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JD.com to invest more in supermarkets as consumers shift toward online grocery

JD.com Inc. will invest further in its supermarket business amid an accelerating shift toward online grocery in the wake of the COVID-19 outbreak, executives said Nov. 16 after the company reported a 29.2% revenue increase in its third-quarter earnings.

Total order volume in the Chinese retailer's supermarket unit grew 48% year over year in the third quarter, contributing to a 35% increase in gross merchandise revenue, CFO Sandy Xu said.

"Specifically, the supermarket category is a key growth area that we are very committed to continuing our investment in to further strengthen our consumer mindshare and market leadership," Xu said.

Strong growth was seen in all fresh produce categories during the third quarter, excluding imported seafood after the COVID-19 virus was found on some inbound frozen products. Xu acknowledged that the fresh produce category will be a challenge for online retailers due to its small ticket size and high loss ratio during the production and fulfillment processes.

The Beijing-based company, which owns the 7Fresh supermarket chain, said it is experimenting with different business models including community group purchasing and warehouse distribution. Investment will be poured into infrastructure and logistics, an area in which JD.com believes it has an edge over its competitors. Rival Alibaba Group Holding Ltd. in October spent $3.6 billion to acquire Sun Art Retail Group Ltd., the biggest hypermarket operator in China, in a move to bolster its supply chain in the lower-tier cities.

"Because it is a huge market, we understand that there are many companies entering into the market. But we believe that by the end of the day, there will be quite a few players, and we don't have to compete head-to-head at this stage," Xu said.

JD.com's Nasdaq-listed shares were trading 8% lower after its third-quarter earnings were announced. The company suffered in a Nov. 10 selloff alongside other Chinese internet-based businesses including Alibaba, Tencent Holdings Ltd. and Meituan on news of draft antitrust regulations released by Chinese regulator targeting digital platform businesses.

"JD fully supports the antitrust regulation, which we believe is very important for healthy growth and innovation of the business ecosystem," Jon Liao, chief strategy officer, said in response to an analyst's question on the draft regulations.

The company said it is monitoring developments from the Asia-Pacific free trade deal that China signed with 14 other nations Nov. 15.

"Of course, we will take full advantage of our strength in our cooperation with international brands and also our supply chain capacity to catch this opportunity," said Xu Lei, CEO of JD Retail.