During my research of $BABA, I wonder to myself, why did $BABA entered the brick and mortar business with Freshippo even though physical stores are harder to grow and have lower margins than online ones?
I can think of a couple explanations. Firstly, grocery is a huge market and all e-commerce players wants to win this market despite knowing the difficulty.Grocery also complement $BABA's current offering well.
The risks for entering into the grocery business using physical stores are definitely not small. Much initial investments must be put in first and there are fierce competition. However, i believe the reward is so great that these big tech companies think it is worth the risks.
Furthermore, because the growth of the Chinese e-commerce market is slowing, $BABA needs to find new ways to drive their overall growth and groceries becomes a logical next step.
Secondly, $BABA needs more fulfilment centres. $BABA is playing the chasing game with $JD in terms of delivery, and with Freshippo stores, it can act as many warehouses in the future.
I have a moonshot idea, which is that with enough Freshippo stores, this would allow $BABA in the future to achieve delivery speed of 30 mins for all of their Tmall products.
Thirdly, the most important point is that it is all about data. $BABA has been a data machine and $BABA aims to track all it customers, so that they can make the best personalised product recommendations to online shoppings.
$BABA is already able to track most of their users online. With Freshippo, $BABA can also track customer behaviour offline, and that allows $BABA to track everyone everywhere now, making their recommendation logarithm even better.
These are just some of my thoughts and please take it with a grain of salt! If you have any contrary or other thoughts, please definitely let me know in the comments so we can discuss a bit further! Thank you very much!
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