Fresh Food is Conquering Chinese E-Commerce

03/05/2019

The increasing demand for better quality and a “mobile first” society could not but lead to the fresh food delivery boom. In 2018, 37.9 million people got their groceries delivered while the industry penetration rate already reached 3.44%

 

E-commerce in China is now a consolidated industry. Online shopping trends are shaping worldwide consumptions year after year while Chinese tech giants set the market’s rules.

The latest trend? It is food delivery, in particular, fresh food delivery.

The Middle Kingdom has already witnessed a massive change in the food industry. Artificial Intelligence has taken control over both the production and the supply chain. Supermarkets have become hi-tech showcases where not only customers do not need to take out their wallets to pay for the groceries but they do not even need to drive them home anymore.

But the People’s Republic has a new habit coming out that brings regular supermarkets closer to retirement. According to the China Household Table Consumption Trends Report, published by Alibaba in 2017, 60.5% of all fresh food available in China is indeed sold online. In the first and second-tier cities, 82% of Chinese consumers, at least occasionally, buy food and beverages online.

 

According to analysts, with an expected annual growth rate of 12.8%, China’s food and beverage market is the biggest revenue generator in the world, whose volume could be worth $36.67 billion by 2023.

 

Recently, in fact, many international investors started to consider China’s fast-growing food and beverage industry an attractive destination, so much so that the revenue from this sector is expected to be at $22.7 billion in 2019, a 22.5% increase compared to the previous year.

Actually, fresh food e-commerce developed rapidly in the Asian country in 2014 and 2015 but it experienced a massive upgrade since 2016 when digital giants such as Alibaba and JD.com reinvigorated the market by raising investments in supply chain and logistics. According to data from the consulting firm iResearch, China’s fresh food e-commerce industry grew by 59.7% in 2017 to $22.1 billion.

 

Fresh food is conquering e-commerce - delivery - cifnews

© 123rf. Among fresh foods purchased online, fruits are the most frequently bought while dairy products and vegetables ranked second and third, respectively.

 

Today, with a simple click on a smartphone, Chinese can get lobsters from Boston and cherries from Chile delivered to their doorstep within a couple of hours. Among food purchased online, fruits are the most frequently bought while dairy products and vegetable rank second and third respectively.

The reasons that led Chinese people to choose online grocery shopping over offline supermarkets are various. The increase in the use of mobile phones and the spread of internet penetration are at the top of the list.

But the online world also gives access to a more diversified range of products including better and healthier food. However, saving shopping time and money – online prices are typically 10 to 20% lower than in-store – also play a significant role in the trend’s growth. Increasing levels of education and an internet savvy Chinese middle class are additional factors of growth.

Chinese middle class is becoming wealthier with a yearly disposable income growing fast in both first and lower-tier cities. Therefore, Chinese customers are also more willing to pay for quality than in the past.

 

As of July 2018, the industry penetration rate of the fresh food e-commerce app was 3.44%, and the total number of users in the industry reached 37.9 million, an increase of 99.6% compared with the same period last year.

 

The consequence is that an increasing number of consumers have started to purchase imported products online, especially in the fresh food category, due to the country’s pollution situation and frequent food safety scandals. In fact, the PRC is facing deep challenges in producing homegrown food products as 20% of its land is polluted.

Moreover, it is expected that more than 30% of China’s population will be aged 60 years and older by 2050, resulting in a significant increase in the consumption of healthy food products. In addition, consuming organic is now considered a status symbol in Chinese society with 58% of Chinese middle class also ready to pay extra for ethical brands.

Therefore, while the Dragon is today known to be one of the most health-conscious nations worldwide, the food industry is significantly affected by the population growing demand for better quality.

However, quality is not the only main driver for online purchase of fresh food. As consumers get richer with a busier schedule, they also pay more attention to time efficiency rather than just quality. And fresh food delivery responds to this need more than any other expedient.

 

Fresh food is conquering e-commerce - beijing - cifnews

© Unsplash. Beijing. The results of the distribution of users in Chinese cities show that the city with the highest concentration of fresh food e-commerce app users is Beijing.

 

Nevertheless, although the preference for imported food might offer an attractive opportunity for overseas importer, the quest for rapidity represents a big challenge in terms of logistics. In the past, in fact, one of the main obstacles in developing the fresh food delivery industry was the lack of cold chain logistics, but now many players are investing heavily in the distribution network.

There are a total of 37.9 million fresh food e-commerce app users in China, an increase of 99.6% from July 2017, however, 85.11% users only installed one app. Missfresh, JD Daojia, FreshHema, and RT-Mart Fresh are among the list of top fresh food e-commerce apps.

The number of middle-aged and elderly Chinese customers who buy fresh vegetables on Ele.me – China’s second largest food delivery application – has increased by more than 500% in a period of little more than one year. The sales volume of fresh food on Ele.me hit $15.6 million last year while more retailers are opening online shops in addition to their offline stores.

One of the first Chinese companies that have sold groceries online is Yiguo E-commerce Co. 易果生鲜. Founded by Ye Zhang and Jin Guaglei in Shanghai in 2005, the marketplace sells fruits, meat, eggs, vegetables, and also ready-to-eat meals.

 

Yiguo is currently the largest e-commerce fresh produce marketplace in China, with the number of orders exceeding 50,000 per day. However, the company’s growth is mainly due to the investment of Alibaba, which included the firm in Tmall’s e-commerce platform.

 

Indeed, under the tide of the New Retail era, Chinese e-commerce giants have entered the food industry both by investing in existing startups or by starting cutting-edge platforms or stores.

As China’s biggest e-commerce operator, with nearly 700 million monthly active users, Alibaba’s Tmall Fresh is one of the foreign brands’ most successful gateway to deliver fresh products in the PRC. For example, New Zealand Country Flagship Store on Tmall Fresh received orders for 1,200 cases of apples in two minutes, six times more than normal monthly sales of the same product.

But Jack Ma is also the father of the New Retail concept, especially since the opening of the first O2O (online to offline) food store in early 2016. Indeed, Alibaba’s Hema supermarket merges online and offline sales for in-store and consumer delivery services.

Early last year, even JD.com opened 7FRESH, its first offline fresh food supermarket in Beijing where customers can either buy in the shop or order on its app. The company said that over 10,000 customers visited the 7FRESH supermarket each day during its trial period.

 

Fresh food is conquering e-commerce - hema supermarkets - wuhan - cifnews

© Unsplash. Wuhan. Alibaba recently opened new Hema supermarkets all around the country. The chain now also serves consumers in Xi’an, Nanjing, Wuhan, and Guangzhou.

 

The peculiarity of this kind of stores is that they are built exclusively to support the online market. Not only they support fast pick-up from within the store but they also address their efforts to fresh products and to the shopping experience. However, the most important aspect of New Retail stores is that you can only make digital payments, which works as a hook for mobile digital natives.

The Chinese economy has been a huge source of growth for companies around the world over the past decades. Today, China is the world’s second-largest economy and it might overtake the US by 2030. The rapid explosion of the Chinese middle class has created a new consumer culture in China in barely a generation. That, together with infrastructure investments that have made shipping easier, and the Chinese embrace of technology, has led to the country’s sudden growth of e-commerce.

The increasing demand for better quality products and a “mobile first” society could not but lead to the fresh food delivery boom. A trend that will surely have a huge impact on both worldwide sales and international e-commerce trends.

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