Bottom line: Walmart’s investment in an online grocery delivery company is the latest advance in its rapidly growing alliance with JD.com, which could help to reignite its stagnating position in China’s retail market.
The growing alliance between global retailing titan Walmart (NYSE: WMT) and Chinese e-commerce giant JD.com (Nasdaq: JD) is taking yet another step forward, with word that the former is making another new investment in the latter in the hotly contested online grocery space. In this case the investment itself, in a JD-backed online grocery specialist called New Dada, is a relatively modest $50 million. Instead, the investment is more symbolic because it takes direct aim at the market-leading position of e-commerce titan Alibaba (NYSE: BABA).
Walmart has wasted no time in rapidly building up its alliance with JD.com since the pair first formed their tie-up over the summer. That pairing saw Walmart transfer its China e-commerce site, Yihaodian, to JD. In exchange, Walmart got a stake in JD, which it recently increased to 11 percent.
Just last week the pair made headlines when Walmart announced it would open two flagship online stores, including a China edition of its Sam’s Club, on JD.com’s site. (previous post) In the same announcement, Walmart also said it was launching 2-hour delivery service in some Chinese cities, taking advantage of JD.com’s strong logistics network that is capable of reaching 90 percent of Chinese consumers.
This latest announcement looks like an extension of the 2-hour delivery drive. It will see Walmart invest the $50 million for an unspecified stake in New Dada, which is described as “China’s largest local on-demand logistics and grocery O2O ecommerce platform”. (company announcement; Chinese article)
The 2-hour service will be available to anyone living within a 3 kilometer radius of 20 Walmart stores that will initially participate in the program. The number of stores is expected to double by the end of the year, and we can probably expect to see it grow steadily to eventually include most of Walmart’s 426 stores in nearly 170 Chinese cities.
This frenetic pace of activity coming from this new partnership looks quite typical for JD.com, which is used to such aggressive behavior. But it’s slightly unusual for the stodgier Walmart, which is more known for its cautious approach. Such caution has undermined not only Walmart, but other global retailers like Carrefour (Paris: CA) and Tesco (London: TSCO), which are rapidly losing business to aggressive players like JD and Alibaba.
Slow Drive Into E-commerce
Walmart was one of the few global retailers to take a serious try at China e-commerce with its earlier purchase of Yihaodian, a Shanghai-based company with a focus on the grocery business. But its indecisiveness ultimately undermined the effort, leading to its decision to let JD.com become its major online shopping partner.
This latest move is part of a growing war between Alibaba and JD.com in the online grocery space, and more broadly in the bigger war to provide fast delivery of products purchased online. In August JD and Walmart announced a 1 billion yuan ($150 million) campaign to promote their grocery business, only to see Alibaba respond days later by saying it was prepared to spend “multi-times that number”. (previous post)
Against that backdrop, this latest move by Walmart shows it’s preparing to combine its considerable clout and experience in the grocery business with JD’s prowess in e-commerce and logistics. Such a combination does seem quite potent due to the highly complementary pairing between JD’s e-commerce experience and Walmart’s position as the world’s biggest traditional retailer.
This particular partnership also enjoys a major advantage over Alibaba, since it’s built around 2 companies with highly complementary expertise. By comparison, Alibaba operates online shopping malls and works with thousands of retailing partners, making it difficult to offer uniform products and service due to the fragmented nature of its business model.
Investors also seem to like the emerging Walmart-JD story, bidding up JD’s shares by nearly 25 percent since early August. I expect the shares could see more upside as the relationship expands, especially if the pair can announce some positive results and JD can move closer to its goal of finally becoming profitable.
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