Chatting up grocery from the mainland

Pan Yajun, founder of Yanong Eco-Agriculture Company. (PHOTO PROVIDED TO CHINA DAILY)

“The fruits and vegetables you’ve ordered will arrive in 10 minutes.” 

Nancy Cao rushed out of the apartment as soon as the message popped up on her cellphone. She was told to wait near at the community gate to pick them up. A truck pulled up some five minutes later and the driver emerged to take out the fruit package. Cao checked the name tag to confirm it was hers.  

It’s a weekly routine for Cao. She orders meat, vegetables, fruits and, sometimes, flowers through ad-hoc chat groups on messaging app WeChat once a week and picks them up herself.  

When the 24-year-old was confined to her home by the COVID-19 pandemic in February, she started relying on food delivery services. But her expenses on food soon grew. 

To kill boredom and keep her budget down as much as possible, she decided to try her hand in the kitchen when she had to work from home again after Hong Kong’s third wave of COVID-19 infections erupted in July. For fear of getting infected, Cao chose to shop at supermarkets instead of wet markets. However, the grocery items there are relatively limited. 

On friends’ suggestion, she turned to a cross-boundary online food delivery platform that ships fresh produce to the city from the Chinese mainland. 

“The platform offers a wider range of fruits, vegetables and all kinds of ready-made food at prices comparatively lower than those in supermarkets. Sometimes, it even provides food product from my hometown, giving me a lot of comfort in such an environment,” said Cao, who hails from Zhejiang province.

The demand for food delivery services has gone through the roof in the past few months, as Hong Kong enforced its toughest social distancing measures to halt the spread of the virus.

“The number of our customers has tripled to above 30,000, compared with early this year,” said Pan Yajun, founder of Yanong Eco-Agriculture Company, a cross-boundary food delivery service provider.

Founded in 2013, Shenzhen-based Yanong was initially set up sourcing high-quality fresh produce for Shenzhen consumers, similar to the farm-to-table concept. In 2018, Hong Kong customers suggested that the company tap into the special administrative region market.

According to Pan, Shenzhen and Hong Kong customers used to make up about half of their clientele. As the pandemic continues to linger in Hong Kong, about 70 percent of the orders now come from Hong Kong residents, most of whom are mainland people studying or working in the SAR.

As logistics services in Hong Kong are expensive, Yanong decided to operate on a community-based group purchasing model. Consumers won’t have to pay an additional delivery fee if the total value of orders placed by a community exceeds the minimum order requirement. After the pandemic broke out, the company has exempted both the minimum order requirement and delivery fee.

Teaming up with a Hong Kong logistics company, Yanong delivers products to nearly 170 communities in the city once a week Mondays to Thursdays. It covers districts in the northern New Territories, as well as Stanley on southern Hong Kong Island. 

Pan manages his clients through WeChat groups — one group for each community so that he and his colleagues could deal with any problem timely and communicate directly with customers.

The company’s warehouse in Shenzhen is in full swing every day, packing, loading, preparing and delivering client’s orders. Yanong has been delivering products weighing more than 5,000 kilograms to Hong Kong daily recently, compared with just 1,000 kilograms before the pandemic. 

The unique business model allows the company to enjoy a higher user stickiness due to group purchases while customers tend to live close to each other or are friends. Thus, the platform builds up its brand by word of mouth.

The rising demand for the service has lured many new players to the sector. Pan said there’re currently some 100 platforms offering similar services. 

Uncertain prospects

Although market competition has intensified, industry pundits say the trend of making cross-boundary group purchases is unlikely to be sustained.

“Whether the products are from Hong Kong or the mainland, I think there’s still a barrier to buying fresh produce online generally,” said Steven Kwok, associate partner at OC&C Strategy Consultants.

“Consumers value freshness when they shop for fresh produce. Most of them like to see and touch the products physically at offline stores, and prefer to buy and consume them the same day,” he explained, pointing out that cross-boundary delivery cannot meet these requirements.

For Cao, as a regular user of online grocery delivery services, online purchasing is just temporary. 

“I think people will switch back to wet markets as soon as the pandemic is over. Buying groceries online is more like a way to cope with the virus outbreak. But I’ll still check the products sold on these platforms from time to time in the future,” she said.

Many Hong Kong platforms have also rolled out similar fresh produce or grocery delivery services. Besides some e-commerce platforms such as Wellcome and HKTVmall, Foodpanda has launched its instant grocery delivery service platform Pandamart, expanding its services from delivering restaurant food to groceries and daily necessities. 

Partnering with 1,000 retailers and selling more than 14,000 items, Foodpanda tries to utilize its existing delivery fleet to meet greater customer demand. 

Before Pandamart, Singapore-based grocery delivery firm Honestbee had tried to tap the market, but decided last year to halt its Hong Kong services as part of an ongoing strategic review. Honestbee was forced to lay off about 80 percent of its staff in Singapore this year when the pandemic struck.

“In most cases, pure-play grocery delivery is a challenging business model for any market,” said Kwok. He reckoned it’s a difficult business due to the easy perishability of the goods and the significant logistical requirements, which weigh heavily on profit margins.

“The players need to care a lot about the speed of delivery and packaging. They also have to develop a cold-chain logistics system for meat delivery and ensure that vegetables won’t crack along the way. The high labor cost is unworthy when they ship heavy but low-value items like water and beverage,” said Kwok.

Even for some e-commerce giants such as Alibaba, online grocery delivery would be their last business proposition, he added.

The pandemic may have opened up big business opportunities for e-commerce and social platforms, but keeping users in the long term may prove to be a bigger challenge.

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