Alibaba invests offline, signaling four key questions for grocers

September 10, 2015 

It’s important to watch Alibaba make investments in brick and mortar. A closer connection between online and offline retail is emerging as an integral part of the Chinese online giant’s growth strategy. Heads up grocery retailers, we think ecommerce types will be knocking on your door soon with O2O  (online to offline) opportunities, so it’s time to start preparing by answering some key questions.

Here are some key points from the recent Economist article, Alibaba, Clicks to Bricks.

Alibaba has been making substantial investments in warehousing and logistics as it evolves from its  “asset lite” beginnings. Two years ago, it organized a consortium of logistics providers into a digital platform called Cainiona that connects a large number of distribution centers and shipping points across the country.

China’s logistics infrastructure is notoriously lacking, and Alibaba is just one of the online companies that that has been pursuing brick and mortar strategies.

• Online retailer JD, which is heavily invested in warehouses and logistics, recently announced a major investment in the Chinese supermarket chain Yonghui. Its goal is to boost sales where customers order and pay online and then pick up the order.
• Two other big Chinese online retailers, Tencent and Baidu, have struck O2O deals with a large shopping center operator.

In a similar O2O move, Alibaba recently made a $4.6 billion dollar investment in China’s biggest electronics retailer, Suning, creating benefits all around.

• Suning will open online stores on Tmall, and
• Alibaba’s logistics consortium Cainiona will get access to Suning’s extensive delivery network that reaches into remote parts of China, and
• Suning stores can serve as pick-up points for online sales.

Suning is planning to offer two-hour deliveries sometime soon, so this should get really interesting.

BMC POV

We expect to see more of this type of investment in the future – that is, online retailers investing in brick and mortar retail in order to grow.

This means grocery retailers should expect be courted by an increasing variety of online retailers. It will be helpful to think through the answers to some key questions before the sales pitches from online operators get started.

1. Will the partnership make it easier and/or cheaper for customers to do business with you?
2. Assuming the partnership will develop incremental business, how will this be measured?
3. Who owns the relationship with the customer?
4. Who owns the customer data and has authority to use it and/or sell it?