China’s E-Commerce Research Center recently released a report entitled “The E-Commerce Market in China in 2017”. Among the e-commerce sectors considered was the market for fresh food, which reported sales of 85.14 billion yuan (US$12.92 billion) in the first half of 2017 and is anticipated to reach 165 billion yuan (US$25.0 billion) in total sales by year’s end.
In contrast, in 2016 this sector reported total sales of 91.4 billion yuan (US$13.87 billion), so expected year-on-year growth is around 80%.
The fresh foodstuffs business has the highest requirements and barriers to entry of any e-commerce sector, with challenges in logistics, finance, and user operations. Meanwhile, it has the highest purchase frequencies and a large space for innovation and imagination.
While difficult to implement successfully, e-commerce’s low penetration into the foodstuffs market (around 3%), potential market size (hundreds of billions), and high-frequency consumption patterns still entice new entrants to try their hand at the market.
China E-Commerce Research Center director Lei Cao believes that the sector can still look forward to the considerable expansion. In the first half of 2017, four financing events were held by companies operating in this space; while there were few events, the amount of financing raised was quite large, lending firms considerable operating capital and financial strength and showing that capital looks favorably upon this market.
A new round of changes is happening; at present, because of the difficulties in cold logistics and other high costs, only 1% of the 4,000+ industry players are showing a profit, compared to 88% operating at a loss.
Compared to traditional e-commerce companies, fresh foodstuffs providers face higher costs to acquire users and in logistics, requiring them to rely on capital to subsidize consumers. Smaller players lack experience and capital, making it easy for them to make it halfway to a functioning company before going bankrupt.
While the e-commerce end of the business is expanding rapidly, most entrants also invest in offline stores, seeking an “all-channel” business model.
Finally, the report suggests that market entrants seek to compete based on three factors:
- Products: Reach sufficient size to have leverage over prices. Before e-commerce entered into the market, consumers had only offline avenues for buying foodstuffs; estimates suggest that to entice them to buy online, prices and quality need to improve by 30% or more.
- Business model: Integrate the industry. E-commerce players in this space need to get suppliers to transform their businesses; the most important thing for them is to ensure quality, so their supply chains need to reach directly from producers to consumers. Only then can they bridge the gaps between the two and keep up with changing preferences, drive sustainable buying habits, develop a brand, and increase profitability.
Supply chain: Achieve a product-centric cold supply chain. The development of e-commerce in the fresh foodstuffs sector cannot be separated from the development of an effective supply chain.
Thus far, the industry has seen two models come into play, one in which e-commerce companies build their own logistics and supply chains, the other in which they use third-party logistics providers.