China Consumer

Cheap as chips

New Alibaba stores sell everything for one yuan

SunArt-w

Alibaba buys Sun Art’s stores

At Alibaba’s newest store all of the goods are priced at just one yuan, or $0.14. It’s a staggeringly low figure: even the cheapest item at McDonald’s outlets in the US – a chocolate chip cookie that sells for 39 cents – would fail to make the cut.

Yet this is the pricing commitment that the tech giant is offering consumers at its new One-Yuan Store. Taobao, the Alibaba e-commerce platform, launched the first of its bricks-and-mortar shops in Shanghai on October 9 and it wants to open 1,000 such stores across the country, selling products from 1.2 million vendors at a one-yuan price point.

Stationery, accessories, cosmetics, tissues and small packets of snacks are some of the goods that are expected to feature.

Given the economic circumstances brought about by Covid-19, the One-Yuan Store is said to be targeting the weakened spending capacity of many consumers. However, the Taobao venture is also being positioned, somewhat bizarrely, as another instance of the ‘consumption upgrade’ trend.

“The idea that a cheap One-Yuan Store is a consumption upgrade can be seen as laughable,” writes Tencent News, a portal. “However, today’s spending habits cannot be solely determined by price but on consumer mindset… people are now more wary of when to spend, when to save, and where there is surplus. Young people are embracing careful spending, so more consumers will be attracted to inexpensive products.” More One-Yuan Stores are expected to be set up in lower-tier cities in a similar strategy to Dollar General in the US, which puts its outlets in suburban and rural areas. With large store formats it brings in customers who want to save money and time shopping at a dollar store in their neighbourhood, rather than driving miles to another location.

Alibaba chose to launch in cosmopolitan Shanghai in a bid to get broader media exposure for the new chain. But most of its stores are predicted to follow Dollar General’s trajectory by targeting smaller towns and cities, and more rural areas.

Where it does set up in larger cities, the brand will compete with the Japanese-inspired retailer Miniso, which is positioned as a 10-yuan store. Miniso opened its first outlet in China in 2013 (see WiC326). The chain is known for getting new goods quickly to market and churning through their product lines on an almost weekly basis. Top-selling items have featured merchandising from Marvel, Hello Kitty and Disney.

Some commentators have question why Alibaba – still by far the most powerful presence in Chinese e-commerce – wants to develop a bricks-and-mortar franchise selling such low margin goods. One positive is that they won’t be cannibalising much of its existing online business. “Since the advent of online shopping, consumers have searched for cheaper alternatives on the internet. However, the One-Yuan Store won’t have to compete with online stores as its prices are already so low and there are no shipping fees,” claimed a blogger on Baidu’s Baijiahao.

Separately, and at much higher price points in the retail trade, Alibaba announced this week that it is investing a further $3.6 billion for a controlling stake in Sun Art Retail Group.

The tech giant will lift its 36% shareholding in China’s second largest supermarket chain – which operates under the brands RT-Mart and Auchan – to 72% as it continues to push into physical stores as part of its ‘new retail’ strategy, combining e-commerce with bricks-and-mortar shops. A particular focus is the grocery business, where Alibaba is competing with longstanding rivals JD.com and Tencent, newer challenger Pinduoduo, as well as food delivery giant Meituan. Part of the strategy is to increase the reach of its one-hour home delivery service, sourcing from Sun Art’s 481 hypermarkets nationwide.

Alibaba is purchasing the stake in China’s second largest grocery store from France’s Auchan Retail International. The pair had earlier worked together on online food delivery via Alibaba platform Taoxianda. Like Alibaba, Sun Art has been a beneficiary of coronavirus-related lockdowns, with its grocery delivery arm reporting a quadrupling of its operating profit in the early weeks of the Covid-19 crisis.


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