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Shanghai Tycoons gather, fresh food e-commerce war re-emerges
Source: | Author:QS | Published time: 2022-04-26 | 1113 Views | Share:

The COVID-19 outbreak has recently spread rapidly in some parts of China. Materials are insufficient in places such as Shanghai and Shenzhen, where the epidemic has broken out, and many materials have been robbed by citizens. Yet the industry has grown under such conditions.


On April 6, #Meituanmaicai was topped the trending search by Shanghai residents.

1. The rise and problems of fresh food e-commerce

The outbreak of the epidemic has caused offline stores to be unable to operate normally. Many residents can only rely on e-commerce apps such as Dingdong, Meituan, and Pupu for their grocery needs. It is not uncommon for these platforms to maintain up to three times their normal inventory during an epidemic, but are still liquidated every day, leaving residents in the epidemic area without food.

The volume of orders and the user growth on the fresh food platform is enough to make it profitable, logically speaking. However, judging by the financial reports of major fresh food e-commerce companies, it is challenging to achieve profitability. For example, “Dingdong Maicai” has a net loss of 1.096 billion yuan in the fourth quarter of 2021; “Meituan” and new businesses including “Meituan Maicai” expanded its operating loss to RMB 10.2 billion in the fourth quarter of 2021 year-on-year. ; "Hema Xiansheng" has closed 5 offline stores after entering 2022... Why is it so difficult for fresh food e-commerce to make profits despite its advantages?

2. Fresh food e-commerce has high operating costs and difficulty in making profits

As early as 2009, a large number of vertical fresh food e-commerce appeared in China, and fresh food e-commerce also ushered in the first wave of development. At that time, however, the limitations of cold chain and supply chain technology led to the closure of a large number of fresh food e-commerce companies.

As of 2012, the B2C model has become the main business model of fresh food e-commerce. The necessity of a supply chain, warehouse, and cold chain in the early stage, however, means that money must be burned in order to achieve profitability. By 2016, a significant number of SMEs (small and medium enterprises) in the fresh food industry had closed, and the leading enterprises had amassed capital. Fresh food e-commerce was entered into by giants like Jingdong and Ali. Following the outbreak of the epidemic in 2020, the demand for fresh food online has stimulated the development of e-commerce, and the number of users has increased rapidly.


Monthly activity data of the fresh food app from January to September 2021


Scale of China's Fresh Food E-commerce Industry from 2015-2023

The e-commerce of fresh food is in its golden phase, but why is the company's revenue not higher?

a) Massive investment

Consumers are often hesitant to buy vegetables online because they fear that the vegetables aren't fresh. Fresh food e-commerce requires significant investment in the early stages and relies heavily on cold chains, warehouses, and distributors. Therefore, maintaining a perfect and fast cold chain transport in daily operations requires a lot of financial resources.

b) Competition among fresh food e-commerce platforms

Major platforms have competed for consumers with price wars, and most offer newcomer benefits and coupons to draw them in. These factors have resulted in low revenue.

c) Low user stickiness

Due to price wars, smart consumers tend to buy on whichever platform is cheaper and have five or six grocery apps on their phones.

d) Product Consistency

The grocery shopping app lists similar products, prices, and delivery times. Therefore, it is difficult to widen the gap between platforms, since none can be significantly better than another. To increase market share, differentiate from competitors, and turn losses into profits, fresh food companies can no longer compete by using price wars. The real challenge for them is to find ways to keep their customers.

3. Enhance services to tide over the epidemic

It has always been difficult for major e-commerce platforms to form features and realize differentiated operations. As long as the dishes remain the same, the prices of the products are not very different. It is the service that separates the products from the prices since there is no gap between these two. Putting it bluntly, fresh food e-commerce is also a service industry. It is essential that users feel comfortable and fast, and there is no pressure to use it. Placing an order is an enjoyable experience every time. The major fresh food e-commerce platforms need to stabilize their pace, ensure inventory, and control logistics during epidemics when food cannot be purchased offline. Under the outbreak of this epidemic, companies that remain and gain consumer trust are likely to be the ultimate winners.

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