China's tech giants in race to transform grocery shopping

BEIJING • As Amazon.com looks to swallow United States grocery chain Whole Foods, China's tech giants are already digesting hefty bricks-and-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.com 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.com have helped China become the world's largest online grocery market, far ahead of the US.

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.

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"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 Mr Nick Miles, 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 per cent of China's broader grocery market by 2020, compared with around 1.4 per cent for US sales by then.

Both US and Chinese e-commerce firms are grappling with the challenge of increasing their margins on fast-moving consumer goods (FMCG), which include low-margin, 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 the brands whose goods it sells. Services will include inventory management, smart manufacturing and logistics, which aim to slash waste and margins across the entire supply chain, according to the company's "New Retail" strategy.

Likewise, JD.com 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.

Alibaba has invested over US$9.3 billion (S$12.9 billion) in offline retail stores since 2015, including supermarket chain Sanjiang, department store Intime Retail Group and Suning Commerce Group, one of China's biggest offline retailers. Last month, it took an 18 per cent stake in Lianhua Supermarket Holdings, part of retailer Bailian Group.

JD.com bought Wal-Mart Stores' Chinese online platform Yihaodian for about US$1.5 billion in shares last year.

US firms are now looking to play catch-up as bricks-and-mortar stores are hit by a slowdown and online players battle with tight profit margins and high delivery costs.

Amazon launched a US$13.7 billion bid for grocery chain Whole Foods Market last week, marking its intention to take on Wal-Mart.

Wal-Mart, which got a stake in JD.com in the Yihaodian deal, raised its share in the Chinese firm to 12.1 per cent in February, having bought online retailer Jet.com in a US$3 billion deal last year.

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 23, 2017, with the headline 'China's tech giants in race to transform grocery shopping'. Print Edition | Subscribe