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Fresh produce is the most important tool to attract Chinese consumers to food stores. Now facing increasing competition from e-commerce, traditional grocery retailers are improving their fresh produce offerings in order to differentiate from e-tailers.
Walmart China swore to ensure the safety of fresh vegetables and fruit in late 2014. Usually, fresh produce is provided and delivered directly to stores by suppliers because of the vast area of the country, challenging logistics and retailers’ lack of qualified fresh produce distribution centres. Therefore, it was difficult to control the quality.
But Walmart was determined and started to build its own fresh produce DCs across the China. By the end of 2014, the retailer had 9 DCs for dry goods and 11 DCs for fresh produce, enabling Walmart to distribute 80% of dry goods and 50% of fresh produce to its stores. It is estimated that Walmart spent USD10-15 million on building each DC for fresh produce.
With the new DCs, Walmart is able to purchase vegetables and fruit directly from top tier suppliers and it has paid off. For example, Walmart China is procuring apples from US directly and its sales of imported apples have doubled in this January compared to last January. And the retailer is able to keep the price at only CNY19.8 (EUR2.8) per kilo, very competitive to local apples.
As Chinese consumers’ incomes continue to rise, we have seen their demand surging for quality food, especially in imports. And now many retailers are upgrading their supply chain, making it possible for distributing fresh vegetables and fruit efficiently. It has posed a great opportunity to foreign vegetable and fruit manufacturers/exporters. Instead of reaching different distributors in different regions, they can now work with such retailers directly and see their products on shelf all over the country at reasonable prices.
It will work similarly with other groceries such as wine, beer, dairy products, fruit and etc. In fact, retailers in China are actively looking for such interesting products to attract traffic. However, we should not be over-optimistic. It might work in big cities but logistics conditions especially in small cities still pose a great challenge to efficiency.