A Blog by Jonathan Low

 

Mar 20, 2017

How Alibaba and JD Are Figuring Out How To Scale Online Grocery Shopping

Just as smartphones supplanted personal computers in markets where PCs had not yet made inroads, so online grocery shopping may first begin to take off in regions still wedded to neighborhood markets. JL

Li Yuan reports in the Wall Street Journal:

Alibaba and JD provide startups with capital, delivery orders and data to help run the dispatch systems. These startups don’t own refrigerated warehouses. They send contract couriers to supermarkets and shops where store employees bag the orders for the couriers. Shoppers can click on their phones and have groceries within an hour. Chinese shoppers spent 90.5 billion yuan ($13.1 billion) buying fresh produce online last year, an 86% jump from the previous year.
In the world’s top e-commerce market, grocery shopping is one of the last frontiers.
Over the past 15 years, Chinese e-commerce giants Alibaba Group Holding and JD.com have trained 460 million Chinese to buy apparel, furniture and electronic appliances from Taobao and JD Mall.
A weak retail environment helped propel China’s e-commerce explosion, as did a fleet of low-cost courier services. Last year, such couriers delivered more than 30 billion packages, or 40% of the world total, says China’s State Postal Bureau.
–– ADVERTISEMENT ––
But when it comes to groceries, most Chinese still rely on their neighborhood markets.
That’s starting to change. Chinese shoppers spent 90.5 billion yuan ($13.1 billion) buying fresh produce online last year, an 86% jump from the previous year, according to research firm iResearch.
Alibaba and its main rival, JD.com, are ramping up their efforts to grab a slice of the online grocery-shopping market by using a new form of courier service. The service works like the Uber of delivery, and is similar to Instacart, the Silicon Valley-based grocery-delivery startup valued at roughly $3.4 billion after a funding round earlier this month.
Like Instacart, these startups don’t own expensive refrigerated warehouses. Instead, they send contractor couriers, many on electric bikes, to supermarkets, convenience stores and mom-and-pop shops where store employees bag the orders for the couriers to pick up. While such startups have been around for a couple of years, they have gained traction after investments from Alibaba and JD.com.
In hundreds of Chinese cities, shoppers can click on an app on their phones and have groceries appear at their door within an hour. One startup delivers grocery orders from more than 60 Wal-Mart stores in China.
The startups earn money by charging for delivery and getting sales commissions from the retailers. Charges generally start at five yuan (72 cents) per package.
Compared with the U.S. counterparts, delivery is cheap. Instacart has pushed more of its customers into an Amazon Prime-like service that charges a flat fee of $14.99 a month, or $149 a year, for unlimited grocery deliveries.
“This type of fee is like a dream to us,” says Zhang Ying, founder of Quick Bee, a startup that mobilizes the owners of mom-and-pop stores to deliver groceries.
The lower cost in China and a consumer culture already used to ordering restaurant meals via phone apps give the Chinese startups a chance at conquering the online grocery-shopping barrier faster than Instacart or other U.S. services such as Amazon Fresh.
The business model has the potential to disrupt traditional courier services, with their higher efficiencies and lower costs. But there are challenges and a big question: Are Chinese shoppers ready to buy groceries online?
“It’s a promising but tough business,” says Kai-Fu Lee, chief executive of Sinovation Ventures, which invested in one such company called Dianwoda. Just like the ride-sharing business, he says, only the dominant competitors have a chance to earn money, so in the beginning they will have to burn cash to squeeze out rivals. However, he says, “The change of consumer behavior in meal delivery presents a unique opportunity for China.”
Alibaba and JD.com provide the startups with capital, delivery orders and data to help run the dispatch systems more efficiently than old-fashioned courier services without the costs for full-time salaries and benefits. For example, with the help of big data and algorithms, the new delivery services can line up more deliveries in one trip than the current courier systems.
One of the startups, Hangzhou-based Dianwoda, received nearly one billon yuan ($150 million) in a funding round led by Alibaba last year. About one-third-owned by Alibaba and its affiliates, it hires nearly one million contractor couriers in more than 100 cities across China to deliver orders from Alibaba’s Taobao Marketplace as well as that of other ventures funded by the e-commerce giant.
Shanghai-based New Dada is over 40%-owned by JD.com and counts Sequoia China, Russian investment firm DST Global and Wal-Mart Stores as investors. New Dada says it hires over three million contractors in about 300 cities.
Some investors are skeptical consumers can be persuaded to routinely shop for groceries online. “Convenience stores are often five minutes away in China’s big cities so there’s simply not enough demand for online grocery shopping yet,” says Zha Jia at Tiantu Capital, a private-equity firm that focuses on consumer-related investment.
But the startups and their investors point to the fast adoption of meal-delivery services as a promising example. According to a government survey, 28% of Chinese smartphone users, or 194 million, used meal-delivery apps by the end of 2016, up from 17% a year earlier.
While the meal-delivery services relied on heavy discounts to lure new users in the past few years, many customers have continued ordering meals on apps after the discounts stopped.
That’s the development Alibaba and JD.com hope for. Last September, Alibaba said it would spend two billion yuan ($300 million) on discounts for its Tmall Supermarket customers. JD.com has been offering steep discounts for grocery shopping, too.
A JD.com spokesman says the online grocery business overall isn’t making money. For now, his company focuses on how it helps the core business: Those shopping for groceries shop more often and also put other things in their carts. “We do think it’s related,” he says. An Alibaba spokesman declined to comment.

1 comments:

Lilla Wilkinson said...

Good evening! Prices our platform proofreading services com review can be slightly higher than those on other platforms, but we guarantee that your paper will be 100% unique and customized. When other services charge really low prices, it means their authors don’t get paid enough, which can really lower their motivation to perform decent work.

Post a Comment