On April 17, Alibaba announced a strategic investment of 4.5 billion yuan in rural e-commerce platform Huitongda. With the entry of giants like JD.com, Suning, and SF Express, the battle for rural e-commerce—the 'last piece of cake' in the e-commerce field—has already become fierce. Huitongda now attaches itself to Alibaba, gaining strong backing, and also brings Alibaba a base of 80,000 rural outlets. Alibaba has begun to intensify this war, while on the other hand, JD.com's rural convenience store plan continues to penetrate more villages.

Who can win the battle for the rural retail market?

Pro side Alibaba's investment in Huitongda marks a shift in its rural strategy to a roundabout approach By China Business Journal Alibaba's investment in Huitongda is an important turning point in its rural strategy, shifting from a frontal attack to a roundabout and clever approach. As early as 2014, Alibaba proposed a rural strategy and launched the Rural Taobao project, subsequently investing substantial manpower and resources.

However, over the past few years, Alibaba's results have not been significant. This is related to the special characteristics of the rural market. For example, the rural market is a shallow sea market—large in total volume, but thin when spread across each regional market. This characteristic prevents internet companies like Alibaba, which are essentially traffic-driven economic models, from leveraging their advantages.

This investment in Huitongda not only demonstrates Alibaba's strategic determination in the rural market but also indicates that its rural strategy has shifted from horizontally integrating internal group resources to build rural commercial infrastructure, to vertically collaborating with core players in the rural e-commerce industry chain, changing its approach.

This transaction is beneficial for both parties.

Huitongda was established in December 2010, entering the rural e-commerce field four years earlier than Rural Taobao. Huitongda aims to solve the problems of farmers 'buying well' and township small shops 'selling well.' To this end, Huitongda started with industrial products, promoting brands to the countryside. At the same time, it developed township small shops into its member stores, with the number of stores exceeding 80,000.

Now Huitongda needs more funds and resources to expand these users and develop horizontally. The two major strategic directions that Huitongda currently values most can receive Alibaba's assistance. First, solving the problem of farmers 'selling out of the countryside,' i.e., agricultural product upward distribution; second, attempting new business models around farmers' land and homesteads. In the words of Xu Xiuxian, Huitongda aims to comprehensively manage the resources and needs of farmer families.

For Alibaba, through Huitongda's accumulated rural market, it can fully leverage its own advantages. For example, Tmall can open its supply chain, sharing more brand resources with Huitongda, and sinking more brands to township mom-and-pop stores. At the same time, township small shops can directly purchase and order on the Tmall platform, solving supply chain issues; Cainiao's warehousing and logistics can also use mom-and-pop stores to solve downstream cost problems; and with Ant Financial, it can also enter the rural market to provide financial and payment services.

Of course, another pain point of rural e-commerce—the upward distribution of rural products—may not be perfectly solved through this cooperation alone. However, the subsequent integration of the two parties may produce many unexpected chemical reactions, perhaps bringing new opportunities to solve this difficult problem.

Con side New通路 and strong logistics are the core of JD.com's rapid development of convenience stores in rural areas

  1. JD.com's New通路 provides competitive supply prices to JD convenience stores, enhancing overall bargaining power, and frequently launches cross-brand promotional activities. For community small shops scattered across the country, with small storefronts and low turnover, they previously lacked the capital to negotiate with traditional B2B distributors. Many 'good products,' such as German dark beer, could never appear on the shelves of small shops in regional markets. Now JD.com steps in to help them improve overall bargaining power.
  2. With abundant SKU numbers and efficient logistics, JD.com has become the 'cloud warehouse' for JD convenience stores. According to official data, JD.com's self-operated logistics can already cover 92% of China's townships. Based on its powerful logistics system, JD.com's New通路 can help 85% of brand manufacturers achieve next-day delivery of goods. How fast is this? At 8:00 AM on March 13, 2016, a beverage called 'Lemon Lai De' was listed on JD.com's Zhanggui Bao APP. The product was shipped from Zhongshan on March 10, entered JD.com's New通路 warehouse on March 11, and at around 8:10 AM on March 13, store owner Uncle Liu in the Beijing suburbs quickly placed an order. The system indicated the order was expected to be delivered on March 13. By 5:00 PM, 'Lemon Lai De' was delivered to the store by JD Express. Based on my years of experience reporting on the FMCG field, in the past, when brand manufacturers used traditional channels to deliver new products to terminal small shops, the product first went from the factory warehouse to the distributor warehouse, and then the distributor delivered it to the terminal. Even for the first small shop to receive the goods, this process took at least 3 to 7 days. Completing the first round of target stores and achieving a certain market coverage rate required at least half a month to a month. For many stores in lower-tier cities, getting new products might take several months. The number of alternative products on JD.com's Zhanggui Bao is far higher than what community small shops can put on shelves. Store owners can choose products based on their own business judgment and get guarantees of genuine products, authentic goods, low prices, and efficient logistics. JD.com's killer feature is: free shipping for orders over 300 yuan on a daily basis, and new users enjoy free shipping for orders over 99 yuan in the first three months. According to my understanding, the general free shipping threshold for FMCG B2B channels is 400 yuan.
  3. JD.com will provide business guidance on product selection, purchasing, and stocking based on its big data, promoting product turnover and increasing revenue, thereby achieving increased profits.
  4. In some areas where JD.com's brand image is recognized, JD.com's genuine products, low prices, and relatively warm brand image are valuable endorsements for community small shops.
  5. JD.com provides store owners with more profit sources and value-added space.

I found that most JD convenience store owners recognize JD.com first for the low purchase prices of most products, second for providing more profit growth points, and then for JD.com's comprehensive strength in product supply chain, logistics distribution, and big data business diagnosis. Systematically, what JD.com provides in this business is the ability to build high-quality e-commerce infrastructure.

Recently, Liu Qiangdong revealed in a media interview: 'We will not directly operate these stores (JD convenience stores), but use a franchise model. We provide the brand and supply of goods. We found that convenience stores, i.e., mom-and-pop stores (traditional convenience stores operated by families), have three pain points: First, these mom-and-pop stores are far from brand manufacturers. Second, many of these stores, especially in rural areas, sell counterfeit goods. Third, there is no information communication between retailers and brand manufacturers. Therefore, we hope to build a new system through JD.com's New通路 and JD convenience stores, allowing these mom-and-pop stores to directly purchase from brand manufacturers like P&G. At the same time, brand manufacturers can track and understand the movement of goods through JD.com's system. This makes it easier for brand manufacturers to analyze user data, produce more appropriate products for consumers, and solve the counterfeit problem.' It can be seen that JD.com hopes to build a bridge for seamless interaction and mutual benefit among brands, small store owners, and consumers through millions of JD convenience stores.

Pro and Con Opinion PK With the gradual penetration of leading companies such as Alibaba, JD.com, and Suning, the single flow of industrial products to the countryside and agricultural products to the city has transformed into helping rural e-commerce with digital marketing and providing basic service facilities. Alibaba and JD.com are both frontrunners in the retail industry with rich experience. However, compared with JD.com's adherence to the convenience store model, Alibaba has certain advantages in both experience and scope. This complete business system includes platform systems, information services, product supply chains, finance, logistics warehousing, and training facilities, covering the industry chain and business training, from talent development to technical support. This system can help rural e-commerce generate its own blood, forming a healthy industrial cycle.

Pro side In rural consumption scenarios, the long-standing pain points are the prevalence of expired goods and counterfeit products. To solve these two problems, the efficiency of the logistics system and the review of supplier qualifications are particularly important. This is precisely the key attribute that JD.com has established its reputation in the urban market. Now sinking into the rural market, replicating its own rise path, consolidating logistics lines, and selecting categories favored by rural consumers is not difficult. Whether it can grow big mainly depends on the degree of importance they attach to this market.

Con side Welcome to leave a comment below to discuss with us!

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