Jing Gao
Online grocery shopping in China comes in the shape of many different business models. From tapping on one’s mobile device, to enjoying the actual fruit, fresh produce delivery services can have vastly different ways of sourcing food, accepting customer orders, managing supply chains and delivering orders. If you mix and match the different options available at each step, you have a myriad of different ways to run your business.
AllChinaTech investigates six major online grocery businesses in China and compares the various pros and cons to each service to offer a better understanding of the different business setups in china.
Model: Choose a nearby participating grocer and place an order online. → A personal shopper fulfills the order at the grocer. → Your order is hand-delivered to your doorstep.
Dmall is based in Beijing. Unlike many of its competitors, completely bypasses sourcing and warehousing, and instead acts as the sole “middleman” between grocers and customers. It works with major grocers and depends on partner businesses to supply end products.
Pros: By avoiding the hassle of dealing with food producers and maintaining the cold chain process, Dmall adopts a lighter model and focuses only on completing “the last mile”.
Cons: Margins in the grocery business are thin, particularly in the last mile of delivery. Grocers take most of the revenue by the time an order is placed, leaving Dmall to do the legwork in meeting customer expectations of on-time arrival and fresh food. Unfortunately, due to the large army of migrant workers willing to work tirelessly for meager incomes, Chinese online shoppers have taken for granted low-cost or even free and speedy shipping and have grown averse to the idea of paying too much or waiting too long. This calls into question the future profitability of Dmall’s business model should it wish to eke out an existence based on delivery fees alone.
Model: Place an order online → Pickup at a nearby neighborhood locker.
FreshMarket, launched in the eastern city of Suzhou in 2012, has expanded to Shanghai and Beijing. It deals directly with local food growers. After an order is placed, FreshMarket brings food from a local farm to its own pack house, where food is packed and shipped. After arriving at a nearby neighborhood center, orders are stored in password-protected lockers. Customers drop by on their way home from work to retrieve orders.
Pros: By sourcing directly from local farms and reducing an otherwise lengthy supply chain, freshness and quality are ensured, with profit margins maximized through the removal of intermediaries, including distributors and retailers. At the same time, Logistics costs are kept down due to the last mile being taken care of by customers.
Cons: Given that most online grocery shoppers are after convenience, pickup locations must be close enough, often within walking distance, to make the service worthwhile. If distribution of lockers is sparse, it makes much less sense for a consumer to shop online than to directly shop at a brick-and-mortar corner store. Increasing locker outlays will however make the cost of maintaining temperature- and moisture-controlled lockers go up.
Model: Choose a nearby convenience store, place your order through a mobile app → delivery completed either in-house or by subcontractor.
Instead of working with farmers or large grocery chains, Benlai distributes groceries sourced from food producers, based on a prediction of total sales to small convenience stores, either directly-owned or owned by partners. After receiving an order, a nearby store will be responsible for fulfillment and delivery, with or without an outside delivery service.
Pros: Similar to Beequick, whose rising popularity was previously covered by AllChinaTech, Benlai mobilizes idle resources – corner shops dotting urban areas – and lowers logistics costs by cutting down on delivery staff.
Cons: Having to provide training to individually owned corner shops and ensure high-quality and standardized services, can prove challenging. It is also extremely hard to predict sales. Overestimates may result in surpluses of inventory, underestimates might make for periodic unavailability of products, compromising customer satisfaction.
Model: Click-and-mortar
Xuxian has had a clear objective from the very beginning: to sell fresh fruit to white-collar workers and college students. It operates company-owned stores in business districts and on campuses in Beijing, Shanghai and Wuhan, where consumers pick up orders of fruit from the previous day.
Pros: The reduction or even elimination of oversupply and savings on rent, when local branch stores only need to have just enough storage space for orders placed in the past 24 hours. Profit margins also see an increase without the last mile and Xuxian is able to pocket all revenue without sharing with grocers or store partners.
Cons: To most people, the whole point of moving the grocery shopping experience online is to save the time and effort spent going to a physical store. Requiring consumers to visit a location and to pick up their order may not be enough for convenience-seekers and busy people. After all, fruit shops and street vendors are placed conveniently close to many neighbourhoods in Chinese cities.
Model: Fresh produce sold online → Order fulfilled by local branch → Order delivered through platforms (JD’s Daojia or Baidu’s Waimai).
Online fresh produce seller TooToo also circumvents delivery hassles. TooToo has joined hands with major online courier platforms. Fruit and vegetables sold by TooToo are listed on Baidu and JD’s courier websites: Waimai and Daojia. Every day, TooToo distributes goods to its branch locations or partner stores. Orders placed on Waimai and Daojia will be dispatched from the closest TooToo location and delivered by one of the two platforms.
Pros: Tootoo takes great advantage of the established customer bases of Baidu and JD, utilizing their intricate logistics networks and avoids dipping its toes into delivery.
Cons: Operating local branches to warehouse products will be difficult.
Model: 2-hour delivery from company-owned offline store
80% of the fruit sold on Fruitday’s e-commerce site is imported and priced on the higher side. It keeps opening new brick-and-mortar fruit shops in top-tier Chinese cities and is right now testing its two-hour delivery service in selected areas of Beijing, Shanghai and Guangzhou.
Pros: Its high-price strategy allows for a higher markup and premium prices, which leads to a larger profit margin, and establishes the prestige of the brand.
Cons: Maintaining an offline presence and fulfilling the promise of two-hour deliveries is extremely costly.
(Top photo created by Jing Gao. All rights reserved. )
