Fresh food e-commerce draws PE to tap a trillion-yuan market, cost and non-standardization become bottlenecks
After learning from the failure experiences of the first batch of fresh food e-commerce players, at the end of 2012, marked by Benlai Life Network's “Chu Orange goes to Beijing,” China's fresh food e-commerce market welcomed a second wave of enthusiasm.
Recently, semi-prepared fresh food e-commerce player “Youth Vegetable Gentleman” burst onto the scene, having already obtained tens of millions of yuan in Series A financing from Plum Blossom Angels founding partner Wu Shichun and Jiuhe Venture Capital founding partner Wang Xiao. And since the beginning of this year, with the rapid development of fresh food e-commerce, Womai.com, Meiwei Qiqi, Benlai Life and others have successively obtained PE/VC investment. But industry insiders point out that the two major bottlenecks of high delivery costs and non-standardization remain to be broken through by fresh food e-commerce.
Tapping a trillion-yuan market
On August 1, COFCO's e-commerce platform Womai.com announced the completion of Series B financing, obtaining $100 million in capital injection from IDG and SAIF Partners. This is the largest e-commerce investment IDG has ever made, and it also set a record for financing in China's food e-commerce sector, including the fresh food e-commerce field. It is reported that this round of funding was led by IDG Capital, with SAIF Partners following up with an additional $15 million after its $37 million Series A investment in July last year.
IDG's heavyweight investment in Womai.com undoubtedly lifted a corner of the broad fresh food e-commerce market and once again triggered widespread market attention to fresh food e-commerce. According to statistics, China's fresh food market scale is nearly one trillion yuan, and the current penetration rate is still less than 1%. China Merchants Securities points out that the current fresh food e-commerce market scale is relatively small. In 2013, the sales scale of vertical e-commerce was about 1.2 billion yuan, and the sales of fresh food products (vegetables and fruits, fish, meat, eggs) by comprehensive and platform-type e-commerce were about 4.5 billion yuan, totaling 5.7 billion yuan. It is expected that by 2018, comprehensive and platform-type e-commerce can reach 78.5 billion yuan in sales, and vertical e-commerce can reach 22.7 billion yuan in sales.
IDG Capital partner Xiong Xiaoge believes that the UK fresh food e-commerce company Ocado is currently 8 times larger than Womai.com, but China's development space is large and should be 8 times that of Ocado. Moreover, Womai.com is the first to make a move, and as funding is in place and supply chain, logistics cold chain and user scale are established, industry barriers will be formed.
In fact, IDG is not the only PE/VC interested in online e-commerce. Over the past three years, the rapidly developing fresh food e-commerce sector has long attracted PE/VC to invest one after another. According to Analysys Think Tank statistics, in 2013 the online shopping transaction volume of fresh food reached 5.7 billion yuan, with a year-on-year growth rate of 40.7%, and the compound average growth rate from 2010 to 2013 reached 138.5%; from the Taobao Index, both fresh food searches and transaction volume grew by more than 100% year-on-year; it is expected that in the next 5 years the growth rate of the fresh food e-commerce industry will exceed 100%, the market scale will be about 100 billion yuan, and its share of total fresh food sales will reach 15%.
Before IDG invested in Womai.com, Amazon announced as early as May 16 this year in Shanghai that it would take a $20 million stake in fresh food e-commerce company Shanghai Meiwei Qiqi Network Technology Co., Ltd. Amazon stated that in the future Meiwei Qiqi will maintain independent operations and expand business outside the Shanghai region. The investment in Meiwei Qiqi is intended to steadily expand business scale. At the end of July, vertical fresh food e-commerce company Benlai Life claimed that a round of financing had been completed in January this year, with the funds arriving in April.
“The successive entry of PE/VC will undoubtedly bring fresh food e-commerce into a period of rapid development. Especially since last year, with the push of PE/VC, fresh food e-commerce has entered another round of expansion.” an industry insider said in an interview with a China Securities Journal reporter.
Since development began in 2005, fresh food e-commerce has experienced two waves of enthusiasm. In 2005, Yiguo Fresh was established, opening the first wave of enthusiasm for fresh food e-commerce. After that, Caiguanjia, Tuotuo Gongshe, and SF Best successively launched. With the continuous development of fresh food e-commerce, supply gradually exceeded real market demand. Starting in 2012, fresh food e-commerce stopped expanding. Entering 2013, along with a series of expansions and mergers and acquisitions, including the nationwide expansion of SF Best and Tuotuo Gongshe and Haibo's acquisition of Caiguanjia, fresh food e-commerce welcomed a second wave of enthusiasm, and this wave has continued to this day.
Two major bottlenecks remain to be broken through
Although growing rapidly and with broad prospects, it must be admitted that most domestic fresh food e-commerce companies are still in the loss-making stage, and fresh food e-commerce itself also has various difficulties to overcome.
China Merchants Securities points out that the bottlenecks faced by fresh food e-commerce mainly include two aspects.
First, delivery costs are high. Fresh products mainly go through three stages from suppliers to final consumers: trunk-line transportation, warehousing and home delivery. Overall, under the condition of cold chain outsourcing, the trunk-line transportation and warehousing costs of refrigerated goods are 4 to 5 times those of normal-temperature goods, while home delivery costs are 1.3 to 1.5 times. Fresh food e-commerce investing in cold chains itself faces high costs: on the one hand, cold chain goods are more expensive than normal-temperature goods in warehousing and logistics; on the other hand, the particularity of fresh products makes delivery time requirements strict, and the special requirements of fresh product delivery make it difficult to share resources with traditional goods, resulting in insufficient order density.
Second, the non-standardization problem of fresh products. Non-standard products mainly cause two effects: on the one hand, it is inconvenient to unify packaging and delivery; on the other hand, it affects consumers' recognition of the products. For example, when placing an order online, what is seen is brightly colored, uniformly sized products, but when customers receive them, they find the sizes are uneven and the colors are not bright. These two points are also areas where the difference from traditional e-commerce is relatively large. Physical products such as 3C and books are not very different from the pictures, are easy for consumers to accept, and have consistent shapes and sizes, making packaging and delivery convenient.
These problems accompanied the development of domestic fresh food e-commerce. In the first wave of enthusiasm for domestic fresh food e-commerce, because operators did not consider the characteristics of fresh products but simply copied the business model of traditional e-commerce, and because the upstream did not penetrate to the base, the middle did not control logistics, and the end did not grasp the user group, relying only on a website to sell goods, the first wave of fresh food e-commerce ultimately ended in failure.
After learning from the failure experiences of the first batch of fresh food e-commerce players, at the end of 2012, marked by Benlai Life Network's “Chu Orange goes to Beijing,” China's fresh food e-commerce market welcomed a second wave of enthusiasm. Participants in this wave learned from the former's experience and, targeting links such as supply chain and logistics, either improved or innovated them, creating their own characteristics. At present, the better-known domestic e-commerce companies have all controlled one or more aspects of supply chain, platform operations and warehousing logistics, enabling them to avoid repeating the tragic failure of the first wave of e-commerce. Among them, JD.com, Tmall and SF Best, by virtue of flattening in the supply chain, innovation in marketing methods and leading cold chain home delivery technology respectively, set new industry standards in supply chain, platform operations and warehousing logistics, greatly raising the entry threshold for fresh food e-commerce.
“The delivery cost problem is currently the biggest problem facing fresh food e-commerce. However, with the expansion of the scale of fresh food e-commerce, delivery costs are expected to gradually decline. At the same time, through centralized delivery, self-pickup lockers and community stores and other methods, the last-mile problem of fresh food e-commerce can be solved to a certain extent, and delivery costs are expected to be further reduced.” the above industry insider told a China Securities Journal reporter.