Alibaba and JD.com make foray into groceries

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(Source: Asia Nikkei Review)

(Source: Asia Nikkei Review | November 1, 2017)

The rise of online-to-offline retailing in China has blurred the boundary between the two traditional mechanisms of selling consumer goods, and the country’s e-commerce giants are determined not to miss the chance to finally get into perishables — the last remaining stronghold for brick-and-mortar stores.

Spotting the potential of the the business model of a startup grocery store chain, Hema Xiansheng China’s top e-tailer Alibaba Group brought the chain under its wing soon after it was launched in spring last year.

Currently, it has 20 brick-and-mortar stores in Shanghai, Beijing and elsewhere in China. At a glance, they look just like any neighborhood grocery store selling fresh vegetables, fruit, fish and meat. But the chain makes more than half of its sales online.

Its unique aspect is that each store doubles as a cold-storage warehouse and delivery center. As soon as an order is placed, a store clerk sees it displayed on a device and gathers up the items and sends them on to the delivery section for dispatch.

The chain claims its average sales per square-meter are about three times higher than those of a conventional offline store.

Alibaba CEO Daniel Zhang Yong described the chain’s online-offline integration as a showcase of new retailing when he visited a Hema store in Shanghai.

China’s No.2 e-commerce company JD.com is also making a big push into online-to-offline retailing, making full use of its JD Daojia grocery stores. The chain is known for its huge discounts — a pack of eggs or a bunch of bananas can often go for less than a cent.

In addition to “giveaway” pricing, the chain offers one-hour delivery, which is realized through a network of traditional markets across the country.

An order placed via smartphone is simultaneously allocated to a store at a nearby market and an available delivery driver. The delivery person arrives to pick up the goods within 30 minutes and then has another half an hour to get the order to the customer.

Daojia has built up an extensive delivery network, with one store available every 3km.

“We receive 50 to 60 orders a day online,” said the owner of a small shop at Changhua market in Shanghai who joined Daojia’s network in July last year.

The individual stores need not worry about the burden of large discounts as they are covered directly by Daojia.

“Young customers who used to come to the store now buy from us online,” said the owner. “It’s great.”

Successful online-to-offline retailing requires two factors: an e-payment platform that allows shoppers to spend in increments of as little as 1 yuan, and a comprehensive network for “last-mile” delivery.

E-payment has taken off in China. Alipay and Tencent Holdings’ WeChat Pay have a combined total of 1.2 billion users. Transactions for the first six months of this year exceeded $5 trillion — more than Japan’s gross domestic product.

Having grown accustomed to the convenience of e-payment, Chinese people have taken quickly to buying fresh food on their smartphones.

The popularity of smartphone payment has also helped startups to monetize various ideas and services.

Business districts, for example, are now packed with electric scooters at lunchtime, with meal delivery services having become a market worth about $18 billion.

 

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