Fresh Food E-commerce Has Huge Potential for Development

By Jenny Hu

On May 12， fresh food e-commerce platform“Dingdong” announced the completion of D+ round financing of USD 330 million， with a cumulative amount of USD 1.03 billion being secured in the D round. Shortly after that， it was said that Missfresh would go for an IPO in the U.S.， and leading industry players Meicai and Dmall are competing to be the first listed company in the fresh food sector. The competition in this industry is becoming increasingly fierce with many players getting involved.

The fresh food e-commerce sector is very attractive due to its high demand， high consumption and high repurchase rate. According to data from iiMedia， the scale of the fresh food e-commerce industry will reach RMB 311.74 billion in 2021 and will surpass RMB 800 billion in 2023.

The COVID-19 pandemic has accelerated the growth of the online consumption of fresh food

Recent years have seen stable growth in Chinas fresh food sales market， and in 2020， Chinas fresh food sales market surpassed RMB 5 trillion. As peoples consumption habits started to change and the consumption level has risen， people have greater demand for fresh food products.

Chinas consumer groups have also been changing gradually as the economy develops. People born in the 1980s and 1990s now constitute the bulk of the countrys consumption power. iiMedia research showed that users aged under 35 account for 55.7% of fresh food customers. It also showed that consumers born in the 1980s and 1990s are less concerned about the price of fresh food， as they focus more on shopping convenience， product quality， and also the speed of delivery.

In 2020， the stay-at-home economy was booming as a result of the pandemic， and fresh food e-commerce underwent explosive growth. Platforms such as Missfresh， Dingdong and Meituan emerged unexpectedly， and many fresh food e-commerce companies became new favorites of the capital market. At the same time， Pdd， Meituan and Didi have also engaged in community group buying， leading to competition amongst groups buying fresh food e-commerce intensifying.

According to iiMedia， consumers started purchasing through fresh food e-commerce apps more frequently when the pandemic broke out in early 2020. As the number of cases decreased， the number of purchases made through fresh food apps decreased slightly， but the total purchases were still higher than before the outbreak of the pandemic. According to iiMedia， after the pandemic started to calm down， users of fresh food e-commerce platforms purchased products more frequently than before the pandemic. This shows that the pandemic changed users habits when it comes to purchasing from fresh food e-commerce platforms.

Due to the impact of the COVID-19 pandemic， Chinas fresh food e-commerce market developed quickly in 2020， with a total market scale of RMB 458.5 billion， up by 64% from 2019. As the fresh food e-commerce model matures， customers are developing the habit of purchasing fresh food online， while the technology advances. iiMedia said that in the next few years， fresh food e-commerce will continue to grow rapidly. By 2023， Chinas fresh food industry scale will surpass RMB 1 trillion and will reach RMB 6.8 trillion by 2025.

Industry leaders diversify business operations， and startup companies join industry competition

Many capital tycoons have been involved in fresh food e-commerce， which is still a new type of e-commerce business.

Regarding the current business distribution， Alibaba has invested in the O2O platform Taoxianda， a new retail business Ele known as FreshHema which integrates stores and warehouses， and social community group buying platform Meituan. Meituan has invested in the O2O business Meituan Shangou， forwarding warehouse business Meituan Maicai and social community group buying platform Meituan Youxuan. Furthermore， PDD， Didi and other leading fresh food e-commerce platforms are also popular among capital investors. There are many players involved in the fresh food e-commerce industry.

According to the Analysis Report on Investment and Financing of the Fresh Food Market in the Recent Decade issued by big data research institute QCC， since 2010， there have been 287 financing cases in Chinas fresh food e-commerce sector， involving 154 projects and a total financing value of RMB 46.34 billion. In 2019， the industry entered a new phase of reshuffling. Some famous projects such as Miaoshenghuo， Caidaole and Yizhuowang shut down. This was also the year that capital investment became more reasonable， and the disclosed financing value amounted to RMB 1.179 billion. In 2020， the number of financing cases picked up to 28. Dmall received C-round investment of RMB 2.8 billion； Missfresh received two rounds of strategic investment of USD 495 million and RMB 2 billion. In the end， the total financing value reached RMB 8.868 billion.

There have been eight cases of financing in 2021， with a total financing value of RMB 8.189 billion. Dingdongmaicai received D-round investment of USD 700 million， which was the highest amount for a single financing transaction in the past decade.

Data from Tianyancha shows that China has approximately 3，000 fresh food e-commerce brands operating fresh food and social community group buying businesses. Beijing has more than 400 such brands， followed by Shanghai and then Shenzhen， with approximately 300 and 200 brands respectively. Regarding regional distribution， Guangdong has 21，000 fresh food e-commerce companies， which is the highest number in China， accounting for 27% of the total number nationwide. Hunan and Shandong follow， with approximately 7，000 and 5，000 companies respectively.

Data from Tianyancha shows that approximately 82% of Chinas fresh food e-commerce companies were registered within the last five years. In 2016， China saw more than 10，000 newly-registered companies. This number increased by 76%， which was the highest growth rate in recent years. After that， there were more than 15，000 newly-registered companies annually. In 2020， China had 18，000 newly-registered fresh food e-commerce companies， which was the highest number of registrations in history. By May 16， 2021， China has had more than 3，300 newly-registered companies in this industry.

Logistics has become a bottleneck for the fresh food industry

As fresh food has become a promising category of e-commerce products， many capital giants have entered the fresh food e-commerce industry. At present， a variety of new business models such as forwarding warehouses， store-warehouse integration， O2O platforms and community group buying are coexisting， in order to satisfy the consumption needs of different levels of consumers. Therefore， research predicts that in the next few years， a “one-playerdominates-all” situation will not appear in the fresh food e-commerce market， but instead， multiple business models will continue to coexist.

Lu Hudong， a special researcher at www.100EC.cn， highlighted the fact that the fresh food business is very costly， as it has high requirements regarding the timeliness of delivery and support from the local supply chain. As a result， the industry features fierce competition and has no efficient business model， meaning a lot of issues still need to be resolved.

Xie Xiaowen， a special researcher at www.100EC.cn， said that the fresh food industry faces many practical issues， including delivery delays and information spreading， as well as the loss of product freshness. This shows that the logistics cannot match the market needs， and that the whole industry is still in the phase of extensive development.

Regarding the retail channels of fresh products， supermarkets， vegetable markets and other offline sales channels are still the major retail channels for the fresh food. Although the penetration rate for online sales is low for the fresh food market， the growth rate is exciting. In 2020， Chinas online sales of fresh food products accounted for 14.6% of the whole market. As consumers online shopping habits take shape and market players focus more on online sales channels， the penetration rate for online sales of fresh food products will gradually increase.

Data from iiMedia Research shows that when purchasing fresh food products， there are big differences when it comes to the purchasing habits between consumers in first and second-tier cities， and those from lower-level cities. Consumers from first and second-tier cities focus more on product quality， while those from lower-level cities focus more on price.

Regarding the future development of fresh food e-commerce， Cao Lei， director of www.100EC.cn， pointed out that small and medium-sized fresh food e-commerce platforms must continue to make internal upgrades if they want to survive or achieve success in the market. Therefore， for online platforms such as Dingdong and Pupumall， it is almost impossible to achieve huge development， but they will likely not shut down.

Fang Yizhi， assistant analyst from the legal rights department of www.100EC.cn， said that fresh food e-commerce platforms should put food freshness first， and should work hard to satisfy consumer needs and improve the user experience during this phase of rapid expansion. After experiencing explosive growth， e-commerce platforms need to stay calm and focus more on platform operation. As consumers are the key for platform development， it is important to protect consumers rights and interests. E-commerce platforms should always strive for compliance and should do the right thing. It is believed that the market and users will return the most to e-commerce platforms.