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Food retailers must face up to online in China

By Richard Whitehead , 06-Nov-2012

Food retailers must face up to online in China

According to China’s National Bureau of Statics, consumer goods sales between January and September this year totalled $2.4 trillion—an increase of 14.1% over the same period in 2011.   

And with dietary supplements and other natural health products coming under the banner of consumer goods, these products are also seeing significant growth through online channels, according to Jeff Crowther, executive director of the US-China Health Products Association (USCHPA), which is based in Beijing.   

Variety of reasons

This sales channel has grown rapidly over the last five years and is proving to be the preferred destination for many foreign dietary supplement brands,” said Crowther. “Just two years ago it was not easy to find foreign dietary supplements on Chinese sites, but now it is quite easy. 

E-commerce just makes sense for China for a couple of reasons. First is price; Internet prices are usually less than their brick and mortar counterparts. The second reason is the simple fact that the overcrowded Tier-I cities like Beijing and Shanghai take hours to navigate what would take minutes in other cities.”  

For those living outside the tier one cities of China, Crowther says that product selections at local shopping centres can be limited, especially if you are looking to purchase an imported or luxury item.  

For those doing business in China, I’m sure you’re already online. If not, what are you waiting for? You’re losing business.” 

Knocking at America’s door

Boston Consulting predicts that even by 2015, China will have surpassed the US to become the largest e-commerce market in the world, reaching more than RMB2tn in online retail sales. By then Chinese web consumers will spend on average $1,000 per year online, which is roughly the same as is being spent by America’s 170m online shoppers. 

The Ministry of Commerce recently reported that food sales were among the three biggest online segments, alongside apparel and jewellery. And, as is the case in America, web sales in China are growing at a much faster rate than sales in physical stores.

As the number of Chinese Internet users surges, investment opportunities in the online-to-offline sector are being pursued by angel and venture-capital investors. 

Time to go O2O

O2O, also called offline e‐commerce, means netizens and mobile Internet users are able to see discounts and service booking information from stores on websites that encourage them to visit real rather than virtual outlets. 

A Bain & Company  survey recently found that China’s  e‐commerce  ecosystem—including  sourcing, payment and delivery—has developed to the point where retailers can quickly build and grow their own e-commerce sites. By leveraging their brick‐and‐mortar  stores and other offline resources, these retailers will create a threat to online‐only players. 

O2O investment has great potential,”  said  Wang  Xiao,  founder  of  Unity  Ventures  and  a  former  senior executive at Baidu.

According  to  Wang,  O2O  business  provides  dealers  with  free  online  stores,  more  clients  and  orders,  as well as marketing. Customers find it more convenient and have more choices and can see comments left by other customers.

The USCHPA has included a number of research articles in its current newsletter. To sign up, visit the association’s web site.

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