/JD VS. Tmall: how much cash must be burnt to become No.1?

JD VS. Tmall: how much cash must be burnt to become No.1?

E-commerce company JD.com and Alibaba’s self-run Tmall Supermarket are locked in a battle, both fighting to become “No.1” – a term that they each have defined differently.

“With enough time, JD.com will one day surpass Alibaba and become China’s biggest internet company,” said Liu Qiangdong, founder and CEO of JD.com, at a TV show on Sunday. “We’re now the biggest internet company in respect of the number of employees, but in the future we will be the No.1 in all respects, including net profit.”

Just three days back on Thursday, Alibaba’s self-run Tmall Supermarket announced the launch of a project using RMB four billion (USD 598 million) to subsidize customers and upgrade services. “We expect to grow into a platform of RMB hundreds of billions within the next three years and become the industry’s No.1,” said Jiang Pan, general manager of Tmall Supermarket.

So how are JD.com and Tmall Supermarket laying out their battle plans?

JD.com

Data from JD.com shows that in 2015, 51.3% of the company’s gross merchandise volume (GMV) can be attributed to sales of household appliances and “3C” products: computers, communication-related products and consumer electronics.

Liu said that JD.com will expand its strengths beyond “3C” products by enhancing online grocery sales and cooperating with offline supermarket chains.

JD.com established its grocery goods division earlier this year. In late June it partnered with Walmart, which at the end of 2015 had covered 169 cities in China. It has a presence in 433 shopping malls and operates 20 distribution centers, 11 of which distribute grocery goods such as fruits, vegetables and meat.

Known in China as the first online retailer who runs its own logistics system, JD.com is by no means a mere e-commerce platform, said Liu. He boasted that the company runs logistics not to profit from delivery services, but to minimize costs and maximize delivery efficiency for a better user experience.

In response to the rumor that JD.com lost RMB 30 billion in 2015, Liu said it was in fact only RMB 800 million. He pointed out that warehousing is what costs the most, and that the company has been buying land and building logistics centers of its own. JD.com estimates that building a nationwide logistics network may take RMB two to three billion.

Tmall Supermarket

Alibaba positions Tmall Supermarket as its fourth consumer platform after the C2C online marketplace Taobao, the B2C Tmall, and the daily sales site Juhuasuan, according to Jiang Pan, general manager of Tmall Supermarket.

Tmall Supermarket differs from Tmall in that its goods are gathered at 11 distribution centers nationwide, ready to be delivered locally – this is what Jiang called “localized services”. It promises to hand customers their goods the following day and, if the order is placed before 11am, the parcel may arrive on that very day.

Tmall Supermarket also has a focus on online grocery and offline resources.

Yiguo, a gourmet food supplier in which Alibaba invested in 2013 and 2014, was granted exclusive operating rights of running an online grocery at Tmall Supermarket, and its orders have enjoyed a YoY increase of 400%.

Jiang believes that the potential of the online grocery market is huge, as people buy groceries on a daily basis, yet 90% of them are still doing that offline.

Now a market of USD 41 billion, China’s online grocery market may hit USD 180 billion by 2020, the research firm IGD predicted.

Despite the strength of online business, Tmall Supermarket makes sure to work with offline resources as well. Its partners include the Canadian food retailer Metro, the Spanish hard-discount supermarket chain Dia, and the German supermarket Inferno.

Whichever company is the ultimate winner, online grocery shopping is bound to be a hit, as more and more customers go online.

(Top photo from Baidu images)

Ke graduated from the University of Edinburgh with a Master's Degree in English and has worked on projects with Ipsos MORI and SDI Media. She's particularly intrigued by China's thriving technology scene and is eager to write about this flourishing industry.