JD.com will invest US$800 million in Dada Nexus, the operator of rapid delivery service JD Daojia, in the latest move by the Chinese e-commerce giant to establish a stronghold in the burgeoning community group buying sector ahead of a public listing of its JD Logistics unit in Hong Kong.
JD.com founder Richard Liu Qiangdong is leading a newly-established community group buying business, according to Chinese media, and this latest move shows the strategic importance of a sector that has become a key battlefield for Chinese internet giants from Meituan to Pinduoduo. Alibaba Group Holding, which owns the South China Morning Post, has also embraced the business model that allows residents in a community to buy groceries and other daily essentials in bulk at prices cheaper than what they would pay individually.
Analysts said JD.com is trying to maximise its logistics advantage by doubling down on Dada Nexus, which operates JD Daojia and Dada Now, an on-demand delivery platform, since fast delivery is critically important in the community group buying business. After the latest investment, JD.com’s equity stake in Dada will increase to 51 per cent.
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
With control of Dada, together with JD Logistics – which has 240,000 delivery workers and service crew and more than 800 warehouses across the country – JD.com will be able to speed up its deliveries. Separately, JD Logistics has filed an application to list its shares in Hong Kong.
“Our increased investment will facilitate the expansion of on-demand retail and delivery, as well as omnichannel collaboration,” Xu Lei, chief executive of JD Retail, said in a press release. “This will help further diversify our retail services [and] enable our partners, especially real economy enterprises … to accelerate their intelligent digital transformation to deliver faster, better and richer services for consumers,” Xu said.
Although JD Logistics has built an extensive network for local delivery service and a strong supply chain for groceries and home appliances, it needs to integrate resources and increase cooperation to effectively compete in community group buying with the likes of on-demand services giant Meituan, e-commerce platform Pinduoduo and ride-hailing firm Didi Chuxing.
“By leveraging the last-mile delivery of Dada, JD can optimize its logistics system and upgrade its local delivery service for community group buying,” said Li Chengdong, chief executive of e-commerce consultancy Dolphin Think Tank. “Dada also wants to compete in the sector as competitors have diminished its value in on-demand grocery delivery.”
A late comer to the sector, Beijing-based JD.com has been expanding its community group buying business since last year. In a conference call with analysts last week, group chief financial officer Sandy Xu said the company sees great potential for the emerging buying model and is specifically targeting consumers in lower-tier cities.
“We will take a somewhat differentiated approach to be more focused on supply chain and logistics networks and leverage our existing capabilities,” Xu said, adding that JD prefers to add value through the supply chain rather than dish out subsidies, which have been accused of hurting the livelihoods of millions of workers employed in traditional wholesale and retail industries.
In December, JD invested US$700 million in Xingsheng Preference, a community group buying start-up in China’s southern Hunan province. Separately, JD invested US$103 million in agricultural products provider China Dili Group and launched its own community group buying app on Tencent Holdings’ super app WeChat to expand its reach into the market.
Community group buying has brought Big Tech’s disruption to China’s smaller cities but are they ready for it?
The community group buying market was worth about 240 billion yuan (US$36.9 billion) last year, according to research firm EqualOcean, as the sector continued to gain traction from consumers. Li Qingshan, vice research director of EqualOcean’s consumer department, said JD’s Dada strategy would also fill a missing piece of its supply chain puzzle by enabling on-demand last-mile delivery for fresh produce and other groceries.
The rapid growth of community group buying has seen it come under intense government scrutiny as Beijing attempts to rein in the influence of Big Tech. In March, China’s market regulator fined Alibaba-backed Nice Tuan, Tencent-backed Shixianghui, Pinduoduo’s Duoduo Maicai, Meituan Youxuan and Didi’s Chengxin Youxuan, for slashing community group prices to edge out rivals, a practice that breached the country’s Pricing Law.
More from South China Morning Post: