Where's The Way Out For Chinese Online Fresh Produce Retailers?

摘要: Challenging logistics service, high cost and indefinite demand have all been holding back the development of every online fresh produce retailer.

(Chinese Version)

On October 12th 2015, Baidu joined the latest $200 million funding round for Womai, an online fresh produce retailer owned by COFCO (China National Cereals, Oils and Foodstuffs Corporation), one of China's state-owned food processing holding companies. Undoubtedly this round of investment has set a record in the Chinese online fresh produce retailing industry.

It was reported that Womai.com was going to spend the new funds in building the cold-chain logistics infrastructure and establishing third-party delivery systems.

However, Baidu isn’t alone in this market. As a matter of fact, all kinds of players are looking for a share of the Chinese fresh produce market at the moment: Internet giants such as Tmall and JD, online retailers of specific sectors such as Womai.com, Sfbest.com, Benlai.com, newly-established O2O platforms such as Beequick.cn and even traditional supermarkets.

In this case, Baidu’s investment will certainly have a huge impact on this burgeoning market.

The battle started long ago

Since few people used to think highly of the online fresh produce market, the market penetration rate was less than 1% at first. However, as a growing number of enterprises cashed in, Internet giants were also attracted to this burgeoning market and all competed for a share of the market.

This August, JD announced that it would invest in Yonghui Superstores, a time-honored Chinese chain supermarket. Founded in 1998, Yonghui Superstores has already set up over 360 chain supermarkets in 17 provinces across China. Statistics suggest that the sales of fresh produce accounted for over 40% of the total sales of Yonghui, and the same figure for fresh produce and agricultural byproducts has reached 50%. While other supermarkets’ attrition rate often hit over 20%, Yonghui managed to lower its attrition rate to 3% through a mature delivery model and a good control of upstream supply chain.

At the end of last year, Alibaba Group also invested over 10 million RMB in an online fresh produce retailer called Yiguo.com. Founded in 2005, Yiguo.com has accumulated over years a good number of high-quality fresh produce suppliers and built several offline storages across China. Coupled with over 1,000 offline shops across the Yangtze River delta region, Yiguo.com’s monthly average sales ranged from 5-6 million RMB at present. In its peak time, the sales could go far higher.

On May 26th 2015, Amazon entered the Chinese online fresh produce industry and launched Fresh Produce Store. Likewise, Suning, CR Vanguard, BBG all rushed to sell fresh produce in their online retailing platforms or separate platforms. All of a sudden, it seems as if all major Chinese online retailers have stepped in this market and competed for a share.

Three major obstacles

On the other hand, however, challenging logistics service, high cost and indefinite demand have all been blocking the development of every online fresh produce retailer.

Challenging logistics service

A mature logistics service is crucial, yet highly-challenging to the online fresh produce industry. Different from other products, it is vital to deliver fresh produce to consumers in time, otherwise they would soon go bad. To achieve this goal, a larger sum of money has to be spent in building a sophisticated cold-chain logistics system and a good amount of infrastructure. Worse still, the overwhelming traffic jams in all major first-tier cities across China are also slowing down the logistics system. That’s why many online retailers flinched at the thought of the difficulty out there.

High cost

To keep fresh produce “fresh”, online retailers need to package their products in air bubbles and separate different types of products in different boxes. Just imagine the huge package cost: the average cost of cold-chain logistics is 30% higher than that of traditional logistics service, so it could be really hard to keep the logistics cost less than 10 RMB. Normally, online retailers could make ends meet only when the average transaction volume of their customers reached 100 RMB.

Indefinite demand

Without a good marketing strategy, the demand for fresh produce will fluctuate a lot. With the help of several resourceful employees (basically from media agencies based in South China), an accurate market penetration strategy and several star products such as Pan Apple and Inspiration Orange, Benlai.com did quite well in dealing with this problem.

Various models

Over these years, different Chinese online retailers have gradually worked out several different business models.

Business Model A (Primarily adopted by Comprehensive online retailers such as Alibaba and JD):

Comprehensive online retailers boasted huge traffic and user base. Their users will automatically be attracted to buy fresh produce when shopping on these platforms. As a matter of fact, these online retailers far outperformed other online retailers and grabbed over 80% share of this market.

Business Model B (Primarily adopted by logistics and online shopping service providers such as SF)

SF, the largest and quickest logistics service provider in China, has a natural advantage in the online fresh produce industry.

Business Model C (Primarily adopted by traditional food companies such as Womai.com and 962360.com)

While Womai.com was established by COFCO itself, 962360.com was acquired by Bright Food Group. The advantage of traditional food companies in online fresh produce industry is quite self-evident, so there is no need for much explanation.

Other Business Models (Adopted by online retailers of specific sectors, farms, offline supermarkets and O2O companies)

These business models were gradually developed based on the advantages of different online retailers. Yet, all of them have their insurmountable disadvantages. That’s why the market share of these online retailers remains limited.

Although comprehensive online retailers are more widespread and convenient with mature e-payment technology, they act more as platforms for fresh produce suppliers to sell their own products, so it follows that they can’t ensure the quality of their products. Besides, consumers might have to spend lots of time in comparing the price, quality of different items, which could be quite a bother.

Logistics and online shopping service providers may boast a mature logistics service, but setting up a constant supply chain could be huge challenge for them, let alone the huge marketing cost. That’s why these online retailers still couldn’t make ends meet so far.

Even though traditional food companies meet no challenge in winning the confidence of consumers, they are short of a mature logistics service system, which could ruin consumers’ trust with long delivery time and poor product quality.

As other business models were gradually developed based on different advantages of different online retailers, they were all destined to suffer from some insurmountable obstacles in the end. I can say for sure that these obstacles will continue to hold back the development of the Chinese online fresh produce retailing industry in the near future.

 

[The article is published and edited with authorization from the author @Online Retailer Info, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at ECHO), working for TMTpost.

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