China: Retail and e-commerce merging

Retail is under a great deal of pressure. Brick-and-mortar stores have seen sales and market share decrease for years, not least due to online competition. But even this is not exactly floating on cloud 9, with an apparently overwhelming opponent in the shape of Amazon, which has long since established itself as the shopping homepage for most online customers. On the search for a way out of the downward spiral, it is worth a look East for online and offline retail, specifically to China.

Here, BATX (Baidu, Alibaba, Tencent and Xiaomi) have formed a counterweight to the dominance of GAFA (Google, Apple, Facebook, Amazon) in the West. For retailers, the role of Alibaba is especially interesting; this is Amazon’s counterpart from Hangzhou. Like Amazon founder Jeff Bezos, Alibaba founder Jack Ma has been pursuing an aggressive growth strategy consistently focused on customer benefit since its launch in 1999. In addition to Alibaba.com (B2B trading platform), there is a B2C trading platform (AliExpress), an online auction house (Taobao) and an online department store (Tmall.com).

The supermarket of the future connects online and offline

Alibaba is not only active in the digital business, but is increasingly looking for new markets in the analog shopping world. One ambitious plan is, for example, to build 2,000 new “Hema” supermarkets in five years. The first stores already opened in 2016 and offer a completely new shopping experience. Not only does this focus on the customer benefit, it connects online and offline using a customer-centered approach.

The key factor in the decision to establish its own supermarket chain was probably the realization that many fast-moving consumer goods (FMCG) are still being purchased in brick-and-mortar retail in China. In addition, online platforms are slowly reaching their growth limits, making it easier to gain further market share in offline business. But strictly speaking, the Hema concept is not an offline business at all, because the concept would not work without the smartphone as a logical connection to the digital world and without the digital checkout. Mobile shopping is very much in vogue with the Chinese and, when it comes to payment, China is developing rapidly towards a cashless society thanks to Alipay and WePay. And those who live within a three-kilometer radius of one of the currently 25 Hema stores can have their purchases delivered to their homes free of charge – within 30 minutes.

The smartphone is therefore the linchpin of the customer experience of Hema, which is different from any other Chinese supermarket. Each product is scanned using the user-friendly Hema app, which then displays all the information: product description, unit prices and bulk prices, and related, complementary products. Even the exact composition of the product and its origin can be determined in this way. The more often you shop at Hema, the better the app learns your buying habits and adapts its recommendations accordingly. For example, if a product from your purchase history happens to be on special offer, the app shows this to you.

Transparent customer? Why not!

The transparent customer has long been a reality in China. While we in Germany would discuss data protection aspects for a long time, in Hema, Alibaba has created a modern shopping world for experimenting. The Alibaba Group is already working on further connections between online and offline. Face recognition via in-store cameras will play a major role here. These analyze precisely what customers are looking at, what they like and what they don’t like. These data are incorporated into the customer profiles and aim to make the future shopping experience even better. And it doesn’t matter whether the customer enters a shop or prefers to use an online platform.

Of course, the protection of personal data is a very important issue. Especially when it comes to face recognition and the creation of extensive customer profiles, the path to abuse is temptingly short. Alibaba itself sees the protection of privacy as self-evident and hardly says anything more about it. And it doesn’t have to, because even the Social Credit System planned by the state, which has been developed using the Alibaba model, meets with broad approval in society, as a recent study by the Free University of Berlin confirms.

The bottom line: Hema in Germany?

Would the Hema concept also be conceivable in Germany? Certainly not, at the moment. We still like to pay too much with cash and consider our privacy (rightly) to be a very valuable asset. But programs like Payback and DeutschlandCard show that consumers do disclose data about themselves if they receive a benefit in return. If, in the end, both sides benefit, data protection is guaranteed and the operator consistently places itself at the service of its customers instead of merely reacting to what the competition is doing, the Hema concept could become an interesting alternative in Germany. Until then, Alibaba’s lead will continue to grow.