High costs and heavy losses: 99% of fresh produce e-commerce businesses are losing money

The development and spread of e-commerce is gradually influencing people's lifestyles and habits. Fresh produce commonly seen in vegetable markets and supermarkets is now being moved onto e-commerce websites, and the "online vegetable basket" has emerged as a result.

The fresh produce market is huge with broad prospects, and is regarded as the "blue ocean" of China's e-commerce sector, but due to reasons such as high costs and heavy losses, the development of fresh produce e-commerce has not gone smoothly.

A Painful Reality

In early August, COFCO Womai announced that it had secured 100 million USD in financing; on August 11, SF Best expanded its cold-chain delivery cities from 11 to 48; on August 24, LeTV officially announced its entry into agriculture, and its food e-commerce platform "Le Life" had already gone online for testing. This series of major moves brought a new flashpoint to the fresh produce e-commerce industry.

Capital's pursuit of fresh produce e-commerce is undoubtedly a bet on the broad prospects of the fresh produce market. A research report by Qianzhan.com pointed out that in 2013 the domestic fresh produce market was worth nearly 1 trillion yuan, while the sales penetration rate of fresh produce e-commerce was only 0.9%. A large market capacity and a low penetration rate indicate that fresh produce e-commerce will be the next enormous blue ocean for the e-commerce industry.

However, behind this unanimously favored "blue ocean" lies the painful reality that of 3,000 fresh produce e-commerce businesses, almost none is profitable. Li Changming, a member of the China Retail Industry Fresh Produce Research Center, said in a recent media interview that "99% of fresh produce e-commerce businesses are losing money."

Over the past two or three years, a number of fresh produce e-commerce businesses have been restructured or have folded. Beijing-based local community fresh produce e-commerce site Youcaiwang announced in March last year that its founder Ding Jingtao had resigned as CEO, the company's legal representative had changed, and the original management team had been reorganized. As Jinan's first local attempt to put fresh produce online, Jinan Maicaiwang also quietly folded after three difficult years.

Development Bottlenecks

"The problems currently encountered by fresh produce e-commerce are: high difficulty in storage and transportation, and easy spoilage; high delivery time requirements; high logistics costs; and low product standardization," well-known domestic internet e-commerce expert Ding Chenling told reporters.

Veteran e-commerce professional Zhang Xudong said that the development of fresh produce e-commerce faces two major stumbling blocks: first, the standardization problem of fresh produce; second, the persistently high loss rate. "Only standardized things can more easily undergo deep processing and grade classification. Without standardization, one can only follow the path of local specialty products, which is very unfavorable for market expansion." He also pointed out that China's current fruits and vegetables lose nearly 30% during logistics. From 100 tons of vegetables, 20 tons of waste can easily be generated, which is a shocking figure.

Analysys International analyst Wang Xiaoxing said in an interview with our newspaper's reporter, "Fresh products are not easy to store. How to ensure quality and 'freshness' relates to user experience. And to ensure quality and 'freshness', frozen storage is necessary, and cold-chain logistics is the key. But the cost of cold-chain logistics is very high, and this is the biggest bottleneck facing the development of e-commerce fresh produce."

In the view of Liu Yu, general manager of the Tuotuo Gongshe Supply Chain Center, China's cold-chain logistics currently still cannot meet the development needs of fresh produce e-commerce. "Two-stage logistics is mostly based on group-buying activities. The self-built logistics of vertical e-commerce businesses mostly aims to meet their own needs. Ordinary express delivery has seasonal limitations and cannot guarantee quality, while professional cold-chain delivery costs are very high and disconnected from the interests of fresh produce e-commerce," Liu Yu said.

Where Is the Way Out

As fresh produce e-commerce faces various difficulties in its development, industry experts generally favor the fresh produce O2O model that combines online and offline. The O2O model centralizes delivery, with orders placed online and goods picked up offline, reducing costs, while offline stores can provide localized services.

"In the long run, the O2O model can both satisfy ordinary people's desire for original ecological products and reduce transaction and delivery costs," Ding Chenling said.

Ding Jingtao, who ran a fresh produce e-commerce business for 3 years, also said after leaving Youcaiwang that fresh produce e-commerce still has to follow the O2O model. "Fresh produce sales have their own uniqueness. Different regions like different things to eat, and different regions also have different sales prices. Therefore, if one uses a unified mall, many problems will arise. The O2O model is a feasible path."

He also pointed out that the O2O model can not only save logistics costs but also improve user experience. In particular, interactive shopping on social platforms such as WeChat can cultivate residents' shopping habits and increase customer stickiness.

But in the view of Analysys International analyst Wang Xiaoxing, the O2O model is worth exploring, though it depends on how online and offline are specifically combined. For example, localized community e-commerce is doing quite well. Youcaiwang is one of the first community fresh produce e-commerce businesses to carry out a transformation to the O2O model. At present, Youcaiwang is not only operating normally but is also quite well received by consumers.

It is understood that Youcaiwang's promotional activities are carried out entirely offline, such as opening community fruit and vegetable convenience stores, cooperating with physical community stores, and entering communities through direct shuttle services, among others. These activities not only gained consumer awareness and recognition for Youcaiwang, but also laid the foundation for solving the "last mile" delivery problem.