BUILDERS
Digital economy, ‘New Retail’, Starbucks – innovation now comes from China
Updated: Nov. 11. 2018
On my first trip to China in 1984, there were no roads connecting major cities, supply of fruit and vegetables was limited in winter, rice was rationed, and in several rural areas peasants lived in mud houses with thatched roofs. I was staying in a dormitory with no heating despite freezing temperatures in the winter. Deng Xiaoping was openly calling other nations for help in getting innovative ideas and financial capital which he badly needed to move the country out of poverty.
It is clear today that he succeeded: within one generation, the country went through the most impressive economic revolution in the history of humanity.
Today, China’s GDP is only second to United States in the world, and will probably take first place by 2029. Skyscrapers in Shanghai, and even in provincial capitals such as Nanjing, give a performance every evening more futuristic than the opening scene of “Blade Runner”. The country now has a large network of modern highways, and high-speed trains connect Chinese cities nearly as fast as the plane does.
Peasant farmers are prosperous. The middle-class now consists of about 500 million people, and their income grew by more than 10% annually on average over the last decade. The population is young, educated and connected to the latest international trends.
Today, the rest of the world turns to China for financial capital, economic development assistance (‘Road and Belt Initiative’) and radical innovations.
The future of the Internet is in China
Not surprisingly, China is the biggest e-commerce market in the world, for which Alibaba developed the most advanced platforms. A new consumer segment has emerged, made up of young people who grew up with the Internet and who order just about anything online, including fresh food. Most of the young urban professionals I met during my last trip had not set foot in a supermarket for several years. WeChat, the main Chinese messaging app, now offers functionalities that are much more extensive and complex than those of Facebook, from which it was originally inspired. Almost everything is done through a cell phone with “WeChat”, from video games, restaurant reservations, sales and online payments to banking transactions.
Three giants – Tencent (WeChat and Youku, the Chinese Youtube), Alibaba and Baidu (the Chinese Google) – dominate the digital economy and seem to have the resources and expertise to challenge Amazon, Google and Facebook.
The excellent video presentation below, produced by the New York Times, illustrates clearly the role of digital technology in the life of the Chinese people today.
Hema Fresh: the “New Retail”
Alibaba – yes, Alibaba!, the e-commerce Chinese giant – launched a new food store chain called “Hema Fresh” (盒马鲜生), which is the best execution of the global trends in the industry for ready-to-eat, fast-food and online orders for delivery. This was the starting point of what is called the “New Retail” in China. I visited several stores last December for a client who could soon become a major supplier. The stores are neighbourhood grocery stores with a trendy and modern look, offering the lowest competing prices on the market. Ninety percent of sales are from online orders. Orders are usually delivered in 30 minutes or less to customers located within 3 km of each store. Most employees are busy preparing the grocery orders received on their mobile terminals; the orders are immediately sent, via conveyors, to a departure platform where deliverymen on motorcycles will rush them to customers.
The Hema app is the heart of customer experience. Customers use this app to order and pay from home. In store, electronic tags on the shelves can be scanned to provide additional information on the products, feedback from consumers, and even the original certificates for certified organic food. The consumers scan the code of each selected item via their cell phone, and then put it in their cart: no need to scan each item again at the cash register. The Alipay app allows the customers to leave the store quickly by going through unstaffed and cashless stations, the full amount being paid electronically.
Not only fresh produce and ready-to-eat displays occupy most of the space, but each store is also a modern and casual restaurant where you can eat with family and friends. In the chain’s most recent store, customers are being served at the tables by actual robots. The variety of seafood being served in the store, kept alive in an aquarium, is impressive. Hema is the largest lobster purchaser in China, each store cooking between 150 and 200 units a day! The quality of displays, combined with the use of state-of-the-art technologies, cooked food platters, conveyors vertically transporting the orders to be delivered, result in an exciting experience for urban customers.
Watch this video.
Hema Fresh has the whole food industry shaking. Well implanted in the south of China, the Y&H chain of supermarkets already responded with their own concept of “New Retail” called Super Species (超级物柛). The European giants Auchan and Carrefour, who have a significant part of their sales in China, feel threatened. Each of them is developing new concepts focussing on ready-to-eat meals and online sales. Auchan is partnering with Alibaba in several subsidiary companies to increase their online sales. Closer to us, Amazon reacted by purchasing Whole Foods.
New Starbucks concepts designed in China
China is now the second largest and fastest growing market for Starbucks. The latest Starbucks concept was designed in China and is being inspired by the ‘New Retail’.
Just outside the Nanjing West Road metro station in Shanghai is Starbucks Reserve Roastery, the world largest Starbucks spanning 30,000 square feet. From one of its huge coffee bars, you can watch the operation of a complete open-plan coffee-roasting and packing plant. A gigantic display enables real-time monitoring of the roasting process. Freshly roasted coffee beans are blown into see-through tubes and reach the bar areas where, listening to pop music, you wait for an original coffee prepared one cup at a time, a cold infusion, or simply a cappuccino. On the first floor is a complete bakery and a tea bar where you can taste the most expensive brewed leaves in the world, or iced tea served on tap.
Prices are much higher than in the USA. It’s packed with people, not tourists but with young Chinese.
Starbucks is currently working with Alibaba to bring the concept to another level. A new fast delivery service modeled after the ‘New Retail’ is being tested. Alibaba’s team has also developed an Augmented Reality (AR) app allowing customers to obtain additional information on the production and brewing processes by simply pointing their smartphone camera towards various sections in the store.
Just like the Alibaba’s Hema stores for families, Shanghai’s Starbucks Reserve Roastery leaves us breathless and has become a cool outing for the young Chinese.
Watch the video ------ >
Large crowds, modern cities, digital apps and retail concepts are among the most sophisticated on the planet: no wonder the young Chinese feel as if they are at the top of the world. So much more is needed to impress them.
Although China is one of the most significant markets in the world, and definitively the fastest growing market, only the companies with a very high level of excellence in their industry can expect to succeed in China (Refer to my blog, Doing business in China).