In response to the COVID-19 (previously known as the coronavirus) outbreak, millions in China have adapted their lifestyle to accommodate the current situation. As self-quarantine measures and warnings to avoid public gatherings are put into place, families are seeking to store food items and other necessities at home to better prepare for the temporary seize. This has resulted in an unprecedented demand for fresh groceries delivery, with huge strains being placed on grocers’ supply chain, logistics and distribution operations.

But even though the outbreak brings a lot of challenges, it will also create opportunities. What will the crisis mean for the future of fresh grocery e-commerce in China?

The Fresh E-Commerce Landscape

The potential of the “Fresh e-commerce” industry has pulled significant investment dollars into the industry, resulting in a plethora of players competing in the space. There are as many as 4,000 fresh food e-tailers and they all share a common goal: disrupt traditional markets with the proposition of utmost convenience, guaranteed freshness and better value for your money.

And as money flew in, many of these fresh e-tailers prioritized customer acquisition over profitability with methods such as heavy discounting and free small-ticket delivery. This has resulted in exponential growth of the market, but also huge losses for most players. According to various estimates, the industry is achieving 40 percent annual growth, but only 1 percent of players are profitable.

The Turning Point

The cut-throat nature of the industry has led it to become more susceptible to economic downturns. And the recent coronavirus outbreak might be the watershed moment for the industry. The not-so-good-news is that soaring demand is putting the capabilities of many fresh e-tailers to the test, prompting a kind of “survival-of-the-fittest” situation. Those that are not agile enough to cope with the surge in demand and make the necessary adjustments needed in their supply chains will not able to provide satisfactory customer experiences.

Many are already complaining about price surges, out-of-stock produce and elongated delivery times. The effects of a bad impression are long-lasting – shoppers shift their purchases towards the more competent players and abandon sub-par online grocers without second thought.

But the outbreak has also created opportunity. With millions being confined to their homes, the cost of customer acquisition is next to zero and user retention suddenly becomes a non-issue. Those with the capability are in the best position to take advantage of this change in user habits and establish customer relationships with the influx of new shoppers.

In short, consolidation will not end, but the industry will rebound and a few winners will emerge.

Winning the Race

The winning fresh e-commerce players will emerge from the outbreak with a better understanding of how to improve the efficiency and transparency of their operations to provide customers with quality fresh products at affordable prices. Specifically, the winning fresh e-tailer will be one that:

  • Builds a strong ecosystem and partnership network that can weather sudden change in business conditions. For example, Hema Fresh, the online fresh food grocer backed by Alibaba, partnered with catering providers such as Yunhaiyao, the widely popular South-Yunan cuisine to cope with the surge in food delivery demand and to ease the strains placed on their supply chain.
  • Leads in global and local direct sourcing (e.g. direct-from-farm) to develop sustainable advantage in quality guarantee, product selection and cost base.
  • Leads in smart logistics network (e.g. IOT-enabled cold and chill chain) to enable superior freshness and cost advantage (through reduced wastage).
  • Leverages data to inform assortment and replenishment decisions so that consumers get exactly what they want anytime without stock issues.
  • Delivers great customer experiences instead of focusing on cut-throat price competition to ensure sustainability of the business.

On a broader level, to truly evolve the Fresh Grocery industry, e-tailers will need to collaborate at the industry level and with the government and relevant stakeholders to digitally transform the broader value chain.

Some of these elements include:

  • Fresh Supply Chain Traceability:Retailers should be allowed to trace the produce’s journey through the supply chain from farming, processing, testing, quarantine and so on via technologies like block-chain. This is to ensure food safety adheres to government regulations and bring high-quality fresh produce to shoppers.
  • Acceleration of Industry 4.0 Adoption:Robotics and automation can easily be reprogrammed in response to customer orders instead of adjusting the entire production line. This can enhance the physical movement of inventory and build space-saving company warehouses. Online grocers can leverage the technological capabilities provided by their backers such as Alibaba and
  • Scaling Up of Farming Operations with Technology: Internet giants like the B.A.T (Baidu, Alibaba, Tencent) are investing heavily in smart-agriculture platforms to scale up farming operations. For example, autonomous spraying drones equipped with machine vision and 3D point cloud location capabilities can be used to reduce fertilizer and pesticide overuse.
  • Smart Supply Chain and Last-mile Planning: Improvements in supply chain and delivery can be achieved through big data analysis and AI-drivenpredictive models such as predictions of daily and hourly demands of grocery.

Final Thoughts

The outbreak has extended a lifeline to the fresh grocery e-commerce industry. As millions are confined to their homes, they are relying on the promises of online grocers to ship fresh food to their doorsteps. Some players will come out of the outbreak with a larger, more established and loyal customer base as user habits persist. Those who are less capable and unable to provide satisfactory customer experiences, however, lose their competitiveness over time.

For the industry, the outbreak will mean accelerated consolidation and expose room for online grocers to digitally transform and grow their broader value chain. The future of fresh grocery e-commerce in China will only grow more sophisticated – a select few are in the race to provide the freshest, safest and reliable food produce with continued efficiency and quality of their supply chain and operations.

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