{"id":51044,"date":"2021-04-23T02:21:20","date_gmt":"2021-04-22T18:21:20","guid":{"rendered":"https:\/\/daxueconsulting.com\/?p=51044"},"modified":"2022-08-25T22:19:31","modified_gmt":"2022-08-25T14:19:31","slug":"online-grocery-market-in-china","status":"publish","type":"post","link":"https:\/\/daxueconsulting.com\/online-grocery-market-in-china\/","title":{"rendered":"What\u2019s next for the online grocery market in China after the stay-at-home economy slows?"},"content":{"rendered":"\n

Think grocery delivery is a COVID-19 fad? Not in China. Some Chinese consumers had been ordering grocery delivery as early as 2005, and as of 2021, grocery delivery in China is becoming a standard. Online grocery refers to the means of selling groceries through online platforms; this can be through apps but also offline shopping places like Freshippo (\u76d2\u9a6c\u9c9c\u751f), one of the leading players in the online grocery market. The online grocery market in China is a successful manifestation of the new retail<\/a> business model.<\/p>\n\n\n\n

History of Online Grocery in China<\/h2>\n\n\n\n

2005-2014 the budding period of online grocery in China<\/h3>\n\n\n\n

In 2005, Yiguo.com (\u6613\u679c\u7f51), the first online grocery in China was established, specialised in fresh ingredients such as vegetable, fruits, meat, etc. However, at that time, China did not possess a sound logistic system, and payment tools such as Alipay had not yet appeared, leading to low customer trust of online grocery. Although Yiguo.com managed to build its own cold chain logistic systems later, the company closed down in 2020 due to intense competition.<\/p>\n\n\n\n

\"Yiguo.com,
Source: Yiguo.com, Yiguo.com, one of the first grocery delivery companies in China, which failed to compete among the Chinese grocery delivery marketing during COVID-19<\/em><\/figcaption><\/figure><\/div>\n\n\n\n

In 2008, the the Sanlu milk powder incident broke out. A series of food safety incidents has made Chinese people more concerned about food safety. At this time, some so-called \u201cnatural, safe and organic food<\/a>\u201d online grocery brands entered the market, such as Fruit Day (\u5929\u5929\u679c\u56ed). In its slogan, Fruit Day says \u201cJust for the ultimate freshness\u201d in Chinese. It was also at this time that the capital market began to pay attention to the online grocery.<\/p>\n\n\n\n

\"FruitDay\u2019s<\/figure><\/div>\n\n\n\n

Source: Fruitday.com, FruitDay\u2019s emphasis on fresh and quality food<\/em><\/p>\n\n\n\n

BAT enters China\u2019s online grocery market<\/h3>\n\n\n\n

In 2012, Internet giants started to enter the online grocery market in China. In the same year, Jingdong.com and SF launched their own online grocery brands, fresh.jd.com (\u4eac\u4e1c\u751f\u9c9c) and SF\u2019s selections (\u987a\u4e30\u4f18\u9009). As for Alibaba, it did not rush to enter the market on its own. Instead, it invested in the most established fresh e-commerce company<\/a>, Yiguo.com in 2013, 2014, 2016 and 2017 to enter the market by way of investment.<\/p>\n\n\n\n

Subscribe to our newsletter for more China market insights<\/span><\/a><\/div>\n\n\n\n

In 2014, MissFresh (\u6bcf\u65e5\u4f18\u9c9c) was founded. However, the early online grocery model is just a simple imitation of the traditional E-commerce model of Taobao and Jingdong. Because the storage conditions of fresh products are more demanding than ordinary products, the application of E-commerce supply chain on online grocery business resulted in a large number of supply chain and product loss costs.<\/p>\n\n\n\n

2015-2019 From prosperity to decline<\/h3>\n\n\n\n

According to Founder Securities, 2015, 2016 were the 2 most prosperous years for online groceries. Within two years, brands such as Freshippo, Daojia.jingdong.com (\u4eac\u4e1c\u5230\u5bb6) and Pagoda.com\uff08\u767e\u679c\u56ed\uff09 have been established one after another, all backed by big capital. In 2015, China’s online grocery market reached 76 financing rounds for a total of $4.01 billion Chinese Yuan. In 2016, the total amount of financing reached even more, to 8.18 billion yuan.<\/p>\n\n\n\n

\"the<\/figure><\/div>\n\n\n\n

Source: Founder Securities, the number and amount of financing in online grocery market<\/em><\/p>\n\n\n\n

At this stage, various online grocery brands have begun to explore new business models. In the competition, two business models have proved effective. \u201cWarehouse Store Integrated Mode \uff08\u4ed3\u5e97\u4e00\u4f53\uff09\u201d led by Freshippo and \u201cFront-end Warehouse Mode (\u524d\u7f6e\u4ed3)\u201d led by MissFresh (\u6bcf\u65e5\u4f18\u9c9c).<\/p>\n\n\n\n

The \u201cWarehouse Store Integrated Mode\u201d allows the platform to use the store as a warehouse for immediate delivery. Consumers can buy in-store or place orders online. While the \u201cFront-end Warehouse Mode\u201d set up shops around residential areas and do not welcome customers themselves, but act as warehousing and distribution centres.<\/p>\n\n\n\n

However, starting in 2017, because of failing to do good cost control and high competition, some online grocery brands started to exit the market, or got acquired by the top players. Among over 4,000 online grocery brands, only 1% is making profits and 95% operating at a loss.<\/a> As a result, the capital markets have also reduced their investment in the online grocery industry.<\/p>\n\n\n\n

2020: New opportunities in online grocery in China under the COVID-19 pandemic<\/h3>\n\n\n\n

The pandemic spurred the stay-ay-home economy<\/a>, moving daily activities online, including education<\/a>, work and grocery shopping. Because of the restrictions, online groceries have become a substitute of supermarkets<\/a>. This not only greatly promoted the cultivation of user habits, but also guided some middle-aged and elderly people<\/a> who are accustomed to shopping at supermarkets to accept the new concept of online grocery. According to Investdata.com<\/a> and Founder Securities, in June 2020, the MAU of online grocery platforms in China reached 71.76 million altogether, increased by 75.4% year-over-year when compared with the number of 40.91 million in June 2019 and the users\u00a0over 40 years old have increased 237%<\/a> after the pandemic.<\/p>\n\n\n\n

However, the benefits brought by the epidemic may not last long. Although there was a big increase in performance in the short term, if the existing challenges are not solved, it is very likely that a part of the traffic will return to the offline. What is more, many online grocery platforms had expanded product categories and increased inventories to cope with the surge of demand during Covid-19<\/a>, such inventory could incur large costs due to the inability to sell surplus products after the end of the epidemic.<\/p>\n\n\n\n

The online grocery market in China<\/h2>\n\n\n\n
\"\"
Infographic comparison of main players in China’s online grocery market – Freshippo, MissFresh, Yonghui, JD Daojia<\/em><\/figcaption><\/figure><\/div>\n\n\n\n

Since online grocery entered the public view in 2012, the market has grown at a steady rate. In 2019, the total market size reached 279.62 billion Chinese Yuan<\/a> and still growing. In 2020, due to the COVID-19 pandemic, people’s demand for online grocery increased sharply and the market size was expected to be 404.73 in 2020. Whether 2021 brings the online grocery market in China even more wealth is yet to be seen.<\/p>\n\n\n\n

\"the<\/figure><\/div>\n\n\n\n

Source: iResearch.com, the size of the online grocery market in China 2012-2019 (in billion Chinese Yuan)<\/em><\/p>\n\n\n\n

Online grocer ditribution<\/h3>\n\n\n\n

Most customers of online grocery in China are from tier-1 and 2 cities such as Beijing and Shanghai, accounting for 71.4% of the total customer<\/a>s. This is primarily because the logistic network is more developed in Tier 1 & 2 cities than others to support the high service level of online grocery platforms. In addition, comparing to citizens of lower tier cities, those from high tier cities tend to have a faster pace of life, so they are more willing to pay for the timely online grocery services, even at a higher price. Nevertheless, online grocery giants have launched community group buying<\/a> businesses in lower tier cities.<\/p>\n\n\n\n

Convenience isn\u2019t the only advantage to online grocery in China<\/h2>\n\n\n\n

Online grocery is seen as the grocery shopping of the next era. Comparing to traditional grocery, online grocery has several advantages:<\/p>\n\n\n\n