ALIBABA AND JD MOVE FURTHER INTO INSTANT RETAIL

In the past months, we have seen a battle emerge in the food delivery sector. As I have previously explained, this battle is as much about the future of instant retail (quick commerce, delivery within an hour) as it is about meal delivery. Platforms need a high density of merchants, couriers and consumers to make instant retail work.

One of the reasons Meituan has been so successful in instant retail is that it has a large army of couriers that can be used not only for meal delivery but also for groceries and non-food products. And since they have 770 million annual active users who frequently open the app, as well as 14.5 million active merchants, they have the density to make instant retail work.

Lesson for Western companies: quick commerce without meal delivery has limited chances of success, especially when other success factors in China cannot be replicated.

Traditional e-commerce companies like JD and Alibaba have realised that they might lose business when consumers are no longer willing to wait 2 or 3 days (or even half a day in JD's case) but want their goods within an hour. They have taken clear steps towards instant retail. Taobao started Instashopping, utilising resources from its Eleme meal delivery business, and JD initiated meal deliveries to expand its Miao Song instant retail business.

Instant retail will also help make a low-profit business like meal delivery (3% net margin in China) more profitable.

Now, more sections of the companies' ecosystems are being added. Alibaba's Tmall has launched Tmall InstaShopping. After first training consumers to use instant retail, it now nudges merchants and brands (especially those with store networks) to instant retail so that it can offer a broader and deeper product assortment. For merchants without stores, Alibaba is expected to build shared front-end warehouses, comparable to Meituan's lightning warehouses.

Unlike Alibaba, JD already has intra-city shared warehouses for half-day delivery in big cities. It now promotes converting e-commerce users into instant retail users on its platform by making it the default option for high-margin 3C products, such as iPhones.

Instant retail product prices tend to be a bit higher than normal e-commerce prices because:

▶️ Closeness to the consumer through front-end warehouses means the supply chain is more extended.

▶️ High delivery costs (RMB 5-9 per order, compared to as little as RMB 1 for express delivery from e-commerce warehouses) and picking & packing costs (real-time instead of batch order picking).

▶️ Lower turnover efficiency because of lower volumes (national delivery vs 3-mile delivery).

However, some goods have lower prices in instant retail:

▶️ Fresh produce

▶️ Refrigerated and frozen goods

▶️ Heavy goods (e.g. bottled water)

▶️ Large volume goods (e.g. storage boxes)

These are all more complicated and expensive to ship in traditional ecommerce.

Source: Lao Zhang.