Would a Kroger/Alibaba partnership make sense?
Source: www.alibabagroup.com

Would a Kroger/Alibaba partnership make sense?

Alibaba, China’s largest online retailer, has held preliminary talks with Kroger on a potential partnership, according to a report last week from the New York Post.

An Alibaba spokesperson told CNNMoney that the conversations with Kroger were about boosting Kroger’s presence in China. A CNBC report likewise said Alibaba has been seeking out U.S. and Canadian companies interested in selling in China as well as in its cloud services and payment products. Kroger declined to comment on the report.

Regardless, most reports – including those from CNN and CNBC – spent more time speculating how Alibaba could help Kroger become a fiercer competitor in the U.S.

“The value to consumers in the United States is that it would break the duopoly of Walmart and Amazon,” Brittain Ladd, a retail and supply chain consultant, told CNN. “Alibaba/Kroger would give consumers additional choices. In addition, Alibaba would drive down consumer prices.”

Kroger, according to reports, would be able to sell more general merchandise online to compete better with Amazon, Walmart and other rivals. It could possibly sell directly to customers on Alibaba’s site, which also includes third-party sellers.

Another benefit for Kroger would be tapping Alibaba’s online prowess, including the Alipay platform and its logistical expertise to support home delivery. Alibaba also operates supermarkets that use cashier-less technology similar to Amazon Go.

“I think this would involve two things, technology and capital, which Alibaba has in spades,” NYU marketing professor Scott Galloway told the New York Post. “Kroger has scant technology and relative to Amazon has scant capital.”

News of the conversations arrive amid reports over the last few weeks that Kroger was interested in acquiring both Boxed and Overstock.com to accelerate its online push.

Alibaba, which already has a presence in the United States with several data centers for its cloud computing business, would establish a major foothold in the U.S. In a note, according to Barron’s, Morgan Stanley called the partnership a “natural extension” for Alibaba as a third-party marketplace and could drive its newer strategy of fully integrating online, offline and logistics.

BrainTrust

"Alibaba’s online capabilities and advanced technologies combined with Kroger’s physical assets could lead to interesting cooperation."

Nir Manor

Retail-Tech Specialist Advisor


"There are some key differences that really DON’T translate. There is more to omnichannel than just slapping two technologies and processes together!"

Charles Dimov

Vice President of Marketing, OrderDynamics


"While I don’t imagine Kroger is thinking of brick-and-mortar stores, a Kroger online store with American brands could be very successful."

Gene Detroyer

Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.


Discussion Questions

DISCUSSION QUESTIONS: What would Alibaba offer to Kroger in a partnership and vice versa? Does Kroger likely need a major online partner such as Alibaba to even the playing field with Amazon, Walmart and others?

Poll

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Charles Dimov
Member
6 years ago

Whether or not this is the right match is debatable. It would be an interesting counter-maneuver to Amazon-Whole Foods. However, Alibaba really doesn’t have the presence that Amazon has in Western markets, or in the U.S.

If they do proceed, then they should learn from the Whole Foods “barren shelves” fiasco. Any co-opetition should be taken on with respect for each business — don’t try to run a physical retail establishment like an online store. There are some key differences that really DON’T translate. There is more to omnichannel than just slapping two technologies and processes together!

Chris Petersen, PhD.
Member
6 years ago

Supply chains are increasingly global. Consumption remains primarily local. Kroger needs a partner like Alibaba to scale. Alibaba benefits with local Kroger’s solid base of customer relationships in the U.S. As to whether Kroger can do business in China, that answer might best be found in a fortune cookie.

Brandon Rael
Active Member
6 years ago

An Alibaba and Kroger partnership could prove to be a very significant and disruptive shift in the grocery industry. This move would empower Alibaba to enter boldly into a U.S. marketplace dominated by Walmart and Amazon and, in parallel, Kroger would benefit significantly with the support and technological might of Alibaba’s expansive digital platform.

This would be a clear win/win strategy for both companies, especially for Alibaba, which has proven to be omnipresent across the Chinese digital commerce marketplace. For Amazon and Walmart, Alibaba’s low pricing, agile and almost real-time promotional strategies will prove to be a competitive force to be reckoned with.

Max Goldberg
6 years ago

Kroger could help Alibaba broaden its U.S. offerings by adding grocery and brick-and-mortar stores. Alibaba could bring significant e-commerce experience to Kroger. On paper, this seems like a match made in heaven. The reality of combining two diverse, different corporate cultures might not be so easy. If this combination were successful, it would vault Kroger/Alibaba into the ranks of Walmart and Amazon.

Nir Manor
6 years ago

In China alignment with brick-and-mortar retailers is a part of Alibaba’s strategy, mainly to drive their Alipay and other related technology and possibly gain more physical stores to improve last-mile delivery.

Obviously Alibaba’s online capabilities and advanced technologies combined with Kroger’s physical assets could lead to interesting cooperation. However given Alibaba’s currently small foothold in both offline and online retail in U.S. markets, it is uncertain if this alliance can really become a rival to the duopoly of Amazon and Walmart.

Gene Detroyer
Noble Member
6 years ago

Two points:

  1. Alibaba is interested in places where they can have a competitive advantage based on developing countries where they have solved the delivery challenges. They have no competitive advantage in the U.S. or Western countries that are serviced by the likes of UPS and FedEx and USPS. Alibaba is looking to South Asia, India and Africa to expand their business. And they understand that Amazon can’t be competitive in these countries.
  2. Chinese customers love American brands. While I don’t imagine Kroger is thinking of brick-and-mortar stores, a Kroger online store with American brands could be very successful. This is a low risk, high opportunity endeavor.
    Phil Chang
    Member
    6 years ago

    The overseas play for Kroger makes some sense to me. We’re probably going to talk about a lot of partnerships in the coming days, but the one thing to keep in mind is that today’s retail is all about leaders. Retailers need to lead, not follow. The last 20 years have been about following, copying and repeating for success.

    The new consumer, the new age of retail, demands more from the players. You can’t follow and build like partnerships … copying and imitation isn’t flattering and will get you nothing. You need to find your “why” and differentiate. Doing a partnership because everybody else is thinking about one isn’t going to help you if your base proposition doesn’t resonate.

    Kai Clarke
    Kai Clarke
    Active Member
    6 years ago

    Alibaba is not a competitor in the US marketplace, nor does it have a presence in the USA. It is China based, China focused and offers no true distinct advantage to establishing a stronger USA presence for a leading American grocer like Kroger. Kroger needs to either buy or build the technologies to take it to the next level while becoming a major online grocer. Just because Alibaba is a large company doesn’t mean it has expertise in all online fields, or doing this anywhere it wants in the world. Business in the USA is distinctly different than in China.

    Lee Peterson
    Member
    6 years ago

    What strikes me as “off” about this deal is culture. Have you ever heard Jack Ma speak? Highly intelligent and motivational. Conversely, have you ever heard anyone from Kroger speak? Do you know the name of anyone from Kroger?

    Whole Foods and Amazon = two cultures made for each other. Kroger and Alibaba is like a dinosaur talking to Stephen Hawking. How are they going to communicate? And knowing how Kroger’s operations are set up (regionally), it’s almost impossible to dictate universal thought and a sense of common urgency. Then there’s the unions.

    Seem like the “talks” may have been more about Alibaba selling something to Kroger and working together in that fashion. But beyond that, we’ve got apples and oranges.

    Craig Sundstrom
    Craig Sundstrom
    Noble Member
    6 years ago

    I’m sorry, but I just can’t take seriously someone who uses the phrase “duopoly” in conjunction with Amazon’s place in grocery, a market share that still measures in the low single digits. Presumably he’s talking about online only, but since, as we saw in the FMI discussion, online’s share is also only in the single digits, that misses the whole picture … badly.

    As for this idea, I’m not sure whether Alibaba sees more from Kroger’s experience as a way of helping in China, or Kroger’s market share as a way of helping in the U.S. Either way, I foresee a lot of cultural and technical issues to work thru … and perhaps political ones as well.

    Brittain Ladd
    Brittain Ladd
    Member
    6 years ago

    When I recommended that Alibaba acquire Kroger in a 2017 LinkedIn Post, one of the first individuals to respond was a senior executive from Alibaba giving his support to the idea.

    When one views the retail landscape in the USA, there are two dominant retailers — Amazon and Walmart — which meets the definition of a duopoly. Over the next 10 years, Walmart and Amazon will only become more dominant.

    Alibaba entering the USA, potentially through an acquisition of Kroger, would offer consumers an interesting alternative to Amazon and Walmart. The goal is not to dismantle Kroger. The goal is to leverage Kroger as a platform upon which to introduce a new retail model to Kroger customers whereby technology, general merchandise, groceries, and a best-in-class payment method, delight Kroger customers and drive increased market share.

    Simply put: As I wrote in my post, Kroger needs to create an omnichannel experience to prevent their customers from turning to Walmart, CVS, Walgreens, Target and/or Amazon for many of their retail needs. Capital, technology, and innovation are must-haves in creating such a business model.

    I wrote that three primary options exist for Kroger:

    1. Merge with Target.
    2. Be acquired by Costco.
    3. Be acquired by Alibaba.

    Two Secondary Options were also recommended:

    1. Acquire Boxed Wholesale.
    2. Acquire Overstock.Com

    Few recommendations are perfect, hence the reason why multiple options were presented.

    Dan Frechtling
    6 years ago

    Retailers vetting prospective partners need to consider the “who” and the “what.” Amazon seemed an attractive alliance partner for Circuit City and Toys “R” Us, but the partnerships ended in failure and legal action. Amazon offered an effective online distribution platform and cutting edge personalization, but none of that mattered when Amazon began competing against its partners in electronics and toys. Amazon’s “who” mattered more than the “what” because its assets were outweighed by its mission to disrupt retail.

    This is a cautionary tale for Kroger and Alibaba. Alibaba can offer Kroger a tempting solution for omnichannel fulfillment and faster transformation of logistics and store operations. But Alibaba’s long-term mission is to rival Amazon in Western markets, and it may mimic Amazonian tactics with regard to erstwhile retail allies. Similarly, China beckons as a large market for American goods. But Kroger products can easily get lost among cheaper counterfeit knockoffs.

    Kroger is wise to target innovations in store systems, fulfillment, inventory management, marketing and the like to compete better online and omnichannel. But as much as the “what” makes sense, the “who” the choose to accelerate their progress is just as important.

    Lisa Goller
    Trusted Member
    6 years ago

    Yes, this strategic partnership makes sense for both companies. Kroger needed to make a play to catapult its business closer to market leaders Amazon and Walmart.

    (I actually thought Amazon would acquire Kroger for its data, personalized marketing and physical stores. Kroger’s 2700 stores provide far greater national reach than Whole Foods’ 460 stores.)

    Alibaba offers Kroger global top-of-mind brand awareness, especially in China. Alibaba’s e-commerce excellence will help Kroger to accelerate its e-grocery strategy – a massive 2018 trend.

    Kroger gives Alibaba exceptional, data-driven marketing personalization to help the Chinese e-commerce giant get closer to American consumers and adapt its marketing strategy accordingly.

    Both companies gain more robust omnichannel service, brand awareness and access to foreign markets.