Recently, media reported that Meituan Youxuan launched a new mini-program called "Tuanmaimai" on WeChat, which is its latest move in community group buying. In fact, since the beginning of this year, Meituan Youxuan has been continuously expanding. Besides Meituan, JD.com and Taobao have also re-entered the market, launching their own self-operated fresh food services and Taobao Fresh Food respectively. Fresh food e-commerce seems to be revitalized. But looking back at the past of fresh food e-commerce, it is littered with failures. First, Chengxin Youxuan, Yiguo Fresh, Miss Fresh, and Shihui Tuan collapsed; then Dingdong Maicai made a major retreat. After a brief recovery brought by the pandemic, the still-standing Duoduo Maicai, Meituan Youxuan, and Hema Fresh appear lukewarm. According to the "China Fresh Food E-commerce Market Data Report for the First Half of 2023" released by the E-commerce Research Center of Wangjing, the growth rate of fresh food e-commerce transaction scale in 2023 is predicted to hit the lowest point in nine years, with an industry penetration rate of about 8.97%, a year-on-year decrease of 12.75%. "Fresh food e-commerce is not a profitable business" has become a consensus. Why are e-commerce giants swimming against the current? And after all these years of giants engaging in fresh food e-commerce, why does the neighborhood wet market still thrive? The Fourth War of Fresh Food E-commerce The fresh food e-commerce industry has experienced ups and downs and has now gone through three rounds of reshuffling. Tracing the history of fresh food e-commerce, we must mention two people who have been in prison: Chu Shijian and Yu Huafeng. Chu Shijian was a well-known "Tobacco King" but was imprisoned in 1999. After being paroled, he personally went to the fields to grow oranges, but because they were too high-end, few people bought them. Yu Huafeng was the general manager of Southern Metropolis Daily, achieving advertising revenue of 390 million yuan. He was imprisoned for economic issues and after release, he opened a fruit fresh food e-commerce company called "Benlai Life," but its business performance was poor. The two frustrated business talents met by chance and hit it off. In 2012, Yu Huafeng created an inspirational orange based on Chu Shijian's story, selling 4,000 boxes in five days. The massive orange-buying campaign revealed that fresh food was still an area untouched by the internet, and capital was eager to move. In the same year, JD.com began to engage in fresh food; the following year, Tmall started to make efforts; later, Tencent invested in Miss Fresh. With giants and capital flooding in, a money-burning war was inevitable. By 2016, a batch of small enterprises with weak financial strength could no longer hold on, and fresh food e-commerce experienced its first wave of closures. But fresh food is a fortress that cannot be conquered by burning money. After six or seven years of crazy spending, the share of traditional agricultural trade chains going online was still less than 5%. At the end of 2019, crises emerged for platforms like Dai Luobo and Miao Shenghuo, and a deeper reshuffle arrived. Basically, all institutions lost interest in the fresh food sector. Man proposes, God disposes. Fresh food e-commerce, on the verge of death, was saved by the sudden outbreak of the pandemic. The user growth curves of Dingdong Maicai, Hema Fresh, Miss Fresh, and Meituan Maicai all showed beautiful upward trends, with the difficulty of grabbing food at peak times comparable to Double 11. Thus, the market developed an illusion: the second spring of fresh food e-commerce had arrived. Miss Fresh and Dingdong Maicai also rode the wave and rushed to go public. But later, their stock prices plummeted, Miss Fresh received a delisting warning, and the front-warehouse model was questioned. Until this year, the cold fresh food e-commerce industry has been revitalized by new moves from JD.com, Taobao, and Meituan. JD.com, which has always been very interested in fresh food but with little success, quietly launched "JD Maicai" this year, adopting a platform aggregation operation model, connecting third-party merchants like Sam's Club and Walmart. Later, it invested in two front warehouses in Beijing, focusing on e-commerce traffic + self-operated model. After successful group buying in the same area, riders deliver goods collectively. Meituan, known for its caution, restarted its fresh food e-commerce expansion plan in February this year and has already developed new business in some second-tier cities such as Wuhan, Langfang, and Suzhou. In May this year, Alibaba merged "Taocaicai," positioned as community e-commerce, with the instant retail platform "Taoxianda" to upgrade into "Taobao Maicai." Taobao Maicai will provide users in more than 200 cities across the country with two different forms of fresh food purchase services: "delivery within 1 hour" and "self-pickup next day." Its subsidiary Hema, which has been low-key in recent years, has changed its strategy this year, aggressively opening stores. In the middle of the year, it launched "Move Mountain Price" in 15 cities including Beijing and Shanghai, directly challenging Sam's Club. On October 20 this year, it opened a Hema X membership store in the Dawanglu business district, indicating that membership store competition is moving from the suburbs to the city center. After more than ten years of tortuous development, the penetration rate of fresh food e-commerce in China in 2022 was still only 10.28%, an improvement of 5 percentage points compared to 2016. How else can the story of fresh food e-commerce be told? Fresh Food E-commerce Why Is It Not a Good Business? Currently, the various schools of fresh food e-commerce can be simply summarized into four types: JD Daojia model, Meituan Maicai model, Hema model, and Duoduo Maicai model. The JD Daojia model mainly acts as a porter for supermarkets, charging commissions from merchants on one side and delivery fees on the other. It is a reasonable use of resources for the platform's self-operated logistics to earn extra income. Meituan Waimai also has this service. The Meituan Maicai model is the front-warehouse model, which sets up warehouses within 3 kilometers of residential areas and delivers to homes. Dingdong Maicai and JD self-operated fresh food also use this model. The Hema model combines store and warehouse, essentially turning the warehouse into a store, which can both store goods and allow people to browse. JD's 7Fresh also adopts this method. The Duoduo Maicai model, also known as community group buying, reduces costs to a very low level through centralized procurement, pre-sale, and self-pickup. It is equivalent to a large wholesaler directly facing consumers. Alibaba's Taocaicai also belongs to this category. But looking at all models, no fresh food e-commerce company can survive easily in this track. Why? First, the supply chain for fresh food is very long, with losses at every stage: acquisition, transportation, storage, and packaging. Shipping can only be predicted based on past supply and demand, which does not fully match market needs. According to a survey by Kaiyuan Securities, due to the perishability of fresh products and severe losses during long-distance multi-level transportation, the current average loss rate in the industry is around 20%-30%. Hema previously attracted customers with the slogan of not selling overnight vegetables or meat, resulting in particularly high fresh food losses. Second, Chinese people prefer fresh vegetables, fruits, live fish, and shrimp. To adapt to this habit, a large amount of capital is needed for cold chain storage and transportation. The cost of fresh food cold chain logistics is 1-2 times higher than ordinary goods, and cold chain costs account for 25%-40% of sales. There is a saying in the industry: those who have the cold chain have the world of fresh food e-commerce. Specifically, a normal temperature warehouse costs about 1,000 yuan per square meter, while a freezer warehouse costs more than 2,000 yuan per square meter. Adding daily operating costs, including electricity, refrigeration, and mechanical wear, cold chain costs are 30%-50% higher than normal temperature. Although the community group buying model of pre-sale + self-pickup can greatly reduce the fulfillment cost of fresh food e-commerce, it sacrifices timeliness and leafy greens. In addition, high costs lead to high average order values, but since fresh food is a high-frequency purchase, people prefer to be careful with their spending. Generally, the main consumers of fresh food e-commerce are housewives and young people living alone, who value both the convenience and efficiency of online ordering and pay more attention to cost-effectiveness. However, the variety of fresh food available online is very limited, and prices are generally nearly 20% higher than offline. Moreover, each order needs to reach 36-49 yuan to qualify for free shipping, which limits the frequency of online purchases. In fact, the biggest risk of this business is that it aims to transform the most vulnerable and policy-concerned flexible workers; and the demand it needs to meet is a livelihood project related to 1.4 billion people that cannot easily raise prices. Why Do Internet Giants Still Rush In? The reason is simple: with the arrival of the stock era, the former high-flying myths of internet giants are no longer, and they urgently need a new growth point. E-commerce platforms generally suffer from traffic hunger. Alibaba has 903 million annual active buyers, Pinduoduo 882 million, JD.com 588 million. After that, if they want to grow, there are almost not enough netizens. The fresh food e-commerce business seems unprofitable, but its high-frequency and rigid demand attributes can still provide a stable traffic entrance. Moreover, fresh food e-commerce is generally considered the last blue ocean in the e-commerce field, with an estimated trillion-yuan scale, although it now seems just a number. It seems natural for e-commerce platforms to operate fresh food e-commerce, but in fact, the business logic of the two is different. E-commerce is actually the mapping and amplification of retail on the internet, operating around "people," "goods," and "scenes," with two models: retail internetization and retail platform internetization. The representative of retail internetization is JD.com, which moved offline retail online, getting rid of restrictions such as shelves and store location. Other aspects like procurement, pricing, warehousing, logistics, and category management are not less, and it has not completely overturned offline retail. Retail platforms like Taobao and Pinduoduo are like online versions of Wanda or Joy City. They don't need to stock goods, build logistics, bear product selection risks, worry about inventory backlog, or intervene in pricing decisions. They just focus on gathering as many target users as possible, keeping them active, making the venue lively, and letting merchants set up stalls to sell. The core of the former is "control," which is reflected in the supply chain, warehousing logistics, and operation management. The latter drives traffic aggregation through scale effects, forming a platform effect. Fresh food e-commerce is different from both. It is ultimately an internet service based on fresh food transactions, not a pure internet traffic product. Its core value lies in providing users with the ability to purchase relatively standardized agricultural products anytime, anywhere. Standardizing products was not a problem that traditional e-commerce like JD.com and Taobao needed to consider before, because what they sell best are standard products, such as books, digital products, and beauty products. But in a country like ours, where smallholder economy dominates agricultural production, achieving standardization of agricultural products is not easy. Take fruits for example: differences in variety and origin can cause significant differences in size, sweetness, and moisture. If users purchase vegetables, meat, eggs, etc. of varying sizes and quality on the platform, it will seriously affect the consumer experience. To turn potatoes of different sizes in the soil into standard potatoes of different grades that can be sold on e-commerce, at least three stages of preprocessing are needed: potato harvesting; potato sorting; potato washing. This also involves losses of agricultural products and corresponding labor costs. Therefore, fresh food e-commerce needs to control product quality from the source and also ensure quality before sale, which are areas that previous e-commerce platforms have not touched. Why Does the Neighborhood Wet Market Still Thrive? The key to rapid e-commerce growth is improving the efficiency of transactions between people and goods online, leading many to mistakenly believe that e-commerce is far more efficient than physical stores. In fact, this is not the case. Let's look at the three links of procurement, sorting, and delivery in detail. E-commerce is generally at a disadvantage in procurement. There are a large number of small and medium-sized sellers on e-commerce platforms, mainly relying on long-tail products for advantages. Compared with large supermarkets, the procurement volume per item is small, procurement prices are high, and sales gross margins are lower than physical stores. In sorting, physical stores sort goods by the case and load them onto trucks for delivery to physical stores. E-commerce must open the boxes, and based on individual consumer orders, manually take two apples from one box, select half a dozen eggs from another, pick a cabbage from a plastic bag... then pack them into small boxes of different specifications and group them according to the location of the ordering customers. In the final delivery link, consumers come to the physical store and take the goods home themselves. Although e-commerce saves store rent and personnel costs, it has an additional "last mile" cost. The courier delivers from the regional distribution center to the customer, which is not cheap. Data shows that before the pandemic, e-commerce retail accounted for 25% of total social retail; during the pandemic it rose by 5%, and now it has fallen back to 25%, proving the ceiling of e-commerce. Specifically for buying groceries, the efficiency of the wet market is also higher than fresh food e-commerce. Generally, wet market vendors, mainly husband-and-wife teams, have their own stalls, with signature dishes and fruits. They have professional experience and skills in the appearance, taste, display, and temporary storage of their signature products, and have several familiar restaurants and unit canteens. Take a husband-and-wife stall in Beijing as an example. At 3 a.m., the husband gets up, drives to Beijing's largest Xinfadi Market, first gets a general understanding of the day's supply and basic market conditions, then goes to familiar wholesalers to select the required unprocessed vegetables and fruits. Based on market conditions and product quality, he negotiates the purchase quantity and price with the wholesalers, and returns to his wet market before 6 a.m. At this time, the wife has already arrived at the stall. The couple conducts preliminary grading and sorting of the fresh vegetables and fruits brought back: according to estimated stall sales, they select good-quality items to display on the stall and sell them in grades; they sort and pack the selected items and yesterday's unsold items according to the needs of restaurants and unit canteens. Around 7 a.m., the wet market's morning session begins. The wife operates the stall, weighing and collecting money based on consumer choices, while the husband drives to deliver vegetables to restaurants and unit canteens. By 2 p.m., the wet market business is slightly lighter, and the couple finally has time to eat lunch. In the afternoon, the wife continues to operate the stall, while the husband contacts the restaurants and unit canteens again to see if they need quick replenishment that afternoon and to understand their needs for the next day. At 6 p.m., the wet market is about to close. The couple tidies up the unsold items on the stall, then goes home for dinner, rests at 9 p.m., and gets up at 3 a.m. the next day as usual. From the daily routine of a wet market vendor, it can be seen that the wet market basically maximizes the efficiency of fresh food retail: Integration of ToB and ToC: ToC earns gross profit, ToB spreads costs; Full use of C-end traffic brought by the wet market, enabling immediate delivery; Consumers do the picking and packing, sharing the cost of standardization; Integration of stall and warehouse, allowing quick replenishment for B-end nearby; Low logistics costs, only the overtime cost of the vendor, and delivery only for high-ticket B-end. For e-commerce platforms and supermarkets, fresh food is just a traffic driver, using fresh food to attract traffic and standard products to make money. Only the wet market truly profits from fresh food. So until today, the online rate of fresh food trading is not particularly high, and traditional wet markets and large supermarkets are still more popular among consumers. Why? Most urban wet markets, fresh food supermarkets, and community fruit and vegetable stores are densely distributed. People can buy them as soon as they go out, pass by on the way home from work, without having to wait for delivery for half an hour, an hour, or even a day. The white-collar workers in first-tier cities that fresh food e-commerce targets may indeed not have time to buy groceries offline, but they are also unlikely to have time to cook, and their demand for food delivery is higher. In terms of physical experience, the freshness of vegetables, fruits, and seafood can only be felt offline. If a bunch of greens has yellow leaves, it can be dealt with on the spot without after-sales. Moreover, buying groceries offline is more personal: you can bargain, get a free scallion, ask the enthusiastic vendor to help process ingredients, joke around aimlessly, and chat. Once familiar, it is easy to develop consumer habits and increase repurchase. This is an experience that fresh food e-commerce can never achieve. Where Should the Future of the Fresh Food Industry Go? Although the offline efficiency of the fresh food industry is higher than online, it is also achieved by a large number of hardworking and simple practitioners, and high loss rates remain an indisputable fact. How to use digital means to improve the efficiency of the fresh food supply chain, how to shorten circulation links, improve standardization, and reduce transportation costs are still urgent issues to be solved. But the difficulty is such that no single company can do it alone. Liang Changlin, founder of Dingdong Maicai, once said that the competitiveness of fresh food e-commerce is like an iceberg: "What you see above the sea level is scale, below is supply chain capability, and deeper are organizational capability, financial capability, and data algorithm capability." In fact, the most severe loss of fresh agricultural products occurs at the front end, the "first mile," which is closely related to farmers' interests. Nowadays, e-commerce platforms are starting to make efforts and attempts from the fields. A while ago, it was revealed that Ma Yun, who had been out of the public eye for years, indirectly holds shares in a marine technology company, targeting smart agriculture, smart fisheries, and other directions. He once suggested to rural leaders, "Don't put all your energy into introducing enterprises and entrepreneurs. In fact, rural areas have great potential. You should focus on agricultural technology services and the improvement of agricultural product processing." Alibaba has already completed the full agricultural industry chain layout "from farmland to dining table" through self-building, investment, and cooperation, involving agricultural materials circulation, smart agriculture, rural services, fresh food e-commerce, supermarket stores, and other links. Now, Alibaba's digital agriculture bases are full of data sensors, and farmers use mobile phones to monitor crop growth. After harvest, products are immediately sent to origin warehouses, processed, and then distributed to various places, entering Alibaba's omni-channel system including Hema, RT-Mart, Taobao, and Ele.me. JD.com is also laying out its agricultural digitalization strategy, digitizing the entire planting and breeding process. Through digital ear tags and AI cameras, it creates cloud files for each animal, monitors their growth in real-time, and achieves digital intelligent services for multiple categories including beef cattle, pigs, poultry, eggs, aquatic products, and sheep. At the beginning of this year, Pinduoduo also announced the launch of the "Agricultural Cloud Action" to explore high-quality agricultural products nationwide, concentrate superior resources, and create 100 digital agricultural production belts. Dingdong Maicai's developed smart supply chain system can clearly show the entire process from origin to transportation to sorting warehouse to front warehouse, from origin to the end user, even for a small scallion. Currently, its unsold loss rate is only 1%. In general, in the competition in the fresh food e-commerce industry, the Matthew effect is obvious. Whether in terms of traffic advantages or investment strength, new startups have lost the opportunity to enter, and existing companies pale in comparison to e-commerce giants. The story of traffic and technology is full of temptation and imagination, but to tell the story well, one needs to personally engage, starting from a fish, a cow, and a green vegetable.