Fresh food e-commerce begins reshuffling: small and medium players exit as giants battle for dominance

After a round of capital and startup frenzy, fresh food e-commerce has seen no end of bad news this year. Facing market and funding difficulties, the once exceptionally feverish fresh food e-commerce sector has begun to enter a "reshuffling season," and the industry threshold will gradually rise. E-commerce analyst Li Chengdong said that in the fresh food e-commerce sector, the players are no longer what they once were. Last year they were still racing to stake out territory; this year it has become a battle among giants.

Passing off inferior goods as quality ones, altering places of origin... In recent years, the "extensive" operating model of some fresh food e-commerce companies has exhausted consumers' patience, ultimately leading them to "vote with their feet." Facing market and funding difficulties, the once exceptionally feverish fresh food e-commerce sector has begun to enter a "reshuffling season."

Place-of-origin information hard to verify

Quality varies widely

"They claimed they were all Pinggu big peaches: 4 nectarines sold for 12 yuan, 6 big peaches for 24 yuan, and the description said sweet and juicy, just like eating canned fruit. But when I bought them and took a bite, there was no flavor at all, far worse than the ordinary big peaches sold at the morning market." Ms. Liu was full of complaints when describing to a Beijing Morning Post reporter her shopping experience at a well-known fresh food e-commerce site.

"Fruit that can be bought offline, why buy it online? It's because I hope to eat good-quality produce." As a "regular customer" of this e-commerce site, Ms. Liu found that as the site's products kept growing richer, the quality of the products had become uneven.

Ms. Zhai often buys imported cod online for the children and elderly at home. But as the media successively exposed problems such as "smuggled" food and passing off inferior goods as quality ones on e-commerce platforms, Ms. Zhai began to feel uneasy.

"Some fresh food e-commerce companies that tout pure imported sources were found to lack key qualifications such as foreign trade operator registration, import-export business scope in their industrial and commercial registration, and customs codes. In addition, commissioned OEM labeling is also common in the imported fresh food market; for example, imported salmon bought on the market shows packaging information indicating it was OEM-produced by a domestic manufacturer. Some fresh food products I bought online had imported food outer packaging with no Chinese labeling, making even the country-of-origin information hard to identify, let alone the health certificate from the inspection and quarantine department." Ms. Zhai believes consumers find it very difficult to tell genuine from fake.

News of bankruptcies and layoffs keeps coming

Reduced to a big investment pit

After a round of capital and startup frenzy, fresh food e-commerce has seen no end of bad news this year.

Meiwei Qiqi, once exposed by the media for "lacking import qualifications," has gone bankrupt, showing the bitter consequences of fresh food e-commerce's "extensive management." Subsequently, Aixianfeng fell into a layoff storm, "persuading" employees to leave on a large scale, and the fresh food community O2O model fell into difficulty. Benlai Life closed "Benlai Convenience Store"; Tian Tian Guo Yuan closed all its stores in Beijing, Shanghai, Guangzhou and other cities, and upgraded Tian Tian Guo Yuan to "Lightning Delivery"; "Qingnian Caijun" and "Guoshi Bang" announced suspension of business on July 30 and August 1 respectively... The fresh food e-commerce sector has been jokingly called a "big investment pit" by the investment community.

For consumers, "quality control" has become the key constraint on the development of fresh food e-commerce. For fresh food e-commerce, the challenges go far beyond this.

"Fresh food e-commerce has two hardest things," admitted Wang Xiaosong, vice president of JD Group and president of JD Mall's fresh food business unit. "One is product standardization; the other is cold-chain logistics." Doing both well means high costs.

E-commerce expert Zhang Chenyong estimates that the packaging and delivery cost for B2C players such as Tmall is about 15 yuan. Taking the typical central warehouse shipping model in fresh food e-commerce as an example, with last-mile delivery reaching the C-end, the packaging and cold-chain transport cost per fresh food order is about 30 yuan, with a relatively high spoilage rate.

According to an Analysys Think Tank survey, the added value of ordinary ingredients such as vegetables, rice and noodles is only in the single digits; the added value of mid-to-high-end kitchen ingredients is relatively high, with fruit gross margin at about 20%, meat at 20% to 30%, and seafood reaching over 50%. A simple estimate shows that for orders under 100 yuan, the cold-chain logistics cost alone is almost impossible to cover.

The huge business opportunity has drawn the participation of internet giants, with JD and Alibaba both charging in, intensifying market competition. In the first half of this year, JD announced it would spend 10 billion yuan to build an integrated fresh food delivery network. Tmall Fresh even established an advance compensation mechanism, with "compensation for bad fruit" for users and a maximum credit line of 10,000 yuan. Traditional e-commerce giants have larger traffic volumes, and after entering the fresh food sector, they have greater advantages over small and medium fresh food e-commerce players in user acquisition costs, with relatively lower operating costs as well.

Giants become the big players

Raising the threshold for fresh food e-commerce

"In recent months, our self-operated sales volume has grown dozens of times year-on-year. This number is astonishing, and it also truly shows that more and more users are willing to buy fresh food products online," Wang Xiaosong said.

Despite facing numerous challenges, fresh food e-commerce is still regarded as one of the most promising e-commerce markets. "How big is China's fresh food market?" Wang Xiaosong believes, "4 trillion to 5 trillion is certainly there. When I talked with people doing seafood imports, they said it grows more than 80% every year, which shows how strong this demand is."

However, industry views are no longer as optimistic as before. It is widely believed that China's fresh food e-commerce will enter a reshuffling phase this year, and the industry threshold will gradually rise.

A survey report from AC Nielsen shows that "products from multiple places of origin" is one of the main reasons consumers choose to buy fresh food online, accounting for 47%. On August 16, the JD Fresh platform signed cooperation agreements with Chile, Spain, South Africa, France, the United Kingdom and other countries to bring in local high-quality fresh food products. Previously, JD Fresh also launched cash on delivery. Wang Xiaosong said, "This is very challenging. For fresh food products, if the user refuses delivery, that order is essentially scrapped."

E-commerce analyst Li Chengdong said that in the fresh food e-commerce sector, the players are no longer what they once were. Last year they were still racing to stake out territory; this year it has become a battle among giants. The giants are building ecosystems through mergers, acquisitions and integration: Tencent + MissFresh, JD Xindada + Walmart + Yonghui, Alibaba + Yiguo.com + Hema Fresh + Lightning Purchase Enterprise + Dianwoda, New Meida + China Resources, and other giants have become the big players in the fresh food e-commerce market.

Beijing Morning Post reporter Liu Yinghua