Fresh food retail eyes breakout success

"Big data and artificial intelligence technologies could be utilized to accurately offer corresponding products and services based on different regions and customer groups, and constantly improve the shopping experience," Wei said.

The online fresh products market is also witnessing rapid growth. Data from iResearch showed trading volume of China's fresh food e-commerce sector reached 458.5 billion yuan in 2020, up 64 percent year-on-year. The figure is expected to soar to 1 trillion yuan in 2023, representing huge market potential.

Online fresh produce platforms have played a vital role in providing daily necessities during the COVID-19 pandemic, and stepped up efforts to establish direct sourcing bases and front-end warehouses, carried out in-depth cooperation with fast-moving consumer goods suppliers and upgraded the overall supply chain system.

Missfresh Ltd, an e-commerce platform focusing on delivering fresh produce and other daily necessities, expanded its vegetable direct sourcing base recently, spread over nearly 70 hectares, in Luliang county, Yunnan province.

Xiao Laicang, who is in charge of Missfresh's vegetable segment, said its farm in Luliang county adopts an order-based planting model, which leverages sales forecasts to determine production scale. The measure will allow the company to guarantee a stable supply of vegetables, and closely control the quantity, quality and cost of the produce, Xiao said.

By establishing a supply chain network covering farms, factories and processing facilities nationwide to directly source goods from their place of origin, Missfresh has enhanced operational efficiency and reduced procurement costs, the company said.

"We will continue to expand and deepen direct sourcing cooperation with production bases and premium brand suppliers, as well as give full play to technical advantages in big data and intelligent algorithms, so as to improve operational efficiency and build core competitiveness in on-demand retail segment," said Xu Zheng, founder and CEO of Missfresh.

The company sources products like fresh seafood, vegetables, fruit, meat, eggs and fast-moving consumer goods directly from almost 200 farms and about 350 factories and processing facilities across the nation.

As of Sept 30, 2021, its front-end warehouses had covered 17 first and second-tier cities in China, offering over 5,000 stock keeping units or SKUs, with orders delivered within 36 minutes on average.

Front-end warehouses, which are often located close to residential areas, integrate storage and distribution functions in order to solve last kilometer deliveries.

"The penetration rate of e-commerce groceries is rising as more and more consumers have switched to fresh food e-commerce platforms to buy fruit, meat, vegetables, seafood, grains, oils and other daily necessities during the pandemic," said Zhang Yi, CEO and principal analyst from consultancy iiMedia Research.

Advancements in cold chain technologies have prompted the development of the fresh food retail industry, Zhang said. However, the high attrition rate of perishable goods and huge logistics expenditures weigh heavily on the gross margins of fresh produce players.

Meanwhile, the safety of fresh produce has received widespread attention recently as the market supervision bureau of Beijing's Haidian district summoned and launched an investigation into Dingdong Maicai, a fresh produce e-commerce platform, on March 16.

The probe came after media reported one of Dingdong Maicai's front-end warehouses in Beijing cheated consumers by claiming dead fish as fresh ones and fabricating labeling. The regulator has also carried out inspections at other fresh food e-commerce businesses.

Dingdong Maicai apologized for selling expired food products, saying it has suspended operations at the front-end warehouse. It will identify problems and submit rectification plans to the authority to avoid a similar situation from happening again, establish an internal whistle-blowing mechanism and update monitoring equipment at warehouses, the company said.

Founded in 2017, the Shanghai-based startup reported its total revenue increased 72 percent year-on-year to 5.48 billion yuan in the fourth quarter of 2021, while its non-GAAP net loss was 1.03 billion yuan, compared with 1.24 billion yuan in the same period of 2020.

As of the fourth quarter last year, Dingdong Maicai owned 10 food research and development and processing plants, and about 1,400 front-end warehouses with an area of 500,000 square meters.

Mo Daiqing, a senior analyst at the Internet Economy Institute, a domestic consultancy, said ensuring the quality of products is the top priority for fresh food e-commerce platforms, and only by doing so can they win trust of consumers.

The country's fresh food e-commerce is entering the fast lane, but is accompanied by some problems related to operations, product quality, user experience, after-sales service and supply chains, Mo said.

More efforts should be made to ensure the safety of supply chains, expand product offerings and improve delivery services, she said.

Competition in the fresh food e-commerce sector is set to intensify this year as many companies in the fast-growing segment still face bottlenecks that affect their profitability, she said.

"How to optimize the supply chain management, improve operational efficiency and reduce operational costs－that is an urgent problem to be dealt with."