Internet marketing | Online sales of fresh produce could reach $6.8 billion in five years, says a Chinese analyst
BEIJING, China (Reuters) — Chinese consumers are responding to a powerful new marketing tactic that plays to a widespread fear of food contamination: the promise of safe groceries sold online.
Vendors who pledge produce direct from the farm have found that food is becoming one of the fastest-growing segments of internet retailing as they cash in on scares from cadmium-tainted rice to recycled cooking oil.
The trend is adding momentum to a Chinese online retail boom driven by a rapidly expanding middle class.
Companies such as COFCO Ltd. and Shunfeng Express are betting that a decent slice of a 1.3 billion population will pay for the peace of mind they say their services offer.
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“I think people are willing to pay a higher premium than in the West,” said Chen Yougang, a partner in the McKinsey consultancy.
“In other markets, like the U.K., food e-commerce is about convenience. Here, there’s going to be a higher quality and safety premium.”
However, convincing skeptical Chinese consumers about food quality will remain a battle.
Zhang Lei of Shanghai expressed doubt about the credentials of some products being touted as organic.
“Everyone knows that in China organic is not the real thing,” said the mother of one.
Nonetheless, online sales of fresh produce in China could rocket to $6.8 billion in five years from $2 billion this year, said Zhou Wen Quan, a senior analyst at Beijing Orient Agribusiness Consulting.
Research firm Euromonitor has more modest expectations but still sees growth comfortably beating major overseas markets.
It looks at volumes rather than values of online purchases of fresh food, with the Chinese market expected to grow by eight percent by 2017 from 664 million tonnes this year, compared to U.S. growth of five percent from 77 million tonnes.
Most food sold on China’s largest online shopping sites has been packaged items or fruit with a relatively long shelf life.
However, a wave of new businesses are focusing on fresh and premium produce, using the internet to target higher-income consumers than supermarkets, which typically serve a broader customer base, analysts say.
“The vegetables are really fresh,” said Beijing resident Lei Na, who shops on websites such as Womai.com.
“Supermarket food doesn’t look that fresh, especially if you only get there in the evening.”
Shunfeng Express, China’s largest delivery company, launched Shunfeng First Choice last year, offering a range of food to 500,000 consumers.
Seventy percent are imported products such as wine and milk powder, but the company also sells local seafood, meat and vegetables.
“We go directly to the farms to pick the produce, and then using our own logistics, deliver straight to the consumer,” said Yang Jun, director of sales and marketing.
“So from the tree to the consumer’s dining table, we’ll remove all the sectors in between.”
Persuading customers they can meet promises on food safety is crucial for online retailers.
“If I’m busy, I use websites, but if I have time, I prefer to drive to the supermarket and choose vegetables myself,” said Zhang.
However, vendors say that cutting out middlemen increases freshness and makes food more traceable, while bar codes that can be read by smartphones help consumers verify the origin of items.
As well, companies go to some lengths to describe their products online. Customers looking at free-range chickens on the Benlai Shenghuo website receive details on the breed they are selecting and its diet, along with photos of the birds wandering on farms.
Online customer reviews and ratings are also key in convincing potential buyers of quality, said Chen Liang, a senior research expert at Alibaba, owner of China’s biggest online marketplace, Taobao.
With its 10 million users per minute, Taobao has ridden the e-commerce boom in China, with its customers moving from non-essential items such as books and electronics to clothes and recently food. Its sales of meat, seafood, fruit and vegetables grew 42 percent last year to nearly $220 million.
“Before, people thought the internet wasn’t suitable for selling clothes, but now it’s the most suitable channel. I think food will follow this trend,” Chen said.
The cost of developing nationwide logistics is another major challenge facing e-commerce food firms, and Chen suggested that players work together to connect suppliers with a network of cold storage facilities.
However, food scandals are hitting Chinese shoppers thick and fast. Most recently, products from the world’s largest dairy exporter, Fonterra, were recalled from Chinese shelves. As a result, firms are confident they can overcome hurdles in the market.
“During the bird flu outbreak, our chicken sales exploded,” said Steve Liang, founder of Shanghai-based online retailer Fields, referring to a jump in sales after a new strain of the virus was discovered in February that killed more than 40 people in China and Taiwan.
