China's 'Scramble for New Retail'
Earlier this month JD launched its first 7FRESH, a 4,000 square metre grocery store in Beijing that follows many of the new retail concepts from Alibaba's Hema stores. JD heralded the supermarket the first of 1,000 stores that could open in the next three to five years. Hema also plans to significantly ramp up its presence, with 2,000 stores planned over the same period.
The focus of 7FRESH is a "personal and educational" hands-on shopping experience including "magic mirrors" that sense when customers pick up a product, and display product information such as nutritional facts and origin. JD also plans to introduce smart shopping carts allowing consumers to shop hands-free, which will be particularly helpful for shoppers with kids in tow. Facial recognition allows shoppers to check out and pay using the technology, able to walk out directly with the purchases or have them delivered within 30 minutes.
It is part of the growing new retail trend in China which has seen online giants shake up the bricks & mortar scape by creating richer, more convenient shopping experiences which drive significantly higher sales than traditional retail stores. Much like Alibaba's Hema, JD is using big data from its 266.3 million shoppers to help craft the experience.
Physical stores still account for more than 80% of China's retail overall and well over 90% of grocery sales, so JD and Alibaba's battle for supremacy will be interesting to watch. Unlike the pure ecommerce world, where Alibaba has significantly higher margins by farming out most marketing, stock holding, fulfilment and customer service to brands, in the physical world it will be operating a more 'full service' model like JD.
Whilst JD's market cap is just one-seventh of Alibaba's, it has some very powerful organisations behind it. Tencent is the largest shareholder of JD, owning a fifth of the retailer. Its super-app WeChat leads China's o2o and social media spheres, which will provide valuable data and influence to assist in the success of 7FRESH. Tencent's new retail grocery ambitions will also be supported by the stake it purchased in Yonghui in December, yesterday's investment in Carrefour's China business and Saturday's launch of its first unmanned WeChat store in Shanghai.
Walmart - the world's largest company by revenue - owns 12% of JD and is likely to provide insights and support to 7FRESH from its wealth of retail experience including 22 years in China. It will not only help Walmart gain traction in China's previously elusive ecommerce and new retail segments, but it will also provide plenty of learnings to roll out in its Walmart stores in China, and potentially to its stores in the US and globally.
In short, there is no better player than JD to take on the mighty Alibaba in the new retail game. Two hungry, data-focused, well-funded and well-oiled players, and a host of other competitors, will ensure the rate of innovation in China's retail segment will continue to dazzle. It will also create another segment where China is likely to lead the world and possibly export its systems globally. New retail in China is happening, and happening fast, and brands that best understand and embrace it are most likely to succeed in the years ahead.
Who are China Skinny? We are a marketing agency on the ground in Shanghai conducting research, building strategies, and executing them for over 100 multinational brands both big and small, across 20 categories. What's your biggest China problem? Contact us to see how we can help.
Here are this week's news and highlights for China:
Chinese Consumers
JD, Alibaba Introduce Tech-Driven Supermarkets To Chinese Consumers: JD has followed Alibaba's Hema model opening a 4,000 square metre 7Fresh grocery store in Beijing. JD is drawing on data from its 263 million shoppers to craft the experience.
China’s Latest Consumer Trend Has Users Hooked: From zero to tens of millions of users in the space of two weeks, another sensation providing marketers with hints about what works to reach and resonate with Chinese consumers.
Why is it Popular? To Connect With Chinese Consumers, Brands Must be Aware of the Shift in How Chinese See Themselves: The people wanted to know: why was their country still represented by tuk-tuk drivers and pudgy, awkward tourists? The photos had gone global ... and the people were mad.
The Chinese are Now Buying as Much Stuff as Americans, a Game-Changer for the World Economy: In 2018, retail sales in China are expected to equal or surpass sales in the United States for the first time - having just been a quarter of the size a decade ago according to The Washington Post. The article citing Mizuho's analysis expects retail sales in both countries to be around $5.8 trillion this year. Whilst the rise of retail in China is impressive, we're not convinced that they are close to the US yet. In 2016, China's GDP was $11.2 trillion versus America's at $18.6 trillion. That year consumption as a share of GDP was 39.2% in China and almost 70% in the US - higher than China's entire GDP.
'Don't Be Stupid McPheat': Undeterred, Kiwi Firm Beats Chinese Counterfeiters: New Zealand's BFM has won a legal battle against two Chinese businesses that were knocking-off their patented industrial pipe couplings. The firm employs 30 staff, disproving the common assumption that it is impossible for smaller businesses to defend intellectual property rights in China.
Digital China
8 biggest announcements from WeChat 2018 Annual Conference: WeChat creator Allen Zhang discussed the key focuses for the year at the WeChat Annual Conference in Guangzhou: 1. Launch of a separate APP for Official Accounts; 2. Tipping on Apple devices will resume; 3. An author-centric ecosystem; 4. A mobile version of the Official Account backend launched; 5. Mini Program will continue to be the main focus of WeChat development, with a heavy emphasis on games; 6. A continued focus on WeChat search; 7. WeChat for work; and 8. WeChat will not have “Facebook style” AI newsfeed for Subscription Accounts.
iPhone 7 Plus Was Almost China's Top-Selling Phone in 2017: Apple was the only foreign brand to break the top-10 selling models in China last year with the iPhone 7 Plus second to Oppo's R9S, and the iPhone 7 in fifth spot. Interestingly, the iPhone 7 line sold considerably better in the second half of the year, as prices were cut ahead of the launch of the iPhone 8 and X lines indicating price sensitivity and many consumers not chasing the latest and greatest.
Food & Beverage
Little Lobster was China's Most Popular Dish in 2017: Last year's sales in China's catering industry surpassed ¥3.9 trillion yuan ($607 billion) up from ¥3.58 trillion ($556 billion) in 2016 and expected to exceed ¥5 trillion ($777 billion) by the end of 2020. Chinese cuisine made up 57% of the catering market, while snacks accounted for 16%. Consumers born after 1990 consumed 50% of all food purchased according to CCTV. Savoury flavours were most popular, favoured by 23.3% of Chinese consumers, with spicy food second at 17.2%. ‘Little lobster’ was the most ordered dish on Meituan-Dianping.
Meituan-Dianping Releases Inaugural 2018 Black Pearl Restaurant Guide: Meituan-Dianping has launched its first Black Pearl Restaurant Guide, providing 'an ultimate list of quality restaurants' each selected from a unique Chinese perspective. A total of 330 restaurants in 22 Chinese cities and five overseas cities - Bangkok, New York, Paris, Singapore and Tokyo made the list with one diamond considered 'Great for family/friends gathering'; two diamonds: 'Perfect for special occasions' and three diamonds: 'Must visit once in a lifetime'.
Chinese Tourists
In 2018, China’s Seeing Its Most Powerful Passport in Years: China has climbed 10 spots to rank at 75th place in the Henley Passport Index, its highest ranking in a decade. Chinese tourists can now travel to 60 countries without a visa, with seven nations adding visa-free and visa-upon arrival in 2017 and the UAE joining the mix yesterday.
Baby
Couples Not Delivering on Beijing’s Push for Two Babies: The annual number of births in China has fallen for the first time since Beijing relaxed its one-child policy with 17.23 million births in China in 2017, 630,000 less than 2016's 17.86 million. The lack of growth is believed to driven by a greater emphasis on investing in children’s education. China's working-age population (16-59) fell 5 million last year, whereas those over 65 grew 8 million.
Sport
China's Middle Class is Spurring The Australian Open Record-Breaking Attendance: China boasts 330 million tennis fans, two-thirds who follow the Australian Open. More than 59 million Chinese watched the Australian Open in 2017 - 84% more than 2016, with 36% of tourists who visited Australia in January and February doing so for sporting purposes according to the article.
Entertainment
China To Ban Tattoos And ‘Hip-Hop Culture’ From TV Shows: Following the runaway popularity of TV show The Rap of China, China's top media regulator now wants new regulations that will order all TV shows to stop inviting entertainers with tattoos or using any elements from hip-hop culture, subculture and demotivational culture.
Luxury
The 5 Diverging Ways Luxury Brands Approach Ecommerce in China: 35% of Chinese consumers are accustomed to purchasing luxury online, yet different brands are taking quite different approaches including 1. No ecommerce; 2. Brand site; 3. Exclusive platforms; 4. Mainstream platforms; and 5. WeChat commerce.
Chinese Millennials Give Luxury Brands a Boost as They Earn and Spend It All: The average age of luxury goods buyers from the mainland is about 35, 10 years younger than those in developed economies according to Bain. Millennials made an average of eight luxury purchases in 2017, compared to five by other shoppers. The top 20 brands opened 138 new, bigger stores and closed down 144 smaller outlets in 2017. Their total number of stores stood at 1,119. Digital marketing accounted for 50% of budgets versus 35% two years ago.
Cars
China Becoming Focus of Global Automobile Sector: Although China's growth in car sales will be a relatively modest 5% every year until 2022, the country will still account for 53% of global growth and one in every three cars sold. China is expected to be the largest market for self-driving cars globally with 32 million vehicles on the road by 2030 according to McKinsey. The country aims to enable at least half of all its new cars with AI by 2020 and cover 90% of its big cities and highways with a wireless network that can support smart vehicles.
That’s the Skinny for the week! See previous newsletters here. Contact China Skinny for marketing strategy, research and digital advice and implementation.
