Online fresh produce sells well at high prices, so why isn't it profitable?
Amid the massive wave of online shopping, although the unit price of online fresh produce is 30% higher than offline, Chinese consumers' online purchases of fresh produce grew nearly 23-fold over the past four years. At the same time, big players frequently entered the market, and small platforms died one after another. Online and offline fresh produce retail are engaged in a battle of differentiation.
30% more expensive online, new customer group doesn't lack money
Online fresh produce retail only got started in recent years, but its growth has been rapid. According to the "China Fresh Food Consumption Trends Report: The Winning Way in the New Era Fresh Food Market" (hereinafter referred to as the "Report") jointly released by Boston Consulting Group (hereinafter referred to as "BCG") and AliResearch, from 2012 to 2016, the fresh produce e-commerce market surged from 4 billion yuan to 95 billion yuan, a nearly 23-fold increase in four years. It is expected that by 2020 the market size will reach 347 billion yuan, and nearly 30% of urban households will purchase fresh products through online channels.
Chinese consumers have relatively low satisfaction with offline fresh produce, and fresh produce e-commerce has filled this gap. The report shows that consumer satisfaction with online fresh produce channels is 24%, but 7% higher than offline. It is worth noting that the unit price consumers pay online for fresh produce is about 30% higher than offline. At the same time, more than 60% of consumers hope to buy better-quality fresh produce, and price is not the main motivation for buying fresh produce online.
Currently, three major consumer forces are driving the online growth of fresh produce. 32% of the upper middle class and affluent class buy fresh produce online, while only 16% of the emerging middle class do so; the average age of consumers who frequently visit fresh produce e-commerce sites is 31; experienced consumers with five years of online shopping experience will begin buying fresh produce online in large quantities, and their fresh produce spending is 3.4 times that of less experienced consumers. Lu Zhenwang, CEO of Shanghai Wanqing Business Consulting Co., Ltd., said that online fresh produce must take a mid-to-high-end route in order to create a distinctive gap with offline retail.
Big players stir up the market, too early to talk about profit
Online fresh produce is facing huge bottlenecks that must be overcome, including scattered sources, low product standardization, high spoilage, and incomplete logistics.
Lu Zhenwang told a Beijing Business Today reporter that the supply chain cost of fresh produce e-commerce is high, with warehousing, transportation, and refrigerated delivery costs exceeding 40%. Fresh products spoil easily, with a damage rate exceeding 10%. At present, independent domestic fresh produce e-commerce platforms are all losing money, and the only way to become profitable is to raise unit prices. Currently, among more than 4,000 fresh produce e-commerce companies nationwide, 1% are profitable, 4% break even, 88% lose money, and 7% suffer huge losses.
Therefore, in the current landscape of fresh produce e-commerce, it is almost always e-commerce giants with ample capital and deep backing who control the situation, while small platforms that fail to find a backer fall one after another. Shanghai's fresh produce e-commerce platform Yizhuo.com fell into a closure crisis last week, with all products removed from shelves; earlier, Meiwei77 announced closure; Aixianfeng carried out large-scale layoffs... Analysts admit that competition in the fresh produce e-commerce market is extremely fierce, and the entry of e-commerce giants such as Alibaba and JD.com is undoubtedly "adding frost to snow" for small and medium-sized fresh produce e-commerce players. Lu Zhenwang said that judging from the current landscape of online fresh produce, Tmall Supermarket has the largest scale, investing in Yiguo.com to open up logistics services and integrating and utilizing resources. The giants are not in a hurry to make profits. At present, those making profits from fresh produce e-commerce are mostly sellers in production areas, or those who only operate platforms without getting involved in the entire industrial chain. "Getting involved in the supply chain makes profitability extremely difficult."
Channel battle: what does offline compete on?
Although online growth is fast, offline retail is still the main channel for fresh produce. The report shows that by 2020, offline will account for about 75%-85% of the market share of China's fresh produce consumption market. At the same time, fresh products require high-frequency purchases to ensure freshness. 36% of respondents buy fresh vegetables more than 3 times per week, and their average number of channels is as high as 4.1.
The domestic retail industry is increasingly adding fresh food supermarkets. Not long ago, Chaoshifa expanded the scale of its fresh food supermarkets, with a sales area of about 200-500 sq m, more than 80% of which is fruits, vegetables, and meat products. Chaoshifa general manager Wang Zengqing once said that Beijing is actively relieving non-capital functions, and some fresh food markets have moved away or disappeared, but residents still have demand.
Facing the competition for a share from online fresh produce, BCG partner Lu Huang said that offline sales of baked goods and cooked food products still have obvious advantages, and offline retailers should further highlight the differentiation of fresh food to compete for customer traffic. At the same time, online fresh produce has not yet fully opened up the market in small cities, and offline retailers have every opportunity to accelerate their layout in lower-tier cities, cultivate consumer demand, and seize the market.