Sainsbury's has begun selling premium-branded products in China using Alibaba's online platform. The grocer revealed last week that it is using Alibaba’s Tmall website to sell a number of ambient products to the Chinese online market, including its So Organic and Taste the Difference ranges.

The retailer is capitalising on its near-150-year UK heritage by offering classic components of the British afternoon tea including speciality teas, coffee and biscuits to Chinese customers alongside its own-brand items including organic British milk.

Sainsbury's launched its Tmall website to feel distinctly British with its blue and red colouring and iconic flag in clear view. It seems the grocer is hoping to tap into the affluent, middle income group of Chinese shoppers who are looking for aspirational shopping by associating Britishness with quality.

But what exactly will the retailer gain from this soft Chinese launch on Alibaba's platform?

Test and learn

Steve Mader, VP digital and retail insights at Kantar Retail, told Essential eCommerce that a lot of Western retailers are looking at Alibaba as an interesting place to test and learn about the Chinese market in a relatively low-risk way, pointing to Costco which is aggressively using Alibaba to deliver 5,000 SKUs into the region.

“This is a brand awareness exercise for Sainsbury’s which allows it to dip its toes into the water,” he said, noting that the UK grocer is unlikely to enter the region with stores in the near future, while by comparison, Costco with its aggressive play in the market could possibly do so. 

“Sainsbury’s will get some good data and it will be a good place to do testing and learning about the Chinese shopper and it can also leverage those insights and data back into the UK," he added.

Choosing Alibaba as a launch partner also allows Sainsbury’s to not be burdened with the complexities of launching internationally.

"Alibaba allows a retailer or brand to set up shop, providing them with a sandbox, and the platform has a significant amount of capabilities around data," explained Mader. "Plus Alibaba runs the plumbing, including the transactions, financial services and partnerships with distributors, so a brand or retailer doesn't need a supply chain."

But with Sainsbury's launch offer – concentrating on its own label groceries, including milk – the retailer will have to ship its products into the market.

"They can [ship products] relatively risk-free," added Mader, noting that it is easier to ship products in than build stores or put capital into a local inventory. "This drives awareness of their products in a low-cost way."

How to make it profitable?

But how efficiently Sainsbury's can get its products into the Chinese market will determine on whether this will be a profitable venture for the UK grocer. Alibaba acts as a marketplace and will take a transaction fee, but Mader said this is a relatively low fixed price per transaction and profitability will be down to shipping products, hence why the grocer has launched with premium organic products, rather than cheaper everyday essentials.

Marketing

And while Mader points out that there are a lot of affluent Chinese shoppers always willing to try new things, Sainsbury’s will still have to invest in marketing as the brand is relatively unheard of in the region.

“Alibaba does a good job of aggregating demand and providing retailers with the ability to connect with those shoppers, but Alibaba won't do all the marketing – it is a platform that the retailer can utilise to drive their own marketing through either social or traditional campaigns to drive awareness and traffic to the site.”

Brand awareness and market leading

Spencer Izard, head of Europe, IDC Retail Insights, agreed that Sainsbury’s is using this opportunity to test the international waters.

"It's a good move for Sainsbury's to dip their toes in the water, but it's not a precursor of launching their own eCommerce platform over there,” he said. “I think they're doing this for a headline grab – there’s not a lot of downsides and people are talking about it.”

He noted that this venture suggests Sainsbury’s is being innovative internationally, while the other UK grocers are still focussed on fighting off the discounters including the problematic Aldi and Lidl.

“Tesco are not going to launch on Alibaba – they’ve been booted on the bottom for expanding internationally,” he noted, referring to the recent exit in South Korea. "And Morrisons is still licking its wounds from losing its local stores."

“It’s a nice headline, and Sainsbury’s has nothing much to lose and the ability to do fulfilment into the country – but that’s not a big deal in the modern world.”

But Izard also warned research suggests Alibaba is overinflating its business revenue, which could cause problems for the grocer when it comes to make the venture profitable.

"Combined with the potential cooling of the Chinese economy, you don’t want to push in on that front too hard," he added.