China’s e-commerce players are in an increasingly fierce battle for market share, with seafood playing an outsized role.
Alibaba disappointed investors when it lowered its expectations for sales growth in 2022 from a previously announced 30 percent to a new projection of between 20 and 23 percent. The company made the downgrade when announcing its results for the third quarter, blaming “softer market conditions.” While its revenue rose 29 percent year-on-year, its net income dropped 87 percent to CNY 3.4 billion (USD 544 million, EUR 476 million).
All of China’s e-commerce players appear to be facing a maturing of the market, as retail sales growth in China has shifted from the double digits regularly reported in the latter end of the last decade. In August 2021, retail sales in China rose just 2.5 percent (compared to the 7 percent projected by many economists), with September’s growth at 3.3 percent and October’s at 4.9 percent year-on-year.
Long the preferred channel of major seafood brands, Alibaba is losing its grip on the market. In gross merchandise value (GMV) terms, Alibaba saw its share of Chinese online commerce sales drop to 48 percent in the first half of this year, from 62 percent in the same period last year. Making matters worse, Chinese regulators hit the company with a USD 2.8 billion (USD 448 million, EUR 392 million) fine in April 2021 for monopolistic practices, such as compelling merchants to sell on its portals exclusively.
Faced with lower demand and greater competition, Alibaba and rival JD.com are having to spend more to acquire new customers. They also face competition from short video social media platforms like the TikTok-style Douyin and Kuaishou, both of which have sought to maximize revenue through e-commerce, as well as smaller e-commerce firms like Dingdong Maicai and Missfresh, which have sought to carve out a market position in the fresh grocery segment. Both those chains are struggling as well, and several analysts covering the sector have predicted consolidation in China’s e-commerce market.
Dingdong Maicai, which has been a big purchaser of seafood for its home-delivery meal-service and a distributor of fresh seafood, reported a net loss of CNY 2.01 billion (USD 313.3 million, EUR 281 million) in the third quarter of 2021, more than double its loss in the same period last year. The loss came despite the company’s revenue soaring by 111 percent to CNY 6.18 billion (USD 988 million, EUR 865 million). In its fight for market share, Dingdong saw its fulfilment expenses rise 120.8 percent and its sales and marketing costs balloon by 207 percent year-on-year.
Dingdong Maicai also suffered significant losses in Q2 2021 and a rough initial public offering in June 2021. But the company’s CEO, Changlin Liang, said in a note to investors he is “more optimistic” about the company’s profitability timeline. Liang described a “momentous era” for China – a “period of prosperity” in which people are upgrading their consumption habits – as a unique opportunity for his company. But for the first time, Liang said Dingdong will now focus on “serving higher-value users.”
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