April 4, 2014, 2:56 PM

Alibaba tries a more direct approach to online grocery sales

Rather than letting other merchants sell food on Tmall, the Chinese e-commerce giant operates an online supermarket featuring goods from many sellers and delivers everything a consumer orders at one time.

Lead Photo

Inside a Tmall Supermarket warehouse

Tmall has been a big success story in Chinese e-commerce. The marketplace, operated by Alibaba Group Holdings Ltd., hosts 70,000 storefronts, mainly operated by large Chinese and foreign brands and retailers. Consumers purchased $49 billion worth of goods from Tmall shops in 2013, according to Internet Retailer’s China 500.

But the storefront approach doesn’t work so well in groceries. Shoppers don’t want to buy their milk from one online storefront and rice from another. So Tmall has adopted a new approach when it comes to groceries. It presents shoppers with a single online supermarket—though the items may come from many merchants—and delivers everything a consumer orders at the same time.

Tmall Supermarket (chaoshi.tmall.com) sells about 20, 000 products in such categories as food and beverages, cooking ingredients, cosmetics, home furnishings, household cleaning items and children’s’ products. 

Tmall began rolling out its service in southern cities of China in 2012, and has been delivering grocery orders in 47 cities, including Shanghai and Guangzhou. The service expanded last month to two large cities in north of China, Beijing and Tianjin.

Before 2012, some grocery retailers sold on Tmall, but their sales were sluggish, Tmall says. “The reason is that consumers like to purchase from different grocery stores. We can’t aggregate the orders at that time so that the shipping costs turn out to be too expensive for consumers who place multiple orders,” a Tmall spokesman says.   

To solve this problem, Alibaba decided to present all grocery items in a single storefront and to manage the logistics for participating merchants. Merchants send their products to warehouses managed by Tmall Supermarket, and Tmall handles deliveries. The delivery charges are around $2 per order, and free delivery is available for orders of above $15.

Alibaba outsources the logistics management to Guangdong ALOG Logistics Co., which is based in Guangzhou. ALOG manages warehouses with 200,000 square meters of space across China and provides logistics (services to multinational companies in China, including U.S.-based Amway and BP plc, formerly British Petroleum. ALOG has 600 employees and 500 vehicles.

Since Tmall Supermarket launched in 2012, consumers have bought more groceries from Tmall. Tmall Supermarket’s sales grew 400% in 2013, and Alibaba estimates sales will grow at least as fast in 2014. 

Alibaba has not disclosed Tmall Supermarket’s sales.  According to the data from ALOG, daily orders from Tmall Supermarket’s warehouses in Guangzhou have topped 10,000.

If Tmall Supermarket keeps growing, it could challenge other Chinese leading online grocery stores, such as Yihaodian. Yihaodian, 51% owned by Wal-Mart Stores Inc., is the largest Chinese online grocery store and among the fastest-growing e-retailers in China. Yihaodian’s online sales increased 70% to 11.54 billion yuan ($1.9 billion) in 2013, according to the company.

Yihaodian ranks No. 5 in the newly releasedInternet retailer China 500 guide.

For more information about the Chinese e-retail market, please click here

Connect with Frank Tong on LinkedIn.

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