Alibaba likes to advertise its grocery stores. That may puzzle investors, who prefer to focus on the group’s manic revenue growth rather than vegetable margins at its Hema supermarkets. But it is worth remembering that the group ultimately deals in data, not durians.
True to form, the Chinese ecommerce company reported a 61 per cent increase in quarterly sales to Rmb55bn ($8.3bn) on Thursday. But margins slipped; before interest, tax and depreciation they were 42 per cent, down 5 percentage points on the previous year. Operating in the real world is expensive.
Still, offline operations such as grocery stores or vending machines for cars, are experiments in businesses that could ultimately allow the company to collect even more information. They are still small beer next to the core business of renting digital infrastructure to merchants and delivery “partners” to facilitate commerce and consumption. Merchants can use the insights so generated to bid for favourable placement on ecommerce websites like Taobao or Tmall. This activity contributes 86 per cent of revenues.