Ecommerce giants opening offline stores

January 19, 2018

The idea is simple: a physical store that demonstrates the convenience and simplicity of online shopping. It’s the core of “New Retail” – using technology and data to merge online and offline shopping – and China’s biggest ecommerce players are investing heavily in this strategy. In China, 15 percent of retail sales are made online, which means that 85% of sales are still made offline. By moving into physical commerce and utilizing technology to enhance inventory- and customer data management, it seems that ecommerce platforms are trying to digitally transform the 85% rather than to increase the 15%. And by doing so, ecommerce giants Alibaba, JD and Tencent are transforming retail.

Let’s look at why and how China’s ecommerce giants are opening offline grocery stores and what this will mean for customer experience.

Hema – Alibaba

In March 2015, Alibaba launched its first “New Retail” supermarket that aims to replicate the online shopping experience in a brick-and-mortar store. Three years later, the ecommerce giant has 25 Hema stores in seven Chinese cities, including 14 in Shanghai, 5 in Beijing, 2 in Ningbo, and 1 in Hangzhou, Shenzhen, Suzhou, and Guiyang. And this “New Retail” strategy will keep expanding, as Alibaba plans to open 30 more Hema supermarkets in Beijing this  year.

The Hema experience starts with downloading the mobile app, that automatically links to the customer’s Taobao or Alipay account. Through the app, customers can order fresh food to cook at home or have it prepared by the Hema chefs and delivered within 30 minutes – all from the comfort of their homes. Customers who prefer the in-store experience are welcome to visit the supermarket, where they can hand-select their fresh food and can choose to have it cooked for eat-in or carry-out, pay for the products at the self-checkout kiosk, or have the products delivered to their nearby home or office within 30 minutes. When using the home delivery option, shopping is simply a matter of scanning the barcode for each product and telling the app how many pieces you want delivered to your house.

In-store-online purchases are collected in shopping bags by employees. The bags
are then tagged and sent to the delivery section via ceiling mounted conveyor belts.
From there, the shopping bags are shipped out to the customers’ homes.  

Besides hoping to boost online orders, rope in millions of new customers and expand its network into relatively untapped markets, the main aim of Alibaba is to create showcases that demonstrate the benefits of “New Retail” to both customers and other businesses that want to digitally transform. After all, Alibaba is a technology company that gains more by providing a platform to retailers than by directly competing with them; similar like it does with Taobao.

7Fresh – JD

Following the footsteps of one of its biggest competitors, JD opened its first tech-enabled physical store last week. Under the name 7Fresh – meaning 7 days per week fresh foods – a 4000 square foot store was opened that aims to bring a premium shopping experience to Chinese customers by blending the worlds of online and offline retail.

By empowering traditional retail with ecommerce technology, JD has managed to build an innovative supply chain and ensure efficient sourcing, storage, and logistics operations. This efficiency enables 7Fresh to unlock services and experiences that were difficult to manage in traditional retail models, such as next-level freshness. Eggs, for example, arrive instore within 12 hours of being laid by chickens, and fresh fish and seafood can be caught from the seas of Japan and delivered to the dinner table in just 24 hours. Furthermore, as with Alibaba’s Hema, customers can choose to have their purchases prepared and cooked on site, and JD offers 30-minute delivery on purchases.

7Fresh’s fish department that offers freshly-caught fish and seafood. Customers
can choose to have their purchases prepared and cooked on site.

The 7Fresh experience is similar to the Hema experience: it starts with downloading the mobile app that allows customers to scan and pay for their purchases. Customers in the neighbourhood can either take their products to go, or have them delivered to their homes within 30 minutes. However, 7Fresh differentiates itself by wanting to deliver a personal and educational shopping experience for its customers. For example, “magic mirrors” sense when customers pick up an item, and automatically provide information on a screen about its source and nutrition. In the near future, 7Fresh hopes to have small shopping carts that are able to follow customers around the store as they browse the aisles, allowing them to shop hands-free.

Through its successful ecommerce platform, JD has grown to become one of China’s biggest online grocery retailers by offering a quality customer experience online. But, unlike other markets in the world, in China premium grocery shopping experiences are mainly available online. According to JD, the traditional weakness of China’s physical store infrastructure is one of the biggest factors that drive consumers to purchase their groceries online. However, with the launch of 7Fresh and Alibaba’s Hema, this is expected to become ancient history. In fact, JD plans to open 1000 7Fresh stores over the next five years.

Yonghui – Tencent

In an attempt to challenge its biggest competitor Alibaba, Chinese Tech giant Tencent Holdings Ltd (the owner of WeChat) bought a 5 percent stake in Yonghui Superstores and a 15 percent stake in Yonghui’s supply chain and logistics subsidiary. The investment aligns Tencent further with JD, as JD is already an investor in Yonghui. Founded in 2001, Yonghui has now more than 500 supermarkets in 20 different provinces in China.

Yonghui’s Super Species store in Shenzhen, the new retail unit of Yonghui’s
Superstores that will be integrated with Tencent’s WeChat platform.

According to one of Yonghui’s senior executives, a new retail unit of Yonghui Superstores “Super Species” will be integrated with Tencent’s social media platform WeChat. Both companies are expected to profit from this combination, as Yonghui will benefit from customer traffic generated by Tencent’s WeChat pay and the expansion of its digital distribution channels, and Tencent will benefit from the wider adoption of WeChat payments through data collection and add targeting purposes.

Some might argue that the current integration plan between Tencent and Yonghui Superstores is not at the same level as Alibaba’s Hema and JD’s 7Fresh when it comes to technology. However, the implementation of WeChat pay in Yonghui’s new Super Species Stores opens the door to the possibility of further integrations, and the already existing 500 stores will give Tencent a good edge.

The perfect combination

So, it turns out the answer to our question is that it is indeed the perfect combination. The benefits of merging online and offline speak for themselves:

  • Enhanced user experience: the barcodes on all products enable customers to trace product origin and read nutritional information.
  • Improved personalization: app analytics lead to a personalized product page, offering customers a more convenient and efficient shopping experience.
  • Better/more data usage: customer purchases are logged and preferences are saved, enabling smart supply-chain management and efficient delivery route-planning.
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