Bottom line: Alibaba could buy the RT-Mart supermarket chain this year to boost its grocery business, while JD.com’s more online-focused effort and push into smaller cities looks like a better approach to the sector.
The online supermarket wars that began last year between e-commerce rivals Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD) are heating up in the Year of the Rooster, though the pair seem to be taking slightly different tacks, at least based on the latest headlines. Leading those are reports that Alibaba is in talks for a tie-up of some sort with Sun Art (HKEx: 6808), operator of the popular RT-Mart supermarket chain. Meantime, JD is making its own headlines in the space, with an executive detailing the company’s plans to achieve 100 billion yuan ($14.5 billion) in sales from its operation this year.
One unspoken thread to this story is the carnage that’s likely to result from this battle of the titans for supremacy in the online supermarket space. Those victims are likely to include a number of fresh produce sellers that were hot tickets early last year, including Yiguo and Fruitday. A number of others have already fallen victim last year, including Amazon-backed (Nasdaq: AMZN) Yummy77 and Tablelife. (previous post) I expect we’ll see more carnage from these online grocery wars in the year ahead.
Before we delve into the headlines, it’s worth pointing out that these latest news bits involving Alibaba and JD seem to point to quite different strategies in the space. Alibaba’s rumored move to tie with a brick-and-mortar grocer underscores its belief that online-offline combinations are the wave of the future for retailing. By comparison, JD’s strategy is mostly focused online, though it does have some offline connections through its main partner in the space, global retailing giant Walmart (NYSE: WMT).
All that said, let’s begin with a closer look at the Alibaba headlines, which simply say the company is in talks with Sun Art for an unspecified tie-up of some sort. (Chinese article) One report says the pair have been talking for two months now, and others say Alibaba has declined to comment on the matter. Some of the reports are speculating that Alibaba may actually make a bid to buy Sun Art, though those look like pure guesswork.
Sun Art’s stock has rallied nearly 20 percent since the start of the year and is up more than 50 percent over the last 6 months, indicating people may think the company is in play. I remember when Sun Art made its Hong Kong IPO in 2011, and predicting it could be a hot ticket due to big growth potential in the grocery space. (previous post) But much has changed since then with the rise of e-commerce, and even after the current rally the stock trades just 17 percent above its IPO price from nearly 6 years ago.
Personally speaking, I have yet to see any online-to-offline stories yet that look really compelling, and would have my doubts about this one as well, if it’s happening. Some may argue that food is different from other e-commerce items, because people will want to feel and touch it before buying. But clothes seem like a more important item to touch and feel, and even those seem to be hot sellers on e-commerce without any need for real-world touch-and-feel experience.
Small Town Train
Next there’s JD, which is detailing its grocery expansion plans for the year ahead. The company is saying its goal for this year is to help at least 10 of its brands, such as beverage giant Coca Cola (NYSE: KO), reach the 1 billion yuan sales mark. (Chinese article) It aims to help at least another 100 reach the 100 million yuan mark, with the grand total of 100 billion yuan in total grocery sales for the year.
An executive discussing the drive says a major component of the company’s expansion this year will see it dive into smaller third- and fourth-tier cities. Such a strategy certainly makes sense, since everyone needs to eat, and this kind of online supermarket will offer far more selection than even the best brick-and-mortar stores in these kinds of markets. Of course the big challenge will be logistics, since many grocery items need to be stocked close to where the customer is.
JD’s strategy looks like the smarter one to me, compared with Alibaba’s, though the logistics issue could be a costly one. JD certainly doesn’t seem afraid of such costs, which is why it’s still deeply in the red nearly 3 years after its New York IPO. But those loses do appear to be narrowing, at least for now. And some might argue that JD’s broader “invest now for returns later” strategy could be laying a solid foundation for some solid growth and market share if and when the company ever makes it out of the loss column.