Fresh food e-commerce finds its way
China News Weekly reporter/Chen Weishan
Published in the 1038th issue of "China News Weekly" on April 4, 2022
Almost all data will tell you that fresh food e-commerce is a "good business".
According to a report released by iResearch in 2021, from 2015 to 2019, the consumption of fresh food by Chinese residents has increased year by year, and it has reached one trillion tons per year.
Directly promote the scale of China's fresh food retail market in 2020 to exceed 5 trillion yuan, and it is expected that by 2025, this figure will rise to 6.8 trillion yuan.
In the face of such a large market, the proportion of online retail sales of fresh food is only 14.6% in 2020, which is a significant increase from 8.8% in the previous year, which is naturally affected by the epidemic.
Even so, at a time when e-commerce has become ubiquitous, less than 15% of online sales is enough to give people enough room for imagination.
E-commerce has subverted many segments of the retail industry, why can't it subvert the fresh product market again?
So after the epidemic, in the name of community group buying, giants and capital rushed into this track, but only one year has passed, and the direct perception of the outside world is "one place chicken feathers".
The logistics and supply chain problems faced by fresh food e-commerce companies have always existed, and making changes cannot be achieved overnight, and undoubtedly requires longer-term investment.
With the tightening of supervision at the end of 2020, fresh food e-commerce is no longer regarded by capital as an industry that can expand rapidly, and those who remain regard it as an industry that requires long-term investment. Therefore, this round of shuffling will be a huge impact on the entire industry. That said, it might not be a bad thing.
Pre-positioning model is still difficult to see profit
On March 15th, a Dingdong shopping site was exposed as dead fish masquerading as live fish, and vegetables that had passed the best selling period were put together and sold.
The next day, the Beijing Haidian District Market Supervision Bureau interviewed Dingdong to buy vegetables, filed a case for investigation, and guided the company to conduct a comprehensive self-inspection of the front warehouse.
This is considered to once again reveal the inherent pain point of the front-loading model.
As a kind of fresh food e-commerce model, the front warehouse model is represented by Dingdong grocery shopping and daily excellent fresh products. First, fresh products are stored in warehouses close to the community, and then the last mile delivery is completed based on this starting point. The front warehouse is a "dark warehouse", not an offline store, but only for cold chain storage.
The corresponding model is the integration of warehouses and stores, such as Hema and Wumart, relying on offline self-operated stores to serve needs within a certain radius.
Obviously, compared with self-operated stores, “dark warehouses” have lower costs such as rent and can be deployed more intensively.
As of the end of 2021, Dingdong Maicai has about 1,400 front-end warehouses.
"The integrated model of front-end warehouse and warehouse store is both a procurement and sales model, that is, to purchase fresh products first and then sell them, which may easily lead to loss, increase costs, or deteriorate product quality, especially for the front-end warehouse model. ." A fresh food e-commerce practitioner told "China News Weekly" that his company has also tried the front-end warehouse model, but it has always been trapped in the unstable C-end orders, and finally turned to the B-end business, because the business of to B more stable.
At the beginning of 2019, the warehouse-store-integrated Hema tried out the front warehouse model represented by the Hema Station, but then gave up.
Hema CEO Hou Yi once bluntly stated the disadvantages of the front warehouse. Since the front warehouse is a "dark warehouse", the loss cannot be solved. After 18:00, the inventory is almost all loss, and the store can deal with the loss through discounts in the evening market.
Zhuang Shuai, an expert in the retail e-commerce industry and the founder of Bailian Consulting, is a heavy user of pre-warehouse fresh food e-commerce such as Dingdong Shopping, Daily Youxian, and Meituan Shopping. He told China News Weekly, "Often It is found that these platforms are out of stock, because the front-end warehouse is too shallow, and it is difficult to estimate the inventory according to demand, because the market demand within the service scope of the front-end warehouse seems to be erratic. As a timely delivery service, it not only faces The competition in offline channels, and even the competition in takeout, has led to large changes in operating conditions, making it difficult to better control costs.”
The high cost is indeed a major pain point faced by the front-end warehouse model.
Zhuang Shuai believes that, in fact, the gross profit of fresh products is not low, such as leafy vegetables, meat and other gross profit margins are relatively high, but various costs will erode the gross profit.
"For example, the unit price is 40 yuan, assuming a gross profit margin of 30% and a gross profit of 12 yuan, but the distribution cost may reach 5 yuan, accounting for about 40% of the gross profit. In addition, costs such as loss and storage will erode the gross profit."
Fulfillment cost is the largest cost item of the pre-warehouse model fresh food e-commerce except the product itself, including warehouse rent and depreciation, outsourcing costs for delivery staff and warehouse staff, etc.
How to increase gross profit and reduce performance costs at the same time becomes the key to the profitability of the pre-positioning model.
In 2019, the fulfillment fee rates of Daily Youxian and Dingdong Maicai were 30.5% and 49.9%.
In 2020, although they dropped to 25.7% and 35.7%, respectively, the gross profit margin for the same period was less than 20%.
As a result, the two companies are still in losses. The net loss of Dingdong Maicai in 2021 will be 6.43 billion yuan, which is an increase from 3.18 billion yuan in 2020.
Unable to make a profit, both companies rely on outside sources for constant financing.
"The front-end warehouse model is fast and good among the many, fast, good, and provincial. Compared with the next-day self-pickup of community group purchases, the front-end warehouse model can give customers the ultimate delivery and fulfillment experience like taking out, but the challenges It is inventory management and heavy asset investment." A former investor in Dingdong Maicai told China News Weekly that he has withdrawn a large part of his investment, and the cash flow of the front-end warehouse model has always been tight and needs to be continued. financing.
Similar embarrassment also exists in the warehouse-store integration model. Hema also closed some stores in March and proposed a profit target at the beginning of this year.
An industry insider explained to reporters that Hema's choice is still facing changes in the level of capital relations, "The original relationship between Hema and Ali, the former is like a secondary department of the latter, not even a sub-group, equivalent to Ali Taking Hema as a model of new retail in 'raising', and then applying the accumulated experience to the industry, empowering RT-Mart and Sanjiang Shopping, but now it has been required to conduct independent financing."
In 2019, Daily Youxian experienced a gap in external financing. Within one year, its cash and cash equivalents dropped from 2.611 billion yuan to 553 million yuan, and the annual net cash outflow from operating activities was close to 2 billion yuan.
In June 2021, the two companies submitted their prospectuses on the same day, set prices on the same day, and both listed in the United States at the end of the month.
On June 25, Daily Youxian was priced at the lower limit of the offering price range of $13/ADS, which broke on the same day and fell 26%.
Subsequently, Dingdong Maicai urgently lowered the fundraising scale on the day of its listing, from at least US$330 million to less than US$96 million, a reduction of three-quarters.
Just when the front-end warehouse model was still struggling for profitability, in January this year, Dingdong Maicai was exposed to large-scale layoffs, although Dingdong Maicai denied this, saying that the layoffs were only individual changes and belonged to a small company. Adjustment of normal organizational resources.
However, its stock price has dropped from $23.5/ADS at the beginning of its listing to less than $10/ADS. It is not difficult to see the market's doubts about the profitability of the pre-positioning model.
As for the question of whether it is shrinking its business, a person from Daily Youxian told China News Weekly that compared with other platforms, the company's previous expansion pace was not fast, so it is not shrinking at this stage, and more refined operations are being carried out. .
"The work of reducing fulfillment costs has also been advancing, such as helping riders to better plan the 'last mile' delivery route. The rider's daily order capacity has been increased from the initial 40 orders to 80 orders. In addition, the product side launched Some products that are more in line with current consumption habits, such as pre-made dishes.”
The aforementioned investors believe that one of the advantages of the front-loading model is that almost all products are self-operated, so they can choose high-margin categories.
In February this year, Dingdong Maicai announced that it will achieve overall profitability in Shanghai in December 2021.
Founder Liang Changlin revealed that the current unit price of a customer in Shanghai is about 66 yuan, the gross profit margin is above 28%, the processing expense rate is 6%, the contract performance expense rate is 15%, and the headquarters and marketing expense rate is 7%. It is expected that the Shanghai market can achieve 3%. % to 5% net profit margin.
He believes that the profit path of the Shanghai market can be replicated in other markets in the future.
"Dingdong Maicai's regional profitability is regarded as a benign signal in the industry, but the inflection point of profitability at the company level and even the pre-positioning model is still difficult to predict."
Some fresh food e-commerce insiders said with emotion.
The community group purchase that was "spoiled" by the giants
Compared with the integrated model of front warehouse and warehouse store, community group buying is regarded as a more profitable model.
Community group buying is well-known after the epidemic, but it actually emerged before the epidemic. In 2018, companies such as Xingsheng Select and Shihui Group began to intervene in community e-commerce in the form of "community group buying", with communities and residential buildings as units. , place an order with the "group leader", and pick it up from the designated location the next day.
The commodities involved in community group buying naturally include fresh food, so it is also regarded as a model of fresh food e-commerce.
The reason why it is regarded as a business model that is easier to "run through" is that it avoids the higher performance costs in the integrated model of front-end warehouses and warehouses.
"The performance cost of community group buying is bound to be lower. The pre-warehouse model needs to deliver each user's order separately. Community group buying means that the user places an order to the 'group leader' before the deadline every day, and the product is delivered at one time the next day. If it is delivered to the pick-up point, the cost of a single performance must be lower than that of multiple performances.”
Li Hao, assistant to the president of Xingsheng Select, explained to China News Weekly that, in addition, community group purchases are delivered according to orders, so there will be no problem of loss of pre-warehouses. It's the lowest mode."
Judging from the data released by various community group buying platforms, the fulfillment rate is almost one-tenth that of the pre-positioning model, but the drop in fulfillment costs does not necessarily mean profit.
For the whole year of 2021, Meituan turned from profit to loss, with a net loss of 23.536 billion yuan, and the loss mainly came from new businesses and others, including community group purchases, taxis, grocery shopping and other businesses.
In the fourth quarter, the revenue of this segment was 14.674 billion yuan, but the cost was still as high as 24.879 billion yuan, and the loss was 10.205 billion yuan, which was basically the same as the third quarter.
"Compared with the pre-warehouse model, although the cost of contract performance is lower in community group purchases, the actual cost of supply chain warehousing construction, activating users, and maintaining group leaders is higher, resulting in a large gap between theoretical costs and actual costs, weakening the The price advantage of community group buying has been achieved, and most of the users in the sinking market are price-sensitive and keen to compare prices." Zhuang Shuai told reporters.
For example, he said that the maintenance and incentive costs of the head of the group are not low. The head of the group is driven by interests, not emotions, and will choose a platform with higher service commissions.
Moreover, a considerable part of the staff of the community group buying platform is the staff who expand and maintain the resources of the head of the group.
"Community group buying does reduce the 'last mile' performance cost, but it does not mean that the actual operating cost will also be greatly reduced."
According to an insider in the community group buying industry, after the giants entered the community group buying field in the second half of 2020, they are all competing for the group leader in various ways. For example, Pinduoduo gives the group leader a commission of 3% to 5% per order. This percentage of commission is not high. Some platforms can give the group leader a commission of 10%, but Pinduoduo has a traffic advantage.
Meituan may not give a high commission, but there will be additional new rewards.
In addition to the cost issue, Zhuang Shuai believes that the community group buying service has a limited number of people. For example, for busy people in first-tier cities, the self-pickup model is not suitable. It may be more suitable for older people. Community group buying may overestimate the market size.
"The ideal model of community group buying is that consumers place an order on the same day and pick it up in time the next day, but consumers are not robots, and if the goods are not picked up in time, it may cause losses. Different fresh products have different storage methods, and it is difficult to ask the group leader. Increase investment, which may lead to poor user experience and faster churn.”
In the perception of the outside world, community group buying has obviously encountered a cold snap since the second half of 2021, which makes people doubt whether its business model is feasible.
Whether it is the "old three groups" such as Tongcheng Life, Shihui Group, and Xingsheng You, or the "new three groups" involved in community group buying in mid-2020, namely Duoduocai, Meituan Select, Orange Heart Select, bankruptcy, The news of shutdowns and contractions continues.
"The company has not yet achieved profitability, but the loss is smaller than other platforms." Li Hao told "China News Weekly" that although Xingsheng Preferred was less affected, starting from the second half of 2021, Xingsheng Preferred has also become more cautious.
"There is no new province, and more attention is paid to the expansion of cities and counties that have already entered the province and the sinking market around the city."
Nonetheless, the aforementioned community group buying industry insider said that he does not think the business model of community group buying is doubtful, because the influx of giants in the second half of 2020 and the blessing of capital mean that the business model can run through.
"But the reason why the platform is difficult to make a profit is that the previous price war has indeed eaten away some of the profits, and some consumers may no longer believe in community group buying after getting a poor experience on some platforms. In mid-2020, the intensive investment of giants and capital into a certain To some extent 'alienated' this subdivision track".
In December 2020, the State Administration for Market Regulation and the Ministry of Commerce held an administrative guidance meeting to standardize the community group buying market. Alibaba, Tencent, JD.com, Meituan, Pinduoduo, and Didi six Internet platform companies participated, requiring Internet platform companies to strictly comply Nine must not."
Even so, some people in the community group buying industry told reporters that in the second half of 2021, there are still platforms that will invest more than 100 million yuan in subsidies every month.
"The key is not to scale for scale's sake".
The above-mentioned community group buying industry insiders told reporters that if they had more knowledge about the industry, the giants would not have spread so large when they entered the market in 2020. Community group buying is a four-wheel drive business, which is different from the past two-wheel drive. of e-commerce.
Two-wheel-drive e-commerce connects consumers and merchants, and only needs to build a platform, and does not even need to provide logistics services in person.
However, in addition to this, community group purchases also need to consider offline stores (self-pickup points) and logistics. Therefore, community group purchases are "heavier" than e-commerce in the traditional sense.
"The key to profitability is store efficiency, that is, the number of orders received by each store. When the order volume reaches a sufficient level, the cost will be reduced, but if the store efficiency does not reach a certain level, it may fall into more expansion and loss. the more serious the situation.”
He believes that in the field of community group buying and even the entire fresh food e-commerce field, scale is not everything, and the contraction that community group buying is experiencing is "paying tuition" for the previous excessive expansion.
But some retail industry veterans explained to "China News Weekly" that the giants may be pursuing scale when they enter the market. "If the scale is large enough, the loss is not terrible. For example, the turnover of Meituan's takeaway business in 2021 will reach 7,000. More than 100 million yuan, although it is a loss, it brings more daily users, which can play a role in diverting other businesses such as wine and travel business, and help other businesses make profits. Fresh food e-commerce is also regarded as a large user group because it touches a large number of users. to have a similar function".
Of course, regulation has blocked the way for giants to gain market through subsidies and squeeze out competitors, which has been tried and tested in the fields of online car-hailing and takeaway.
"From community group purchases to the entire fresh food e-commerce track, the attitude of supervision has been relatively clear. The core is that platforms are not allowed to use subsidies to steal the business of small traders, so it is no longer a gold market that can achieve rapid growth. , entering the stage where all companies can only compete for stock in a low-key manner." The aforementioned fresh food e-commerce investor said that the outbreak period of this track has basically passed.
Could e-commerce transform agriculture?
In addition to regulatory factors, Zhuang Shuai believes that e-commerce may have underestimated the difficulty of changing the consumption habits of fresh products.
"The entire industry is too fragmented, and there are many purchasing channels for fresh products. In contrast, apparel currently only has competition between offline shopping centers and e-commerce, and offline channels in the 3C field are even more complete. But for fresh products In terms of consumption, the consumption habits selected at the time of purchase still exist, which makes offline stores still have advantages, so it is difficult for fresh food e-commerce companies to obtain the imagined user scale.”
This reveals a practical problem faced by fresh food e-commerce, that is, how to do a good job in quality control when the standardization of agricultural products is low and the logistics requirements are high?
"Fresh food e-commerce can be roughly divided into four models: front warehouse, warehouse-store integration, community group buying and multi-store platform." Zhuang Shuai believes that the current relatively healthy among the four models is the multi-store platform type, such as JD.com There are no signs of shrinkage at home and so on.
"Multi-store platforms are essentially connecting supermarkets, convenience stores, and vegetable markets. The cost that the platform needs to bear is actually the cost of distribution. Quality control has been done in the previous link. Even if there is a problem, the first responsible person is the supermarket, convenience store, and vegetable market. The remaining three models undoubtedly require more involvement of e-commerce in upstream logistics, supply chains, and even production links.”
This is also the reason why fresh food e-commerce is considered to be a very "heavy" business.
"In order to ensure quality control, the platform needs to intervene in some very 'heavy' links. For example, Xingsheng Best is currently piloting pork slaughtering in Changsha. According to the orders of consumers on the day, the slaughtering of pigs will start at 1 or 2 am the next day, and the company will end the field. Pork segmentation is guaranteed to be delivered to consumers before 11:00 a.m. The sale of freshly slaughtered meat is the most 'heavy' business among fresh products." Li Hao told reporters that fresh commodities are delivered from the source to the pick-up point. related to the shopping experience of consumers.
Including sorting, cold storage (preservation), cold chain transportation and other links, all require a lot of manpower, material resources and technical investment.
He said that due to the variety of fresh products, not every one can be as deeply involved as pork, and most of the fruits and vegetables cooperate with local first-level distributors.
Judging from the previous links of fresh product circulation, fresh products need to go through first-level distributors, and continue to increase prices in the circulation link, and finally reach consumers from the place of origin.
Li Hao said that what fresh food e-commerce companies have to do is to reduce intermediate circulation links, which can not only reduce logistics time, but also reduce losses, thereby reducing costs and doing quality control, because each distribution means certain losses and logistics costs. increase.
Therefore, "direct mining" has become a more ideal model, but fresh food e-commerce companies have to face the status quo of decentralized production, and they still have to get goods from dealers at this stage.
Chen Yazhong, secretary general of Beijing Agricultural Products Circulation Association, told China News Weekly that taking Beijing as an example, 10% to 15% of the demand for agricultural products per day, that is, 20 to 30 million tons of agricultural products are directly connected to consumers from the source, and the remaining 85% About % of the agricultural products need to go through various intermediate circulation links, and a considerable proportion of fresh products from e-commerce are also purchased in Xinfadi. Shandong purchases, Xinfadi has the pricing power, and the purchase price may be more cost-effective.”
In the national wholesale system, there are only a limited number of wholesale markets such as Beijing Xinfadi, which often radiate to several surrounding provinces. The secondary wholesale market first purchases goods from these wholesale markets, and then distributes them.
And some so-called "direct purchases" are actually purchased from the origin dealers.
Yang Jie, honorary chairman of the Cherry Branch of the China Fruit Circulation Association, told China News Weekly that fresh e-commerce has been involved in cherries earlier, and it can even be said that the concept of domestic cherries is a hot commodity in fresh e-commerce, but even so, domestic The area of large-scale planting of cherries is only one-third, and more of them are planted by individual farmers. It is not realistic to connect with specific farmers when fresh food e-commerce "direct picking", and more is to cooperate with distributors in the origin.
Obviously, fresh food e-commerce companies hope to better control the upstream of the supply chain, but they face the reality of the decentralized production of agricultural products.
"For some single products, the fresh food platform will choose to cooperate with some partners with a high degree of product standardization, such as the chicken of Chia Tai Group, the quality control can be better, and on this basis, it will cooperate with partners to launch its own brand. , looking for products with high customer unit price, high gross profit, low loss and longer storage period." Zhuang Shuai said.
"I think this is a problem at the stage of agricultural development. There is a British e-commerce company ocado, which is very profitable, and its fresh products are highly standardized. In order to produce standardized fruits, it has even intervened in soil improvement. In practice, agricultural standardization can definitely be achieved." Zhuang Shuai believes that it is not realistic for one or several companies to complete the standardization of all agricultural categories, but it is possible to complete the standardization of one or several types of agricultural products.
Respondents generally believe that the standardization of domestic fruit production is significantly better than that of vegetables, "so some fresh food e-commerce platforms with better operating conditions will deliberately avoid root vegetables."
In addition to the low degree of standardization, the short board of logistics is another problem that fresh food e-commerce companies need to face, and it is also a key investment link.
Meituan's large losses in community group buying, grocery shopping and other businesses are also considered to be related to self-built supply chain infrastructure. At the end of the third quarter of 2021, the value of its properties, plants and equipment increased by 8.57 billion yuan compared with the end of the fourth quarter of 2020. to 22.49 billion yuan.
"With the rise of e-commerce, the logistics system around non-fresh products has been established, but the logistics system around fresh products is not yet perfect, and it is not clear who is responsible for it. The two logistics systems are different. Product logistics has requirements for temperature. Now some e-commerce companies are still using relatively primitive methods such as ice cubes, and some fresh food e-commerce companies are also trying to build a cold chain logistics system, but this is a heavy burden for enterprises, which is equivalent to ' Businesses run society'".
A cold chain logistics person told "China News Weekly" that he believes that building a cold chain logistics system, or a national insurance logistics system, should be the responsibility of the government and a part of the public service system, just like public transportation, if citizens travel Demand can only be met by private cars, which will inevitably lead to increased travel costs.
Fresh food e-commerce serves the "last mile", which is equivalent to the journey passengers get off the bus to their final destination.
"The current logistics system is difficult to guarantee the quality of fresh products. When purchasing fresh products through e-commerce is not an option, users are often unsatisfied." Chen Yazhong also said that apart from hardware, the current standard formulation of the cold chain logistics system is not enough. In place, such as transporting a peach, the environment is not uniform at 5°C or 8°C, and quality problems are prone to occur, and the Standardization Working Committee of the Beijing Agricultural Products Circulation Association is formulating relevant cold chain logistics standards.
"The current logistics system is almost in disorder."
Chen Yazhong told "China News Weekly" that this is particularly evident in the logistics of vegetables. When he went to Hainan for the "Southern Vegetable Transportation", he often saw vegetables "open-covered transportation" by train when they departed from Hainan. As the temperature dropped, they were gradually covered with plastic sheets and quilts. Often, the outermost layer of vegetables had been frozen and the innermost layer was rotten after being delivered to Beijing, before being sorted in Beijing.
"With the promotion of insurance transportation, it has improved, but there is still a lack of clear standards, such as what kind of cargo boxes need to be used?
Before the e-commerce of fresh food, supermarkets were docking such a logistics system. The aforementioned industry insiders told China News Weekly that the cost has also been pushed up. Some supermarkets’ warehouses next to the airport often have thousands of workers doing sorting, occupying logistics land, and the labor cost is higher than the place of origin. ".
Under the circumstance that the product standardization is low and the cold chain transportation system is not yet perfect, some practitioners sighed that the drawbacks of the current domestic fresh food e-commerce lie in two points.
"But in the fresh food track, scale and speed are not easy to use. I agree with Chu Shijian's words. To do agriculture requires a century of mentality and patience."
"China News Weekly" Issue 12, 2022
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