Walmart Tests Same-Day Grocery Deliveries In China To Challenge Alibaba

Walmart (NYSE:WMT) recently started testing out Walmart To Go, its same-day grocery delivery service, in one of its new stores in Shenzhen, China. The service can be accessed through a mini program on Tencent's (NASDAQOTH:TCEHY) WeChat, the top mobile messaging app in China.

This article originally appeared in the Motley Fool.

Nearly 8,000 types of products are available on the service, including fresh groceries, snacks, condiments, baby items, and personal care products. Walmart customers who previously bought products with its Scan-and-Go feature -- which lets shoppers scan in-store products and pay through WeChat -- can also reorder products through the service.

The deliveries will be fulfilled by Dada JD-Daojia, the crowdsourced online grocery delivery service partly owned by e-commerce giant JD.com (NASDAQ:JD). Walmart and JD co-invested $500 million into the platform earlier this year to shore up their defenses against Alibaba(NYSE:BABA). However, Walmart To Go and Dada will continue to operate as separate platforms.

Walmart likely plans to test out the service before deciding on a broader launch across China, where it operates over 400 brick-and-mortar stores. If it does, it could significantly help Walmart, JD, and Tencent counter Alibaba's growth.

Why Walmart, JD, and Tencent need each other

Alibaba's Tmall and Taobao marketplaces control 58% of China's e-commerce market according to eMarketer, while JD Mall controls just 16%. Walmart initially tried to expand its online presence in China by buying the e-commerce underdog Yihaodian, but the effort flopped.

Walmart subsequently sold Yihaodian to JD. As part of the deal, Walmart acquired a 12% stake in JD, making it the company's second largest corporate stakeholder after Tencent, which owns nearly 20%. This three-way partnership enabled the companies to pool their data, use Tencent's WeChat Pay as a unified payment platform, offer cross-platform promotions, and leverage Tencent's AI tools to make suggestions for shoppers.

Tencent's promotion of JD and Walmart's products through WeChat's mini programs also enabled both retailers to reach more social media users. WeChat's monthly active users (MAUs) rose 10.5% annually to 1.08 billion last quarter, and its 1 million mini programs reached 200 million daily active users (DAUs). Tencent doesn't directly compete against Alibaba in the e-commerce market, but it's its major rival in online payments, smart retail, and cloud services.

This tech and retail triumvirate also attracts other companies that need to challenge Alibaba or gain a foothold in China. Alphabet's Google, for example, launched mini programs for WeChat and invested $550 million in JD.com earlier this year.

Challenging Alibaba in the delivery and smart retail markets

Alibaba is a formidable rival -- it also owns Ele.me, China's second largest food delivery service after Tencent-backed Meituan Dianping; Hema Fresh, a growing network of brick-and-mortar stores that offer 24-hour delivery services in Shanghai and Beijing; and major stakes in brick-and-mortar retailers like Suning, Sun Art, Lianhua, and InTime. Alibaba also introduced a cashierless "Futuremart" store earlier this year.

Alibaba wants to tie all of those pieces together with AliPay, the second largest online payments platform in terms of MAUs after WeChat Pay, and its Tmall marketplace. If that happens, Walmart, JD, and Tencent could all be brushed aside as Alibaba becomes the dominant force in online retail, offline retail, deliveries, and mobile payments.

Walmart's introduction of Walmart To Go in its new Xiangmihu store in Shenzhen, which only opened earlier this month, will complement the retailer's launch of another high-tech delivery-oriented supermarket in the city in April. That location focused on selling products through both Walmart's e-commerce and Dada, with orders being delivered within 30 minutes to homes located within two kilometers (1.2 miles) of the store.

Walmart's ongoing smart retail push also complements JD's launch of unmanned convenience stores, its development of delivery robots and drones, and the expansion of its first-party logistics network.

What this all means for Walmart and its allies

Walmart has been prioritizing the growth of its e-commerce ecosystem and overseas markets (as seen in its acquisition of India's Flipkart) over the past year. These moves are throttling its near-term earnings growth, but they're necessary to widen its moat against e-commerce titans like Amazon (NASDAQ:AMZN) and Alibaba.

If Walmart expands its same-day delivery platform to other cities across China, it could aid the expansion of its shared e-commerce ecosystem with JD and Tencent -- which would keep Alibaba's growth in check.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon, JD.com, and Tencent Holdings. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, JD.com, and Tencent Holdings. The Motley Fool has a disclosure policy.