Amazon faces tough challenge from cash-rich Chinese firms
As Amazon looks to swallow US grocery chain Whole Foods, China’s tech giants are already digesting hefty bricksand-mortar deals, taking the lead in the battle to transform supermarket shopping with big data and better supply chains.
China’s Alibaba Group Holding and JD have invested heavily in offline retail—bricks-and-mortar stores—in recent years to complement their online offerings.
With their ready- made payment and social media platforms to lure shoppers, Alibaba and JD have helped China become the world’s largest online grocery market, far ahead of the United States.
This early lead, cemented by densely populated urban areas and cheap labour, could be key as retailers and tech firms race to boost margins on low-cost consumer goods by reinventing supply chains with big data analytics.
“China is already the largest online grocery market in terms of value in the world so it’s really advanced in terms of scale,” said Nick Miles, London-based head of Asia Pacific for food and grocery industry research body IGD.
Sales made online are set to more than double to around 6.6% of China’s broader grocery market by 2020, compared to around 1.4% for US sales by then.
Both US and Chinese ecommerce firms are grappling with the challenge of increasing their margins on fast moving consumer goods (FMCG), which include lowmargin, high-demand goods with a short shelf-life - a staple of grocery stores.
Alibaba, which has a burgeoning cloud business that competes directly with Amazon, plans to use its trove of consumer data to provide a suite of connected services back to brands whose goods they sell.
Services will include inventory management, smart manufacturing and logistics, aiming to slash waste and margins across the entire supply chain, according to the company’s so-called “New Retail” strategy.
Likewise, JD uses data from a partnership with China’s hugely popular messaging app WeChat, which has over 930 million users, to build data profiles for a range of brands including baby products, cosmetics and soft drinks. tail growth hasn’t been immune either, with analysts pointing to high delivery costs and tight margins.
“It’s going to very hard for those pure e-commerce players to grow (margins), and for those offline players, it’s going to be very hard to survive and make money,” said Bruno Lannes, Shanghaibased partner at Bain.
“The answer is to combine in an integrated supply chain.”
China is already the largest online grocery market in terms of value in the world so it’s really advanced in terms of scale