---
title: "Tencent Isn't Really Trying to Play New Retail—What's Behind Ma Huateng's Massive Spending Spree?"
description: "In the 2016 China FMCG Chain Top 100 list by the China Chain Store & Franchise Association (CCFA), six of the top ten companies have already been acquired by Alibaba or Tencent. Tencent, unlike Alibaba, is not rooted in retail, but has rapidly built a new retail empire in just two months with investments exceeding 40 billion yuan, aiming to seize a super entry point to connect people with consumption, not to directly compete in new retail."
author: "New Distribution"
publisher: "New Distribution"
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published: "2018-02-24"
language: "en"
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# Tencent Isn't Really Trying to Play New Retail—What's Behind Ma Huateng's Massive Spending Spree?

> In the 2016 China FMCG Chain Top 100 list by the China Chain Store & Franchise Association (CCFA), six of the top ten companies have already been acquired by Alibaba or Tencent. Tencent, unlike Alibaba, is not rooted in retail, but has rapidly built a new retail empire in just two months with investments exceeding 40 billion yuan, aiming to seize a super entry point to connect people with consumption, not to directly compete in new retail.

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In the 2016 China FMCG Chain Top 100 list by the China Chain Store & Franchise Association (CCFA), six of the top ten companies have already been taken, with the "takers" being Alibaba and Tencent.
Li Zhengquan: 6 of the top 10 chain enterprises have owners
I. The Man Behind the Scenes Steps Forward
It is quite clear that as retail enters the new retail era, two opposing camps have quickly formed: the Alibaba camp and the Tencent camp.
It is worth noting that Tencent, unlike Alibaba, is not rooted in retail as its foundation or main business. Before forming its new retail camp, Tencent mostly waged a "proxy war" against Alibaba through JD.com, with Ma Huateng more like the "man behind the scenes" for Liu Qiangdong's strategies.
However, this time in the new retail field, Tencent's shift from covert to overt competition with Alibaba can be summarized by two key words: speed and scale of investment.
II. Spending No Less Than 40 Billion in Two Months, Targeting Alibaba's Foundation
As shown in the figure below, Tencent's new retail chessboard is now filled with pieces like JD.com, Vipshop, Wanda Commercial, Yonghui, HLA, Carrefour, and Bubugao.
Li Zhengquan: Tencent buys a new retail empire in two months, standing shoulder to shoulder with Alibaba
From the current layout, Tencent's chess game has formed a force that can rival Alibaba. Counting from December 2017 when Tencent invested 4.216 billion yuan to acquire 5% of Yonghui Superstores, in just two months—yes, only two months—Tencent built its new retail territory with lightning speed.
Of course, this is inseparable from Tencent's massive investments.
Li Zhengquan: Tencent's 40 billion new retail layout, but the goal is not new retail
(Data source: compiled from public information and logical deduction)
As shown in the figure above, in these fast, accurate, and aggressive two months, Tencent's confirmed and announced investments in Yonghui Superstores, Wanda Commercial, HLA, etc., alone exceeded 20 billion yuan. If we add the undisclosed investments in Carrefour and Bubugao, the total new retail investment in these two months is likely to exceed 40 billion yuan.
Online retail is hitting bottlenecks, offline physical retail is suffering. Did Tencent really spend 40 billion in two months on buying, buying, buying because it sees the "money prospects" of new retail after online-offline integration? Is Ma Huateng really going to have a duel with Alibaba at the top of the Forbidden City in the new retail arena?
III. Tencent Buys a New Retail Empire but Doesn't Want to Fight Alibaba Head-On in New Retail
But Tencent spending 40 billion in two months does not mean it is rolling up its sleeves to truly play new retail, nor is it going to fight Alibaba head-on in the new retail field.
Why? Is Ma Huateng just being capricious with his money and trying to annoy Jack Ma?
Of course not. According to Li Zhengquan's strategic deduction and trend prediction for Tencent, Tencent's new retail layout is more like seizing a super entry point. Its purpose is to realize its new strategy of connecting people and consumption through this super entry point.
Li Zhengquan: Tencent's new retail layout is to connect people + consumption as a new strategy
As shown in the figure above, Tencent's core strategy is to be a connector, connecting people to people, people to information, people to services, people to entertainment, etc. But this is only its current stage strategy.
After completing the main strategic goals of the previous stage, Tencent's next stage strategy will focus on connecting people and consumption, which in plain terms means connecting people and money (i.e., users' consumption expenditure and service/goods providers' revenue flow). Then, it will be about the co-prosperity of related strategic derivatives and ecosystem businesses.
Strategy guides investment, and behind this lies the huge cake of China's social consumer retail—a market of 30 to 40 trillion yuan.
Tencent invests in new retail but doesn't play new retail itself. So how can it grab this cake?
WeChat and WeChat Pay are its best connectors and harvesting tools.
**Commentary by Wang, a special new retail expert for New Distribution:******
01. What caused the buying spree?
Relevant data shows that online retail currently accounts for about 20% of China's total retail sales. At the same time, it is obvious that the online retail market has hit a bottleneck. E-commerce growth space is limited, so online retail companies can only achieve long-term sustainable development by going offline. Alibaba was the first to launch this war for the offline market, and through cases like Hema, it created a flagship brand and then integrated various resources.
Personally, I think Tencent was initially in a defensive state. I predicted before that Tencent's investment deals and amounts would be relatively large. According to statistics, in 2017, among all investment fields, Google ranked first in investment volume, and Tencent ranked second, showing Tencent's investment intensity. In fact, from the investment data in 2018, Tencent seems to be overtaking.
Alibaba played the new retail card first, and then Tencent came up with "boundaryless retail." But what boundaryless retail is, no one has understood yet; we only see Tencent's massive "buy, buy, buy." But I think there is an essential difference between Alibaba's buying spree and Tencent's buying spree.
Where is the difference? I think Alibaba's approach is to use Hema as the vanguard and then create a sample model, while Tencent seems to still be in the exploratory stage. If Alibaba buys "half the country," then Tencent at least wants to buy "half the country" too. Tencent's current priority is to gradually move from this defensive follow-up to create its own boundaryless retail sample. Personally, I think this task is likely to be given to Yonghui.
Tencent's e-commerce business has never taken off in the past, so it simply continued to invest in various forms, forming a kind of battle team. This team can first defend itself, and a key link that reflects its core value is WeChat Pay. Because payment determines all the consumer data, consumption habits, consumption orientation, and the financial entry points behind it, this is a must-fight territory.
Initially, this was Alipay's market, but then WeChat successfully grabbed half of it, using "red envelopes" as the vanguard in the personal social field, and fought a beautiful turnaround. So Alipay can only focus on TO B, especially B-to-C transactions, so Tencent and Alibaba are fighting for offline transaction scenarios.
The current situation is actually quite clear: offline retail companies are choosing sides, gradually forming two distinct competitive patterns: one centralized and one decentralized. If they go further, everyone will find their own direction. Hema is already clear: it deepens its supply chain, runs its own farms, and runs its own breeding centers. The Tencent camp's new retail is still not very clear, with no sample model yet, and everyone is waiting to see what Tencent's sample will look like.
Initially, it was because of the payment system—either Alipay or WeChat. Whoever moves first, the other side will definitely defend, because they will compete for each other's markets. That's why there is the buying spree.
02. What might Tencent do after buying?
I am very much looking forward to Tencent's next move. What kind of model will Tencent use to draw this chessboard? At present, I think the ideal state is:
First, establish an overall backend big data system. The online retail scenario data from JD.com and Vipshop is very clear, so the next step is to integrate with the offline system to build a complete big data system.
Second, integrate all user transaction scenarios around WeChat's account system, including life and entertainment scenarios. Through the payment link, collect and aggregate complete data, and by analyzing the core value of the data, transform the supply chain, provide support for brands in production and new product promotion, and truly achieve production based on sales.
Third, it is necessary to connect all the layouts together. Personally, I think the most core way is delivery. Relevant data shows that in 2017, China's logistics accounted for about 19% of GDP, which is still far behind developed countries like the United States, so logistics will become a particularly important breakthrough.
Text compiled from: WeChat public account Business Trends (ID: lizhengquan02)


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