Someone who has read sci-fi novels over the past few decades would likely find today’s China quite familiar.
In Hangzhou city almost everything you do is monitored, traced and scored through a combination of online behavioural tracking, CCTV, facial recognition and artificial intelligence, mostly administered through Alibaba’s ‘City Brain’ project.
In the countryside, government-licensed drones will soon take flight delivering online purchases to willing customers.
And beyond the cities, towns and villages, millions of consumers are living much of their lives in another dimension, as avatars playing e-Sports or supporting their favourite e-Sports celebrities.
Yet from a consumer brand standpoint, the most interesting sci-fi trend out of China is happening in the good old-fashioned retail sector.
In most parts of the developed world, we’ve already seen the wave of small retailers being wiped out by bigger, more efficient global retailers using economies of scale and outsourced labour.
The next wave is likely to see many of those global retailers swallowed up or wiped out by the Alibabas, Tencents and Amazons.
Why will this happen in China before anywhere else? It comes down to two things: data and the current retail fragmentation.
Chinese consumers use their smartphones for more of life’s moments than anyone else on the planet, feeding data to those who control them. We only need to look at the value of China’s mobile payments, which is 60 times larger than in the US.
Every time someone pays or transfers money on their mobile, Alibaba and Tencent are gifted a little more insight about them.
Almost every time they search, browse, buy, comment, watch, play, share or use a cloud computing service, Alibaba and Tencent glean some insights.
When consumers are offline, in addition to their payments, their bike sharing, food delivery, taxi trips, even some of the football matches they watch are adding to the vaults of data.
That’s before we’ve even considered the enormous insights from the City Brain-type projects.
There is not a single company in the West that comes close to tracking consumers’ daily lives like Alibaba and Tencent and, with China’s lax attitudes to privacy and equally liberal laws, it makes that data even more valuable.
Cambridge Analytica is a caveman with a club compared with China’s laser gun-wielding tech behemoths.
The second driver is China’s bricks and mortar retail market, which is among the most fragmented in the world.
While America’s top 100 retailers accounted for more than 40 per cent of its retail market last year, China’s top 100 retailers made up just 6.4 per cent of total sales of consumer goods.
In a market dominated by regional chains and mom and pop stores there are no leaders with true market scale – enter Alibaba and Tencent.
Alibaba may have historically been an e-commerce company, but it has realised e-commerce will never supplant bricks and mortar retail.
People still need immediate convenience, and the experience of social interaction, touching, smelling and feeling, which does not quite get there with screens or virtual reality.
This has led Alibaba and Tencent to invest in stores such as Hema and 7Fresh.
A mature Hema store makes around four times more revenue per square metre than a conventional supermarket.
It is attributable to a richer, more personalised experience that inspires upselling, extra sales through a seamless delivery option and, most importantly, a carefully considered product mix, layout and set of promotions based on the wealth of Alibaba data.
We’re starting to see the early signs of Alibaba and Tencent’s quest for retail domination in China, both online and offline.
Alongside Hema, Alibaba has invested in RT Mart, Suning Fresh and Auchan, just in the grocery category.
Tencent has JD’s 7Fresh stores, Carrefour, Yonghui and is working closely with Walmart. There are also investments in furniture chains, department stores, auto manufacturing and shopping malls.
Alibaba is even creeping into mom and pop stores: before Singles’ Day last November, it had installed its cloud system in 600,000 independent retailers – 10 per cent of China’s total.
In addition, Alibaba and Tencent/JD’s extensive logistics networks also enable it to reach every corner of China to help create a truly national retailer.
Welcome to the future folks. Agencies like China Skinny can help you best prepare to take advantage of it, and not be swallowed up by it.
This article was originally published on http://www.chinaskinny.com
Mark Tanner is founder and managing director of Shanghai-based China Skinny. Through his agency, he has worked with over 150 international brands such as IKEA, Colgate, Tourism Malaysia, ANZ, Westpac and IHG on their China market entry and growth strategies, trend analysis, branding and new product development.