From the pages of Jim Prevor’s Perishable Pundit
In preparation for The Amsterdam Produce Summit — whose conference is titled this year: Retail Strategies: Seizing Success in the Omni-Channel Future — we have gathered thought and practice leaders from around the world.
You can see some of the incredible content this unique event, merging digital with produce, will offer by reviewing these “sneak preview” pieces we have done with speakers from some of the most “cutting-edge” omni-channel practitioners and observers:
WALMART (Rand Waddoups)
RETAILDETAIL (Jorg Snoeck)
KANTAR WORLDPANEL (Stephane Roger)
CORNELL UNIVERSITY (Miguel Gomez)
FRESH PRODUCE MARKETING (Lisa Cork)
MARKON COOPERATIVE (Tim York)
However, one simply cannot discuss the intersection of the produce business and omni-channel without talking about China. We are fortunate to have a superstar entrepreneur from China to guide us in understanding and learning from his Chinese experience.
Loren has served on several of our Thought-Leader panels, including these:
And he also gave a dynamite presentation at this year’s Global Cherry Summit:
He is, without a doubt, the single most important person in China when it comes to the intersection of produce and the omni-channel future. We are honored and grateful that he is traveling so far to share his knowledge and engage with us in Amsterdam.
We asked Pundit Investigator and Special Projects Editor Mira Slott to find out what he has in store for us at the event:
Fruitday Co., Ltd., Shanghai
Q: For perspective, and on a personal note, could you talk about your background and what triggered you to launch Fruitday?
A: Before founding Fruitday, I worked in China’s telecommunications market, after graduating in Telecom Engineering from Shanghai University in 2001. For five years, I worked at Alcatel Shanghai Bell and SVA Intrusion, and then as an industry analyst at iSuppli Research, covering the segment of mobile networks, broadband, optical equipment, etc.
I started Fruitday.com, one of the first fresh fruit e-commerce companies in China in 2009, with my partner and classmate in college, Eric Wang. There are several reasons we wanted to start Fruitday:
2. We saw the customers, especially the young generation, accept the way to purchase online, thanks to Alibaba, Amazon, dangling, JD, and new eggs.
3. There was still a lot of challenges to sell and deliver fresh fruit; no existing competitor in the market meant we had huge potential.
4. The trend of the China market for premium fruit and for healthier and safer foods.
Q: What was happening in retail in China at the time, and the unique proposition you set out to create with Fruitday? How has that proposition evolved?
A: Back to 2009, most fruit was sold through traditional channels. From the importers to end customers, there were too many middlemen, and fruit loss. And the end customer didn’t know what the fruit was and where the fruit came from. Then we decided to work with fruit exporters and associations so that we could provide not just the fruit, but also the knowledge.
Q: Could you offer context of how the retail market has transformed in China since you launched Fruitday and why?
A: The retail market changed from traditional offline stores to online e-commerce. Then the new trend is omni channels, or O2O, also known as online-to-offline or offline-to-online. In 2017, the trend is all over China called New Retail.
The age of New Retail in China is coming because of all the key aspects including mobile payment, social networks and the emerging technologies of the post-90s. These factors worked together and changed the China retail scenario.
Q: How is Fruitday positioned to capitalize on all these changes?
A: We started to go offline four years ago with our O2O, and we purchased City Shop two years ago. We realized the future will be both online and offline many years ago.
Q: Could you tell us more about City Shop, and how you integrate your offline and online business. Do these operations work in tandem? Do the same customers shop both online and offline?
A: We invested in City Shop in 2017 and merged it with this Fruitday business this year. City Shop has 15 stores in Shanghai and Beijing, with products not only fresh produce but also other foods, beverages and meat. City Shop also provides an in-store dining service. Our in-store kitchen can help customers cook and eat their food in the City Shop. Because we provide different SKUs online and offline, the customers are also different from online to offline.
In the future, we will merge the City Shop online apps with Fruitday apps. And the customers can purchase and get everything from City Shop delivered to their homes. We will keep optimizing the online and offline operations, and customers can get similar service experience.
Q: Does having online and offline operations increase customer sales and loyalties? If so, how? Does this strategy strengthen and/or broaden your customer base?
A: We can tell the business can benefit for the growth of both online and offline business. In the future, more customers will be attracted to both offline to online shopping.
Q: Who is your target customer, and is that customer changing or expanding?
A: Fruitday has been expanding our products since three years ago, and we also have broadened our target customer from fruit lovers to family customers who cook and eat at home. These are the same target customers City Shop has had over the past 15 years in China.
Q: Do you carry the same items online as you do in brick-and-mortar stores? Why or why not? Does the selection vary between online and offline? If so, in what ways? Does the packaging and design and branding change between online and offline? If so, how?
A: The items are not the same between online and offline right now. Some items are suited for offline, and some customers will go to the store for these items. We put fresh fruit and other fresh produce both online and offline. The rest of our food items will be offline, and they also can be delivered from store (brick-and-mortar mode). In the future, our target is to keep the same items for both online and offline.
Q: For overall context, could you describe the competitive retail environment you’re facing? Who do you see as your greatest competitors and why?
Q: Fruitday reportedly is the largest fresh produce e-commerce platform in China in sales revenue terms. How many millions of users does Fruitday serve? What is the scope of Fruitday customers, and in what locations in China are shoppers concentrated? Where are the biggest growth opportunities?
A: Fruitday is ranked Number 1 in China fruit e-commerce in terms of sales revenue, through rapid expansion. In 2014, Fruitday reached RMB 500 million [$71.8 million] sales revenue with more than 150 percent growth from 2013. Our main products are high quality imported fresh fruits including cherries, oranges, apples, and kiwifruits.
In terms of customer base, we are not the leading ones in China. Alibaba and JD have a stronger customer base than us. Fruitday as e-commerce is part of JD group business, but we still operate independently. We have 15 million registered customers now in China. Most of them are located in Tier-1 cities Shanghai and Beijing.
Q: What is your distribution network?
A: Fruitday now operates six distribution centers in Shanghai, Beijing, Guangzhou, Shenzhen, Chengdu and Hangzhou. Our home fresh delivery service covers more than 300 cities across China, with more than 5 million members, and we promise to deliver within two days of customers’ orders.
Our next step is expanding to Tier-2 and Tier-3 areas by supply chain business first. We select the popular items from Fruitday to introduce to T2- T3 areas.
Q: Is there potential for new partnerships in this New Retail environment that FruitDay is looking to build?
A: Yes. We keep looking for partners in the market. For example, convenience stores, cafe shops, juice bars and social network. Our new supply chain business is trying to support them and to provide fresh products in their existing channels.
Q: Could you elaborate on how these partnerships work?
A: We set up a new supply chain company to focus on the service to these new channels. From the beginning, we just sell the products and provide delivery service to the businesses, which we called B2B to separate from existing B2C business.
Q: Could you tell us more about your new supply chain business and how you are supporting these partners to provide fresh products in their existing channels?
A: The supply chain company plays three roles:
1.Supply Fruitday and JD.com and other retailer customers.
2. Supply to HoReCa foodservice customers — hotels, restaurants, juice bars, etc.
3. Exploring new B2B online platform from T1 cities to T2-T4 cities.
4. We provide supply chain service for both suppliers and customers, including repack, ripening, logistics, and marketing.
Q: Can we delve deeper into these different areas?
A: On the supply chain side, we started our own brand years ago. We also launched a fresh-cut product line. And we work with our overseas suppliers to help them to repack and market in China market. Our new ripening system will be ready too.
Q: Could you talk in more detail about why you started your own brand? How is it positioned within your product offering and how is your own brand evolving? How important is your own brand to your overall offering?
A: The initiative for our own brand tries to optimize the China domestic fruit industry by introducing the technology and standards. That’s why we have our first brand called Mr. Cheng for China domestic citrus. We started the brand by setting up a leading pack house with Compac sort machine.
The most differential of the brand is we put the Brix number on the label. So, every orange has its own Brix level on the label. In this year, we keep working closely with the growers for high Brix oranges. And we will be expanding the product to Mandarins next year.
The own brand strategy will play an important role in our future supply chain business. We hope to attract more growers together to join our own brand project and generate more sales with our B2B platform.
Q: In a broader sense, what role does branding play in this New Retail world? Could you talk about the intersection of brands and private label and how that is evolving in China, and does this differ compared to the U.S., UK, Europe, other areas of the world, etc.?
A: The brand will work more closely with the internet and the social network. We will not just put our brands on the wholesale market in Shanghai and Guangzhou market. The brand is targeted to sell directly to retailers and new channels, such as convenience stores, cafe shops and juice bars.
Q: Could you tell us more about your fresh-cut product line. What is involved in producing that? And also, could you elaborate on how you work with overseas suppliers to help them repack and market in the China market. Are there some unique requirements involved? How does Fruitday’s expertise come into play?
A: We are trying the prototype with our partner for fresh-cut now. The first commercial will be in early 2019 with special channels.
For most of the overseas brands in China, they want to get closer to retailers and end customers. The existing wholesale system cannot provide them the service to work directly with the retailers. Repack is the basic service for helping them to evolve more in the China market.
The reason our suppliers want to work with us is:
1. We are the first e-commerce fruit retailer in China so that we already have all the know-how to repack and deliver to end customers.
2. We are good at marketing in new channels and social network, and in the current China market, social network is connected with sales closer than ever.
3. We have the capability to T-2 and T-3 cities, where we believe will be the next growth potential for the China fruit market.
Q: Could you give some examples of particular repacking and marketing that you do?
A: We are still trying it with our suppliers.
Q: OK. Could you tell us more about your new ripening system and what advantages that will provide? Will you be doing any special marketing on this program for consumers?
A: We set up a new ripening facility in Shanghai in order to ripen avocados, bananas and mangos. We have a special brand for our avocados. And also, we will launch our special sense-label technology on our own ready-to-eat avocados.
Q: Could you tell us more about what’s involved in servicing end retailers. How important and complex are these services to the end retailers?
A: The suppliers are not just providing fresh produce, but also need to provide service to the end retailers. The service to end retailers is very complicated. The reason is the retailers in China are price-sensitive and strict with the quality.
For most of the small retailers, they don’t have data systems to manage their storage and customers. This makes it difficult for them to compete with e-commerce and chain stores. We focus on two major parts from the beginning: 1) Information systems, and 2) standard products with stable quality and price.
Q: Could you elaborate on the role of data, and data-sharing in omni-channel integration? What kind of data are you referring to? Why is this so important? How challenging is it to get people to share data?
A: Data will play one of the most important roles in future omni-channel integration. We keep upgrading our IT system to keep up with the change and demand for data information. We still need to improve our system to integrate our omni-channel system. We will focus on the storage, logistic and customer information platform.
Q: Fruitday has amassed a great amount of insight and data in its 10 years of online sales experience in terms of understanding where the market is headed… How are you capitalizing on this knowledge to branch out to Tier-2 and Tier-3 cities in China? Could you talk about your new B2B plan to cover these areas?
A: The main purpose is to connect the retailers in T-2 to T-4 cities with overseas and domestic growers and exporters, so that they can have the capability to serve their customers, where their customers are located in far areas that traditional e-commerce cannot cover.
Q: Have you been able to penetrate these more remote areas? Do you have any results you can share?
A: We are working with more than 2,000 stores right now. We hope the number will be 10,000 by the end of 2019.
We have a Mid-autumn Festival promotion working with Zespribrand this year. We are happy to find out the T-3 and T-4 cities have strong purchase power for the premium products like Zespri Kiwifruit. We are confident about the strong potential demand from these areas for premium fruit from domestic and overseas.
Q: Could you provide perspective on the amount of people who can be reached in these new areas, and the sales potential?
A: We wish we could cover 10,000 stores and 1,000,000 customers in T-2 and T-3 areas. We estimate it will be a 100 billion RMB [$14.4 billion] market.
Q: That’s incredible…What are the biggest obstacles in capturing Tier-2 and Tier-3 cities in China?
A: We need to keep close communication with our customers, the retailers, to understand their demands. So, it’s not just an internet business; we also need strong sales teams in that area.
Q: Could you talk about the logistics side, issues particular to dealing with fresh produce…delivery challenges, supply chain upgrades with New Retail, etc.? What advice do you have for produce suppliers interested in developing business in China?
A: The China fruit market is changing from a wholesale market to a retailer market, which means there are opportunities for all the brands and exporters to gain their position in this next stage in China. The existing famous brands also need to keep the pace of the changing market and the young generations.
Another opportunity lies in China T-2 and T-3 markets; there will be the next growth point.
Q: What are your projections for the future of fresh produce in this New Retail environment?
A: In the past ten years, the China retail market has witnessed a huge change, due to the growing sophistication of consumers and technology and through the support of funding. In the future, New Retail will keep embracing the internet technologies.
The leading players will keep investing and purchasing midsize retailers.
In China, the domestic retailers will dominate the market, and the foreign players will likely sell their business and quit the China market.
The New Retail means there will be no limit for retail. Customers have more choice to purchase from online, offline, mobile phone, smart home gears, and all kinds of vending terminals.
Q: Where do you see Fruitday positioned in this dynamic, yet cut-throat environment?
A: Our long-term partnerships with our suppliers and customers will help us to keep competitive in the New Retail Age. At the same time, one of the biggest challenges and opportunities hinges on how to get new customers and especially younger generations to insure future growth.
We greatly appreciate the willingness of Loren Zhao and Fruitday to engage with the produce industry as the trade wrestles with its place in the omni-channel future.
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