How Alibaba is Influencing Trends in Grocery Shopping

How Alibaba is Influencing Trends in Grocery Shopping Image credit: ​​​Editorial credit: BigTunaOnline /

Not content with dominating online retail in China’s huge market, Alibaba is also redefining bricks-and-mortar grocery shopping. The Asian eCommerce behemoth is now offering a high-tech, high-convenience food shopping experience that’s nailing the integration of online/offline commerce.

Alibaba has christened its approach ‘new retail’ and it plans to pioneer high-tech best practices that will revolutionise the grocery shopping industry.

Alibaba’s Freshippo supermarket chain (also known as Hema) offers all the futuristic gimmicks you’d expect from a high-tech grocery store.

There’s delivery within 30 minutes, barcode scanning that lets you understand the provenance of your food and a dedicated app that suggests a good wine pairing for your purchases. It’s cashless, obviously, and there are robot waiters in the in-store restaurant.

Around 60% of Freshippo sales are made online and in the few short years since Alibaba entered the space, online grocery shopping in China has increased in popularity, accounting for around a third of spend. The chain rapidly expanded to 200 stores, most of them launched in 2019.

The roll-out came at a serendipitous time – the pandemic has helped drive a lot of new consumers to online grocery ordering, which Freshippo is perfectly placed to support.

Not content with just offering grocery shopping, Alibaba is also working on members-only hypermarkets, futuristic shopping malls, breakfast pick ups where you pre-order on an app and collect from a locker and technology-enabled convenience stores.

Perhaps the biggest change to China’s food shopping habits could come from Alibaba’s delivery app. Chinese shoppers have a strong preference for shopping at wet markets, a traditional and very low-tech way to source fresh produce, fish and meat.

The existence of the markets has already been challenged by their suspected link to the outbreak of the novel coronavirus. Now offers to pick and deliver goods from wet markets direct to the consumer’s home. isn’t just saving the customer the trek to the noisy, bustling market. It’s also giving market access to consumers who may find it harder to reach thanks to long working hours, transport infrastructure challenges, and rapid urbanisation pushing people further away from vital services.

With Chinese consumers starting to turn away from wet markets to embrace a more sanitised and modern shopping experience offered by supermarkets, it could help the traditional Chinese market model survive the revolution taking place in Chinese grocery shopping.

READ MORE: Harnessing Alibaba Data to Better Understand China’s Intimidating Marketplace

Online giants enter the physical world

Amazon too is entering the world of physical retail, following a few years on from Alibaba’s venture into bricks-and-mortar. Amazon’s ventures into tech-enabled food shopping look relatively modest compared to the revolution Alibaba is implementing in the East. However, Jeff Bezos still plans to double its holdings in food and drink sales.
Amazon’s rival in the home market is Walmart, which is also investing in ‘modern’ grocery practices such as pickup services.

Amazon’s main innovation is its ‘just walk out’ payment approach, which uses different types of technology to enable the customer to skip checkout. It’s the first fully autonomous checkout process in the grocery market and of course, it’s all linked into the customer’s Amazon Prime program.

The process is enabled by QR code: customers with a Prime account scan a QR on their phone on entry, or use palm-scanning technology, or just clock in with the bank card that’s linked to their Prime account.

A number of technologies are then used to assess what they put in their shopping trolley, and the payment is deducted from their Prime registered credit card when the customer exits through the ‘just walk out’ gate by again scanning their QR code or whatever other method they clocked in with. There are also traditional manned checkouts available for those paying in a conventional manner.

Grocery shopping in the UK has long been dominated by a number of major supermarket chains. After just 5 years in the grocery space here, and with a partnership with the Morrisons supermarket brand, Amazon’s market share is still tiny but its influence is expected to grow rapidly in the near future.

Not only does research suggest customers would be willing to buy their groceries from Amazon but the online brand has a number of key advantages that are likely to help it grow in this market.

Firstly, Amazon’s clever use of data is likely to help it expand. Secondly, the sheer scale of its capital means it can afford the costly experiments that are vital to helping it succeed in any market.

Amazon also has great expertise in delivery and logistics, and to a certain extent it has set customer expectations for rapid fulfilment. It’s hard for even established supermarkets to challenge the scale and efficiency of Amazon’s logistics operations.

It’s notoriously difficult to make grocery delivery profitable and having an aggressive market entrant on the scene is likely to challenge everyone’s profit margins. This could lead to significant disruption of the competitive status quo. It’s unclear whether this will result in lower prices for consumers, or whether grocery retailers are going to compete more on convenience. It’s likely that consumers will expect them to offer both low prices and convenience.

Entering the space

The pandemic has done much to accelerate the growth of online food shopping in many markets around the world. Despite the increased rates of grocery shopping done online, a majority of consumers still seem to prefer to select fresh produce themselves by going in-store.

Research by Morgan Stanley finds that 67% of consumers avoid online shopping because they want to choose fresh items themselves. Technology-enabled stores that offer a seamless online/offline experience is a good compromise for those consumers that still want an in-store shopping experience (but one that’s linked to their online account).

Huge internet commerce brands have recognised that eCommerce growth capacity is finite even as eCommerce continues to expand. Grocery has been identified as a key driver of growth in eCommerce and that’s why these internet marketplace brands are getting into the grocery space.

Having conquered online retail, they are acknowledging that the future lies in online/offline integration. These brands also realise that they can leverage their expertise in applying technology and meeting customer demand for convenience to better effect than established grocery market players.

That’s why Amazon has invested in Whole Foods and why JD, Alibaba’s rival in Asia, now runs a supermarket chain in China. It’s why Amazon has moved from rapid fulfilment of orders for books and electronics and toys to the even trickier fulfilment of perishable goods.

With grocery purchases taking around 19% of consumer spending, it’s a significant slice of household spend. It’s also a regular activity, which offers brands the opportunity to engage with customers once, twice, or more times each week.

That offers many opportunities for cross-selling of other non-perishable goods such as clothing, media and electronics. It’s a whole new approach to retail and one that could give online retailers much greater ownership of customer attention.

Mobile first

Inevitably, this whole way of shopping is mobile-enabled. The approach that internet retailers are proposing is for mobile to become the main interface for consumer shopping. Hema asks customers to download the dedicated app and scan barcodes in order to shop in-store. Amazon asks customers to check-in using their QR codes.

Although technology is absolutely critical to these new grocery ventures, the same old principles of physical retail continue to apply. Store location is as important as ever. Although customers may love the new checkout-free approach, they’ll choose a convenient location most of the time.

Tesco extra store in the UK

Tesco is the fifteenth most valuable retail brand worldwide and its revenue increased by £1.3 billion pounds in the 2019/2020 financial year.

One of the reasons Tesco has dominated in Britain is its aggressive property strategy. Not only has the chain bought a lot of land to build its own supermarkets on, but it also hoards land to prevent its competitors from getting a foothold in any particular area.

Whilst high-tech incomers such as Amazon may hold the advantage in terms of technology, the incumbents are still able to mount a defensive strategy that could deprive the new entrant of the vital locations it needs to really take off. For entrants with such deep pockets as Amazon, this might not be such a concern.

The future of groceries

With grocery sales in the UK long dominated by the so-called ‘big 4’ of Tesco, Asda, Sainsbury’s and Morrisons, it’s been hard to conceive of a significant new entrant being able to challenge the status quo. The only real challenge in the last few decades has come from new market entrant Aldi, a discount chain of German origin, which managed to overtake the Co-op as Britain’s fifth-largest retailer in 2017.

Whilst this hasn’t yet entered the top 4 grocery retailers, Aldi (and to some extent Lidl) has managed to challenge profitability and market share in the grocery space.

Technology has always been the factor that’s given supermarkets the edge in the UK market. Tesco’s prospects soared in the nineties as it leveraged customer data to gain an advantage over competitors. It launched a loyalty scheme, Tesco Clubcard, in 1995 and just a year later became the UK’s top supermarket.

Thanks to its use of customer data to tailor offers and rewards, it’s still the UK’s biggest private employer and the world’s third-largest supermarket. If the UK’s current grocery market status quo is to be challenged again, the battleground is likely to be the medium of technology.

In 2018 Andy Clarke, former head of ASDA, made a curious comment in the Sunday Times: if the big four supermarkets had their time again “they wouldn’t have offered home deliveries”. That’s because home delivery is such a cost drain that it’s not profitable to sell this way.

Instead, supermarkets feel obligated to continue to offer home delivery simply because they’ll lose customers if they withdraw from it.

Amazon is essentially betting that it can still make a shopping model that includes home delivery profitable. It’s hoping to do that not necessarily by finding profit in home delivery that other grocers haven’t been able to extract. Instead, it’s probably going to find profitability in delivering a wider set of goods to customers and making better use of the data from online and offline sales.

With China’s grocery market already well integrated with technology, it feels as if we’re likely to see a similar revolution in shopping practices in the West. Grocery shopping seems to be on the cusp of a great leap forward in technology. With many Western markets already hotly contested by big grocery store brands, there’s likely to be huge investment by rival stores trying to create frictionless shopping experiences enhanced by advances in technology.

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