I’ve had the opportunity to meet with Alibaba President Michael Evans on a few occasions, as an “influencer” visiting Alibaba. It’s usually pretty great and I’ve been keeping notes of the things I’ve learned. I thought it would be good to summarize a few of them.

The first meeting was on November 11, 2017. It was 6pm on Singles’ Day and the shopping extravaganza was in full swing.

• Chinese were buying stuff at about $1B in sales per hour.
• 200,000-300,000 orders were being processed per second.
• Over three million logistics staff were on high alert.

And Alibaba President Michael Evans had just sat down next to me. I’m wasn’t quite sure what one says in such a situation. “Good job” seemed an understatement.

My first impression of Michael was that he was a world-class runner coming down the home stretch of a particularly long marathon. Singles’ Day was in full swing and he was clearly doing what he does best. But he had also been working on this event for a long time. The finish line was just 6 hours away and I wonder if he is operating on mostly adrenaline at this point. And, completing the marathon analogy nicely, I noticed he was also wearing sneakers with his suit. It’s good to be the boss.

Over the next hour, our group had a fantastic discussion with Michael about Single’s Day and about Alibaba’s strategy going-forward. Below are my 5 main take-aways. None of these are quotes or statements by him or Alibaba.

Take Away 1: Alibaba’s Globalization Is Still Mostly about Following Chinese Consumers.

Michael explained that they organize their gala each year around a few key themes. In 2017, the themes were new retail, ecommerce plus entertainment, and globalization. That has been pretty consistent since then.

I’ve been paying close attention to their globalization efforts. It keeps coming up in different contexts.

• Jack Ma has long said he wants 50% of the company’s revenue to be international (date unclear).
• They said they are aiming to have 2B customers, which, by definition, means lots of people outside of China.
• There has been the acquisition of Lazada.
• AliExpress has been expanding internationally.
• Lots of merchant services internationally.
• A growing logistics networks globally.
• Ant Financial was on an absolute tear with regards to foreign projects and investments. Up until the US-China events and tech became more political.

But from his comments, it is pretty clear Alibaba’s globalization strategy is mostly about staying close to globalizing Chinese consumers. This means following them out into the world, via tourism and the increasing use of Alipay around the world. But it also means bringing more of the world back to them in China.

Yes, Chinese consumers are going out into the world in huge numbers (+130M tourists per year). They are continuing to rise in wealth and sophistication. And they are also rising in their expectations. They increasingly want all the world has to offer – but mostly at home.

Fortunately, brands from around the world increasingly want to serve these increasing expectations. The result is a still largely unconsummated love affair between foreign brands and Chinese consumers. Alibaba is trying to be the matchmaker for this.

There has been a stunning increase in foreign brands participating in Single’s Day. In 2017, 60,000 of the 140,000 brands were from outside of China. And this continues to increase. We have also seen big growth in imported foreign foods. Michael mentioned there have been surging sales of Brazilian beef, Mexican avocados and other foreign foods.

Bringing the world to Chinese consumers and following them abroad still seems the main globalization strategy for Alibaba. That plus some opportunistic M&A and growth in B2C. They are definitely expanding into Asia, particularly South East Asia (note: Chinese make up 50% of tourism in Asia).

B2B continues to growth internationally, with US-China sales a priority for Alibaba.com.

Outside of this, Michael said they will be “selective” in their international activities. I took that to mean they will probably not be entering new markets and building stand-alone e-commerce platforms (e.g. Amazon). But they will likely keep doing M&A opportunistically (e.g. Lazada)

Take Away 2: Alibaba Plays to its Advantages, Not to Proven Models.

Whether it’s domestic vs. international or online vs. physical retail, Alibaba mostly bases its strategy on building from its advantages. And it will ignore proven approaches and easier opportunities if they do not play to their strengths.

Michael mentioned Alibaba’s biggest advantages today were Chinese consumers – and increasingly Asian consumers. So, as mentioned in Point 1, they overwhelmingly focus on serving these groups with their data, technology and services. And, as mentioned, this has made their global expansion more selective than what we see by companies like Amazon and Uber.

“Leading by advantages” has also led them to expand in unconventional ways – such as with “new retail” and “entertainment meets retail” (note: they own Alibaba Pictures, Youku and others). And as seen in their Hema supermarkets, their approach in physical retail is very different than traditional retail approaches.

I think this preference for “leading with advantages” is also a good indicator of what they are not going to do. I don’t think they are going to build de novo e-commerce platforms in places like Africa. They may do these things via franchise, technical agreements and joint ventures. But I think they are staying close to their strengths in Chinese consumers, data and digital technologies.

Take Away 3: “New Retail” is Still in the Experimental Phase.

Alibaba’s “new retail” is a grab bag of various business models and use cases. The convenience stores are very different than the supermarkets. The pop-up stores are very different than the department stores. Alibaba seems to be experimenting, and each model has different capabilities.

• Some have warehouses and serve as distribution points close to consumers (which increases speed of delivery. Very important.).
• Some have local pick-up, such as convenience stores.
• Some have delivery. Hema delivers the goods to local customers with in-house staff (thus far).
• Some have services. For example, the supermarkets have nail salons, laundry and food preparation.
• And most all have merchandising, online ordering, and other data and digital tools for modernization.

But it still looks to me like Alibaba is experimenting with a lot of models and seeing what works.

How online retail can be leveraged into physical retail is the center of their new retail initiative. It looks to me like this is mostly four things (thus far):

1. You drive your existing online customers into these stores, so they get an increase in traffic. I think you can see this in all of Alibaba’s new retail initiatives. When we visited the Hema supermarket, they mentioned that +60% of their orders were coming from online, outside of the actual store.
2. You use the data to personalize and improve local retail and merchants.
3. You tie these stores into your logistics network – and do on-demand delivery. How much these physical locations are going to become forward locations for delivery and fulfillment is an important question. For some, like Hema, this appears a big part of the strategy. For others, like convenience stores, the logistics aspect seems more limited to an IT upgrade for their existing supply chain.
4. You experiment with use cases and continuous improve the user experience. 

Michael talked a lot about how online retail can transform physical retail. And how this effect can be particularly powerful in fragmented, underdeveloped and / or unstructured retail systems, such as the mom-and-pop stores you find across China, SE Asia and India. It raises some pretty interesting questions:

• Can data and digital technology modernize small and/or isolated stores that often get left behind in traditional retail economics?
• Can you do this type of digital transformation if you don’t have a local e-commerce platform in a country?
• How much is Alibaba going to try to capture consumers outside of China / Asia? I think this question is the most important one long-term.

Take Away 4: Freshippo / Hema and Retail Food Are the Biggest Departure from Alibaba’s Core Business. But It’s Really Exciting.

I got the sense that Michael particularly liked Hema, the Alibaba supermarket. He talked about it more than the others initiatives. And he mentioned how unlike most products sold via e-commerce (say smartphones), we all need food 2-3x per day. So grocery stores get a lot more customer engagement. That’s pretty great.

But food is particularly difficult in terms of logistics, especially in China where 30% of the food supply is lost to wastage. And sourcing, supplying, selling, delivering and sometimes preparing food are activities that are far from Alibaba’s expertise in e-commerce. Plus, they are getting into physical operations in a people-intensive and non-scalable way. This initiative struck me as a big departure from their core business.

But against this big challenge, you also have the mother-of-all opportunities. China’s demand for food is going to be way beyond what can be produced domestically (due to limited acreage, very limited water supply, low soil productivity and other factors). Feeding China is going to a big huge global business.

Alibaba does seem drawn to big problems that can be attacked with data and digital technology. In contrast, local convenience stores actually don’t have that many problems to solve (probably just traffic, merchandising and modernization).

As he talked about the Hema store, it was also clear there was more innovation and experimentation happening there than I had appreciated. For example, many of the foods sold (say fruit) are sold as a single serving for a family of three. They sell in these smaller amounts to keep the inventory more tightly controlled and to limit wastage. It also means more frequent purchases and probably visits. He also said they focused a lot on fresh fish and seafood because it is a product where customers care more about cleanliness, safety and health. Note the clean water in the Hema market below.

Thanks for reading. Cheers, jeff

Here are the final five seconds of Singles’ Day 2017, from the Alibaba media center.

And here is the arrival of Jack Ma a few minutes later (sorry for video quality).

 

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

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