Fresh Food E-Commerce Given a Boost, Thanks to COVID-19

By Isabel Wong

Online food delivery services were already part of many young professionals’ daily lives before COVID-19 broke everyone away from the convention. During the global pandemic, people in general have grown more wary of dining out due to strict social distancing rules and fears over food safety. Demand for fresh food ingredients also became stronger as people in isolation eventually grew tired of canned food and ready meals. 

Home cooking and baking subsequently became obvious solutions to offer people peace of mind as well as serving as quarantine activities. Following the initial wave of toilet paper hoarding in Asia Pacific and North America, flour and yeast were the items that would be gone in a matter of minutes every time new supplies arrived. Large-scale city lockdowns have also made the convenience of being able to order fresh ingredients online for a hearty home cooked meal sound even more attractive.

Veggies Go Digital

With offline contact between consumers and businesses being cut off by the pandemic, customers are becoming more used to the concept of online grocery shopping and fresh produce delivery. In response, online grocery store operators have also begun offering alternative solutions to tap customers from all age groups. For example, Hong Kong-based online supermarket HKTVmall has developed a simplified and easy-to-use shopping app for elderly customers who are often not familiar with online shopping or have no digital experience.

Connecting farmers and customers with a smartphone app, Meicai was founded in 2014 and was reportedly valued at about US$7 billion back in 2018. (Photo: Meicai)

Meicai, a Chinese startup that connects vegetable farmers with restaurants and consumers, launched a mini programme to make its delivery services available to users of Chinese digital payment app Alipay amid the outbreak. In one week within launch, the vegetable startup’s programme attracted more than 800,000 new users, and orders poured in from 80 cities across China. Experts also suggest that the huge demand for online services is unlikely to go away after the outbreak.

The vegetable-selling app that was founded by Chinese rocket scientist Liu Chuanjun began with a goal of sourcing produce for about 10 million small- and medium-sized restaurants in China. Meicai’s business model has disrupted traditional wholesaling by cutting out the middleman and allowing customers to order fresh produce directly from farms via a smartphone app.

Dingdong Maicai, a Chinese online grocer that counts Sequoia China and Qiming Ventures among its early backers, has reportedly raised US$300 million in a new funding round that would value it at US$2 billion. Despite Dingdong and Meicai, the Chinese online grocery space is also filled with prominent players such as Tencent-backed MissFresh, Didi Chuxing and Meituan Dianping. 

E-commerce businesses such as Lazada are now able to make a profit by selling dumped vegetables to customers, when it was not even an option before the lockdown. (Photo: unsplash.com)

Meanwhile, Lazada Group, the Southeast Asian subsidiary of Alibaba Group, recently opened a virtual store to link farmers with unwanted produce and housebound Malaysians. With the surge in demand for fresh groceries, Lazada recorded sales of about 70 tonnes of vegetables by the third week after launch and has expanded its dedicated grocery arms to Malaysia, Vietnam and Indonesia with 30 fulfilment centres across 17 cities in the region.

In light of the recent developments in the sector, analysts said coronavirus-related restrictions have broadened the user base for online grocery companies, and paved way for underlying optimism about the online fresh produce delivery services’ outlook.

Pending Profitability

The profitability of online food delivery services has long been a question mark as some argue it’s a crowded and cash-burning industry that relies heavily on VC funding. “The profit margin for the online food delivery business is very low because of the relatively high maintenance costs – it’s very hard for these businesses to be profitable. However, the profit margin of the fresh produce supply business is higher as they are usually also supplying groceries,” said Rajendra Lora, founder and CEO of Freshokartz, an Indian food supply chain automation company that connects 30,000 farmers in the Indian state of Rajasthan.

But questions on how sustainable the fresh produce e-commerce business model also remain unanswered. “It is very different from traditional e-commerce including F&B, and needs huge investment in cold chain logistics, marketing to change consumers’ mindset and innovative operation models such as new retail models that HEMA uses, and front-end warehouse models like Dingdong,” said Shaoming Yang, founder of ChinaHow Club, “it is a highly risky market and nobody is making money from it so far. But since everyone needs fresh food, the extremely high repeat purchase rate and gross margin of fresh produce make it full of potential”.

According to Mihir Mohanta, businesses looking to launch fresh food delivery services in India face significant challenges from traditional mom-and-pop stores which usually enjoy high profit margin and low entry barriers. (Photo: Courtesy of Mihir Mohanta)

While online vegetable delivery services are on the rise in developed economies, the formula to success for fresh produce e-commerce in countries such as India is entirely different. “In India, online shops have to compete with mom-and-pop stores and therefore, e-commerce is at a disadvantage,” said Mihir Mohanta, general manager of supply chain at Motherdairy. 

“As e-commerce businesses depend heavily on traditional supply chains in the sourcing process, it is tough for products available online to differentiate themselves. Not to mention Indian consumers are extremely price sensitive, and brand loyalty is almost non-existent,” Mohanta added.

Food Supply Chain Automation

While fresh produce delivery apps allow vegetables and other raw materials to be delivered straight from the farm to consumers’ own homes, ability to see which farm or region the produce is from or whether the ingredients are organic is one area that is becoming a concern to middle class shoppers. Yet, features with traceability functions have not been seen in products offered by existing market players.

“If you work with farmers, there is a higher chance of being sustainable. By doing data analysis, farmers will also be able to get useful information from the same place,” said Lora.

Food supply chain automation technologies can potentially benefit farmers by providing data analysis and insights about crops for better demand predictions. (Photo: unsplash.com)

The CEO of Freshokartz also stresses the importance of obtaining useful data from both the production and distribution sides of the fresh produce supply chain to enable more accurate demand predictions for farmers. By providing food supply chain automation technologies, business owners in the space are helping farmers collect soil data to give insights about soil conditions as well as water and soil requirements for different crops. With the insights, farmers can then get an idea of how much it will cost to grow a certain crop and how profitable each crop is. 

According to Lora, usual challenges faced by fresh food retailers and delivery service providers including quality control and fresh produce perishability will also be minimised with the help of food traceability technologies such as smarter real-time reporting and scalable quality assessment tools. 

“The maturity of mangoes can be detected with technology before they are harvested. Infrared sensors can identify the maturity levels without cracking open the fruits,” said Mohanta, “however, most of these technologies are being developed by startups whose abilities to market their products are still low. Collaborations, technology integration and bureaucratic resistance are some of the hindrances, just to name a few”. 

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