloggers themselves, many people are also curious about practical issues such as the specific location of the attractions, how to get there, and how much they cost.

Image source: @小苏不愛吃肉 screenshot from Xiaohongshu

The travel agencies naturally showed up "at the right time" and the more frank ones directly stated their identities:

"Hello, it looks like you are planning to come here to play, right? Would you like to learn more about our tour? It's very cost-effective."

"Sister, read my private message. I'll send you the detailed itinerary."

The more "cunning" ones will disguise themselves as ordinary people and make secondary promotions in the comment section:

"I checked in successfully. My boyfriend and I were traveling with a local tour group. There was so much information online that it was hard to make a travel guide. So I decided to join the tour group. I didn't expect it to be so hassle-free. We spent four days there and the average cost was just over 1,000 yuan per person. It's totally affordable for college students."

"You asked Princess for recommendations, so I'll tell you the secret of how my friend and I traveled cheaply to Inner Mongolia. It only cost a little over 1,000 yuan for five days, which is really worth it for college students."

If the merchants' promotional methods only stop at this stage, most users can accept it, and at most sigh that their business sense is really sharp. But in fact, the practices of some merchants have exceeded the scope of publicity in "public spaces" and disturbed ordinary users.

Previously, Kasi tried to leave a message under a post whose original blog had less than three-digit likes and few people discussed it in the comment section, asking the blogger what tour he had signed up for and whether he could recommend it. However, while waiting for the blogger's reply, Kasi's private mailbox unexpectedly received a large number of messages from unfamiliar businesses. In just two hours, more than 20 "strangers' messages" had poured in.

The large number of advertisements not only makes it more difficult for users to filter, but also weakens users' trust in the overall content of the platform due to its uneven quality. In fact, many bloggers and ordinary users on Xiaohongshu have suffered from "hidden advertising" for a long time.

Image source: Xiaohongshu blogger comment area

02 Xiaohongshu further develops its local life

In sharp contrast to the impatient state of local life merchants on the platform is the "Buddhist" attitude that Xiaohongshu has shown in the development of local life business in the past.

Although it has the strongest atmosphere of "checking in and exploring stores", Xiaohongshu has never focused on local life in the past. Compared with Douyin, another short video social APP, which started to build its own luxurious local life project team as early as 2018, Kuaishou also began to explore this field in 2020.

For a long time, Xiaohongshu executives have focused on maintaining a good community atmosphere for the platform's development. Founder Qu Fang has repeatedly emphasized the "community nature" of Xiaohongshu in public speeches. It was not until 2022 that the outside world realized that Xiaohongshu's pace in building an e-commerce closed loop was accelerating, and it can be said that it has achieved initial results.

In contrast, it was not until May last year that Xiaohongshu officially announced its entry into the local life market, opened an official local life account @土拔薯, and officially launched the group buying function on the site, but it was only piloted in three cities: Shanghai, Guangzhou, and Shenzhen. According to a report by the Beijing News, offline merchants reported that there were "almost no" users who came to redeem Xiaohongshu's group buying coupons.

Although it has launched policies such as the "Food Power Shop Plan", "Searchlight Plan" and "100 Store Exploration Plan" to support the local life track, and attracted merchants and bloggers to settle in through commission reductions, traffic support, content guidance, etc., it seems that not many people outside know about it, and it has not caused much splash.

Image source: @土拔土豆Little Red Book screenshot

According to a previous report by 36Kr, in 2024, Xiaohongshu has made many new plans for the local life track. The three major development strategies that have been established involve "city layout, track selection, and marketing strategy":

First of all, in terms of city layout, Xiaohongshu's layout of local life is spread all over the country, but the focus in the initial stage will be on first-tier Internet celebrity cities such as Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou, Chengdu, and Nanjing. As the business develops, it will gradually extend to the second- and third-tier markets.

Secondly, in terms of track selection, priority is given to supporting high-end categories such as coffee, bread, and homestays, in order to cater to the concerns and preferences of the platform's core customer base.

Finally, from the perspective of marketing strategy, we insist on a two-pronged approach of "online support" and "offline incubation", and carry out event marketing for merchants, bloggers, and users to enhance the brand voice of the platform.

Putting aside the fact that it entered the market relatively late, Xiaohongshu actually has many unique advantages in serving local life.

Firstly, the strong community attribute that Xiaohongshu is proud of determines that users on the platform are more sticky. In addition, most users have developed the habit of planting grass, pulling grass, and checking in on the platform, and are happy to browse content related to local life. Such a user base and platform atmosphere make it easier for Xiaohongshu to gain users' attention and trust when promoting local life services.

Secondly, Xiaohongshu has a large number of high-quality content creators who are good at creating various life sharing, shopping guides and store exploration guides, and the content is very authentic. This group of creators naturally has the trust of consumers and is likely to become an important driving force for the commercialization of Xiaohongshu's local life services in the future.

In addition, Xiaohongshu has long had experience in creating Internet celebrity attractions and stores. In the future, as long as it continues to rely on the platform's word-of-mouth marketing features, it may be more attractive than the store exploration content of influencers on Douyin and Kuaishou, which has strong commercial purposes and business cooperation.

03 How many pieces of the local life cake are left?

iMedia Research pointed out in the "2023-2024 China Local Life Service Industry Market Monitoring Report" that the scale of China's digital economy will be about 50 trillion yuan in 2022, accounting for more than 40% of GDP, an increase of 16.3% over 2014. This means that digital technology is changing people's daily lives and consumption habits, and more and more people tend to obtain goods and services through digital platforms.

iResearch previously estimated that by 2025, the local life market will grow to 35.3 trillion yuan, but as of 2021, the overall online penetration rate of local life is only 12.7%. At this stage, many "old-fashioned" Internet businesses have entered a period of weak growth, but for local life businesses, it is obviously far from the stage of fierce competition. The trillion-level growth potential behind it is the reason why major manufacturers have increased their investment.

On the one hand, there is the strong attack of new platforms such as Douyin and WeChat Video.

As for Douyin, since it officially announced its entry into the local life market in 2021, Douyin has been adopting a high-profile strategy, using "high frequency to hit low frequency" in traffic to intercept users' consumption needs in advance. Coupled with real money operational support and a growing professional team, Douyin's local life business has risen rapidly at a visible speed.

At the Douyin Local Life Conference last year, Douyin announced that it would invest 500 million yuan in the next year to help merchants and influencers increase their income through three major initiatives, including business order subsidies, product function optimization, and upgraded operation services. Data shows that Douyin's local life sales in the first quarter of this year have exceeded 100 billion yuan.

Regarding WeChat Video Account, on April 29, WeChat Video Account announced relevant policies for local life merchants to settle in Video Account stores, ending the nearly one-year testing phase and fully opening up the entry of local life merchants.

Recently, Tencent announced that it will suspend the entry of 114 third-level e-commerce categories into WeChat Video Account from June 21. The adjustment mainly involves local life services under e-commerce, such as travel and leisure, life services, travel and transportation, etc. At the same time, the official said that some of the above categories and products will be moved to "Local Life", and merchants can apply for stores and categories in accordance with the new regulations. Together with the previous organizational structure adjustment within WeChat, the WeChat payment team and the local life team of the video account are connected. It is not difficult to see the ambition of the video account for the local life track. As we all know, WeChat Pay connects the most extensive local life merchants, accounting for more than 50% of the offline payment market, and has a large number of merchants' big data information such as business flow, logistics and passenger flow.

However, in 2024, the focus of Video Account will undoubtedly still be on exploring e-commerce business. Therefore, apart from the release of announcements and adjustments to the organizational structure, we cannot see any traffic support from Video Account for local life, and local life has not established an independent department and still belongs to the live streaming and selling goods sector.

On the other hand, old platforms such as Meituan and Ele.me are firmly defending their positions.

Facing the fierce attack from Douyin, Meituan subsidized merchants and riders, launched low-price activities such as "Super Hot" and "10 billion subsidies", defended the price advantage of the platform, and avoided a head-on collision with Douyin in terms of content and traffic. With years of industry experience and a mature service system, Meituan can still sit firmly in the top spot in the local life service industry at this stage. Data shows that in 2023, Meituan's annual revenue will be 276.74 billion yuan, a year-on-year increase of 25.8%, and its operating profit will be 13.4 billion yuan.

In order to turn losses into profits, Ele.me has been constantly slimming down and streamlining its business system over the past three years, such as reducing the coverage of word-of-mouth business, focusing on profitable first- and second-tier cities, and discontinuing the "Ele.me Star Selection" APP that focuses on high-end food delivery. Under a series of reforms, Alibaba's local life group, represented by Ele.me, has greatly improved its losses.

Alibaba's latest financial report shows that in fiscal year 2024, the local life group's revenue increased to 59.802 billion yuan, a year-on-year increase of 19%; the loss was reduced to 9.802 billion yuan, a reduction of more than 25% compared with the previous fiscal year. At the same time, keywords such as "improved user stickiness, strong growth in non-meal orders, increased average order amount, positive unit economic benefits, and rapidly narrowing losses" appeared in the financial report, highlighting the results of Ele.me's weight loss.

Under such circumstances, it is not easy for Xiaohongshu's local life business, which is still in the "early stage" of cultivating consumer mentality, to "head-on" and grab the takeaway or catering cake from strong competitors. Therefore, in Kas's opinion, perhaps the platform should listen more to the "voices" of merchants on the site, change its perspective, and focus on hotels, cultural tourism and other lines, which is a wiser choice.