Online Grocery Shopping Goes Mainstream - The Average Joe

    Online Grocery Shopping Goes Mainstream

    Victor Lei — Head of Research

    October 22, 2020

    October 22, 2020

    You may be one of the millions that have tried online grocery shopping for the very first time in 2020. Alibaba, the Amazon of China, is betting that you’ll continue to buy your groceries online even after COVID. On Oct. 19, Alibaba announced plans to spend $3.6b to double its ownership from 36% to 72% in Sun Art Retail Group, an operator of hypermarkets, (department stores + supermarkets) and supermarkets.

    E-commerce goes retro

    In 2017, Alibaba announced their new retail strategy, the combination of online technology and physical retail to improve customer experience (e.g. using augmented reality to try on products, try in-store and have it delivered, scanning products for more information).

    As part of its new retail strategy, Alibaba invested billions over the last several years into grocery store chains, electronic retailers and even a mall and department store operator.

    • The upside: For Alibaba, it’s about finding sales growth beyond e-commerce and staying ahead of its competitors.
    • The downside: By buying up retailers, investors are worried that Alibaba’s profitability could go down — e-commerce companies typically have higher profit margins than in-store retailers.

    Why grocery stores? Alibaba’s recent additional investment into Sun Art is a bigger bet into the fast-growing online grocery space.

    The next e-commerce frontier: online grocery delivery

    In 2019, US online grocery remained at less than 4% of total food and beverage sales. Like many other industries, COVID accelerated the adoption of grocery e-commerce and online grocery usage is now expected to exceed 10% before the end of 2020.

    But growth is only one part of the equation. The other part, profitability, is still missing and here’s why online grocery shopping is struggling to make a profit:

    • Lack of automation in packing grocery orders — humans are going around grocery stores and picking online orders.
    • Heavy investment required in building out delivery routes, order & inventory systems and personnel/delivery vehicles.

    It’s not just Alibaba going after the online grocery space… In 2018, Walmart expanded its partnership with Alibaba’s largest competitor, JD.com, to ramp up grocery delivery in China. In the US, Walmart is competing head-on with Amazon who acquired Whole Foods in 2017.

    For investors… If you’re looking to bet on the growing Chinese e-commerce market, try Alibaba, which owns 55.9% of the Chinese e-commerce market. They’ve even got one thing that Amazon doesn’t have — access to the largest e-commerce market in the world, China.

    Despite a pandemic, China’s economy recovered faster than any other country in the world. While the global economy is expected to shrink by 4.4% in 2020, China’s economy is expected to grow 2%.

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