What China's E-Commerce Boom Means for U.S. Grocers

Neil Stern of McMillanDoolittle shares several big predictions at PLMA 2018
Neil Stern speaking at PLMA
Photograph by WGB Staff

A decade ago, the U.S. retail industry looked to European countries such as England for grocery inspiration and disruptive strategies, and would never have thought to take a gander at what was going on in China. But that has since changed dramatically, and retailers must pay attention, declared Neil Stern, senior partner with Chicago-based McMillanDoolittle, at the 2018 PLMA Show’s Retail Trends Breakfast.

China’s retail scene is evolving through the push of what Stern calls “online-to-offline” commerce, which blends the lines between online shopping and brick-and-mortar, or “the link between online discovery and actual commerce in the physical world" and conveys a “very clear message as to where the future of retail is headed.”

Stern said this development was possible because in the very recent past, China’s retail infrastructure consisted of mom and pop shops with larger supermarkets and big box retailers being virtually nonexistent. However, companies such as Alibaba, which Stern said is “defining the notion of new retail,” have used this lack of retail legacy as a “blank canvas” and are working to “build the grocery store of the future from scratch.”

Chinese E-Commerce Scaling Up at Unprecedented Rate

As a result, China’s e-commerce market is growing at a scale “never seen before,” Stern said, pointing out that China has an online sales penetration of 23.1% compared to 9% in the U.S., and Alibaba’s Singles Day has a turnout two times as large as Black Friday and Cyber Monday combined. “You think about how big this trend has been in the U.S.double that notion for China,” he said.

While electronics lead in e-commerce at 60% in the Chinese market, followed by clothing and shoes, with fast-moving consumer goods and grocery at only 8%, it is still a massive difference from the 2% of the U.S. e-commerce market devoted to groceries; it is expected to grow to 15% in the next few years due to the online-to-offline revolution. Additionally, most Americans are satisfied with two-day delivery, but 29% of Chinese consumers expect same-day delivery, compared to 6% in the U.S.

Alibaba’s Hema Overhauls Chinese Grocery Scene

The shining example of this movement, according to Stern, is Alibaba’s Hema store, which combines the “excitement of a supermarket with the efficiency of a distribution center” and is powered by mobile features. The about 65 stores employ 3.3 million delivery people on scooters who deliver fresh-made food and groceries to a customer’s door within half an hour as long as they are within a 3-kilometer range.

This new format has become so popular, Stern said, that people are actually moving just to be within range of a store, and their presence could even influence real estate.

If customers choose to enter the physical store, they must swipe in, similar to the system recently brought into play at Amazon Go. They can use their phones to scan items, including fresh produce, meat and seafood, to find out its origin and other information.

When customers are ready to check out, they do so through a cashierless mobile-pay system. According to Stern, 55% of China’s internet users have used mobile payment compared to 19% of U.S. consumers.

Competition Also Poised for Disruption

Alibaba’s competition, JD.com, which is partially owned by Tencent and Walmart, is “making drone delivery work,” according to Stern. It is also doing many of the same things as Hema with its 7Fresh stores, which also have a feature in which a shopping cart follows the customer around and has a larger format than Alibaba’s version.

“Whether we like it or not, technology will play a central role in retail," Stern said, citing evidence already being seen in the U.S., such as robotic picking, Kroger’s autonomous cars and, of course, Amazon Go stores, which are closely reminiscent of the Chinese models.

Predictions for the U.S.

So what does it all mean for the U.S.? Stern shared several predictions for how technology will affect grocery in the very near future. Perhaps most notable was a tip-off that either Hema or 7Fresh is looking at real estate in the U.S. “I can’t tell you which one right now,” he said, while quipping that chances are good that one will be sitting at breakfast in the near future and will see the news.

Other predictions include: 

  • Aldi has the potential to become the next Hema, with its smaller SKUs and technology ventures.
  • Amazon Go will scale up to larger stores or move its technology into Whole Foods.
  • Walmart’s Sam’s Club Now will be disruptive, because it is making smart moves such as including produce in packaging for easy scanning and  being highly compatible with mobile pay.
  • Walgreens’ recent introduction of a store with digital touchscreens on the front of drink coolers that engage customers with deals and other features is only the beginning of “our stores becoming a giant smart store.”
  • Despite concerning implications, facial recognition will likely come into play more strongly in U.S. grocery stores. 

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