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In China, what happened in 2017 and will happen 2018? (part 1)

by Ralph Qiu, Caracter Company China resultant


As 2017 was waved goodbye, the Chinese retail market submitted another year of surprises. Please allow me to share some highlights of this passed year.

E-commerce buying shares of traditional retailers

 The biggest news in 2017 should be that Alibaba purchased some 36% of Sun Art in November and offered to buy all outstanding shares of Sun Art a few weeks later. Sun Art operates some 400 RT-Mart hypermarkets in the country and is the leading grocery retailer in China. This is not the first time Alibaba reached out to offline retailers. Over time, Bailian and Sanjiang’s stakes were acquired by the company in previous years, although those retailers’ performance has not indicated Alibaba’s involvements or impacts so far.

Bravo from Yonghui

The other big e-commerce company, JD.com could not stay idle and bought 10% of Yonghui 2 years ago (Yonghui is the fastest growing grocery retailer in the past few years). Well, the mighty e-commerce retailers have all the cash to buy whatever they want, not just offline retailers, while the offline retailers are suffering or confused about their future.

 

 

 

 

ZSpot entrance

Unmanned stores

Like mushrooms, unmanned stores popped up all over the country in 2017, including Alibaba, Bingobox, ZSpot, TakeGo, Moby, from both e-commerce and offline retailers. Check out my other blog on unmanned stores here.

Given that the Chinese labour costs have increased significantly recently, and new technologies have made it possible, retailers and tech companies are experimenting new ideas, hoping unmanned stores will be the next big thing.

 

 

Super Species from Yonghui

Traditional retailers testing new formats

Chinese shoppers have changed fast – switching from basic needs to quality, from price-sensitive to convenience oriented, and from busy shopping to busy having fun. And the leading retailers are inventing new formats to adapt to new needs. In the past year we saw Yonghui’s Super Species, Rainbow’s Sp@ce, Better Life’s Fresh Ideas, RT-Mart’s Youxian, Lianhua’s Jingxuan and the list goes on. Everything is still in testing phase but the concept is clear – focusing on fresh produce and freshly made food, which is also the original concept of Alibaba’s Hema Fresh a few years ago.


E-commerce companies going offline

Not only are e-commerce giants buying stakes of traditional retailers, but they are also opening their own offline stores. JD.com has announced ambitious plans to open 1 million stores all over the country and Alibaba said they would do 500.000. Do not really believe the numbers, but rather try to understand their scheme. The two companies will ask some Ma & Pa’s to put up a banner with JD.com or Taobao and count it in.

JD.com also purchased shares in the leading mobile service provider Unicom and is experimenting a new store concept by revamping some of Unicom’s service centers, adding JD.com’s new products or experience elements. Because those service centres are all in good locations but not well utilizing the traffic. And the most recent 7 Fresh concept store by JD.com. More details to come in another future article.

Revolutionizing take-out order

Leveraging cheap labour costs in courier service, population density and increased demand for convenience, Chinese consumers’ orders of take-outs have surged to revolutionize both the catering and convenience food sectors. Many restaurants’ incomes are contributed mostly from take-out orders, rather than eating in.

And the once most popular and important category of instant noodles saw a crash of sales by 20% in the past few years, showing that Chinese consumers need convenient but better food if they are given the choice while abandoning the so convenient but not-so-healthy instant noodles.

However, the new sector still needs cultivating by leading companies and of course with a lot of cash. Therefore, few are making profits but consolidating their market shares at this moment. Baidu Take-out was taken over by Eleme due to intense competition, and has only one rival left – Meituan.

Go to part 2 for my forecast on Chinese retail in 2018. Click here for part 2.

 

(For more details about the sector, please read this article) 

 

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