China’s 7 million family-run mom-and-pop stores still form a common sight in the streets outside the major cities, together they make up half of the China’s consumer goods sales (Chan & Yang, 2019). These small stores are still only run by families without any business knowledge, buying power with suppliers or the capital to invest in the appearance of their stores. As a result, owners struggle to make a decent income running a sketchy inefficient store. Resident hyperscale retailer Alibaba noticed the size of this market and the struggles of store owners and decided to make a business model out of it…
Meet Ling Shou Tong, Alibaba’s ecosystem to modernize traditional mom-and-pop stores through digitization. First of all, stores that join the platform undergo a full rebranding and makeover to the Ling Shou Tong (LST) appearance. Next, they receive access to all Ling Shou Tong’s digital tools, including an inventory and POS system with a mobile app that streamlines ordering new products at Alibaba. Lastly, they are included in Alibaba’s distribution network, where ordered supplies arrive the next day for fast-movers or in two days for slow-movers (Brick meets click, 2018). The best part of it all is that they get it completely for free.
The impact of the platform on the small stores is huge, suddenly owners are running modern well-managed mini supermarkets, boosting their reach and therefore sales. In addition, Alibaba can leverage the consumer sales data of their entire network of stores to make consumer demand predictions and recommend products serving the needs of consumers within a 300-meter range (Lidsky, 2019). In practice, this means that an LST store can stock up on infant milk in “baby-rich” neighbourhoods and pet supplies in areas with a high concentration of pet owners (Chan & Yang, 2019).
At the other side of the market, over 75% of China’s major CPG players have joined the platform to sell their products at the well over 1 million transformed stores on the platform (Lidsky, 2019). Additionally, the immensely accurate consumer data that the platform generates will be very interesting for their product development. Combined with the rural area distribution system Alibaba is able to set up, makes the CPG players very dependent on the hyperscale retailer.
Both sides of the market are completely controlled by Alibaba and other hyperscale retailers, like JD.com. Especially the small store owners now depend on these players for the food on their plates and the roofs above their heads, raising questions if such a platform does not make Alibaba too powerful. What do you think? Do the benefits of the platform outweigh the power Alibaba accumulates? Share your opinion in the comments below!
https://youtu.be/bnOV_-DVofI
Sources
– Brick meets click. (2018, January). Alibaba initiates new “integrated retail” collaboration with small store owners. Retrieved 5 October 2020 at https://www.brickmeetsclick.com/alibaba-initiates-new–integrated-retail–collaboration-with-small-store-owners.
– Chan, W.C & Yang, J. (2019, January). Partnerships: Key to Success in the Online Age. Oliver Wyman. Retrieved 5 October 2020 at https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2019/January/Boardroom-Vol4/Keys%20to%20Success%20in%20the%20Online%20Age_web.pdf.
– Lidsky, D. (2019, May). How this Alibaba executive has wired up more than one million Chinese mom-and-pop stores. Fast Company. Retrieved 5 October 2020 at https://www.fastcompany.com/90346070/most-creative-people-2019-alibaba-lingshoutong-kevin-lin.
Hi Jelle,
Great post! I live in China and I have indeed observed the trend of cooperation between small stores and e-commerce platforms such as Alibaba and JD. From my perspective, stores will have better decoration after this kind of cooperation, and I am more willing to go shopping. And your post allows me to understand the benefits of this collaboration from a data perspective, which I haven’t thought about before.
Also I would like to share another benefit of such digitalization. Since Alibaba and JD.com are eCommerce platform, they run the logistics system. Cooperating with mom-and-pop stores can improve consumer’s delivery experience, because it solve the first mile and last mile problems. People can easily sand or receive their parcels through the stores, which is really convenient.
Really interesting post!
Yue
Hi Yue, thank you for your comment, really cool to hear the perspective of a Chinese resident! I have indeed also read about the whole logistics system. It seems that them controlling the logistics system in especially the more rural areas of (west-) China is also a great asset to use against CPG companies. Not only do Alibaba and JD own the data they are interested in, they also have a logistical network in areas where it can never be viable for a large CPG companies to build, limiting the power of CPGs even more. Not sure if you have any more local knowledge on this topic?
Cheers, Jelle
Nice post, since Alibaba succeed from B2B platform, it is worth to know they even expand their portfolio to local market. It is true that they can earn a lot for data and market power from those solution but I think it is good approach to make a digital foundation for local market and live together. However, it might be problem in the future that they suddenly increase the price for small retail store using monopolistic power.
Hi Jelle! Thanks for sharing this interesting topic. It is amazing how Alibaba identified this opportunity and created a platform that supports primarily the owners of the mom-and-pop stores as well as the food suppliers. Ling Shou Tong enables small store owners to improve their operations with zero investments and FMCG suppliers to gain easier access to these retail stores, which were previously more challenging to cooperate due to the significant layers of distributors (Koe, 2019). For example, Nestlé China sells its products via Ling Shou Tong stores. The company also held a Super Brand Day to promote its products in the stores.
Alibaba obtains tremendous gains from this ecosystem creation, as its tools create enormous amount of data, which can be utilized to obtain further customer and product insights. Powerful network effects are created since the more mom-and-pop stores join Ling Shou Tong, the more suppliers want to invest and gain insights from Alibaba’s platform. I firmly believe that it is a great opportunity for mom-and-pop stores to utilize Alibaba’s platform to modernize their operations. However, Alibaba gains even more power, due to the huge stream of data created through its platform. It still remains a concern on how Alibaba will utilize these insights. The significant dependence of the small store owners on Alibaba is another issue (Nieuwoudt, n.d.). Finally, the market of mom-and-pop stores has rising competition, since JD.com is also competing in the market, which creates even more pressure for the small store owners to join one of these competing solutions. To sum up, although drawbacks do exist, I consider that the mom and pop store owners will gain significant advantages when cooperating with Ling Shou Tong and will be able to face the increasing competition in the market.
Bibliography
Koe, T., 2019. Omni-Channel Presence: Nestlé China Taps On Alibaba Ling Shou Tong Model To Reach More Mum-And-Pop Stores. [online] foodnavigator-asia.com. Available at: [Accessed 6 October 2020].
Nieuwoudt, T., n.d. Alibaba – Search For Mom-And-Pop Store Dominance In China. [online] The Supply Chain Lab. Available at: [Accessed 6 October 2020].
Hi Rania, thank you for your compliment and very extensive comment! I was also reading on these “brand partnerships”, where CPGs are directly involved in the store. As you mention Nestlé as an example, you will probably also have noticed the example of Nestlé introducing single packaged Oreo cookies in the LST stores, based on the consumer data they gathered? I feel it is really cool to see how CPGs can leverage this data to become more consumer-centric. Such a small change in packaging would sometimes just surprise you on what impact it can have!
Cheers, Jelle
Very interesting! I was not aware of this.
In the long run, there is a lot to be said about monopolistic digital giants that make entire ecosystems dependent on them.
In the short run, this actually seems to be improving the branding and operations of these mom-and-pop stores. How Alibaba manages this dependency is critical when considering whether the good outweighs the bad this time.
This reminds me of one of the U.S. congress’ allegations targeting Amazon for misusing data of sellers on their platform, by building competitive products and underpricing them.
If Alibaba misuses its data to compete with the mom-and-pop stores, either by influencing buying behaviour or building a parallel distribution channel, or if it misuses its strong bargaining position to squeeze the store owners for their last pennies, the bad will definitely outweigh the good. If not, this might actually be a good thing in the short run.