In a recent announcement, Alibaba’s logistics arm, Cainiao, announced plans to expand its owned warehouse network to almost 5m sq m by 2016. According to the plan, the top tier warehouse network will be concentrated in 8 to 10 cities such as Beijing, Shanghai, Guangzhou and Wuhan and the lower tiered network will be operated and managed by partners and businesses that sell on Alibaba’s platforms.
In addition, it’s also expanding its grocery distribution centre network to seven such facilities as well – Chengdu, Tianjin, Shanghai, Suzhou, Guangzhou, Jinyi and Wuhan. The network will support its online Tmall supermarket vertical which sells groceries, pantry-items and other non-perishable fast-moving consumer goods.
The goal of much of these plans is the ability to offer next-day deliveries to more locations. According to Judy Tong, President of Cainiao, Alibaba will be able to increase its next-day deliveries from 34 to 50 cities by the end of this year. However, this is still less than what its primary competitor offers. JD.com provides same-day delivery in more than 43 cities and next-day deliveries to more than 256 cities.
Still, Alibaba’s reach is great. Its Cainiao network has over 20,000 service points across China and its rural strategy is ongoing with plans to set up operations in 1,000 rural counties and 100,000 villages.
But, JD.com’s reach is great as well and it is also expanding. The difference between the two companies is of course JD.com has its own logistics subsidiary that is closely managed whereas Alibaba’s logistics subsidiary, Cainiao, is 48% owned by Alibaba and is primarily a data centre that analyzes deliveries, distribution and other logistics services performed by its partners. However this appears to be changing with the increased investment in its owned warehouse network. In addition, it has made a financial investment in one of its logistics partners, YTO Express, and has noted there will likely be similar investments in the future.
And indeed, according to Reuters, commenting on these changes the President of Cainiao said, “People may think that an internet company shouldn’t have property but Cainiao cannot just be a pure data company. It has to be an integrated company with data and an efficient logistics network. An app can’t solve the problems of logistics.”
So, it seems there will be an increased focus on its logistics network as Alibaba fends off increasing competition in the Chinese e-commerce market. According to the WSJ, Cainiao terminated the services of eleven courier companies from its platform for either fake transactions or for failing to share data.
How Alibaba’s Cainiao evolves as it enters its third year will certainly be interesting to watch as competition increases in not only the Chinese e-commerce market but the small parcel/express in general as well.