Conor O’Sullivan, Market Specialist, Shanghai, Bord Bia - The Irish Food Board
It seems that every year in China, a sector gets disrupted by tech companies. Ride sharing, meal delivery, mobile payments—to name three—all emerged to completely transform their segments. It’s time to add grocery retail to that list.
Spurred by heavy investment from China’s tech giants, grocery retail in China are rapidly embracing technology to improve personalisation, efficiency and loyalty. The sector has been revolutionised by the Alibaba-driven concept of “new retail”, which modernises grocery shopping by fusing the sensory engagement of a physical shop with the convenience of online ordering and 30 minute delivery. The store acts as both a shop and a fulfilment centre for deliveries within a 3km radius.
Alibaba is leading the way with its Hippofresh grocery chain, already with over 150 stores. JD is following, albeit at a slower pace, having recently opened its ninth 7-Fresh outlet. Recognising the potential (and threat) of new retail, Walmart, Carrefour, Auchan, RT-Mart, and Yonghui have all tied the knot with China’s tech companies to bring digital services to traditional grocery retail.
IGD (2019) estimates that China’s grocery sector was worth 9.1 trillion CNY (€1.2 trillion) last year. Over the next five years, online grocery is projected to grow 31% per year, triple the growth of convenience, and six times that of the whole sector. By 2023, online will account for 11% of sales by 2023, from just 4% in 2018. At that point, two of China’s top three grocery retailers will be tech companies (Alibaba and JD).
Managing supply into these companies is complex. In-store listings are valuable, but space is limited and highly competitive. That most of these listings are negotiated on a regional basis adds to the challenge. Online-only listings, supported by next-day delivery from an off-site warehouse, are simpler but have much less turnover.
This makes new retail quite different from purely online offerings, like JD and Tmall, where the challenge is not to get a listing but to draw attention to it.
Despite the complexities, it’s hard to bet against tech companies being the ones to lead China’s grocery sector forward. To get involved, most Irish companies will need a partner in China to manage the supply relationship and stay atop of this rapidly changing and lucrative channel.
For more information, please contact conorrichard.osullivan@bordbia.ie
Sources:
- IGD Retail Analysis (2019), “Insight on China: What you need to know 2019 – 2023”
- Bord Bia interviews with Hippofresh and JD