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Report on Operation and Investment Strategy of China’s Fresh Food E-commerce Industry

  • August 2013
  • -
  • Beijing Orient Agribusiness Consultant Ltd.
  • -
  • 115 pages

Research Background

China’s agriculture has stepped into a period of high-speed development, and the agriculture industry as a whole is faced with many development opportunities such as the improvement of industrialization, the improvement of industrial integration, the speeding-up of logistics and information, and the diversification of development channels, which, on the whole, signifies the change from “traditional agriculture” to “modern agriculture”. The so-called modern agriculture, a concept in comparison with the traditional agriculture, refers to the socialized agriculture with wide application of production material and scientific management method provided by modern science and technology and modern industry. Compared with the traditional agriculture of the small-scale production pattern, the modern agriculture is an agriculture mode with the characteristic of high input and high output.

China has stepped into the mid-stage of industrialization, and the relationship between industry and agriculture is changing into the pattern of industry supporting agriculture. With the policy support and encouragement, the constant innovation of agricultural production management technology, the constant improvement of consuming capability and food safety awareness of the public, China’s new agricultural industry has aroused great concern from investors.

In such a context, the E-commerce of agricultural products/fresh food enjoys prosperous development. Its sales revenue grows rapidly. According to the 2012 Ali Agricultural Products E-commerce White Paper by Ali Research Center, the number of online shops engaging in the sales of agricultural products in the Ali platform exceeded 260,000 and the sales revenue of agricultural products reached nearly 20 billion Yuan. It is estimated that the number of online shops engaging in the sales of agricultural products will exceed 1 million in 2013, and the sales revenue of agricultural products will exceed 50 billion Yuan in 2013 and 100 billion Yuan in 2014.

Meanwhile, we also noticed that the E-commerce rate in the sales of agricultural products is less than 1%, while E-commerce rate of the cosmetic products retail was 16.3%, E-commerce rate of 3C products retail was 15.6% and the E-commerce rate of clothes retail was 14.3% in 2011. The trade of agricultural products, especially the fresh agricultural products, is considered the last fertile land of E-commerce and the most difficult one to handle.

Recently, E-commerce platforms such as JD.com, Store No.1, and many industry giants, such as SF Express and COFCO, all enter into the E-commerce filed of fresh agricultural retail, a “blue sea” in the eyes of industry insiders. On the other hand, currently only some direct E-commerce business of fresh agricultural products could gain profits, and the market has come to question the commercial pattern of the direct E-commerce of fresh agricultural products.

Whether the fresh food E-commerce has a promising future? What is the future development trend of the industry? Which commercial patterns and operation strategies will be successful? And where are the potential investment opportunities in the production and circulation of agricultural products? This report will use methods such as Five-Force model industry analysis, the value chain analysis and SWOT analysis to analyze the data of E-commerce enterprises and seek answers to the above questions, analyze the current condition of the industry, provide scientific prediction of the future development of the industry, so as to provide precise reference for each practitioners the investors, and the government departments engaging in the circulation of fresh agricultural products.

Beijing Orient Agribusiness Consultant Ltd.(BOABC) is a company providing professional agricultural information service. Since its establishment, BOABC has adopted the standards and the operation specifications of international agricultural consulting companies, focused on the information service to large agricultural fields and research into the market and industries and provided professional and in-depth services concerning strategies advice. In the past decade since its establishment, BOABC has successfully provided services of a wide range and of a variety of levels to many customers at home and aboard, including world-famous agricultural companies, comprehensive trading companies, and financial investment institutions, agricultural and corresponding institutions. Many of BOABC’s customers are leading companies in each field of agriculture and 30 of the top 500 companies in the world has subscribed our information products for many years.

Table Of Contents

Report on Operation and Investment Strategy of China’s Fresh Food E-commerce Industry
Contents

Part One: Macro Industry Environment of Fresh Food E-commerce 1

I. Global Macro-Economy and Online Shopping Market Environment 1

1. The Weakening and Highly Uncertain Global Economic Prospect 1
2. Rapid Development of Global Online Shopping Market 2

II. Analysis of Agricultural Products Value Chain 3

1. Overview of Agricultural Products Value Chain 3
2. Anlysis of Main Links 5
2.1 Production and Processing 5
2.1 Middle Link 5
2.3 Marketing and Consumption 5

III. Modern Agriculture Pattern of Developed Countries 6

1. The Direct Production-Sales Pattern Repesented by “American Pattern” 6
1.1 Agricultural Production of America 6
1.2 Domestic Agricultural Products Consumption of America 8
1.3 Agricultural Products Trade of America 9
1.4 Ciculation Pattern of Agricultural Products in America 10
2. The Auction Market Represented by “West Europe Pattern”--France 11
2.1 Agricultural Production of France 12
2.2 Domestic Agricultural Products Consumption of France 13
2.3 Agricultural Products Trade of France 13
2.4 Ciculation Pattern of Agricultural Products in France 15
3. The “Japan-South Korea Pattern” of Small-Scale Peasant Economy--- South Korea 16
3.1 Agricultural Production of South Korea 16
3.2 Domestic Agricultural Products Consumption of South Korea 17
3.3 Agricultural Products Trade of South Korea 18
3.4 Pattern of Agricultural Products Produciton and Ciculation in South Korea 19

IV. China's Agricultural Industry Reform and Development of E-Commerce 21

1. Factors Affecting China's Agricultural Development 21
1.1 China's Overal Economic Background 21
1.2 Political Factors Promoting the Rapid Development of China's Agriculture 22
1.3 Impact of Urbanization 24
1.4 Agricultural Production Factors 27
1.5 Production Standard of Agricultural Products 29
1.6 China's Agricultural Products Trade 30
2. Outlook of China's Modern Agiruclture Development 31
2.1 Bulk Commodities Will be Increasinly Dependent on Import 31
2.2 The Development of Agricultural Cooperatives Needs More Policy Support 31
2.3 Centralized Land Operation -The Uprising of Large-Scale Agricultural Enterprises and Family Farm Pattern 32
2.4 The Circulation Pattern Is Faced with a Great Reform 32
3. Development of China's Online Shopping Market 33

Part Two: Definition of Fresh Food E-commerce and Analysis of Competition Environment 35

I. Analysis of the Fresh Food E-commerce Patterns 35

1. Definiton of Fresh Food E-commerce and Overview of the Market 35
2. E-commerce Platforms: Represented by Store No.1, JD.com, and Tmall 36
3. Self-Owned Base + Online Stores +Home Delivery: Represented by Tony's Farm and OABC. 37
4. Self-Owned Base + Purchasing +Online Stores + Delivery: Represented by TooToo farm 38
5. Purchasing +Online Stores + Delivery: Represented by SFbest, Benlai.com, Womai.com, Fieldschina.com, and yiguo.com, etc. 39
6. Comprehensive E-commerce under Traditional Supermarkets: Sam's Club and Loogoo.com 39
7. Single Type Professional Business/Business at E-commerce Platform: Fruitday.com 40

II. Analysis of Main Fresh Food E-commerce Representatives 41

1. TooToo farm -“Online Food Supermarket” 41
2 Resourceful Benlai.com 47
3. SFbest—Collecting Best Food of the Globe 55
4. COFCO Womai.com—State-owned E-commerce 60
5. Fieldschina.com—Caught the Stomach of Foreigners 64
6. OABC—Focusing on Organic Food and back to B2C 67

III. Analysis of Competition Environemnt of Fresh Food E-commerce 72

1. Bargaining Power of Suppliers 72
2. Threat from Alternative Channels 73
2.1 Offline Large-Scale Retail Stores 73
2.2 Innovative Fresh Food Supermarket 74
3. Threat from New Entrants 74
3.1 Online Stores Opened by Traditional Supermarket Giants 74
3.2 Online Stores Possiblly Opened by Large-Scale Enterprises Upstream of the Agricultural Industry Chain 75
4. The Bargaining Power of Customers 75
5. Competition in the Industry 75

Part Three: Analysis of the Operation Strategy of Fresh Food E-commerce 77

I. Logic of Fresh Food E-commerce Pattern 77

1. Target Customers and Orientation of Fresh Food E-commerce 77
2. Business Pattern of Fresh Food E-commerce 78
3. Profit Pattern of Fresh Food E-commerce 80

II. Product Structure Management of Fresh Food E-commerce 80

1. Product Type Choice of Fresh Food E-commerce 81
2. Single Commodity Optimizaiton of Fresh Food E-commerce 82
3. Price Strategy of Fresh Food E-commerce 83

III. Supply Chain Management of Fresh Food E-commerce 83

1. Supplier Management of Fresh Food E-commerce 83
2. Warehouse Management of Fresh Food E-commerce 84
3. Logistics Optimization of Fresh Food E-commerce 84

IV. Sales Promotion and Market Activities Management of Fresh Food E-commerce 85

1. Sales Promotion Strategies of Fresh Food E-commerce 85
2. Marketing and Promotion Activities of Fresh Food E-commerce 85
3. Advertising Strategies of Fresh Food E-commerce 85

V. Expansion Management of Fresh Food E-commerce 86

1. Products Line Expansion of Fresh Food E-commerce 86
2. Trans-Regional Expansion of Fresh Food E-commerce 87

Part Four: Risks and Challenges for Fresh Food E-commerce 88

I. Macro-economic Environment 88

1. Riska of Economic Downturn and Tightening of Residents' Shopping Expenses 88
2. Speed of Customers' Shopping Habit for Online Fresh Food Products 88
3. The Policy for the Tranferring of Production Factors such as Land and Foresty Land Is Unclear 88

II. Upstream Links 88

1. Risks of Products Quality Safety 89
2. Risks of Stable Supply of Fresh Agricultural Products 89

III. Internal Controls 89

1. Bottleneck of Fresh Food E-commerce Talents 90
2. Control of Fresh Food E-commerce Internal Workflow 90
3. Risks from the Capital Application and Asset Liquidity of Fresh Food E-commerce 91

IV. Downstream Links 91

1. The Cold Chain Logistics Industry Still Needs Improvement 92
2. Risks from the Logistics and Delivery of Fresh Food E-commerce 92
3. Brand Building and Maintainence of Customers Loyalty of Fresh Food E-commerce 93
4. Risks from the After-Sale Service to Customers of Fresh Food E-commerce 93

V. Increased Competition in the Industry 93

Part Five: Future Development and Investment Opportunities of Fresh Food E-commerce 94

I. Development Trend of Foreign Fresh Food E-commerce 94

1. Inadequate Popularity of Fresh Food E-commerce and the Fierce Competition Online and Offline 94
2. Diversificaiton of Fresh Food E-commerce Platform Business Pattern and Differentiated Operation 94
3. Stable Operation and Slow Expansion of Fresh Food E-commerce 95

II. Analysis of Leading Fresh Food E-commerce Cases in Developed Countries 95

1. Webvan, a B2C Case Which Failed in the Early Stage 95
2. FreshDirect, Which Conducts Stable Operation and Slow Expansion 96
3. Peapod, an Innovative C2B2B Pattern 97
4. Ocado, the “Store No.1” in Britain 97
5. Amazon Fresh: a Trial of an Industry Giant 97
6. Relay Food, a C2B2F Pattern Connecting Farmers and Customers 98
7. Instacart: a New Financing Case of C2B2B Pattern 98

II. Analysis of China's Non-Fresh-Food E-commerce Cases and the Inspiration 99

1. dangdang.com ( E-commerce Platform and Department Store and Bookstore) 100
2. Vipshop.com(Platform for Fashion Shopping andDiscount Flash Purchases) 102

III. Outlook of China's Fresh Food E-commerce Market 104

1. Impact of Capital on the Market Status Quo of China's Fresh Food E-commerce 104
2. Estmate of China's Future Fresh Food E-commerce Market Scale 106
3. Estmate of China's Future Fresh Food E-commerce Profitability 107
4. Analysis and Judgment on the Direction of China's Fresh Food E-commerce Industry Development 110
4.1The Development Speed of China's Fresh Food E-commerce Will Exceed That of Other Countries 110
4.2 Fresh Food E-commerce Will Overthrow the Traditional Theory of “Demand Determining the Supply”. 110
4.3 Form Determines the Content and the Key is its Orientation 110
4.4 Customer Experience Determines the Success of the Fresh Food E-commerce 110

IV. Evaluation of the Investment Opportunities in China's Fresh Food E-commerce Market and Upstream and Downstream Markets 111

1. Reasonable Evaluation of a Fresh Food E-commerce Business 111
2. Investement Opportunities in the Upstream Industry of China's Fresh Food E-commerce ?Front-end Resources? 112
3. Investement Opportunities in the Downstream Industry of China's Fresh Food E-commerce?Distribution of Warehouses and Logistics ? 113
4. Investement Opportunities in China's Fresh Food E-commerce Industry ?Platform Channels? 114
Appendix 115
Fresh Food E-commerce Namelist 115

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