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January 20, 2015

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Picky consumers spur growth in online fresh food sales in China

CHINA’S urban consumers, prodded perhaps by a series of food-safety scandals, are becoming much more picky about what they eat.

They are increasingly willing to pay a premium for imported products and are being drawn in larger numbers to retailers that deliver fresh fruit and vegetables to the doorstep.

Online vendors and supermarket chains are offering fresh and premium products aimed at consumers not content anymore with the standard fare on store shelves. New sales channels are opening.

By 2018, online fresh food sales could reach as high as 100 billion yuan (US$16 billion), accounting for 15 percent of fresh food sales across all channels, according to a research report by China Merchant Securities.

Tantalized by those growth prospects, more players are entering the market.

The latest to join last month was Sun Art Retail Ltd’s online shopping affiliate Sun Art Retail operates two mainland supermarket chains — RT Mart and Auchan.

It is testing the online waters in selected fresh food categories, such as cherries, apples and frozen salmon.

The company plans to leverage its more than 300 offline RT Mart stores and its extensive distribution network to fuel growth and expand services into Zhejiang, Jiangsu and Anhui provinces.

In its first week of operation, the site received only an average 200 orders a day, according to Feiniu General Manager Jenny Ko. However, she said she is confident those numbers will grow as consumers become acquainted with cheaper prices and better quality on offer. Growth prospects rest on the company’s large quantity of products sourced directly from overseas suppliers for over 300 RT Mart branches.

Nationwide, RT Mart is stealing a march on other multinational retailers, such as Carrefour and Wal-Mart, in terms of the sales growth and consumer traffic driven by fresh food sales, according to urban consumption data tracked by Kantar Worldpanel.

“This gives Feiniu an advantage in leveraging its existing branches, where RT Mart has a strong presence, but the challenge lies in identifying a new group of consumers willing to pay a premium for fresh foods online,” said Jason Yu, general manager of Kantar Worldpanel China.

Cheap prices and marketing stunts are a dime a dozen in the industry. The trick is to develop a distinctive advantage over competitors.

One way to do that is by employing social media, where positive consumer chat can act as a magnet for more sales.

Shanghai-based Fruit Day, an independent fresh food vendor, certainly made a big splash with consumers after it invited them to join a self-initiated group through WeChat, the popular smartphone chatting tool.

The bigger the group gets, the more discounts each member in the group receives. For example, if nine members in the group can buy cherries at 19 yuan a package, then the price will drop by 9 yuan a package when membership hits 99.

Within five days, Fruit Day received 300,000 orders for half a kilogram packages of Chilean cherries.

Sales promotions may attract new customers, but retailers have to work to keep them as regular customers.

Sherry Ni, a Shanghai white-collar worker in her early 30s, said she is easily drawn to discount deals offered on various fresh fruit websites.

“I usually put in an order on Fridays, and the fresh fruit and vegetables are delivered to my home over the weekend, which saves me all the trouble of lugging food back from the supermarket,” she said.

Ni is typical of fussy consumers. She said she has tried four food websites in the past year, and was disappointed once when an avocado she bought turned out to be pretty tasteless.

“I won’t go back to that website,” she said. “It’s hard for me to trust its quality control measure any more.”

Independent online fresh-food vendors do have trouble getting repeat customers, said Wang Xiaoxing, a researcher with domestic Internet consultancy firm Analysys International. Most consumers who made regular purchases of fresh fruits, for example, are those who live in economically developed coastal regions, he added.

Fresh food vendors without the extensive distribution channels of online retailers like Tmall and will eventually have to settle for sales in a limited area, Wang said.

Kantar Worldpanel’s Yu predicts that as many as 80 percent of smaller fresh food retailers will go bust.

Still, Kantar research predicts that packaged and fresh foods will be a major business driver for e-commerce players in the coming five years. Tmall and JD are already sparing no effort to expand their product categories to woo consumers.

Swift and convenient delivery is crucial to success, and that remains a big bottleneck for most independent online fresh food vendors.

Shanghai-based, in which Walmart holds a majority stake, has been teaming up with convenience stores in local neighborhoods to act as drop-off points for deliveries of fresh food and other products.

In Shanghai, consumers who buy fresh food through YHD’s smartphone applications before 6pm each day can receive their orders the same day.


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