On the wires: JD Logistics plummets – are you watching De Well?
Evolution of the species
Chinese e-commerce giant JD.com has focused on cold chain fresh food deliveries as its next major growth market.
The Fortune 500 company has invested heavily to develop warehousing and distribution networks across China, spurning the traditional third-party delivery model, and is the biggest operator in online direct sales in China, and the second-largest in the world, after Amazon.
“In categories like mobile phones, laptops, baby formula and FMCG, we’re number-one all over China; and now, even though it’s currently a relatively tiny market, we believe we can replicate the success in fresh foods,” said Clark Meng, JD.com’s director of global sourcing, fresh business unit.
According to Mr Meng, cold chain e-commerce is still very new and has tremendous potential, considering only 3% of China’s $2 trillion fresh produce market is generated from online purchases.
Speaking at Cool Logistics Asia in Hong Kong last week, Mr Meng said there were around 5,000 online retailers doing fresh business in China, but that number had fallen from 10,000 within the past couple of years because high last-mile logistics costs were eliminating profit margins.
“Unfortunately, we will see only a small portion being successful in the end. We aren’t making money yet, and actually the average online fresh profit is about minus-35%.”
Mr Meng says the main pain points for cold chain e-commerce are a lack of storage facilities, high execution costs and inefficient quality control which leads to poor customer experience.
Indeed, having previously experienced frequent customer complaints of late deliveries, broken packages and a lack of communication from delivery drivers, JD.com now offers four delivery time slots for fresh foods every day.
Furthermore, the retailer has invested in regional distribution centres, a network of 6,000 small delivery stations and thousands of hi-tech portable coolers. Two pesticide control labs and quality control facilities have been built in Beijing and Guangzhou, with another near Shanghai on the way.
Investing in human resources has been another key strategy, with around half of JD.com’s 113,000 employees working in warehousing and last-mile delivery operations. Delivery drivers use popular mobile messaging app WeChat to communicate directly with customers.
“We pay them well and they are paid bonuses on performance, related to the number of deliveries completed and customer satisfaction,” said Mr Meng.
The investments appear to be paying off.
“We’ve been building up our competitive advantage to make deliveries very fast and, as a result, we’re already saving 10-15% via the investments we’ve made in our warehousing management and last-mile delivery operations.”
Recent successes include selling 10,000 live lobsters imported from Canada, and a campaign which resulted in selling “millions” of live crabs online in one day, after being transported over a distance of 1,251km from source to delivery in Beijing.
“That’s the power of the internet and the capability we have,” added Mr Meng.
Interestingly, he said mobile orders accounted for 80% of fresh purchases, a category which includes frozen and chilled meat, live seafood, fruits, vegetables, juice and ice cream. Fresh food currently accounts for less than 1% of JD.com’s $77bn turnover.