In Part 1, I laid out four of the questions I am struggling with about Alibaba. Here are the rest. Any answers you might have would be much appreciated.
Question 5: How much are manufacturers and CPG companies going engage directly with consumers in China?
One of the strangest things about Singles’ Day is that lots of consumer product companies are learning to interact directly with their consumers. That’s kind of weird. But many of the big companies (P&G, Nestle) mostly deal with distributors and retailers. So they are good at marketing, getting shelf-space, and getting good terms on working capital. But they don’t actually interact with their consumers much directly.
CPG companies are starting to interact with their customers a lot more – and a lot of this is happening through platforms. I’m curious how far this is going to go. And how good they are going to be at it. Retail is a very different business at the end of the day.
And they’re not the only ones. Manufacturers are also learning they can (and maybe must) reach consumers directly. So we are starting to see private label products coming not only from retailers but also from manufacturers. Netease was an early mover in this but we are seeing an increasing M2C business.
I’m looking at this a lot right now. I’m curious how much these companies are going to be consumer facing.
Question 6: Which geography is next on the consumer-side after SE Asia?
Lazada participated in Singles’ Day, which was a big milestone for Alibaba. It was the first major population of non-Chinese consumers to really participate in the day. And within this, Indonesia and Vietnam seemed to be the e-commerce growth stories everyone was talking about (I haven’t really looked at it much myself).
So SE Asian consumers are now in the ecosystem. Who is next? It’s not obvious (not to me at least).
India is the big question here I think. Alibaba has a presence on the consumer-side through Paytm. And Chinese smartphone makers and app companies have been taking over the Indian market in a fairly dramatic fashion recently. And the market is big in theory. But it’s been big in theory for a long time. So it’s also not clear to me this is next.
Maybe Mexico? Latin America? Eastern Europe?
Question 7: What does a winning logistics network look like?
E-commerce in 2017 was a lot about groceries and fresh (i.e, perishable) food. Fashion was also big that year. And when e-commerce companies decided to go after the grocery segment, it immediately raised the problem of the supply chain. How do you ship fresh, perishable food to a big country like China?
And then new retail came along (initially in grocery) and its retail footprint became part of the solution. The retail outlets also function as nodes in the logistics network. And they are particularly close to people’s homes, so they are really the last-mile nodes in the network. New retail is letting Alibaba (and JD) push inventory much closer to people, which means faster delivery (very important in China).
Since then, Alibaba has been building a national “retail plus logistics” footprint. Freshippo, the grocery artist formerly known as Hema, is getting them 100-200 stores. They also invested in RT-Mart / Auchan which got them another 400. So let’s say they’re at +500 locations. Is that enough?
What does a national logistics plus retail network look like? Is 1,000 enough? Do you need one within 30 minutes of everyone’s house in all of China? And how much do you have to operate yourself? How much can you do by partnership? By franchise?
I’m just not sure what a winning logistics plus retail network looks like.
Question 8: What is coming next for local services?
Daniel Zhang has called on-demand delivery the “infrastructure of new retail”.
That makes sense. You can deliver quickly and Chinese consumers love that. You can also expand from groceries to things like delivering medicine. You can deliver Starbucks coffee. And so on.
But new retail also enables you to offer local services beyond just delivery. Food preparation and delivery? Beauty treatments? Medical appointments? How about rentals and hotels (i.e., Easy Home)?
New retail and on-demand delivery and letting e-commerce companies expand from products to products plus services. That is really interesting. Alibaba is slowly becoming the ultimate B2C marketplace.
But I still don’t really have a good sense for what these local services are going to look like. Outside of delivery, I’m not sure what is next.
Question 9: How local are local services going to get?
A related question. How localized will these services become? Are we going to see very different services in different parts of China?
If you talk products in e-commerce, everyone thinks curation and personalization. The Tmall you see is very different from the one that other people see. The Youku that you see is also different. Physical and digital products are personalized to the specific person.
But will services also be personalized this much? By city? By family? Is my hotel room going to be different from yours? Are they going to cook my food at a restaurant differently?
Question 10: Do all content roads lead to e-commerce?
Bilibili has recently partnered up with Alibaba. Yet another content-focused company is retreating to e-commerce revenue.
The more I read through the financials of the various content / video companies in China, the more pessimistic I am about advertising and gifting as revenue models (unless the content is overwhelmingly user generated). There are some exceptions to this. For example, music streaming (iQiyi and Tencent Video) has ok financials and online gaming is generally good if you have the right titles (although it took a big regulatory hit this year). But most of the other content sites seem to be in poor shape financially.
And that’s a shame. Because content does drive e-commerce in China. No question. It is particularly powerful in a country that is skeptical of advertising and corporate information. KOLs, word-of-mouth and other content-types are very important. But it’s unclear to how this is going to evolve. The revenue sources for content are just not great. So all content companies seem to end up partnering with e-commerce companies.
That’s it. Any thoughts would be much appreciated.
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