Last week, when Alibaba Group CEO Daniel Zhang (张勇) laid out the e-commerce giant’s strategic direction for 2016, he stopped short of calling it “Alibaba Everywhere”.
Zhang said in addition to targeting first-tier Chinese cities, the company in 2016 would continue to promote e-commerce among more than 600 million rural consumers across the country.
According to data provided by the State Statistics Bureau in October 2015, retail sales of consumer goods in rural China have increased by 11.7 percent, reaching RMB3,023.7 billion (US$472.6 billion) in the first three quarters. This is 1.4 percent higher than urban retail sales.
With the Lunar New Year less than a month away, Alibaba outlined plans for its 'Ali Chinese New Year Shopping Festival' that will be "encouraging two-way trade between urban and rural areas".
The online festival will be jointly presented by Rural Taobao (农村淘宝), an arm of Alibaba Group which focuses on rural e-commerce, as well as Taobao Marketplace, Tmall.com and Juhuasuan.
Domestically produced agricultural products from rural China will be showcased for urban consumers via Rural Taobao. At the same time, there will be an extensive range of Chinese New Year goods from more than 500 premium overseas brands made available to Chinese farmers for the first time at scale.
Rural Taobao will also organise free Chinese opera performances and sponsor 10,000 Chinese New Year’s Eve dinners for rural communities.
Meanwhile, Taobao Marketplace will launch a sales channel called ‘Time-honored brands‘ (百年字号) to bring together home-grown brands that are widely recognised in China for having their products/services passed down through generations. Mobile Taobao will launch related location-based services accordingly to help consumers find nearby stores selling these brands.
And this is where the plot takes a twist, according to Mark Tanner, managing director at China Skinny. Beyond the hype of rural consumers being China's biggest untapped opportunity, most foreign brands are likely to see little upside, he said.
These rural consumers are much more price-sensitive and nationalistic in their brand choices, which will see local brands reap most of the growth. This has been the case in lower-tier cities in general, where residents are less open to foreign brands than their big-city cousins, Tanner pointed out.
"I think what we are seeing right now is the major e-commerce players like Alibaba really laying the groundwork for future growth," said Ben Cavender, principal at China Market Research Group (CMR). "Capturing these rural consumers who previously had very poor access to brands and products is going to be critical for future revenue growth given how competitive the e-commerce market already is in first and second tier cities."
At present, most of these rural consumers are going to be cost-conscious and may favour localised brands that do the best job of catering to their specific needs, he said, echoing Tanner's view.
However, increased maturity and exposure to foreign cultures through online media and overseas travel will see more people trading up from cheap to mid-priced products from foreign brands, said Tanner.
Foreiegn brands positioned and priced correctly, with strong distribution networks in these cities, are likely to see good growth, and they may want to use Alibaba and other platforms to access these consumers now, advised Cavender—even if it is primarily as a marketing exercise. In the long-term, many of these rural consumers could become potential buyers of foreign goods, he said.