Fresh Food E-Commerce in China – a Promising Market? /Elias Trapp


“Rebuild the Intimate Relationship between People and Food”

This is probably the most romantic conclusion of fresh food e-commerce. In the blink of an eye, it has been ten years since the niche market entered our life. Nowadays, food e-commerce in China is already a billion-scale market; however, only a few major dealers survived while others ended up with bankruptcy or transformation. Is the romantic ambition of fresh food e-commerce fading away?

Overview of the Current Situation

In China, Food E-Commerce is constantly rising in popularity. Nowadays, online retailers already offer a wide variety of goods, from vegetables to dairy products to even sensitive ingredients like fresh meat. Such a diverse assortment surely is the right step to ensure continuous growth.

With the steady growth of consumption expenditure of Chinese residents in general, the consumer demand is going upwards, which motivates the development of the fresh food e-Commerce sector.

According to a report from Chinese consulting firm “iResearch”, the fresh food e-Commerce industry in China grew by 59.7% to the staggering amount of 139.1 billion RMB (22.1 billion USD) in 2016-2019. It is expected to grow by yet another 40% to almost 200 billion RMB until the end of 2018 – reason for that being the increasing popularity and convenience for customers. Shopping food online is becoming a new trend!

Although, clearly, it is not easy to build a working system for efficient food e-Commerce, no other country is as far ahead as China in that aspect. Good infrastructure and already existing mobile payment options have leveraged the industry. Many Chinese consumers fully rely on food delivery services like JingDong Daojia and Eleme for anything they might need in the kitchen. Why wouldn’t they – it is incredibly easy to do.

By the simple click of a button, the order has been placed. Payment is made via phone, using the already common mobile payment methods in China. Then, the delivery arrives within a maximum of 24 hours, but usually takes a couple hours only. JD Daojia for example offers one-hour fresh food deliveries.

From there, it will be stored in collection boxes, that are commonly located in front of apartment blocks. A quick barcode-scan and you have finished grocery shopping for the week! No wandering in stores, no hassle and the carrying of heavy bags restricts itself to your apartment stairs.

With so much convenience, no wonder the market is booming in China!

Opportunities for further development

Food Safety

Without doubt, food safety is one of the most constricting aspects when dealing with fresh food E-Commerce in general. But particularly in China, there is a lot of room for improvement. As food safety becomes a growing concern in Chinese agriculture and therefore could limit the rapid growth of Chinese food E-Commerce, it is mandatory for the government to put regulations in place and work with agriculturists. Since the fresh food e-Commerce relies on said fresh food, to ensure further growth of the industry, changes must be made soon.

Profitability

Although cold chain, storage and distribution usually are an issue when dealing with food e-Commerce, China’s online retailers heavily invested in the infrastructure from the start, which also meant trading in the possibility to make a “quick buck”. In fact, as for now, 88% of fresh food e-Commerce companies are losing money and an additional 7% are suffering from heavy losses.

Seeming shocking at first sight, investments going into sustainable logistics and the establishment of cooperation agreements between e-Commerce platforms and distributors are forming a basis for a rapid development in the near future. Being prepared to tolerate short-term losses, no wonder many companies make this visionary decision.

In fact, just recently one of the biggest e-Commerce websites in China, JD.com, signed a major deal with Air China to try a new business model for the direct delivery of fresh goods.

Open-Source Cold Chain?

As mentioned, the logistics are very good in China already. However, supply chain costs account for most of the expense for fresh e-Commerce food, limiting the possibility of high margins. Currently, the cold chain logistics distribution is divided into two types: one is the self-built logistics model, such as ShunFeng Optimization (顺丰优选) and Miss Fresh (每日优鲜). The other is the third-party logistics model represented by Miao Tmall (喵鲜生),BenLai (本来生活), ShikeFood (食恪生鲜) and others.

To possibly reduce cost and further push the development of the business sector, the fresh food logistics need to be centralized and possibly even shared among different providers to be able to suit a wider range of consumers at lower cost. Whoever claims or partners with other, like-minded companies first, will be victorious in the race for the number-one online food supplier of the country.

Conclusion

Although being still in its early stages, the fresh food online market has a bright future ahead. Rising customer demand for both domestic and foreign foods has boosted the development of the relatively new business sector. Without doubt, the development of the fresh food segment will mark a new era of convenience for consumers.

However, the system is not perfect, yet. The high costs to ensure punctual delivery and the freshness of goods currently outweigh the low profit margins by far. Being extraordinarily challenging for smaller enterprises, it is still written in the stars whether those can quickly turn profitable to prevent an early bankruptcy. But the worrying numbers of nearly 5000 fruit, vegetable and flower e-Commerce start-ups closing by the end of 2017 are a clear indicator, that the winning spots might be, yet again, reserved for Alibaba and JD.com.

Clearly, this market offers great opportunities but risks alike, which both need to be addressed accordingly to kick off this revolution of “how we buy food” and ensure a continuous, steady growth for a healthy economy.

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