Alibaba Group Investments in Delivery Start Ups

Alibaba and main rival JD.com will enjoy fast growth in the fast moving consumer goods (FMCG) market, according to research from Goldman Sachs, as more people in China turn to online shopping for daily grocery items like food snacks, body care products and soft drinks.

The online grocery retail market is currently substantial and will continue to grow and support the two major e-commerce platforms in China, as they take away business from offline Chinese stores in the coming years and invest in a new type of courier service, according to a report published by investment bank Goldman Sachs.

Alibaba will use start-ups courier businesses, which works much like Uber for delivery, and similar to Instacart. The start-ups run lean, with little infrastructure. When a customer logs onto the Alibaba website or app and purchases groceries, they will send contractor couriers, many of who ride electric bikes, to supermarkets, convenience stores and local groceries as well, where store employees bag the orders for the courier to pick up.

While delivery start-ups like this have existed for the last couple years, they have gained position since a boost of funding from Alibaba and JD.com.

In hundreds of cities around China, consumers can order their groceries on the Alibaba or JD.com app and have them delivered to their door within an hour.

The company is still looking for the better ways to bring perishables like fresh seafood, meat and vegetables to its customers, according to Goldman Sachs analysts led by Ronald Keung. Last year both companies finished building its nationwide fulfilment centres, enabling more than 200 cities in China to enjoy same or next day delivery for groceries ordered online.

“We expect Tmall and JD’s new supermarket initiatives to drive further online growth in the supermarket segment,” said Keung in the report.

“These will be enabled by their logistics improvements, wider FMCG brand participation and ongoing new user adoption. We see the FMCG market big enough for two online winners.”

FMCG currently accounts for 37 percent of all retail spending in China and the market is expected to increase on average by 6 percent annually to reach $2.6 trillion in 2020.