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Binomial is an innovation consulting firm helping clients be disruption-ready
February 22, 2021
What can we learn from players that saw the opportunity and leveraged the pandemic to increase market adoption and grow the pie for fresh food e-commerce and just-in-time delivery?
With the pandemic spreading across the world, market activities have been disrupted on many levels, but it has also been an opportunity for fresh food e-commerce to thrive because of lockdowns. This is most evident in China since it was one of the first countries to face the pandemic and its associated challenges. The challenges fostered a wealth of innovation in the fresh food e-commerce industry, in order to meet the increasing demand for fresh food delivery.
Hard to survive before the pandemic
Prior to the pandemic, the fresh food e-commerce industry was struggling to grow. According to the data from China’s e-commerce Research Center, there were about 4,000 entrants in China’s fresh food e-commerce industry, but only 4% of the companies achieved breakeven, 88% of them lost money and only a mere 1% achieved profit. Why didn’t fresh food e-commerce stand out as successfully as opposed to other e-commerce before the pandemic?
First, in order to thrive in the fresh food e-commerce market, companies have to consider two factors: how to keep food fresh before delivery and how to deliver it quickly. To achieve those, cold chain logistics management is the key. Cold chain logistics are essential to reduce costs and ensure the quality of perishable goods. However, it requires large investments and it is also time-consuming for companies to build the cold chain logistics system. According to the 2015 China Cold Chain Logistics Development Report, cold chain logistics cost accounts for an average of 40% of total cost for fresh food e-commerce companies.
Another reason is that while frozen food consumption is a norm in western countries, Chinese consumers, especially the older generations, prefer fresh and seasonal fruit, vegetables and meat that are slaughtered or sold live in wet markets, ensuring the freshness of the produce. Going to the market to buy fresh food has become a part of their daily life. For goods with a high frequency of purchase, it can be difficult to change customer behavior. Customers may be attracted by novel experiences for a few times, but it remains challenging to build long-term customer stickiness simply by promotion and novelty.
Riding the wave of changing consumer behaviour
The pandemic has resulted in growth in fresh food e-commerce in China. Due to strict social distancing rules and fears over food safety, people have no choice but to stay at home andbuy fresh food online. For fresh food e-commerce, the pandemic was the perfect opportunity for them to attract customers and change consumer behavior. Before the pandemic, the fresh food e-commerce market was dominated by customers younger than 35. However, fresh food e-commerce has seen rapid uptake by the middle-aged and elderly during the outbreak. People over 30s accounted for 62.8% during the 2020 Chinese New Year, and we can see a remarkable increase in the over-40s group. Pandemic lockdowns have forced older customers to change their everyday consumption behaviour and they have to learn how to buy freshfood online, which serves as an opportunity for fresh food e-commerce to consider how to build the long-term customer stickiness during the pandemic.
Innovative Models Boosts Fresh Food E-commerce Market
As consumers shift their purchasing habits and get more used to the concept of online shopping and fresh food delivery, the more innovative e-commerce platforms have capitalized on this opportunity to disrupt the traditional supermarket industry, and used the crisis to increase their share of market.
#1 Assist Farmers
When the pandemic disrupted traditional food markets, farmers had no channels to sell their agriculture products because of the closure of large agricultural trading centers. In this case, Taobao（淘宝）, Pinduoduo（拼多多） and other e-commerce giants each launched a special sales event called “Assist Farmers（爱心助农）” by encouraging consumers to directly buy online the farmers’ overstocked fruit and vegetables from different regions at significantly lower prices. In order to promote the produce, Taobao’s also invited KOL to sell agriculture products on livestream, and helped farmers record promotional videos which were posted on their platform’s main page.
#2 Deliver Within 30 Minutes
For Pupu（朴朴） and Dingdong Maicai（叮咚买菜）, they run a different business model from other fresh food e-commerce services. Instead of shipping every order from one or a few warehouses around a city, the model increases delivery speed by distributing goods to hundreds of local warehouses, which allows the company to deliver goods even more quickly. Both guarantee delivery within 30 minutes. For Dingdong Maicai, there is no minimum order and nodelivery fee. This cheap and fast delivery service appeals to a lot of new customers, leading to a rapid uptake of this service.
#3 Shared Employees
Another innovation to meet the huge demand for fresh food delivery is shared employees. In Hema, only 70% of the employees in the stores were on duty during Spring Festival, and they were unable to meet the surging demand for orders. This lack of manpower is in contrast with what the food services sector was facing. Despite restaurants being required to close their stores completely or to open for fewer hours per day, they still needed to pay their employees full wages. Hema came up with a win-win deal – employee sharing to allocate their human resources during the epidemic. Restaurants like Xibei and Yunhaiyao have sent hundreds of their employees to Hema to help keep up with the increasing orders in Hema. According to Hema, more than 3,000 new employees from over 40 companies in different sectors have joined Hema's employee sharing plan, which solved the labor shortage and lowered labor costs at the same time.
#4 Community-based Group Purchasing
In some third-tier cities in China, e-commerce platforms and services are not available, and people prefer to buy in bulk for convenience and cheaper prices during lockdowns. The community-based group purchasing model offers lower prices and only serves users within a certain geographical range. Compared to individual orders on e-commerce platforms, community-base group purchasing reduces the last-mile delivery cost. The model works with a community leader who is responsible for coordinating food orders on behalf of others. Food items can be ordered via WeChat’s mini programmes or in WeChat groups, and all the orders will be delivered to the community leader, who will then inform the residents to collect their fresh food once it arrives.
We can see these innovations in China succeed during the pandemic. However, there remain challenges faced with these new models. For fresh food e-commerce companies, they should consider how to retain customers when the pandemic ends. Besides solving logistical problems, establishing the supply chain and lowering cost are also key to thriving in this market. For traditional supermarkets, they have to recognize the great potential of selling online and look towards digital transformation to tap on this market.
How fresh foode-commerce develops in China can serve as a great lesson for business leaders to look at how traditional supermarkets or online e-commerce platforms can respond to the new demands of fresh food consumption in Singapore. If you wantto get more insights and recommendations on how you can innovate as well, get in touch!
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