China Consumer

Turning stale

Why fresh food and e-commerce may not mix in China

Tao-Cafe-w

Alibaba’s ‘new retail’ store

When the self-service checkout was invented in the early 1990s, one of the biggest problems was theft. Obviously, this was a similar problem for Alibaba when designing its staffless supermarket, which it trialled in Hangzhou this week. But technology has come a long way since the Nineties.

Alibaba’s new shop, Tao Café, is accessed by opening the company’s Taobao app, pulling up a QR code, and then scanning it at the door. From this point, the customer is tracked by the shop’s omniscient computer system, which detects which items the customer takes and automatically charges their Taobao account as they leave the store.

A video posted by the company shows that even when items are placed in the customer’s bag or pocket, the goods are still detected as the shopper leaves and charged to their account. Bad news for would-be shoplifters.

Alibaba is not the first company to showcase this technology. Amazon launched its cashless supermarket Amazon Go in Seattle last year, but has yet to expand the concept to other locations. In China, a company called Bingobox – backed by a leading supermarket chain – has already put a number of unmanned convenience stores into operation (see WiC371).

For Jack Ma, the Tao Café is the latest iteration of his “new retail” concept, which seeks to combine the online and offline shopping experience.

Its first effort was its Hema Fresh stores, of which there are now 13. The latest three opened just this week in Beijing and Shanghai. Unlike the Tao Café, these supermarkets aren’t automated – customers pay at the checkout using AliPay.

Hema stores serve too as collection and distribution points for items customers have ordered online. Each Hema is designed to service an area within a 3km radius with the target of delivery within 30 minutes. Alternatively, customers can arrange to have items delivered to the store for later collection.

Alibaba’s rival JD.com is also selling fresh produce, and even before the two giants got involved the sector was already littered with smaller firms. According to National Business Daily, the industry has 4,000 firms in operation, although 3,800 of them are running at a loss.

Yu Huiyong, chairman of industry leader Pagoda, believes that the biggest problem facing the business is standardisation, or the lack of it, because the quality of a fruit and vegetable batch changes over time and customers will always have a different experience of the same product.

This, in part, reflects the shortcomings of China’s cold-chain logistics (a temperature-controlled supply chain for perishable goods), which is now being placed under even greater strain as e-commerce sites attempt to surmount the challenges of “last mile” delivery.

A report on the industry by the state radio broadcaster CRI found that only 20% of fresh produce was distributed through a complete cold chain in 2016, as opposed to around 95% in America. The shortfall resulted in roughly 30% of fruits and vegetables perishing – equating to annual losses of Rmb100 billion ($14.78 billion). Indeed, the weakness in cold-chain logistics is severe enough to have been flagged as a priority in the 13th Five Year Plan. (It may also explain some of Vanke’s moves into logistics, see this issue’s Property section.)

Yet CRI believes that e-commerce firms will help remedy the problem. For example, courier SF Express manages its own cold-chain network, and this month JD.com inked a deal with Japan’s Yamato Holdings to develop its own system too.

The expanding presence of the bigger players could edge out more of the smaller firms in the fresh produce sector.

Most recently Xuxian, a start-up that raised tens of millions in venture capital fundraisings, appears to have closed up shop. Late last month its app and desktop site stopped functioning and many parts of its delivery network have also closed down. The reason? CBN reports that Xuxian simply couldn’t afford the rent for the warehouses in its supply chain.


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