Grocery Tracker: Betting On A Chinese eGrocery Boom

There’s no question that eCommerce is booming on a global scale. But of the billions the world spent online last year, only a relatively small fraction came from grocery sales. While some outlier markets like South Korea and Japan pulled in higher online grocery orders, global online grocery commerce remains a low single-digit contribution.

Companies expect that to change, however, including some major players in the world’s largest eCommerce market. Chinese eCommerce giant Alibaba, for one, has bet big bucks that consumers in the nation of over 1.3 billion might soon be buying more groceries online.

At a high level, it makes sense. China is an eCommerce machine. China’s National Bureau of Statistics indicated that the nation saw a 26.2 percent increase in online retail sales in 2016. Some 460 million Chinese nationals made an online purchase last year, accounting for about 15.5 percent of total retail spend. By 2020, Goldman Sachs’ latest estimate puts China’s online retail market at $1.7 trillion.

Still, like many other nations with a strong eCommerce ecosystem, total online spending doesn’t necessarily equate to a strong digital grocery presence. China’s grocery shoppers still largely rely on local, brick-and-mortar markets.

But there’s movement toward a digital future for groceries. Chinese shoppers spent 90.46 billion yuan ($13.1 billion) online for produce in 2016, according to data from iResearch — some 86 percent more than in 2015. In 2017, the research firm projects that online grocery spend in China will well exceed 150 billion yuan ($21.7 billion).

Alibaba has been pushing for greater online grocery sales for years. The company has launched multiple Tmall online grocery promotional campaigns, like the $161 million same-day grocery delivery play back in 2015. The most recent grocery promotion saw the Chinese eCommerce giant devote nearly 2 billion yuan ($300 million) toward discounts for Tmall Supermarket customers.

For their parts, both Alibaba and Chinese competitor JD.com have also made major investments in the main method expected to facilitate the influx of online grocery orders: on-demand courier startups.

Dianwoda, a courier startup based out of Hangzhou, scored a $150 million round of venture funding led by Alibaba last year, said The Wall Street Journal. The company reportedly hires close to 1 million contractor couriers in over 100 cities across China delivering orders through Alibaba’s marketplace. Likewise, Chinese eCommerce site JD.com owns on-demand courier New Dada, which reportedly hires over 3 million delivery contractors in some 300 cities in China.

It’s true that both Alibaba and JD.com’s investments build out their delivery infrastructure for online orders across retail categories. But an online grocery future has also been helped along by growth from a consumer culture that has rapidly embraced mobile ordering for restaurant delivery specifically.

Alibaba and Ant Financial, for their part, invested $1.25 billion in Chinese food delivery app Ele.me in April of last year, anticipating major growth in Chinese adoption of mobile food delivery services.

And it looks to have started paying off. According to a government survey, some 28 percent of smartphone users in China, a total of 194 million people, had used meal-delivery apps by the end of 2016, up from 17 in 2015.

Some remain skeptical about the near future prospects of online grocery shopping in China, especially in major cities where, as Zha Jia from private-equity firm Tiantu Capital told WSJ, brick-and-mortar grocery sellers and convenience stores are often five minutes away.

Then again, the same could likely be said about restaurants. But sometimes, customers would rather just order in.

Looking forward, it’s not hard to imagine that the scales could soon tip toward an online grocery boom in China. The means to order, delivery infrastructure and relevant consumer habits already appear to be lining up. But what will it take to make the last domino fall?

Since online grocery adoption growth is already showing in the numbers and China’s largest eCommerce players are priming themselves, the key here might be time. Combined, perhaps with a renewed dose of targeted marketing and relevant promotions.

With other industry players also betting big on online groceries elsewhere — like Amazon’s continued moves in the U.S., or its recent play to invest $500 million for grocery supremacy in India — the time seems just about nigh for online groceries to take off in emerging markets and elsewhere.