Con­nect­ing the coun­try­side

Eye­ing un­tapped mar­ket, e-com­merce giants fo­cus on ru­ral lo­gis­tics

Global Times US Edition - - BUSINESS - By Zhang Ye in Hangzhou

Vil­lager Zhang Fu­lai used to have to drive 30 min­utes to a nearby town­ship to pick up his on­line pur­chases.

Last year, how­ever, Zhang got the wa­ter heater and tele­vi­sion that he pur­chased dur­ing the on­line shop­ping fes­ti­val on “Dou­ble 11” de­liv­ered right to his doorstep in Datun, a vil­lage in North China’s He­bei Province.

“It feels good to fi­nally get some city con­ve­niences, thanks to Cun­tao,” the 30-year-old vil­lager told the Global Times on Monday.

Cun­tao, which means ru­ral Taobao, refers to the ser­vice cen­ters that Alibaba Group Hold­ing has set up in vil­lages around China, pri­mar­ily at con­ve­nience stores. The cen­ters are at the heart of the e-com­merce gi­ant’s strat­egy to stim­u­late con­sump­tion in the coun­try­side.

Alibaba started open­ing the cen­ters in 2014 to en­sure de­liv­ery of goods ru­ral res­i­dents have or­dered on its e-com­merce sites, in­clud­ing Taobao. The cen­ters also serve as places to teach vil­lagers the ins and outs of shop­ping on­line, which many ru­ral res­i­dents re­main un­fa­mil­iar with.

The com­pany’s ef­forts to ex­tend its reach into China’s coun­try­side make sense, con­sid­er­ing the size of the ru­ral mar­ket.

Ru­ral Chi­nese con­sumers will buy an es­ti­mated 460 bil­lion yuan ($69.78 bil­lion) worth of goods on­line this year, up from 180 bil­lion yuan in 2014, ac­cord­ing to the Ali Re­search In­sti­tute, Alibaba’s re­search di­vi­sion.

E-com­merce com­pa­nies have al­ready made it eas­ier for China’s ru­ral res­i­dents to get their on­line pur­chases. Now they are try­ing not only to reach more re­mote con­sumers, but also to make the process eas­ier and more cost ef­fec­tive.

The long, last mile

China’s ex­press de­liv­ery com­pa­nies, most of which are pri­vately owned, han­dle much of the coun­try’s e-com­merce de­liv­er­ies. How­ever, China’s ex­press de­liv­ery net­work only cov­ered about 48 per­cent of the coun­try’s vil­lages and towns in 2015, ac­cord­ing to a re­port by the Bei­jing­based Qianzhan In­dus­try Re­search Cen­ter in May.

“The big­gest bar­rier to im­prov­ing ru­ral lo­gis­tics is the last mile prob­lem, be­cause many de­liv­ery com­pa­nies do not reach re­mote ru­ral re­gions due to cost con­cerns,” said a PR rep­re­sen­ta­tive with Inc, China’s sec­ond­largest on­line re­tailer.

Un­like China’s cities, whose dense pop­u­la­tion makes de­liv­er­ing pack­ages far more cost ef­fec­tive, de­liv­ery com­pa­nies have to spend a lot more time and ef­fort to serve ru­ral ar­eas, the PR rep­re­sen­ta­tive told the Global Times on Sun­day.

The State Post Bureau, which over­sees the ex­press de­liv­ery in­dus­try, has pledged to in­crease the cov­er­age area to 80 per­cent of do­mes­tic towns and vil­lages by the end of 2016, ac­cord­ing to a state­ment on its web­site.

The in­dus­try wants to go fur­ther, said Shen Jian­feng, di­rec­tor of the ru­ral busi­ness group of the Cainiao Net­work, a lo­gis­tics al­liance ini­ti­ated by Alibaba and ma­jor do­mes­tic ex­press de­liv­ery firms.

“We will con­tinue work­ing to meet the author­i­ties’ goals, but the [80 per­cent] fig­ure is not our ul­ti­mate goal. We want to make the de­liv­ery ser­vice more cost ef­fec­tive and com­pre­hen­sive, able to han­dle var­i­ous high-qual­ity prod­ucts like fresh food and home ap­pli­ances,” Shen told the Global Times Monday on the side­lines of the 2016 Global Smart Lo­gis­tics Sum­mit held in Hangzhou, cap­i­tal of East China’s Zhe­jiang Province. Alibaba is head­quar­tered in Hangzhou.

Cainiao aims to ful­fill its goal via Alibaba’s ru­ral ser­vice cen­ters, which now serve 150 mil­lion res­i­dents from 17,000 vil­lages in China.

In March, 99 per­cent of Cainiao parcels were de­liv­ered to ru­ral ar­eas within two days of the or­der be­ing placed, up from about 45 per­cent in Oc­to­ber 2015, ac­cord­ing to a re­port by the Ali Re­search In­sti­tute in May.

For its part, JD is test­ing out drones to solve the last mile prob­lem, but it has not given a timetable for when it might start us­ing them for de­liv­er­ies.

Shift­ing land­scape

There are signs that the ef­forts to beef up ru­ral lo­gis­tics have al­ready had an effect on ru­ral re­tail­ing.

Well-es­tab­lished brands used to rely on mul­ti­ple lay­ers of dis­trib­u­tors to reach ru­ral con­sumers, so it was hard to get high-qual­ity goods to the coun­try­side at a low cost, said Chen Jie, di­rec­tor of the ru­ral e-com­merce sales chan­nel at Tai­wan-head­quar­tered food con­glom­er­ate Uni-Pres­i­dent En­ter­prises Corp.

“Now we can di­rectly re­ceive or­ders from ru­ral con­sumers via on­line bazaars run by com­pa­nies like Alibaba, and have the near­est dis­tri­bu­tion cen­ter take the parcels to ru­ral lo­gis­tics cen­ters set up by e-com­merce firms in the coun­ties and vil­lages,” Chen said at a press con­fer­ence in April.

“This new way of sales and de­liv­ery helps us tap more of the ru­ral mar­ket,” he noted. Chen cited iced tea as an ex­am­ple. Us­ing tra­di­tional sales chan­nels, it costs about 14 yuan to de­liver a 7.5-kilo­gram case of the bev­er­age to ru­ral ar­eas. That’s al­most one-third of the prod­uct’s re­tail price. Us­ing Cun­tao, how­ever, the ship­ping cost falls to less than 3 yuan.

While e-com­merce helps man­u­fac- tur­ers cut costs, it is also squeez­ing lo­cal ru­ral re­tail­ers.

“I plan to close my store this year. It is tough to do busi­ness when con­fronted with e-com­merce,” said Zhao Yuy­ing, a 40-year-old woman who sells socks and un­der­wear in Datun.

If lo­cal res­i­dents can get the same prod­ucts at a lower price on­line, “why would they choose us?” she told the Global Times on Monday.

Still, the govern­ment is en­cour­ag­ing e-com­merce and lo­gis­tics to ex­pand into the coun­try­side to cre­ate more jobs and give ru­ral res­i­dents ac­cess to more goods at lower prices.

“A well-es­tab­lished lo­gis­tics net­work can help sell ru­ral prod­ucts at bet­ter prices … and bring trans­for­ma­tive changes to the coun­try­side,” said Xiong Jian, gen­eral man­ager of Cainiao’s ru­ral busi­ness group.

An­other ma­jor change is that fewer ru­ral res­i­dents will leave their home­towns to seek op­por­tu­ni­ties in the ur­ban ar­eas, Xiong said at a press con­fer­ence at the sum­mit on Monday. He be­lieves the trend will con­tinue. Many ru­ral peo­ple have al­ready re­turned to their re­mote home­towns to set up lo­cal busi­nesses, Ali Re­search di­rec­tor Gao Hong­bing said in his key­note speech at the sum­mit.

In the speech, he men­tioned a town in Suin­ing county in Xuzhou, East China’s Jiangsu Province. Seven years ago, the town was stricken with poverty. But by 2015, it had cul­ti­vated more than 4,000 re­tail­ers who sold 8.5 bil­lion yuan fur­ni­ture via Taobao.

Nonethe­less, Alibaba and JD still have much to do to make e-com­merce more ac­ces­si­ble to all of ru­ral China.

Cur­rently, Cainiao cov­ers only 430 of 2,800 coun­ties in China, Xiong said. There are about 600 mil­lion peo­ple liv­ing in ru­ral China – about as many as live in Europe – who, un­like the vil­lager Zhang, can­not en­joy the con­ve­nience of e-com­merce.

Photo: IC

A Cun­tao part­ner (far left) teaches res­i­dents of a vil­lage in Huaibei, East China’s An­hui Province, how to shop on­line in April. Cun­tao, the ser­vice cen­ters that Alib Alibaba Group Hold­ing has set up in vil­lages around China, is at the heart of the e-...

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