The rise and rise of online grocery shopping

China's internet giants are battling for a slice of the projected trillion-dollar market.

My mom visited me in Shanghai this past week. While I’m always happy to have her around, she was quite preoccupied this time, with her bombarded by successive messages. Turns out most of them were from her grocery group team leader in her compound back in Chengdu, my hometown, sharing the deals on offer and taking orders for the next day.

The messages went something like these:

"Fresh ribs are 30 yuan per 500g, for today only."

"Big (200g) hairy crab is for sale at only 30 yuan each, don't miss it."

“30% off fresh green vegetables today, lowest price guaranteed.”

For those who are scratching their heads over what a “grocery group team leader” is, it has got to be the hottest gig-economy job in China right now.

Essentially, you can sign up with one of the big online grocery platforms and earn a commission for getting others to place orders for groceries with you. Part salesperson, part distributor, the team leader is also the point person for receiving the orders from the delivery crew and informing the group to pick up their orders.

Like most people her age, my mom has shopped for her groceries at wet markets and supermarkets for much of her entire life. I was surprised by how quickly she adopted and enjoyed using different apps and social media groups to do her grocery shopping. It certainly challenged my presumption that older adults would be more resistant to embracing new trends, and consequently, how fast this business could scale.

She was enjoying the same sort of interaction with her friends and neighbors through grocery shopping online as she would bump into them at the market. And the prices were fantastic and very competitive versus the physical markets.

Grocery shopping may not be as sexy as selling branded handbags, but it touches way more people and serves a basic need. It is also one that is marked by low e-commerce penetration, partly out of habit (people in China like their food fresh) and partly because e-commerce is not that great yet at delivering fresh produce like leafy greens (just think of bak choy wilting in the parcel on its third day on the road to the frying wok).

Goldman Sachs thinks online grocery retail could be a $1 trillion market in five years, as the penetration rate for agricultural produce is only less than 10%, compared to 40%-50% for apparel and electronics.

So, how does it work?

There are several models being tested in the market right now by different companies.

There’s the group leader model exemplified by my mom. For companies like Pinduoduo, which has made a big push into the business, users can also place their orders via mini-program or the main app without the need to go through a group leader.

After the orders are placed, they are fulfilled overnight, and available for pick-up at designated points nearby. This could be the home of the group leaders, or the corner store. The last-mile delivery is the most expensive leg of e-commerce logistics, the pick-up model essentially aggregates multiple deliveries into one delivery, lowering costs and making it worthwhile to buy lower-priced items. (Ever demurred from buying something because the cost of delivery exceeded the value of the item?)

Or as Turner Novak, a venture capitalist and newsletter writer, put it:

Turner Novak @TurnerNovak

A pick-up ecommerce model pools multiple last mile delivery legs into one trip. 20 orders becomes just one delivery. This lowers logistics costs significantly, which unlocks ecommerce for lower priced products, new behaviors, and makes it more accessible for low income consumers

The online community group buying model began to emerge back in 2014-2016. In Changsha, Wuhan and other regions, there were some "group leaders" selling goods in WeChat groups and QQ groups.

After two years of rapid growth, in 2018, community group buying attracted the investors and their capital. A group of community group buying companies such as Linlinyi, Squirrel Pinpin, and Shihuituan received investments from VC firms like Sequoia Capital China, IDG Capital, and Zhen Fund. However, the industry experienced some challenging times when many grocery shopping ventures went bust in 2019.

Today, the players in the field include Chengxin youxuan, Shixianghui, and many others.

According to Goldman Sachs, the resurgence of online grocery shopping this year was mainly driven by:

1. Covid-19 entrenching shopping habits;

2. Lower fulfillment costs due to better logistics infrastructure; and

3. Better service and packaging

So, the trillion-dollar question is: Is online grocery group buying a flash-in-a-pan like a bicycle sharing at its peak or a long-term sustainable model? And further out, would it take off like livestreaming e-commerce and be replicated elsewhere?

The jury’s still out. In the meantime, I’m watching what my mom does…closely.