Internet giants target booming retail sector
China's Internet companies are looking to expand in the offline retail sector either by having their own presence or working with existing ones.
Currently e-commerce accounts for 15 percent of the total retail business in China, leaving lot of space for expansion that the Internet giants are too keen to cash into.
Alibaba's flagship fresh food store Hema Market serves both as a retail space and a delivery station for consumers residing within three-kilometer radius of the store.
By sourcing directly from overseas destinations, it strives to ensure the quality of the imported goods by teaming up with Alibaba's logistics unit Cainiao.
It currently operates 13 stores in three domestic cities.
JD's takeaway delivery service, JD Daojia (Daojia means delivered to the doorstep), takes a rather different approach by working with offline stores instead of setting up its own establishment.
JD Daojia's platform links with existing supermarket chains and merchants and its crowd-sourcing delivery platform also provides swift and efficient delivery from the nearest shop.
Walmart, which holds about 12 percent stake in JD.com, has been leveraging the e-commerce giant's delivery and online data analyzing capability to reach out to consumers who do not visit its stores but are more accustomed to purchasing through JD.
JD Daojia said during a recent week-long sales campaign that the sales of Walmart goods jumped more than three times than usual. Currently about 1,300 varieties of Walmart products are available through the JD platform, and fresh food makes up about 40 percent of the sales.
A total of 134 Walmart stores in 18 cities are connected to JD Daojia platform.
“Integrating stores and inventory by connecting Walmart stores with the JD Daojia platform helps the company to provide targeted service and combine the two sides’ expertise and capabilities,” Ben Hassing, senior vice president of e-commerce and technology at Walmart China, said recently.
Internet companies not only want to become just a payment tool for retailers, as well as restaurants and other offline merchants or lifestyle services providers, but want to become a game changer in terms of supply chain as well as customer relationship management.
Meituan Dianping, China's largest lifestyle services website, also established an outlet named Zhangyu Shengxian in Beijing spanning 2,000 square meters in July.
By downloading an independent smartphone application, shoppers can now buy through the app and have the goods delivered by the Meituan Dianping's food and beverage takeaway delivery unit.
Most of its merchandise are similar to Alibaba's Hema Market, which include fresh food, packaged food and snacks, but without dining services.
Meituan's delivery arm covers more than 200 million users but how that would combine offline operations is still uncertain.
Other industry commentators suggest that bringing in truly experienced retail talent to fuel future expansion and operation would be Meituan Dianping's priority in the next stage.
Alibaba's Chief Financial Officer Joe Tsai said the new retail mode is “a disruptive game, in the sense that you will have to disrupt e-commerce first and embrace the physical world.”
The initial response to these new retail models may seem welcoming and satisfactory, but how these new entrants and partnership fare in the future will depend on their long-term performance.
The latest move from e-commerce giant Alibaba is to reshape the grocery stores, which usually have little trouble in sorting out their inventory and suppliers.
Alibaba's business to business (B2B) unit plans to link 10,000 domestic groceries with its wholesale platform as well as its logistics affiliate Cainiao's delivery network by the end of March next year.
Groceries are also required to set up a dedicated stacking shelf for merchandise recommended by Tmall vendors.
The e-commerce giant's ultimate target is to turn these groceries into a community service center that fully incorporates Alibaba's various business and technology capabilities.
PwC China TMT leader Gao Jianbin said anyone wishing to remodel the retail business has to pay attention to both efficiency and cost.
“They’re obviously seeking to make deeper changes such as leveraging their business data and consumer intelligence to help reshape the overall sourcing process,” he noted.
For retail brands, they also need to be aware of the trend and make their products available whenever consumers are going, be it online channels or convenience stores.
Kantar Worldpanel's China General Manager Jason Yu told Shanghai Daily that leveraging new shopping scenarios on consumers’ smartphones have helped to unlock great demand since shoppers are no longer willing to wait for two or three days for their daily necessities to be delivered to their doorstep.
Globally, that trend is also taking place where online companies are seeking to combine their capability with offline retailers to reshape the shopping experience.
Amazon is also integrating its services with Whole Foods’ organic offerings and has started to slash the prices of some of the Whole Food's merchandise from the end of August. This follows its US$13.7 billion deal to acquire the grocery chain earlier this year, with some of the marked-down items carrying signs that read “Whole Foods + Amazon”.
Barclays Capital wrote in a research note that the conventional supermarket “has not evolved much in decades but Amazon will likely drive drastically different shopping behavior in grocery and the survival of the fittest has begun.”
“Internet giants have large ambition and vision in terms of reshaping the offline retail landscape and they need a larger presence in the offline world to prove the model is truly eligible and expandable,” Yu said.
In the wake of the latest changes, physical stores need to beef up their services for consumers instead of just offering merchandise for shoppers, he added.