April 27, 2017

Aldi goes cyber in China

Designer Collection - Leng (photo: Aldi Süd)
Enter the dragon and bring on the girls
It was some Grand Opening in Shanghai this Tuesday. Five weeks after the soft launch, Aldi Süd (Aldi South), Germany's most profitable discounter, officially presented its new online shop to the People's Republic of China. No pains or expense were spared for the official ceremony at the Waterhouse in Shanghai.

The gentle-voiced and incredibly popular, local singer Chen Kun had been recruited for the occasion. Perhaps a little incongruously for a retailer whose initial offer only includes 100 own label food lines, the audience were also treated to a fashion show where young ladies with willowy bodies strutted their stuff on the catwalk.

Of course, it could all have been just a glamour item, but perhaps the privately-run retail giant is hinting at introducing its successful fashion collection to the Middle Kingdom?

At any event, when one considers that Aldi has opened an office with 40 staff in the centre of Shanghai and a big distribution centre in the port of Ningbo, its cooperation with Alibaba B2C platform Tmall Global looks far more than a toe-dipping exercise in the South China Sea.

And as journalists we can only exult because the low-profile retailer authorised country manager Christoph Schwaiger to talk with Lebensmittel Zeitung.

Chen Kun at the Grand Opening of Aldi China (photo: Aldi Süd)
Popular singer Chen Kun opens the show
Aldi may only be selling a limited assortment of wine, snacks, and a variety of breakfast and organic food products in the first instance, but it is tapping into a real need for quality international food brands. This is especially the case after a succession of high-profile food scandals, including baby food, have undermined consumer trust in many local products.

This is clearly why Aldi's new web shop (www.aldi.com.cn) provides copious information on product integrity and traceability and encourages consumers to discuss and recommend its products.

China's e-commerce market is already the largest in the world. According to Shirley Zhu, Asian Programme Director at international grocery research organisation IGD, online is set to more than double its share of the national grocery market to 6.6 per cent by 2020. Ms Zhu points to growing internet and smartphone usage as well as changing demographics: "There is a rising population of young middle-class shoppers leading busier lives."

Aldi isn't the first major German retailer to sell its goods in China. This accolade must probably go to drugstore operators dm and Rossmann. Tchibo is also preparing entry, and there are persistent rumours concerning Aldi arch-rival Lidl.

Meanwhile Alibaba, JD.com and cross-border platform Kaola.com are touting for business in Germany. Over the next three years, Kaola.com, a subsidiary of Chinese online group Netease, wants to buy €3bn-worth of goods in Europe for export to China and to deliver the same via its corporate logistics hubs. Kaola's focus is on food, which it hopes to source from local retail giants Edeka and Rewe. Apparently all parties have been discussing terms since the beginning of the year.

Aldi China logo (photo: Aldi Süd)
Aldi goes Chinese
The potential is huge, says George Godula, founder and MD of Web2Asia, a consultancy which also works for dm and Metro Group: "The broad mass of Chinese haven't even discovered cross-border purchasing yet."

When they do, most of them will probably place their orders on a smartphone. Christoph Schwaiger, an Aldi veteran from Austria who has led operations for the discount giant in China since the beginning of the year, suggested we placed a video call to him on WeChat. At first, we thought it was just a Chinese version of Skype, but WeChat is a smartphone platform offering a universe of services from transferring money to calling a cab or paying at the check-out.

It is almost as if the Chinese skipped a whole generation of PCs and, contrary to our experience as consumers in the West, simply started their online life with a smartphone. This would seem to be just one instance of the huge differences to be found when doing business in China. So it will be interesting to see whether a retailer from Mülheim can comprehend them quickly enough to make money out of them.    



"The Chinese market is completely different"

 

Christoph Schwaiger, Country Manager Aldi China (photo: Aldi Süd)
Christoph Schwaiger
Herr Schwaiger, your online shop only sells food, so why did your Grand Opening ceremony host a fashion show?

We used fashion designed by people resident in China to show how we work up exclusive brands. The show provided a perfect analogy to the way we approach products. We wanted potential customers to feel more closely what makes our brand so special and how we offer exceptional quality and excellent value for money.

Why go to China when the Indian online market is growing faster?

Obviously we look at a lot of countries, and both markets are interesting, but China is more developed. The People's Republic has been growing steadily for around 25 years, and that growth looks set to continue. Also, one should not forget that the Chinese middle class is eight times bigger than in India.

Why is the Chinese online segment so attractive?

China has its own unique "ecosystem", which will provide us with excellent potential for development. There is huge customer interest in high-quality food that can be sold online. Aldi can reach these customers with the help of our local partner Tmall Global.

China is the first foreign country Aldi has ever entered without establishing a physical store network. Why are you starting with only an online shop?

One of Aldi's greatest strength is the decentralised way we work and the very individual way we approach each country. The Chinese market is totally different to any market in the West and is continually developing.

Could this approach be replicated in other countries?

I think it is essentially something very specific to the Chinese market.

Do you intend to remain a purely e-commerce retailer in China, or could you build a physical store network somewhere down the line?

We still haven't made any decision on any further steps we might take. That said, however, there is nothing which we would exclude on principle.

But you could easily use what you learn from your online customers to expand with bricks & mortar…

I wouldn't go that far. The first thing we need to do is to find out what products and product groups interest Chinese customers.

Your online shop currently offers around 100 food lines. Presumably you will be extending the assortment?

Yes, we most definitely intend to grow our assortment in order to cater better to the needs of our customers. Baby food, for instance, would be high on our list. Fresh produce is one of the many other possibilities we are obviously considering.

How does a German food retailer organise its logistics in far-away China?

We buy our products from our Australian suppliers who deliver to a central distribution centre in Australia. From there the goods are taken by sea and partly by air to our central distribution centre and bonded warehouse in Ningbo, which is the world's largest port and 213 kilometers south of Shanghai.

Our online orders are sent to the DC in Ningbo where they are made up and boxed. Once the goods have cleared customs, everything goes off to the logistics service provider.

Toast to the Aldi X Tmall fashion feast (photo: Aldi Süd)
Christoph Schwaiger toasts the Tmall leadership at the fashion feast
How quickly can you deliver orders to your customers?

We can get all orders placed before 4 p.m. to customers in major Chinese conurbations within 24 hours, i.e., the next day. Here we are supported by Alibaba subsidiary Cainiao Logistics.

You said conurbations. Presumably that means you don't deliver to every village dweller in China?

We deliver to everyone. Cainiao Logistics optimises the logistics channels and the value added. They find the right provider for each region because we currently have no exclusive delivery partner.

How are you organised at head office in Shanghai?

We have 40 staff in the centre of town. Aldi South brings the Aldi spirit and our local team the Chinese spirit into the mix. It's a really good mix, believe me.

Is your new web shop really only a test, or do you intend to establish permanent operations in China?

Now that we have had our Grand Opening, we must convince Chinese customers of the quality of our products. This may or may not lead to the creation of a platform we can expand from.

You asked us to interview you on WeChat. Could Aldi offer its services via WeChat in the future, or would it be difficult to work with a competitor of Alibaba?

No, it was for purely practical reasons. We are very happy with Alibaba as a strategic partner. Lebensmittel Zeitung had a presentiment in November that we were going to work with them. We are delighted to officially confirm that presentiment today!


Related article in German: "Chinas Online-Markt reizt immer mehr Händler" by Jens Holst, Mike Dawson & Iris Tietze and "Der chinesische Markt ist völlig anders" by Mike Dawson & Jens Holst on page 10 of Lebensmittel Zeitung, no. 17, 28.04.2017. Lena Bökamp has also created a picture gallery of the event on LZnet: "Aldi feiert China-Start auf dem Catwalk".


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