With the Chilean cherry season now underway, one of the leading e-commerce fruit importers in its biggest market, China, has warned exporters to avoid over-reliance on wholesale markets in first-tier cities.
Fruitday co-founder Loren Zhao told Fresh Fruit Portal that doing so leads to heavy concentrations of volume and affects the market.
"This causes an imbalance in supply and demand, resulting in a heavy concentration of volume in a short window," he said. "Wholesale markets in second and third-tier cities usually too are unable to achieve stability in direct sourcing."
Zhao believes that Chilean cherries have a bright future in China, but he says that some challenges remain.
"As China's level of consumption rises, more and more consumers have started trying Chilean cherries, but the challenge lies in the fact that most of the Chilean cherries right now are still coming into China via the traditional first-tier wholesale markets," says Zhao.
"During peak periods in past years, there have even been over 400 containers arriving at Guangzhou's Jiangnan wholesale market on the same day.
"As most Chilean cherry exporters use the consignment method to sell cherries, this has caused enormous pressure on the price of cherries, and usually causes both the exporters and producers to lose out."
To improve the situation, Zhao and his team have recently created a new FreshBridge this year, as one of Fruitday's internal incubation projects that will be involved in the 'upstream' of supplies.
"The aim of FreshBridge is to empower small and medium-sized fruit retailers, especially in second to fourth-tier cities, to help them and the Chilean cherry industry have smoother sales," says Zhao, who noted that Fruitday has accumulated a decade of experience in China, including in storage and logistics, as well as in-depth collaborations with many renowned fruit-brands.
"Our supply chain has a huge advantage in this industry. In these 10 years, our operations have also involved production, packaging, importing and distribution," he said.
"Hence we decided to amplify the advantage of our supply chain end, not only limiting operations to our own retail ecosystem, but also providing services to other partners in the industry, including e-commerce players, WeChat merchants, retailers, convenience stores, chain supermarkets, and restaurants etcetera."
China's internal challenges
As one of China's most successful fruit retailers, and one who was awarded the Produce Business TrailBlazer Award at this year's Amsterdam Produce Summit, Zhao also shares with us his views on China's cherry industry.
"Currently, demand for cherries by Chinese businesses is mainly limited to sourcing via wholesale market channels. However, from the perspective of price and quality, many small and medium-sized retail businesses cannot achieve security, resulting in the inability to do sales planing in the middle to long-term - with many being able to proceed only according to the situation of the wholesale market," says Zhao.
"Secondly, in terms of varieties, brands, and marketing, their messages are not consistent, which means they are unable to provide their end consumers enough communication support."
"Thirdly, concerning product packaging, they still use bulk or original packaging for sale of cherries, being unable to provide more standardized packaging and added value."
However, Zhao believes that the root of the problem lies deeper.
"Many years of doing wholesale and consignments have lowered the motivation of the Chinese industry to develop the market further," says Zhao.
"Moreover, traditional wholesalers often do not have the foundation and concept of service and rely more on the storage of wholesale markets for rapid turnovers. After the rise of e-commerce, some traditional wholesalers seized the opportunity to transform their services. However, for now, they only cover first-tier cities and some second-tier cities."
"Chinese domestic fruit players need to learn more from the FMCG [Fast-Moving Consumer Goods] industry on distribution and marketing."
Plans for this season
Speaking on the plans for this season, Zhao said that Fruitday will continue doing what it has done well in the past years.
"Regarding retail, cherries have always been one of our key sale categories. We will continue to maintain the previous sales momentum, while combining online and offline, hoping that there will be more growth," says Zhao.
"And because of the special nature of Chilean cherries with consignments being the mainstream method of sales, we have always maintained a cautious direct sourcing model - which means fixed prices - coupled with joint sourcing with Chinese domestic distributors."
He added: "We will also continue to work with ASOEX [Chile's Fruit Exporters' Association] in the market, and look forward to a better sales record."
However, Zhao clarified that FreshBridge will not solely be for the benefit of Fruitday.
"Different from the supply chain platforms of other e-commerce companies, we do not want to associate FreshBridge completely with our parent company," reveals Zhao.
"The original intention of setting up FreshBridge was to explore more market needs outside of its own channel, and not to become an internal arm [of Fruitday]. At present, Fruitday only accounts for 30% of the share of FreshBridge's sales, and this proportion will be further reduced in the future."
Predictions for the future
Zhao also believed that the pace of change in the Chinese cherry market would be even quickly over the coming years than it has been over the last few years.
"I believe that in the past 10 years, the fruit import situation has greatly changed, driven by e-commerce and new retail. With the exponential development of technology, in the next five to 10 years, I believe that the industry will experience a faster change than the past 10 years," says Zhao.
He named three areas in which he believed there would be significant changes in the future.
"Firstly, with the improvement of preservation technology, variety cultivation and logistics ecosystems, the shelf life and supply period of cherries will be greatly extended - cherries will change from being a seasonal product to one supplied almost the entire year," he said.
"Secondly, the consignment sales model will disappear, direct supply and fixed prices will become the mainstream. Traditional wholesalers will also gradually cease to exist, and new distribution network channels will replace even wholesale markets,"
"Thirdly, due to the advantage of the retail channels, more retailers may have custom brands. Some small and medium-sized brands will also choose the OEM model and work directly with retailers.
"The profits of different parts in the cherry imports process will tend to stabilize, with intermediary links being reduced. The emergence of service providers will also bring more profits to exporters and retailers."