During the New Year holiday, Zhang Yali, a single woman from Shenzhen, canceled her plan to travel to Sanya with friends due to concerns about reinfection. Instead, she ordered a variety of fresh products from PUPU and Meituan Maicai, and this time, from placing the order to delivery, it took only 15 minutes. Zhang Yali told Value Planet that she was very satisfied with such delivery speed. Because last December, many local riders in Shenzhen were infected on a large scale, logistics efficiency was greatly reduced, and Dingdong Maicai, which she used to use, was unable to place orders. According to her observation, many stations of Hema, Miss Fresh, and Dingdong Maicai in Shenzhen have been closed. Helplessly, she had to search for a large number of tips on online platforms. For example, Dingdong Maicai's restocking time is generally from midnight to 3 a.m., the best time to place an order is 6:40 a.m., and the trick is to put items in the shopping cart in advance and grab special offers at 7 a.m. In fact, whether it is consumers complaining about difficulty in placing orders or the emergence of a large number of order-grabbing tips on online platforms, the essence is related to the impact of the pandemic on the supply chain of fresh food e-commerce platforms. Shenxian County in Shandong Province is known as "China's No.1 Vegetable County," and it supplies vegetables to multiple fresh food e-commerce platforms. However, Li Ziming, a supplier responsible for supplying a fresh food platform, told us that last year, although the local vegetable output did not decline significantly, many problems appeared in the circulation and sales links. For example, after the full liberalization in December, many local farmers were infected and unable to harvest in the fields. In addition, they could not find drivers for transportation. Obviously, against the backdrop of an unguaranteed upstream supply chain, fresh food e-commerce platforms, as intermediate trading platforms, could only sell the remaining limited inventory, further exacerbating the "difficulty in ordering" problem. Looking back at 2022, under the uncertainty brought by the pandemic, consumers' order demand for fresh food e-commerce platforms increased significantly, and their dependence was unprecedentedly high. However, under this dependence, some fresh food platforms represented by Miss Fresh were "retreating," while platforms like PUPU were continuously expanding. So, what are the differences in the fresh food e-commerce industry in 2022 compared to the previous two years? What is the core of future development for fresh food e-commerce?
The front-warehouse model has reached a watershed In July 2021, as Miss Fresh was successively exposed to large-scale layoffs, station closures, and arrears of supplier payments, the company, once with a market value of 20 billion yuan, saw its stock price fall from a high of $58.56 per share to $1.78 per share (closing on December 30, 2022). Source: Xueqiu The chain reaction that followed was that the outside world raised many doubts about the front-warehouse model of fresh food e-commerce platforms. Because for Miss Fresh and Dingdong Maicai, which also adopt the front-warehouse model, both face long-term losses, insufficient cash flow, and insolvency. In terms of losses, from 2019 to 2021, Dingdong Maicai's cumulative loss was 11.5 billion yuan, with an average quarterly loss of 960 million yuan. Although Dingdong Maicai has been reducing costs and increasing efficiency in 2022, its losses in the first and second quarters were still 477 million yuan and 36 million yuan, respectively. Miss Fresh's losses from 2018 to 2021 were 2.232 billion yuan, 2.909 billion yuan, 1.649 billion yuan, and 3.85 billion yuan, totaling 10.64 billion yuan over four years. In terms of cash flow, although Dingdong Maicai achieved a net inflow of 217 million yuan in the second quarter of last year, considering its single-quarter profit was too low, the capital market still did not buy it, and its stock price still fell by 1.8% after the earnings report. Data source: Financial reports A bigger hidden danger is that as of June 30 last year, Dingdong Maicai's current assets were 7.123 billion yuan, and current liabilities were 7.941 billion yuan, indicating tight cash flow. Miss Fresh's situation is even less optimistic: its net cash flow from operating activities in 2021 was -2.589 billion yuan, but its total current liabilities were as high as 3.2993 billion yuan. Under the background of insolvency, how can Miss Fresh, now with only 55 employees, turn things around? In fact, the root cause of these problems in the front-warehouse model is related to the upstream fresh products' low standardization, high dispersion, high loss rate, and low gross margin, which makes it extremely difficult for fresh food e-commerce platforms to integrate the supply chain. Wang Qiangqiang, who has been in the fruit and vegetable wholesale business for many years, told us that fresh products are very difficult to handle. Taking apples as an example, there are Shaanxi Red Fuji apples, Shandong Red Fuji apples, Sichuan Daliangshan apples, Xinjiang Aksu apples, Gansu Red Bull apples, etc. According to shape, size, and sweetness, they are divided into first-grade, second-grade, and inferior fruits. Even apples from the same origin can differ in taste due to local accumulated temperature, precipitation, bagging, and tree age. This requires purchasers to have years of experience in fruit wholesale to receive relatively good quality goods at the origin and not be fooled by local fruit agents. In addition, sometimes the more you purchase at the origin, the higher the price. For example, Wang Qiangqiang previously went to Mengyin Yimeng Mountain in Shandong to purchase 200,000 jin of yellow peaches, but due to heavy rain at the time, there were not many goods that met his quality requirements. At the same time, other large wholesalers also went to the local area to purchase, and under the imbalance between supply and demand, the price of yellow peaches in Yimeng Mountain directly rose by 1 yuan per jin. In fact, from Wang Qiangqiang's words, several problems can be seen. First, due to the dispersion of fresh produce origins, fresh food e-commerce platforms need to source from different origins and properly store them in front warehouses distributed in various cities, leading to increased losses and logistics costs. As the number of SKUs increases, the costs for purchasers, sorters, cold storage, and supplier relationship management also increase. In other words, for fresh food e-commerce platforms, it is difficult to reduce costs through economies of scale, and even the more product categories, the higher the costs. Second, although fresh products are a rigid demand, there are many purchase scenarios. For example, various large, medium, and small supermarkets, vegetable markets, fruit wholesale markets, community vegetable stores, and comprehensive e-commerce platforms are distributed in cities. To attract users and generate continuous repurchase, fresh food e-commerce platforms often launch activities such as full reduction and coupons. These activities further reduce the already low gross margin, which explains why Dingdong Maicai and Miss Fresh have been in losses. Data source: Dingdong Maicai and Miss Fresh prospectuses While the entire front-warehouse model is being questioned by the outside world, community fresh food e-commerce has also seen some new changes after the industry reshuffle in 2021. Sun Shaohua, the head of a domestic community group buying company, shared these new changes with us. First, many small community group buying companies have gone bankrupt, and industry resources are more concentrated on leading companies. However, many leading companies no longer blindly pursue scale, but instead focus more on one or two cities for deep cultivation. Second, community e-commerce group buying no longer blindly pursues a wide variety of categories, but divides daily operational products into daily operational models, welfare models, and high-profit models. At the same time, to reduce operating costs, they also cooperate with origin suppliers through a drop-shipping model. Third, companies pay more attention to private domain traffic rather than public domain traffic, and use these private domain traffic and high-quality products to complete user retention and fission, ultimately forming a virtuous cycle. These changes in community fresh food group buying have allowed some companies to gradually grow. Can these experiences help fresh food e-commerce platforms reverse their losses?
Strategic contraction becomes the norm In fact, compared with fresh food e-commerce in 2020 and 2021, the operating costs of fresh food e-commerce in 2022 have increased significantly. Li Ziming said that the reasons for this high cost are reflected in many links. In the circulation link, not to mention cold chain logistics, even normal freight is at least 40% higher than in 2021. For example, during the Shanghai lockdown from April to June last year, they provided guaranteed vegetables for a fresh food e-commerce platform, but the thorny problem at that time was that according to the epidemic prevention policies of many places, truck drivers returning from Shanghai, even if they carried out closed-loop transportation, had to be centrally isolated for 7 days. This meant that truck drivers could not work for 7 days, and they would add these lost wages to the freight. At the same time, another problem brought by different epidemic prevention policies in various places was that the time for drivers to get on and off the highway was extended, which also increased the loss of fresh products. Taking their supply to a fresh food e-commerce platform in Beijing last year as an example, due to many restrictions on vehicles entering Beijing at that time, the loss of vegetables, which could be controlled at 20%, was directly increased to 40%. If the above problems can be solved, then the problem that makes many fresh food e-commerce platforms more headache is the temporary lockdown of the warehouse area. For example, a Chengdu customer that Li Ziming once served, shortly after vegetables worth 500,000 yuan arrived at their warehouse, the local government suddenly announced temporary control. Although some vegetables had already entered the cold storage, due to the local lockdown lasting more than 30 days, the vegetables in the cold storage could not be sold and were prone to spoilage and deterioration. Those vegetables that had not yet entered the cold storage had already rotted. Based on the above reasons, in 2022, many fresh food e-commerce companies have been strategically contracting. For example, Dingdong Maicai successively withdrew from Xuancheng and Chuzhou in Anhui, Tangshan in Hebei, Zhongshan and Zhuhai in Guangdong, Tianjin, and Xiamen. Hema Neighborhood successively withdrew from Beijing, Xi'an, Chengdu, Wuhan and other markets, and now focuses on the Shanghai market. Xingsheng Youxuan successively closed its North China and Southeast regions, and withdrew from stations in Henan, Shandong, Sichuan, Chongqing and other provinces and cities. JD's Jingxi Pinpin made large-scale closures in June, and Meituan Youxuan announced in October last year that it would upgrade its brand to "Tomorrow's Supermarket," both to further expand SKU numbers to benchmark against supermarkets and to try to reverse the difficulties of community group buying business. Of course, strategic contraction is effective. Taking Dingdong Maicai as an example, in the first three quarters of last year, Dingdong Maicai's net loss was 857 million yuan, while in the same period of 2021, the net loss was as high as 5.333 billion yuan. In the third quarter of last year, the platform's sales, marketing, and fulfillment expenses decreased by 70.3% and 30.9% year-on-year, respectively. At the same time, the average order value in that quarter increased by 25% compared with the same period in 2021. In addition to cost reduction, platforms are also achieving efficiency improvement through various methods. For example, many fresh food e-commerce platforms have set their sights on prepared dishes. Among them, Hema launched 18 different sets of "Eight Bowls" New Year dishes in different regions across the country. Dingdong Maicai's relevant sales data shows that during the 2022 New Year shopping festival, prepared dishes and related foods increased by more than 400% compared with 2021. Especially some dishes related to New Year's Eve dinner with good meanings, such as a dish called "Flourishing and Wealthy Yellow Croaker Steamed Meatloaf," saw a month-on-month sales increase of more than 980%. Source: Hongquan Network But it should be pointed out that prepared dishes on the C-end are more a product of pandemic lockdowns. With the complete liberalization of epidemic prevention and control, whether prepared dishes can continue to be popular on the C-end remains to be seen. For the B-end with relatively high demand, fresh food e-commerce platforms have to compete with multiple prepared dish companies. In other words, whether prepared dishes will become a "lifesaver" for fresh food e-commerce platforms is still questionable.
Who will be the future winner? Strictly speaking, there is no real winner for fresh food e-commerce platforms in 2022. Because under the premise that the entire supply chain cannot be guaranteed normally, everyone is just trying to survive through various means and get through this winter. Although the impact of the pandemic on the supply chain has gradually faded, to become a winner in this industry in the future, two thorny problems still need to be solved. On the one hand, how to regain supplier confidence. Li Ziming told us that due to the large number of community group buying failures in 2021 and Miss Fresh's failure in 2022, the problem is that a large number of supplier arrears have become bad debts. Some suppliers even owe millions of yuan because they cannot recover these arrears. Now everyone is afraid of these platforms. When cooperating with these fresh food e-commerce platforms again, they directly require cash on delivery, otherwise they will not supply. Obviously, under this requirement, fresh food e-commerce platforms must have a large amount of cash flow and complete the turnover of goods as soon as possible. Otherwise, fresh food e-commerce platforms can easily fall into the dilemma of fewer and fewer SKUs and a large loss of users. On the other hand, how to better control losses. In fact, after several years of development, fresh food e-commerce platforms have formed complete experience in daily product updates and operations, and downstream user delivery. If the industry wants to achieve real profitability, the competition is who can control losses better. Only in this way can the overall cost be truly reduced. Of course, this process of change also means that in the future, fresh food e-commerce platforms will usher in a real reshuffle like community e-commerce group buying, and industry resources will become more and more concentrated on truly capable companies. At the request of the interviewees, Zhang Yali, Li Ziming, and Wang Qiangqiang in the article are pseudonyms. This article is based on public information and is for information exchange only, not constituting any investment advice.