China’s two retailing powerhouses, online commerce pioneer Alibaba and social media-gaming pioneer Tencent, have systematically established a duopoly of record proportions in record time. Combined, they have spent more than $20 billion in the past 12 months alone to change the way people in China shop. (The precise value of their investments cannot be determined, given that many of them are undisclosed or private deals. This figure, along with some others in this article, are drawn from a Bain analysis.)
It started when online retailer Alibaba made the seemingly counterintuitive expansion into the brick-and-mortar world. To do this, they invested heavily in everything from Lianhua supermarkets to Intime department stores to electronics retailer Suning. Alibaba is now working to connect China’s millions of mom-and-pop stores with their internet-based distribution network, an initiative called Ling Shou Tong. It has opened futuristic Hema Xiansheng supermarkets, where consumers use the Alipay app to order groceries or prepared food for delivery to their homes—in many places, within 30 minutes.
Tencent took a different path to becoming China’s other retail leader. It began life as a social networking services company, and then added gaming, electronic payments, media content, cloud computing and devices. With successive investments into Chinese e-commerce company JD.com, it has become China’s No. 2 online retailer only four years after entering the retail industry. It invested in Yonghui, one of the fastest-growing Chinese grocery chains, and partnered with Carrefour and Walmart (which also owns 12% of JD.com). Among many other advances, with JD it created the fresh-food supermarket chain 7Fresh and invested in social commerce app Pinduoduo, a rising e-commerce company targeting the country’s booming smaller cities.
Alibaba and Tencent each is valued at around $500 billion on public markets, and both act as the SoftBank or Berkshire Hathaway of the new Chinese economy, investing in hundreds of companies at all stages. With their mounting arsenals of digital and physical assets, each has created its own closed-loop opportunity capture as much information as possible about a consumer — all day and night, at any browsing or buying moment. They gain invaluable data that fuels everything from hyper-targeted marketing to store locations to product assortment to pricing. Now, with a combined 80% market share of the world’s largest e-commerce market and stakes in four of the top five hypermarket and supermarket chains in China, a fundamental question looms: Is there space for anyone else?
China’s retail landscape has room for companies to elbow their way in. However, in China there are two decisions that guide any retailer. The first one is choosing sides: Do you want to align with Alibaba or go with Tencent? For any retailer hoping to earn its slice of China’s expanding retail pie, at least for now, there is no alternative but to play alongside one team or the other — and there are pros…