1 Company That Could Be a Huge Threat to Alibaba

When people think of competitors to Alibaba Group Holding Ltd (NYSE: BABA) (SEHK: 9988), they almost always think of JD.com Inc (NASDAQ: JD) or Pinduoduo Inc (NASDAQ: PDD).

Both JD.com and Pinduoduo have substantial e-commerce market shares in China. JD.com also has world-class fulfillment capabilities and Pinduoduo has mastered social selling very well.

Yet while JD.com and Pinduoduo are worthy challengers, Meituan Dianping (SEHK: 3690) might pose the biggest threat to Alibaba’s future growth.

Meituan Dianping is bigger than both JD.com or Pinduoduo in terms of market capitalisation. Furthermore, Meituan Dianping has had a history of strong execution.

Despite having only entered China’s travel market in 2014, Meituan Dianping surpassed leader Trip.com Group (NASDAQ: TCOM) – which was previously known as Ctrip – in 2018.

Despite Alibaba spending a lot of money in subsidies in China’s huge food delivery market, Meituan has beaten Alibaba in the sector in terms of market share.

Now Meituan is fighting Alibaba in the fast-growing and very promising area of “New Retail”. I’ll take a look at how it’s encroaching on Alibaba’s turf and how much of a threat it poses to the e-commerce giant.

New retail

As currently envisioned, “New Retail” is made up of a blend of online and offline shopping experiences. It’s made out of brick-and-mortar “show-room” stores, delivery apps, and couriers.

In this new business model, consumers visit brick-and-mortar “show-room” supermarket stores to browse items in person.

Once a consumer has made a buying decision, he can then buy the items at the show-room stores or purchase via an app and have the items delivered in often 30 minutes or less.

For many consumers, seeing an item in person at a brick-and-mortar store, and reordering those items via an app and having them delivered is very convenient. There is a definite consumer value proposition that just isn’t available elsewhere.

Consumers can also order supermarket items such as flowers directly via an app and skip the brick-and-mortar visits.

For this article’s purpose, the “order directly via app and having the supermarket items delivered very quickly” is considered “New Retail” as well.

Who’s leading?

Currently Alibaba is the leader in New Retail by quite a bit. According to Alibaba’s investor day presentation last year, Alibaba had 171 Freshippo show-room stores as of the end of August 2019.

Freshippo is growing fast. For its quarter ended 31 March, 2020, Alibaba reported that Freshippo grew over 100% year-on-year. Even as the lockdown eased in China in April, demand “remained strong”.

Meituan, by contrast, is lagging substantially behind Alibaba in show-room stores. According to Retail News Asia on 13 May, 2019, Meituan shut down three of its Ella supermarkets, leaving it with only four operating.

On its app, Meituan is making more progress. The company gave an update on its “order directly via app and having the supermarket items delivered very quickly” business for 2019:

“With respect to our marketplace model, Meituan Instashopping is positioned to be an online marketplace with tens of thousands of SKUs.”

Meituan added that it has realised some success in certain verticals too:

“Notably, GTV growth of both medical products and flowers on our platform achieved robust growth in 2019.”

Can’t count Meituan out

Although Meituan is currently behind Alibaba in New Retail, the company is still perhaps Alibaba’s biggest threat in the market.

Meituan reported having around 400 million customers in 2019, many of which might be willing to try out Meituan’s New Retail service once it’s fully functional.

As Meituan has shown with travel and food delivery already, many of its customers are willing to try the company’s new services if Meituan’s app includes it.

The company also has much of the necessary infrastructure to compete. The company has spent a lot of time and resources developing an AI engine to better optimise delivery routes and it has hundreds of thousands of daily active couriers to do deliveries.

Given its market cap, Meituan also has a lot of financial resources to invest in the area to compete with Alibaba.

Foolish conclusion

Given the convenience factor and the large total market size of brick-and-mortar supermarket stores, New Retail will very likely be a big growth industry.

Although Alibaba is currently the leader, Meituan has many qualities in its AI software, massive user base, and effective delivery network to compete. Meituan is arguably Alibaba’s biggest threat in the market.

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