This is a story documenting the observations and learnings from the Fynd team’s week in Shanghai & Beijing in July 2018
The points written here are purely our opinions and observations based on our conversations and experiences from our one week in Beijing and Shanghai. They no way reflect the company’s opinion.
It is a fairly long read, but we hope you read it deeply as we feel there is a lot to take away.
We cover our understanding of the psyche of the Chinese consumer and companies, along with our observations as consumers in China.
This China inspiration and immersion is the first trip of many that the Fynd team aims to undertake to better understand adoption of technology in China, both online and offline.
We met representatives of the following companies
In these companies, we met people whose roles encompass marketing, digital innovation, founders/CEOs, investment/corporate development teams and cross-border facilitators among others.
The team was broken into two parts:
- Meet companies to understand the drivers behind the rise of technology and its adoption.
- Being consumers, trying out a variety of things including VR parks, silk mall shopping, bike sharing, etc.
The views below are personal and from our one week experience. These are our first impressions.
From the arrival gate at Shanghai’s Pudong International Airport to one of the main arterial roads close to the Nanjing Shopping Street, was one long – 1.5 hr long- flyover, well designed and marked with signs in English and Chinese. The first thing that hits you in any city you go to is the quantity and quality of infrastructure that has been created. Not just airport areas, but even the railway network is grand in scale. Shanghai Hongqiao Railway station is massive with precise and timely processes for train arrival and departures.
1.1 Upgrade is not restricted to the big cities
Even though we visited only Shanghai and Beijing, our train journey, from one to the other, took us through multiple towns which proved the pervasive infrastructure projects. A person we met told us that
“Take Beijing, chop it off to half the height, and it will look like any other Chinese city”.
Everything else on the ground level is as developed as any of the other top 5 cities. China’s 5 tiers of cities have 120 cities in the Top 3, with a population of greater than 100 million people. The high speed rail network ferried us from Shanghai to Beijing, a journey of 1,200km+ in less than 5hrs 45mins. 60% of China is urbanized and thus have access to world class infrastructure in terms of roads, railways, electricity, telecommunications and housing among other things.
1.2 Mature Logistics Network
Large investments in infrastructure over the last 30–40 years has also paved the way for a mature and deep logistics network. We see this even within cities, where food delivery electric scooters or parcel delivery “tuk-tuks” zip across all over the city.
Unmanned delivery vehicles, either as drones or cars, are being seriously experimented with in a few areas in China. There are 2 provinces that have given rights for drone deliveries on fixed routes.
Robots operating on roads deliver small packages within a few university campuses.
We heard consumers poking a jab at Amazon Prime, saying, why sign up for 2 day delivery with prime, when we can get 2 hour delivery from Daily Fresh or 1 hour delivery from Walmart China for free!
1.3 Cheap Data
You can’t compare it to Jio, but for a long time now, the Chinese have had cheap access to high speed data and voice connectivity. The CEO of an international company pays 300RMB (~Rs.3,000) for the most premium plan that gives her 90GB of Data + Voice (national & international) every month. Due to this, there are ~1.1Bn people having data connections.
1.4 Poor Air Quality
All this manufacturing and infrastructure has come at the cost of very poor air quality. While Shanghai was fine, Beijing was heavily smoky. Vending machines for face masks are the first things you see when you get down at Beijingnan Railway Station. There are air purifiers in every room of every place we went to.
This massive infrastructure upgrade has resulted in a relatively low cost of survival: housing, food, transport, energy, telecommunication.
2. Macro Indicators
With the boom in infrastructure, a lot of these cities have also developed on the back of a strong manufacturing sector, thus not only improving their wealth, but also their income. So it is not just the white collar, but also the massive blue collar labor force that has spending power and consumption capacity.
2.1 High Disposable Income
On an absolute basis, the average Chinese white collar, engineer/consultant/lawyer/manager with 2–3 years of work experience living in one of the Top 10 cities, earns 2.5–3X their Indian counterpart.
The other interesting repercussion of the one-child policy is that most yuppies in China have inheritances from both sides of the family.
Which means, not only do they have high disposable income, but also have above average wealth.
You would assume that costs would be proportionally higher, however they are not.
2.2 Relatively Low Cost of Living
Factor in the 2.5–3X salaries with 1X cost, all on an absolute basis, and it is not hard to figure out that the cost of living is relatively low.
From the folks we met, the resident Chinese youngster in the city spends 15–30% of his salary on home loans. It is predominantly “his” as parents of a Chinese girl would want the boy to have a house in the city before agreeing for marriage.
However, outside the cities, where you would usually stay at your own family house and earn an honest days’s wage in the manufacturing sector notches up 40–50% in savings.
With China being a predominantly export economy with strong domestic consumption, inflationary pressures are also low. Inflation in Chinese cities is more due to urbanization than from fiscal/monetary reasons.
2.3 Deep Consumption Market Across the Country & BRANDS Galore! Everywhere!
High disposable income and above average wealth, coupled with relatively low cost of living, means heaven for consumption. Across the country, there is a wide and deep consumption market. Our walk into Walmart just showed the capacity of consuming staples at all levels.
Oreo has a special pack of 2 biscuits. We have seen this only in China across the 35 countries that we have collectively travelled across.
From the cars you see on the road to the shoes and bags you see been worn by the people we meet, everything is branded. Our friends at Nike commented that the amount that Nike makes from the entire market in India is what they make in Shanghai alone. This isn’t just restricted to international brands. You see strong domestic brands having swanky stores in the best of malls all over. International brands we spoke to, all point to China being the reason they have continued showing growth globally. Nike has 6,500 stores in China compared to 400 in India. Adidas has 12,000 stores in China compared to 500 in India. The meteoric rise of Chinese ecommerce companies, even the new ones like Pinduoduo just continue to drive home the point of the massive consumption strength even beyond the Top 10 cities.
But macro indicators are not enough to understand why a consumer behaves as such.
3. Cultural & Soft Indicators
Not that we claim to be experts at this, but through our discussions and observations, a few things come to mind. Like we said before, these are simply our opinions based on our first and second hand interactions in Shanghai and Beijing. To understand why consumption and growth of companies in China is so strong, it is important to understand the Chinese consumer. There are multiple overlaying factors that contribute to the type and growth of companies and consumption themes. A few of these are pivotal, but understanding each of these will help in understanding the consumer a little better.
3.1 Mandarin as the Unifying Language
We in India, pride ourselves in being a country of over 20 languages. However, this diversity has actually been a handicap. China is a country of ~1.4Bn people, most of them speak just 1 language.
In India where language of work is different, for not only different areas, but also different income groups, the homogeneity in China is a blessing in disguise. It means that the population is not further segmented and the company is not handicapped to an audience which speaks that language.
Across income groups, educational levels and geographic demarkations, Mandarin (in speaking) and Chinese (in written) is the language of choice.
This ensures that for any company, especially the content ones, the whole country is one big market, and not a federation of 26 markets.
The other interesting fact about this language is just how different it is from any latin script. What this has meant for technology companies is the popularity of numeric or 2–3 letter URLs of the major Chinese websites. As the english URL structure is difficult to comprehend, most of the Chinese consumers effortlessly moved over to the app economy. This is one more reason why search has never become a large discovery/introductory medium for consumers coming onto the internet. This also explains the huge amount of voice notes as the standard medium of communication on messenger platforms and social networks.
3.2 One Child Policy Repercussions
One of the single largest demographic impacts in the world has been China’s one child policy of the past 40 years. Besides the gender skewed nature of the population, there are soft cues due to this policy that shape the Chinese consumer. As discussed above, the non-trivial impact of more wealth thanks to inheritance from both sides has allowed the average Chinese person to be a strong consumer. This is also seen in the workplace where people do tend to work beyond the need for income. However, the largest impact has been loneliness.
Massive urbanization of nuclear families coupled with one child means that most of the Chinese people grew up not only as an only child, but also a lonely child.
We hypothesize that this can be one of the large reasons why the popularity of the video content platforms showing you what people, especially girls, are doing in their daily lives, has been stratospheric.
Even the banning of pornography in China has helped girl video dominated content platforms garner insane usage.
A few of the people we met, and a few of the feeds we checked out, explicitly told us that watching pretty girls was one of the reasons why they spent an hour on the platform every day. Wherever we went, whether it was the super touristy Bund or Nanjing Shopping Street in Shanghai or the San Li Tun party district in Beijing, “massage” solicitations were direct and everywhere. It almost felt that they couldn’t believe that we were refusing their advances and with every rejection, their offers got more “liberal”.
3.3 China Way or the High Way
Not only did the one child policy show the unilateral and absolute nature of government policy and its execution, but this has been a hallmark of every key decision taken by the government. There is only one government approved way of doing things. The moment you land you need to register your biometric identity even before immigration and customs. If you don’t, you can’t enter the country. Every Chinese citizen has a national identity card which needs to be used to enter large public places, such as Tianemen Square in Beijing, or to even issue cross-country railway tickets at stations and airports. No card, no entry. For internationals like us, we had to have our passports checked at these points.
The largest brunt of this though has been felt by international internet companies. Google, Amazon, Facebook and countless others do not work in China. Selectively, the government allows Google Translate services to work as Baidu translate isn’t that good, but for others it has a strict policy. It isn’t about just complying with their demands, which I’m sure the large companies don’t mid in order to get access to such a massive market, it also is about using very subjective reasons for not allowing them in.
Internet companies wanting to start in China need 3 levels of licenses. 2 from the regional government and 1 from the central government, including the Ministry of Propaganda, which is the major blocker for all such access rights. Across all major sectors such as information, infrastructure, telecommunications, power, resources, etc., state owned enterprises are the only operators. Moreover, the government actively promotes domestic companies.
Over the past few years, the government matched every fund raised by a VC with equal investments as the other LPs in the fund. This led to a massive rise in “papa-next-door” funds all over the country thus fuelling a capital boom for startups.
3.4 Weak Concept of Privacy
It was funny how comfortable people were with the knowledge that they are being tracked. Expats we met called it “part of their China experience”. We came across cameras everywhere. Every road intersection, every building, every 200m on the highway, etc., there were multiple cameras. Even Tencent Maps during their navigation showed when you were approaching a traffic camera. It is not surprising that facial recognition has gone mainstream.
There is a central database that has been created to track people across multiple points all over the country.
The government is a huge buyer of facial recognition tech. This space alone has 4 companies valued at $1Bn+. Every large technology company and service also has facial recognition tech either for coming in and going out of their premises and/or payment authorizations.
The JD office we visited has a screen which would accurately detect you, your age and also give you a score on how beautiful you looked(!). But it is not just this face tracking, but also the weak concept of privacy on conversations.
Voice notes are the largest medium of communication on messenger platforms. And people listen to them freely in public places. It is common even for professional communication to be done through voice notes on WeChat. In public places people will be openly listening to the notes their friends send them. Ofcourse the difficulty in typing in the Chinese script on a mobile phone could also be a reason for this voice note phenomenon.
3.5 Identity & Bragging
The loneliness repercussion of the one child policy, along with strict restriction on freedom of expression and deep consumption capacity, has channelled the “owning” of material as a way to showcase oneself. The few marketing folks we met spoke of the lengths to which Chinese consumers go to brand-brag themselves. Even in physical stores we went, we hardly saw more than 5–8% discounts on fashion. Nike corroborated this in saying that it is a large fresh collection market. Not to say there aren’t price conscious consumers shopping for deals and discounts, but a large part of sales comes from full price.
People line up like crazy to buy the limited edition or be the first 1,000 to get the latest Kevin Durant or Jordan sneakers. The very next week, those same sneakers sell at 10X the value on the grey market as people just need to have them. So much is the demand for new branded products that “starvation marketing” is a big strategy for product launches for Nike in China.
The huge first copy industry thrives on the aspiration of owning big brands till the time you become rich enough to actually afford it. Macau casinos clear more money thanks to Chinese gamblers than does it older and more popular cousin, Las Vegas. Marketers talk about how drinking in China is not about getting drunk, but about bragging how many bottles or cases you had even if it was just the 4 of you guys having booked a 25 seater K-Pop private room. Hence, China has evolved into a light beer market, allowing consumers to drink more bottles before getting wasted.
The World Cup in Russia did not have the Chinese national team playing, but some estimates tell us that the sponsorship dollars spent by domestic Chinese brands was more than those spent by the Americans. We tried asking who the analogous Sachin Tendulkar or Shah Rukh Khan is, from an endorsement perspective, and surprisingly the answers were Kobe, Lebron, Curry, Messi, Ronaldo, Neymar, Benedict Cumberbatch. Even as we travelled around the two cities, there were very few ethnic Asian celebrities influencing us to buy products.
The only buckling trend to this is the meteoric rise of Key Opinion Leaders (KOLs) that are online celebrities, majorly girls, who rake in thousands of dollars a year promoting products and gathering a massive following on social media and content platforms. The churn of these KOLs is as fast as their rise. Every company and VC we spoke to pointed to KOLs being the fastest way to grow. On deeper questioning, none of them could give us the name of a single KOL. However, companies large and small, from Nike to Taobrands (brands built on Taobao) swear by growing on the backs of KOLs.
3.6 Truth in Numbers?
This bragging culture very often leads to exaggeration. It is not uncommon to come across Add to Cart numbers as reported GMV for ecommerce firms in China.
Founders and product managers we met spoke of the accuracy of the reported numbers being off by a factor of 10! However, every company we met spoke of how their numbers are correct, but others are not.
The rise of download farms, paid/bot following of KOLs, sketchy distinction between registered users and transacting users is rampant.
Our friends spoke of how Pinduoduo started off with getting every user to pay 1RMB as an entry fee to a lottery based shopping feature. Even though only 1 person won the lottery and got 80% discount on the product, so technically 1 consuming user, they not only refunded the others who participated in the lottery, but also counted them as consuming users, thus ballooning the actual numbers while reporting the top-line. However taking nothing away, even if you discount for these exaggerations, there no denying the fact that the growth and scale of Chinese companies is huge.
3.6 Hardworking, ruthless and 996 (?)
Exaggeration was not just in the numbers reported, but also in the characterization of working culture. 996 is well known. Not to say we don’t believe it, but we couldn’t find evidence of that during our trip. Rush hour traffic started from 5pm onwards. The one big company and the one small company and co-working space we visited was empty by 6pm. We were left wondering what the 996 was all about. However in the few offices we went to, the team was quietly working away without much fuss. We could see the intensity with which work was going on. It was definitely more disciplined than any company we have walked into in India.
Investors and employees alike, talk about Chinese founders being super aggressive in their approach and very competitive in their growth. What their public profile makes them out to be is not what they behave like at work. It is very authoritative and autocratic. Investors who have looked at companies across India and China speak of how Indian founder relationships are democratic where it is often you come across equal equity split.
In China, there will always be one dominant founder in the board room and on the cap table. Indian entrepreneurs often reach out to investors and want them to be involved. Chinese entrepreneurs need to be chased to get feedback and updates on the workings of their company even by their own investors.
The razor sharp focus, coupled with a ruthless growth mindset also becomes evident on which areas they want to invest and grow in.
A multitude of these soft and cultural factors have resulted not only in the width and depth of the consumption economy but also in building of companies and ecosystems to capture this market, with ample help from the government and its policies.
4. Giants & Semi-Giants Dominate
There are 2 levels of giants, with many more coming up.
And if that wasnt enough you have 150+ companies valued at over $1Bn.
4.1 Large Investment Portfolio
It is not just that these giants and semi-giants are themselves present in every consumer internet industry possible, they also have massive portfolio of investments in China and many that stretch beyond.
It is common to find one of these guys come up in a Series B or C fundraise round, not just in China but even in the US, India, South East Asia.
Tencent made ~600 investments over the last 1–1.5 years. Every major company has a corporate development and investment team actively looking at companies to fund. India and Indonesia are typically large markets for investments or direct entry. With India due to a naturally large local talent pool, these giants and semi-giants invest, while in Indonesia due to lack of local talent, they go direct.
4.2 Massive scale for their products
This capital power comes on the back of insane scale and rocket speed growth.
50% of the Chinese population is a buyer on the Alibaba network, whereas 90% of the population is a user of the Tencent network.
Take a moment to understand what that means for these top 2–3 companies.
WeChat Pay and AliPay are the default payment systems even in the offline world. So much so that the government had to explicitly come out with a notice to merchants to continue to accept cash as a mode of payment.
JD claims it controls 50% of the mobile phone market in China, online and offline combined.
A lot of them have multiple super apps that ensures that for no use case does the user go out of the dominant app. The launch of WeChat mini-programs has further cemented WeChat as the super-app to follow brands, friends, KOLs, everything. We used WeRun as a measure to see who among us had the most steps on that day. If a friend hadn’t told us about it, we would have never known the existence of such services, all within WeChat.
To support their core products, these giants and semi-giants have completely vertically integrated to own all the parts of the value chain. From JD’s JDX that looks into autonomous vehicles, drone delivery, robotic warehouses to Alicloud and China cache, it all sits under one roof. Even cross-border platforms such as Alibaba’s Aliexpress and JD’s Joybuy have significant reach and traction. The semi-giants like Toutiao and Kuaishou have ~125Mn and ~230M monthly active user base respectively and its sister companies are also on their way to reach that figure very soon.
Didi is also known to get into food delivery and Meituan is also launching its cab service, all on their own apps.
All over Shanghai and Beijing you would see blue shirted Ele.me delivery boys and yellow shirted Meituan delivery boys lounging in restaurants waiting for their pick ups. This empire building and preferential access exists not just for their wholly owned products, but also their portfolio companies.
With Google being banned in China, for mobile apps there is no long 1 “toll gate” of the PlayStore on which their discovery hopes lie. Each mobile manufacturer and every major large internet company have their own app stores which prioritize products and services within their own ecosystem.
4.3 Ecosystem Competition
“In China you choose one of the three, Xi, Jack or Pony” — you need either the government, or Alibaba, or Tencent to back you.
Very few companies today survive without there help. The few like Xiaomi or the TMD mentioned above are some of the last independent ones that have made it.
We heard this very often being the end of the Chinese mobile internet sector, especially for late stage investors. Piggyback on and exiting through one of these big guys is a large growth and exit strategy for both founders and investors.
And these giants and semi-giants do not let you down. They back you and push you, especially against the investments of their rivals. Very few companies have both Alibaba and Tencent both on their cap table. The rise of Kuaishuo, Pinduoduo and other companies has been on the back of access to free traffic through growth hacks on WeChat. Little surprise that both these are heavily invested in by Tencent. Taobao links shared on WeChat show up as plain text, i.e., not clickable. TMall had an ultimatum to fashion brands to choose between them and JD. They can’t be on both. Thanks to this, JD has lost a massive chunk of its share in the fashion market. However, the reverse is true for electronics. The founders of these giants won’t be in the same room together, except when they are lobbying in front of the government to keep out a potential international competitor. In the newly built Hema supermarkets owned by Alibaba, one cannot use WeChat pay, even though it is the most dominant payment mode in the offline world.
Games not owned by Tencent Games pay a 70% distribution commission to Tencent. Companies invested in by Xiaomi will have pre-installed apps on the phones and tablets sold by Xiaomi. Furthermore, this competition is not restricted to online services and products, but also to offline establishments.
4.4 Bridging Online & Offline onto a common platform
A massive amount of money, over the last few years, have flowed from the coffers of Alibaba, JD, Tencent to offline retailers like Intime, Suning, etc. 85% of commerce in China still happens offline. And as online becomes competitive and saturated, the online giants with their easy access to capital in the form of revenues and debt, have taken the lead at moving in and acquiring or investing in offline assets. From malls to developers to fashion labels to retailers to even ground up building supermarket chains, online capital is now bankrolling the offline world. Capital, technology, customer data sharing, fulfilment capability and expertise of the online giants is used to make offline commerce smart and add an additional dimension to physical retail. While QR code based payments is only the tip of the iceberg, a lot of technology has started to surface, not just in Hema or Suning Supermarkets but also in Starbucks Roasteries and Uniqlo showrooms.
With Fynd’s focus predominantly in understanding the use of offline technology, this area is where we spent a large part of our collective time and energy in.
5. Super Evolved Payment Ecosystem
Payment ecosystem in China has evolved to such an extent that cash is no more considered as a payment method. Most of the offline retail outlets (small format shops to shops in malls) now accept plastic payments or mobile payment options. When we talk about plastic payment options, JCB and Union Pay ruled the markets. It was quiet rare to find an outlet who accepted Visa/MasterCard. Apart from this, stickers of WeChat Pay and AliPay could be seen everywhere.
Paying in China can be as easy as flashing a QR code to as painful as walking from one mall to another because none of the stores accept international credit cards and the ATMs in the mall accept only a few types of cards. The best thing to do is to sign up for a WeChat account and load it up with cash to pay small vendors as well as withdrawing plenty of cash when you hit an ATM. WeChat puts restrictions on the amount of cash you can transfer based on your account type. So save it for making a large number of small transactions. With the help of a friend and the fact that the app is mostly in English, we were able to get WeChat Pay working in no time. However, Alipay turned out to be much more difficult to figure out, with it being predominantly in Mandarin. We went through the eKYC process and even uploaded our passport copy only to get lost in one of the many dead ends in the app.
So in terms of payment options available to foreigners, you are pretty much limited to WeChat Pay and cash. International credit cards are accepted by high-end brands mostly because the WeChat pay balances are not enough to cover these transactions. You would hardly see any WeChat or Alipay QR codes at their POS. The second type of stores that accept international cards are the ones selling counterfeit Guccis and Pradas in Silk Street Mall, that is if you are feeling adventurous enough to swipe your card at these stores. Here you will also come across sales people who are more comfortable in English than their counterparts in the luxury brand stores proving that necessity is, in fact, the mother of invention.
Some of the biggest enablers for proximity mobile payment adoption in China include high smartphone penetration through a comprehensive digital system that combines social media, commerce, and banking. Payment systems in China can be termed as highly evolved and highly accepted. That has been helped by the fact that payment methods have expanded its accessibility beyond stores and shopping malls to restaurants, taxis and ride hailing services and popular tourist attraction sites. Huge network effects of WeChat and Alibaba ecosystem has an outsized role to play in the adoption and popularity. The acceptance of these payment modes is increasing every day across all commerce touchpoints in geographies outside of China too. Recently, Changi Airport announced that they would start accepting WeChat Pay in all of their 150 airport stores.
In our visit to Shanghai, almost every retail outlet had an option of paying the bill through AliPay or WeChat Pay. Starting from the airport cab to the local coffee shop to the automated vending machines. Apart from some big luxury brands, most of them had an option to accept the above payment options.
Outside of the JCB, UnionPay credit card networks, stickers of green WeChat pay and AliPay are on every retail window and point of sale.
The massive market share of the 2 large companies here also bleed into other consumer internet areas.
6. Tech in Offline
One of the prime agenda of Fynd visiting China was to find all the possible technologies that are currently being used in the Offline Retail for consumers. In our discussions with various investors and entrepreneurs who have visited China, we always came off with an impression that the level of technology adoption in China is at an altogether different level from India. Needless to say, we were all very excited to catch a first-hand glimpse of various cool technologies in use during our trip.
Unfortunately, we didn’t find anything marvellous or out of the box. We did find some good use of technology in Suning Store, Hema Supermarket, Walmart, Starbucks, Mobike, etc. In terms of technologies, high penetration of mobile payments (AliPay/WeChat Pay) was one of the marvellous things we saw.
6.1 Promise & Potential
Suning Unmanned Store
Suning was one of the first in China to introduce an unmanned store. We were lucky to experience the same in the Suning Supermarket, Beijing. Although it wasn’t anything extraordinary or out of the box, it was something rare and unusual. It was a completely unmanned store (with a support of a counter, just in case). Tech used were very generic with one HD camera at the entrance and two HD camera at the exit. You would need to bind/register your face on the Suning app (Android only) prior to entering the store. Payment mode accepted were Alipay/WeChat Pay.
Walmart’s Scan & Go
Walmart China has rolled out the “Scan & Go” functionality on the WeChat Mini Program to enable shoppers at Walmart to scan the bar code on items and bag these goods, while they shop and pay directly with their smartphones. Through the system, customers were able to scan their purchases and pay with their phones. We were not able to use this feature but saw the implementation at one of the Walmart stores in Shanghai.
Starbucks Reserve Roastery
Starbucks recently opened the World’s biggest Reserve Roastery in Shanghai. This was accomplished with the help of Alibaba, where Alibaba implemented the Virtual Reality and the payments interface. With the help of VR, users can explore the history of Starbucks along with the functioning of the roastery. On the billing side, there was no centralised billing counter, instead every service guy had a mobile point of sale machine, mobile printer and mobile card swipe machine. This allowed the billing to happen instantly on the table at the time the user places an order.
Uniqlo’s Cloud Shelf
Uniqlo Shanghai was one of the retail outlet which has used QR codes in every aspect of the store. Starting from the product to the shelf, everything had a QR code. When scanned, we were forwarded to product category in the Uniqlo Mini Program in WeChat. We also spotted Endless Aisle or Cloud Shelf solutions placed near the counter. It was a web based solution (TaoBao’s page). We tried using it by picking a random product and searching the article code but were unable to find that particular article. Moreover the staff wasn’t too aware of how this works and didn’t help us much with its use.
Kiosks, Magic Mirrors & Vending Machines
Vending machines can be found at every corner of a mall. Products they stock range from cookies to sanitary napkins. Some even have dedicated apps for you to make payments. On our first day in Shangai, we came across a kiosk through which you can shop from the various brands in the mall. Although we could hardly see people walking up to the kiosk it looked like the device was maintained very well. We even came across a magic mirror in the Malls of Oriental Plaza. The device used a Kinect to capture your video and wrap various apparels around you. Although the device was working, there were only two looks to choose from which was a big let down.
Alibaba’s Hema stores are a massively successful chain of grocery stores. In fact, Hema is at the center of the New Retail concept promotedby Jack Ma. The look and feel of the stores are very similar to a Big Bazaar except for the checkout process which like everywhere else in China has been made very seamless. The Scan & Go kiosks allow you to make payment via the Hema app or via Alipay. We tried downloading the Hema app but couldn’t get it to work as it required a Chinese number. Dejected, we queued up for paying via card but was told by the cashier that they don’t take international cards and can accept only cash and for that, we had to stand in a third queue. We gracefully bowed out by abandoning our shopping cart at the checkout counter.
Right opposite to our camp in Shangaiwas a Luckin Coffee outlet. Luckin Coffee is famous for their smooth and hassle-free operations enabled by technology. We decided to check this out one day while waiting for a DiDi. When you walk into the cafe, you can see an army of baristas whipping up coffee after coffee with no customer in sight. They neatly arrange these at the counter to be picked up by delivery boys from Meituan and Ele.me who generally hang out on their scooters around major restaurants and malls. In fact, the whole operation runs so smoothly that hardly anyone was talking to each other. We decided to test out the QR code displayed at the counter using WeChat scan which opened up a Luckin Coffee page from which we could place orders. With the help of Google Translate, we were able to figure out what was written on the screen and were able to add items to our cart. However, the final step requires you to have a Chinese number to get registered which unfortunately we didn’t have. We are reminded of this experience every other day by the many number of promotional notifications we receive from the Luckin Coffee WeChat account.
Some of our investors who visited China a few months back raved to us about their SoReal experience and with such a build up we were really looking forward to this part of the trip. Located in the basement of Beijing Mall, SoReal looks like a PVR from outside. There is a giant spacious lobby outside for people to wait for their movies or games to start. At one corner of the lobby is a cafe with a robot barista which by the looks of it has not been working for quite some time. The entire place was run by women who looked like college students. Communication was strictly through Google Translate and a Chinese app on their phone. It was interesting to notice how we were typing in English and translating it into Mandarin while the Chinese avoided the tedious typing and instead used the voice feature.
Inside, there were rows of dark rooms with VR headsets hanging down from the ceilings where we all played a few games and watched a movie. The experience was pretty standard and similar to any VR game centre in India.
On our fourth dayof the trip, we visited an Ikea store in Beijing. It was a massive 4 storey building with hundreds of people moving around adding items to their shopping carts and an even larger number hanging out in the cafeteria on the top floor.
There is a massive warehouse on the ground floor with computer terminals you can use to browse through the catalogue. We went through each section in the store looking for any interesting use of technology and found one in the furniture section. It was a touch screen kiosk on which you can customise furniture and place an order. Once you finished playing around and are happy with your custmoisation, you will get a unique code to share with the sales rep who will arrange for payment and delivery. Every inch of the store was utilised to make a sale with even the space between two escalators filled with items like potpourri which you can pick up on your way down.
While a lot of promising technology was visible, it wasn’t too different from the experimental stores in the West. But beyond the potential, there wasn’t much scale to these experiments.
6.2 Navigating China
Google Maps unsurprisingly doesn’t work in China, so you have to resort to the second best option available if you are an iOS user — Apple Maps. Although a bit slow, Apple Maps can get you to where you want to go. When people share their location with you from inside WeChat, you have the option of navigating through Apple Maps or Tencent Maps with the latter being fully in Mandarin.
Moving from Point A to B was the least of our concerns with DiDi. Although the drivers don’t speak a word in English they navigate very well to pins you drop on the map. For basic communication, DiDi has Mr.Tencent Translator — a feature that will help you communicate with the driver through a set of basic pre-translated messages. In fact, the DiDi experience was so smooth and cheap that we didn’t even use the metro once.
Bike sharing services like Ofo & Mobikes are very common in Beijing. Mobike accepts Indian credit cards and the app is in English. On our way out from the Ikea store, we tried out a Mobike. The scan to unlock feature was smooth and the calories tracking features was a neat addition. After the ride you can leave the bicycles at one of the parking stands and report any repairs it might require through the app.
6.3 Nagging dissapointment
While we were able to spot some cool pieces of tech in the offline space, there was nothing new that we saw.
We kept on reading/hearing from various sources about the technology advancement happening in China but when we went there to experience the same, it was a sheer disappointment for us.
The technology that is being used has been around in the market from the last few years and can be easily found in the Western Countries. To certain extent, we can find the above technologies being implemented in India also at scale. We can safely conclude that the tech used in offline/physical space in China is not much ahead of us, except in the adoption of digital and contactless payments.
7. China Targets India
Apart from the 200 odd Chinese entrepreneurs roaming around in India and gathering ideas on how to penetrate deep into our economy, China has been targeting India from the last couple of years. Alibaba and Tencent are on top of the list of Chinese capital flowing into India. Due to the large presence of the Giants & Semi-Giants we hear a lot of people talk about the end of the mobile consumer internet startup opportunity. With learnings and experience of working in the largest market in the world, a lot of opportunist entrepreneurs have trained their eyes to the next big market, India.
Chinese apps have got significant love from the Indian consumers. Each of these have scaled at unprecedented speed and created a strong bond with consumers in every part of India.
8. Expanding in China
Not because of any revenge against the 200 odd Chinese entrepreneurs eyeing the Indian market, but also because of the massive size, scale and meritocratic nature of China, it is very interesting to consider it as a market for expansion for Indian enterprise companies.
Inmobi, Capillary and more recently Oyo among others have definitely capitalised on the opportunity that China is.
With the disappointing state of offline technology at scale in India to the similarity in conversations between Indian and Chinese brands, we for one at Fynd, definitely look at China as being a key international market for expansion. While it is open, huge and meritocratic, it is also competitive, ruthless and aggressive. You need to have the stomach for the fight with the right landing team and circumstances that can provide key tailwinds to the launch of the business in China.
While the payment ecosystem seems to be super-evolved in terms of seamlessness and adoption, the rest of the technology that we came across in the offline world wasn’t too far ahead of India. Retail stores were pretty standard in terms of their looks as well as their technology adoption. With a per capita income 5 times that of India, Chinese customers definitely have a better spending capacity than the average Indian customer and this coupled with a firewalled market has led to the creation of many consumer internet giants in the country.
What is impressive about these companies is their pervasiveness in all aspects of the Chinese life from retail to finance to entertainment and their ability to build strong ecosystems of connected apps which is definitely a thing Indian startups can learn from.
As mentioned at the start of this article, this is a first impression first and second hand view that the Fynd team had after spending 1 week in Shanghai and Beijing. And it is not going to stop there. There is definitely a lot tolearn and discover beyond what we experience in our crash course. Cities like Shenzhen, Hangzhou, Chongqing and Chengdu, along with behaviour and consumption outside the Top 10 cities will be next on our learning radar.