INTERNET: Alibaba Answers Walmart Challenge With Grocery Blitz

Bottom line: Alibaba’s massive online grocery promotion looks aimed at countering potential new challenges from Walmart, as the US retailing giant overhauls its China e-commerce operations.

Alibaba launches major grocery promotion

Just days after Walmart (NYSE: WMT) made a major shift in its China e-commerce strategy, local market leader Alibaba (NYSE: BABA) is firing back with a massive 1 billion yuan ($160 million) promotion that looks squarely aimed at the US retailing giant. This particular promotion comes in the grocery space, which also happens to be a core strength of Yihaodian, the major plank in Walmart’s China e-commerce operation. Alibaba’s announcement also comes just days after Walmart announced it was buying out its partners in Yahaodian to take full control of the site and better integrate it with its existing China operations.

Alibaba has never been one to take a challenge lying down, and its latest announcement that it will give away 1 billion yuan in coupons to promote its 3-year-old grocery service continues its tradition of aggressively promoting its popular online shopping malls. (company announcement; Chinese article) This particular promotion is specifically for Beijing customers, and is aimed at raising awareness of Alibaba’s same-day delivery service for groceries through its Cainiao logistics unit.

Alibaba uses a business model that differs from many of its rivals, acting only as a middleman between actual online sellers and buyers. That strategy allows it to offer a huge range of products on its sites, all of them offered by third-party merchants. But it also puts it at a disadvantage against e-commerce companies like Yihaodian and JD.com (Nasdaq: JD), which also offer merchandise directly to customers from their own online shops.

That difference allows the other companies to more easily control logistical issues like delivery times, which is an important element in the online food market where many fresh items need to be delivered as quickly as possible. In response to that disadvantage, Alibaba 2 years ago announced a 100 billion yuan ($16 billion) campaign to build up its logistics capabilities to assist the thousands of independent merchants that used its online e-commerce platforms. (previous post)

Taking Aim at Walmart

The timing of this new announcement is probably coincidental, but it certainly looks like a response to Walmart’s buyout of Yihaodian announced just last week. Walmart is already one of China’s top traditional retailers, and was trying to build up a complementary e-commerce business through its purchase of a stake in Yihaodian in 2012. But the site has remained a bit player with less than 1 percent of the market, prompting Walmart to dump Yihaodian’s 2 founders and install its own executive as company chief last week.

Yihaodian was an early leader in online groceries, though lately others like JD.com have moved aggressively into the space. This latest move by Alibaba indicates it also intends to get aggressive in the area. The 1 billion yuan promotion is only targeted at Beijing customers for now, though I expect Alibaba will quickly roll out similar promotions in other major cities like Shanghai and Shenzhen.

More broadly, this move is part of Alibaba’s drive to focus on some of its older businesses that never really gained traction, as it seeks to find new growth engines. Last month, the company did a major relaunch for its take-out dining delivery service, Koubei, taking direct aim at rival services operated by industry leaders Dianping and Meituan. (previous post) The company has also made other big moves in the online entertainment and smartphone spaces through other tie-ups and acquisitions.

So, should Walmart be worried about Alibaba’s new push into one of its traditional strengths? The answer is certainly “yes”, though this kind of competition was probably inevitable in the grocery space. At the end of the day, Yihaodian has already become a much more diversified e-commerce site and gets income from many other sources besides just groceries. But Alibaba’s latest move demonstrates just how fiercely competitive China’s e-commerce market is in general, and Walmart will have to make quick and aggressive counter-moves if it hopes to boost its position following the Yihaodian buy-out.

 

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