China’s “new retail” hype meets old retail reality

Missfresh

13/07/2022 04:22

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Yawen Chen
    HONG KONG, July 13 (Reuters Breakingviews) - China’s “new
retail” sector, a phrase coined by Alibaba  BABA.N   9988.HK 
founder Jack Ma to describe companies that mix e-commerce with
brick-and-mortar stores, is showing signs of pandemic-induced
premature aging as Alibaba’s subsidiary Freshippo lowered its
targeted valuation by 40% to $6 billion, Reuters reported on
Tuesday.  urn:newsml:reuters.com:*:nL4N2YS1IH
    Freshippo, pronounced "Hema" in Chinese, was founded in 2015
as Alibaba’s battle with rival Tencent  0700.HK  over digital
payments saw both companies plow a combined $10 billion https://www.reuters.com/article/us-china-retail-tech/alibaba-tencent-rally-troops-amid-10-billion-retail-battle-idUSKCN1G30TP
 into retailers from 2017 through early 2018, a strategy
referred to as Online-to-Offline (O2O) at the time. O2O’s thesis
was that combining e-commerce giants’ sophistication in customer
intelligence, logistics and payments with in-person shopping
would deliver the best of both worlds. Freshippo, for example,
had conventional grocery shelves, chefs serving dine-in demand,
and free delivery for online orders. Checkout was automated,
with payments seamlessly deducted from smartphone apps. 
    This model also featured higher rents and labour costs than
pure e-commerce, and the expense of maintaining a complex
integrated system. Now its sophistication has become a liability
in many investors’ eyes after Chinese regulators began cracking
down on technology giants, restricting the use of personal data
and forcing more competition. 
    The Covid-19 lockdowns, which have shuttered street-side
businesses in many cities, are a nightmare for the entire food
and beverage industry but particularly hard on money-losing
grocery startups. Investors have started rotating out of them.
Shares in delivery operator Missfresh  MF.O  are down 92%
year-to-date in New York, for example. At the same time, money
is flowing into the stodgy but profitable supermarket chains O2O
was supposed to upgrade or replace. Tencent-invested Yonghui
Superstores  601933.SS  has seen its stock rise 5% this year
compared to a 12% slide in the broader Chinese stock market.
Walmart-like Beijing Hualian  000882.SZ  has rallied 20%. 
    The pandemic has accelerated consumer’s migration toward
shopping online for fresh produce. Unfortunately officials are
also trying to rein in delivery pricing https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.breakingviews.com%2Fconsidered-view%2Fmeituan-sums-up-struggle-to-solve-beijing-riddles%2F&data=05%7C01%7CThomas.Shum%40thomsonreuters.com%7C6f647b660ca44399292e08da6492c770%7C62ccb8646a1a4b5d8e1c397dec1a8258%7C0%7C0%7C637932878822395502%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=yglX8dlewCwE6fFdQYAfPGVywL4SFU8v3XYG3orJNpU%3D&reserved=0,
 and their public service addressing food shortages https://www.reuters.com/breakingviews/shanghai-covid-crisis-puts-china-tech-eggshells-2022-04-11
 hasn’t done much for their bottom line either. Disruption
sounds exotic during good times, but in a downturn, investors
reasonably lean toward traditional fare.

    Follow @ywchen1 https://twitter.com/ywchen1 on Twitter
    
    CONTEXT NEWS
    Alibaba's supermarket chain Freshippo, known as Hema in
Chinese, is seeking to raise funds at a valuation of about $6
billion, much lower than a hoped-for valuation of up to $10
billion earlier this year, Reuters reported on July 12 citing
sources.

 (Editing by Pete Sweeney and Thomas Shum)
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