Fears of Tainted Food Push More Chinese to Shop Online

By DOMINIQUE PATTON | REUTERS

Published: August 12, 2013

BEIJING — Chinese consumers are responding to a powerful new marketing tactic that plays to a widespread fear of food contamination: the promise of safe groceries sold online.

With pledges to supply produce directly from the farm, vendors have found that food is becoming one of the fastest-growing segments of Internet retailing. They are benefiting from scares about products like cadmium-tainted rice and recycled cooking oil.

The trend is adding momentum to a Chinese online retail boom driven by a rapidly expanding middle class, with companies like Cofco, one of China’s top food processors and traders, and S.F. Express, a leading shipping company, betting that a segment of a population of 1.3 billion will pay for the peace of mind they say their services offer.

“I think people are willing to pay a higher premium than in the West. In other markets, like the U.K., food e-commerce is about convenience. Here, there’s going to be a higher quality and safety premium,” said Chen Yougang, a partner in Shanghai at the consulting firm McKinsey & Co.

But convincing some skeptical Chinese consumers about food quality will remain a battle. Zhang Lei, a mother of one who lives in Shanghai, expressed doubts about some products being touted as organic.

“Everyone knows that in China, organic is not the real thing,” Ms. Zhang said.

Nonetheless, total online sales of fresh produce in China could rocket to 40 billion renminbi, or $6.5 billion, in five years, from about 11.5 billion renminbi in sales this year, said Zhou Wen Quan, a senior analyst at the Beijing Orient Agribusiness Consultant firm.

The research firm Euromonitor International has more modest expectations, but still sees growth comfortably beating major overseas markets. It looks at volume rather than the value of online purchases of fresh food, with the Chinese market expected to grow about 8 percent by 2017, from 660 million tons this year. In comparison, the U.S. market is expected to grow about 5 percent, from 75 million tons.

So far, most food sold on China’s largest online shopping sites, like Yihaodian — majority-owned by Wal-Mart Stores Inc. — and Jingdong Mall, has been packaged items or fruit with a relatively long shelf-life.

But new businesses are focusing on fresh and premium produce, using the Internet to focus on higher-income consumers. Supermarkets typically serve a broader customer base, analysts say.

“The vegetables are really fresh,” said a Beijing resident, Lei Na, who had shopped on Web sites like Womai.com, owned by Cofco. “Supermarket food doesn’t look that fresh, especially if you only get there in the evening.”

The S.F. Express group introduced a program last year that offers a range of food to about 500,000 consumers. About 70 percent of the food is imported products like wine and milk powder, but the company also sells local seafood, meat and vegetables.

“We go directly to the farms to pick the produce, and then using our own logistics, deliver straight to the consumer,” said Yang Jun, director of sales and marketing at S.F. Express. “So from the tree to the consumer’s dining table, we’ll remove all the sectors in between.”

Convincing customers they can meet promises on food safety is crucial for online retailers.

“If I’m busy I use Web sites. But if I have time, I prefer to drive to the supermarket and choose vegetables myself,” said Ms. Zhang in Shanghai.

But vendors say cutting out middlemen increases freshness and makes food more traceable, while packaging barcodes that can be read by smartphones help consumers verify the origins of items.

And online retailers go to some lengths to describe their products on their Web sites. Customers looking at free-range chickens on the Benlai Shenghuo Web site — a 2012 start-up whose name roughly translates as “original life” — can get details on the breed they are selecting and its diet, along with photographs of the birds wandering on farms.

Online customer reviews and ratings are also important in convincing buyers of quality, said Chen Liang, a senior research expert at Alibaba, the company that owns one of China’s largest online marketplaces, Taobao. With 10 million users per minute, Taobao has ridden the e-commerce boom in China, with customers moving from nonessential items, like books and electronics, to clothes and recently food. Its sales of meat, seafood, fruit and vegetables grew 42 percent last year to nearly 1.3 billion renminbi.

“Before, people thought the Internet wasn’t suitable for selling clothes. But now it’s the most suitable channel. I think food will follow this trend,” Mr. Chen said.

Another major challenge facing e-commerce food companies is the cost of developing nationwide cold chain logistics, with Mr. Chen of McKinsey suggesting that industry players should work together to connect suppliers with a network of cold-storage facilities.

But with the many recent food scandals in China — products from the New Zealand dairy exporter Fonterra have just been recalled from Chinese shelves — companies are confident they can overcome hurdles in the market.

“During the bird flu outbreak, our chicken sales exploded,” said Steve Liang, founder and chief executive of the Shanghai-based online retailer Fields, referring to a new strain of the virus discovered in February that killed more than 40 people in China and Taiwan.