China's e-commerce titans, facing a slowdown in the growth of their core urban customers, are battling to crack a new frontier: the sprawling countryside.
Each morning at 7:30 a.m., Pang Weidong starts his delivery route at an Alibaba-affiliated distribution center here in China's northeastern plains. His small truck navigates pothole-ridden roads to deliver goods such as toilet paper and weightlifting sets. The 35-year-old Mr. Pang, whose daily route spans a length equivalent of Interstate 95 from New York to Boston, said delivering some 200 packages a day takes about nine hours since he has to stay under 40 miles an hour to avoid accidents or damage to the goods—and the cows, goats and geese that occasionally wander onto the roads.
Mr. Pang is part of an army of drivers hired by Alibaba's logistics partners and its chief competitor, JD.com Inc., to make deliveries in rural towns across China. The two companies, which built a combined 80% share of the $440 billion retail e-commerce market in China largely on the strength of sales to urbanites, each aim to reach 100,000 country villages by the end of the decade.
Investors are concerned that the slowing economy and turbulent stock market may damp consumer spending. Alibaba's revenue grew at the slowest rate in more than three years in the three months ending in June, and JD.com executives said earlier this month they expect sales growth to moderate later this year.
But China's villages hold promise. Roughly 600 million rural citizens are seeing their incomes rise faster than city residents, though they tend to be poorer overall.
The number of e-commerce customers in rural China is barely one-third that in the cities, but their ranks are rising rapidly. Last year, 77 million people shopped online in the countryside, a 41% increase compared with 17% growth in urban areas, according to China Internet Network Information Center, a government-research group.
"The scale of online shopping in rural areas is still lower than in the cities, so there's a huge space to unearth, a big market that can be fought for," said Wang Xiaoxing, e-commerce analyst at research firm Analysys International.
Alibaba, the largest e-commerce company in China, is investing 10 billion yuan to build 1,000 county-level distribution centers and 100,000 village-level drop-off points over the next three to five years. As of June the company had 63 county-level centers and 1,803 village-level centers.
Beijing-based JD.com, which sells most of its goods directly like Amazon.com Inc., has a different strategy for rural deliveries. The company runs its own network of 166 regional warehouses and thousands of smaller local delivery stations. In remote areas, JD.com delivers packages to contracted "brand promoters" in villages who hand them off to customers, and sometimes works with third-party logistics carriers.