E-commerce platforms witness huge demand as consumers prefer to make daily purchases from home to avoid infections

“The two-week-long home quarantine has forced everyone to be a chef.” There seems a touch of dark humor in that sardonic quip.

The reason for that is that the Chinese people are less willing to eat outside to avoid possible infection during the novel coronavirus outbreak, leaving them few options but to cook themselves.

The demand for fresh food, especially via e-commerce platforms, has consequently boomed.

JD Fresh, the fresh food arm of Chinese e-commerce giant JD, reported a 215 percent growth in orders over the first nine days since Lunar New Year’s eve, which falls on Jan 24 this year. Online orders in Hema Fresh, Alibaba’s fresh food chain, have also witnessed a big surge during the outbreak.

Turnover in fresh food delivery app Missfresh surged by more than 300 percent year-on-year during the Spring Festival holiday. The per customer transaction amount jumped to 120 yuan ($17.1) from about 85 yuan, data from the company showed.

“Due to the outbreak, consumers reduced travel and try to avoid visiting the brick-and-mortar stores. E-commerce platforms providing fresh food are seeing soaring demand,” said Jason Yu, general manager of consultancy Kantar Worldpanel in China.

Beijing media worker Gao Jie, 38, made two huge orders online within the 20-day period of living and working at home. It cost about 1,000 yuan in total to ensure food supplies for the four people in the family. Before, she often bought fresh food once a month for about 300 yuan.

There are three big supermarkets five kilometers from her home, but she now prefers to do it online.

“While purchasing a lot of goods at one time, it’s convenient to have someone deliver it for you. But most importantly, all supermarkets are in a confined space. It’s not safe to stay there searching around for what you need and wait in long lines to check out.”

She said she used the app of supermarket brand Walmart and Yonghui, and the WeChat mini-program of Carrefour and Missfresh.

Over the last few years, big investments have poured into the fresh food e-commerce sector. By now, about 4,000 companies are operating in China, with the shared idea to “offer convenience and guaranteed freshness.”

As the money flowed in, many companies have prioritized customer acquisition over profitability by offering deep discounts or free small-ticket deliveries. This has resulted in exponential expansion of the market with an annual growth rate of over 40 percent, said Eric Hor, associate partner of global consultancy Prophet.

But about 80 percent of companies are posting losses and only 1 percent are profitable, he said, adding the outbreak would accelerate consolidation and elimination of some firms in the industry.

The business also faces challenges in food preservation, unstable supply chains, product quality, and the high cost of logistics, Wu Jingcao, an expert from Sinolink Securities, told btime.com, a local media outlet in Beijing.

The recent novel coronavirus outbreak might be an unexpected turning point for the industry.

“Since most people need to stay at home, they are ‘forced’ to try fresh e-tailing for the first time and many people would have formed a new habit of buying fresh food in the past few weeks. Customer acquisition suddenly becomes a non-issue,” Hor said.

George Ren, senior partner and vice-president of Roland Berger China, added that before the outbreak, most of the early adopters were the young generation in first-and second-tier cities. “Now other ages and geographic groups have become aware of it and are willing to use online channels for daily fresh goods shopping,” he said.

The soaring demand has put those companies to the test since many are not agile enough to cope with the surge throughout the supply chain from sourcing, logistics to last-mile delivery. They are likewise being burdened by the fact that their supply chain and workforce are also being affected by the epidemic, Hor added.

Gao said she found many products are out of stock recently when she checked the apps. She filed an order on Feb 4 whose expected delivery time would be March 21.The online consumer service worker said the delay was caused by the massive number of orders and lack of deliverymen.

Kantar Worldpanel’s Yu said there is a significant mismatch between demand and supply at this time, especially in the shortage of fresh produce and labor for inventory management and delivery. The pressure can also be seen in the supply chain and logistics sectors.

Wang Jun, a partner and chief financial officer of Missfresh, said they are taking steps to ensure supply and services. The company employed more workers to help in the pickup, processing and transport of goods at vegetable bases. They also offered subsidies and insurance to frontline deliverymen. Wang added 90 percent of orders are delivered within two hours.

Missfresh’s supply of vegetables grew from 500 metric tons per day before the Lunar New Year to 1,000 tons in early February. The supply is expected to reach 1,500 tons to 2,000 tons soon. In addition, the daily supply of eggs will be extended to 2 million.

The number of daily online orders of the Yonghui Superstores chain surpassed 200,000 nationwide on Feb 1 and 300,000 on Feb 8. Consumers showed a preference for vegetables suitable for preservation and staple food items like rice and flour, said Yonghui Superstores President Li Guo.

The supermarket called back employees, increased product inventory and kicked off cross-border purchasing to speed up and bolster supplies. It strengthened regulations on food inspection and price, he added.

Hema Fresh was reported to have hired idle workers at some offline catering companies to meet the sharp rise in food delivery demand.

Hor said successful fresh food e-commerce platforms will be those which build a strong ecosystem and partnership that can weather sudden changes in business conditions.

They should also lead in global and local direct sourcing, advance in their smart logistics network to “enable superior freshness and cost advantage,” and leverage data analytics to inform assortment and replenishment decisions.

Ren said the outbreak is incubating an unprecedented occasion to cultivate the shift by customers in their purchase of daily necessities from offline to online channels.

He said the promise of increasing penetration can be seen in the short-term for the online fresh food category. “In the longer term, this spurs the advance of a whole supply chain system and a more sophisticated online merchandising excellence.”

Yu added fresh food is essential to the daily life of consumers and has the high frequency nature of shopping. “It not only provides significant business contribution to retailers, but also keeps their loyal customers attached to the platform and is therefore one of the key competitive advantages for any retailer.”