19 Dec 2017
Premium Imports and Online Sales Transform Mainland Fruit Market
With domestic producers reeling under the impact of soaring import levels and high-street retailers having to contend with the popularity of e-commerce channels, the mainland's fresh-fruit industry is set to be radically re-engineered.
Globalisation and the enhanced cultivation and distribution practices made possible by the wonders of today's technology have transformed the fresh-fruit sector, nowhere more so than in China. While business is already booming, a joint research project by the Boston Consulting Group (BCG) and AliResearch suggests that sales are set to soar still higher. Their findings suggest that, by 2020, the value of the sector's online sales alone will be around the RMB347 billion (US$52 billion) mark. Despite this representing a rise from the current level of 7% to 15% of all fresh produce revenue, online sales will, however, remain dwarfed by purchases made via more conventional routes.
Much of the increased spending in this sector can be tracked back to the higher levels of disposable income now enjoyed by many mainland consumers.
Indeed, research has shown that China's more affluent families are increasingly inclined to buy premium-branded fruit, with online channels often their favoured purchase route.
According to sources within the industry, 2014 was Year Zero for the mainland's fresh produce e-commerce platforms, with a raft of investors suddenly keen to back the digital entrepreneurs targeting the sector. Of late, while the initial flurry of activity has abated, investors are still circling the sector, with premium products and partnerships with conventional chainstore operators seen as offering the most lucrative prospects.
Apart from the e-commerce giants, such as JD.com, which have incorporated fresh produce into their existing platforms, a number of dedicated sites looking to super-serve the sector have also emerged, most notably Meiri Youxian (missfresh.cn) and Benlai Shenghuo (benlai.com). Such operators, however, have found they have to contend with the sub-brands launched by some of China's long-established digital markets, most notably Hema, the O2O supermarket chain launched by Alibaba, which looks to combine the convenience of online ordering with the reassurance of in-store product assessment and local delivery.
One area where the online channels have met with early success, however, is in terms of the range they have on offer, with BCG-AliResearch citing high levels of consumer appreciation for the extended selection available online. By comparison, according to a survey conducted within one second-tier city in south-eastern China, the majority of the fruit sold on the high street tends to be more commonplace, with 65% of such purchases described as "everyday items" by shoppers, while the remaining 35% is largely accounted for by seasonal fruits, few of which are seen as exotic.
Typical of many such shoppers is a "Ms Chen", a Beijinger with a monthly income of RMB10,000. The majority of her fruit purchases are made at a specialist supermarket close to her home, where she primarily buys a selection of competitively-priced everyday fruits, including apples, bananas, grapes and oranges. Outlining her experience with the e-commerce platforms servicing the sector, she said: "While I sometimes buy online, it is often difficult when you are buying for just one person as you need to spend quite a lot to qualify for the free shipping."
Such clear distinctions between the separate benefits of the offline and online channels may soon be consigned to history, however, according to Xiong Donglin, General Manager of Dikluo, a Wuhan-based fruit technology company. Expanding upon his view, he said: "At present, consumers find in-store shopping appealing as it allows them to inspect and evaluate everyday produce prior to making a purchase. By contrast, online shopping is seen as quick, convenient and offering a wider choice, while also coming with the reassurance of buying from a well-known brand.
"Now, though, there are an increasing number of high-end offline stores that carry a considerable product range and, at the same time, several online platforms now stock mid-range produce. There's clearly a degree of convergence occurring."
As well as the dedicated e-commerce platforms, online purchasers also have the option of buying via WeChat, one of the mainland's most popular social media channels. Assessing the viability of such an option, Fang Kaizhe, General Manager of Yikailong Network Technology, a Shanghai-based supplier to several WeChat vendors, said: "In order for its business to be sustainable, a WeChat store needs between 500 and 1,000 active customers, a level most find easy to secure. In the case of the most successful WeChat businesses, it is not unusual for them to have a client base well in excess of 10,000.
"Unlike e-commerce platforms, which often have a vast number of customers, WeChat stores serve a limited number of customers and offer a more personalised experience, with some owners even making deliveries themselves. On the downside, WeChat store customers tend to have high expectations of product quality, although the flipside of this is that they tend to be less price-sensitive. Once they are convinced of the quality of your products, though, they tend to become life-long customers."
According to chyxx.com, the website of the China Industry Information Network, the mainland imported $5.857 billion worth of fruit in 2016. Although this represented a 2.53% drop compared with 2015, the underlying trend still indicates continued growth in the sector.
In this instance, examining the history of individual fruit category imports gives a clearer picture as to how the market is developing. In the case of avocadoes, for instance, only 31,800 kg was imported in 2011. By 2016, however, the corresponding figure was 15 million kg. Overall, this rising demand for avocadoes and other less well-known fruits has been ascribed to greater health and nutrition awareness among consumers, as well as higher levels of income and an increased willingness to experiment with new or novel foodstuffs.
On the digital side, Fang estimates that imported fruits account for about 70% of his company's fruit business in terms of both quantity and turnover. Explaining why online purchasers seem to have a particular penchant for such items, he said: "Imported fruit tends to be of a higher standard. While many locally produced fruits taste surprisingly good, they leave much to be desired in terms of meeting safety standards, often having a high pesticide content for instance."
Such imports, though, are not necessarily sounding the death knell for domestically produced fruit. In fact, Liu Ding, one of the organisers of the recent 2017 China Fruit and Vegetable Fair, believes these imported items could actually benefit locally grown varieties in the long-term.
Expanding upon his thinking, he said: "Even though they may cause demand to drop for China-grown varieties in the short-term, ultimately domestic producers can learn a lot from these imports, particularly with regard to quality control, packaging, logistics and brand-building."
As well as the lessons to be learned from imported items, it is also hoped that recent technical innovations will benefit the domestic fruit industry, with higher levels of automation allowing for improved processing and lower levels of wastage. In particular, it is believed that the wider availability of cold-storage facilities will see produce delivered to consumers in a far more pristine condition, while shelf-life will also be extended. Additionally, improved logistics will also ensure that consumers in fourth- and fifth-tier cities will get greater opportunities to purchase imported fruit.
In terms of the future, the BCG-AliResearch survey indicated that 63% of the increased demand for fresh produce predicted for 2020 will stem from affluent middle-class consumers. Fang believes, though, that this increase will be more in terms of value than quality, with many purchasers turning to premium and more exotic produce. He expects this consumption upgrade to impact on purchasing patterns across every channel, including high-street outlets, e-commerce platforms and WeChat stores. Initially, this will be most apparent in the first-tier cities, before trickling down to their second- and third-tier counterparts.
As well as the affluent middle class, younger consumers will also play a commanding role in the expansion of the sector. According to Alibaba's data on its own fresh-produce sales, on average, shoppers in the 18-30 age group spent 40% more on higher-quality fresh produce per order in 2015 compared to the previous year, while the average shopper in the 45+ demographic only spent an additional 24%.
The China International Fruit and Vegetable Fair (FVF) 2017 took place from 3-5 November at the China National Convention Center in Beijing.
Li Nan, Special Correspondent, Beijing