JD's 7Fresh and Yonghui (永辉), both Tencent backed supermarket chains, teamed up and signed CNY 650 million contracts to import fruit such as durian and Mangosteen from Thailand in three years.
Who are they:
Yonghui started as a traditional supermarket in Fujian, an East China province famous for foreign trades, in 2000. Its sub-brands - Yonghui Supermarket (low-to-medium end) and Chao Ji Wu Zhong (超级物种, medium-to-high end) attracted investors' attention. These two subbrands are of smart retail natures, a concept similar to Alibaba's new retail.
7Fresh was founded by JD Group and features borderless retail, also similar to Alibaba's new retail concept.
Both of them are somehow related to Tencent. For example, Tencent has invested CNY 180 million in Yonghui YunChunag (永辉云创), the subsidiary responsible for smart retail business lines; while Tencent's Huang River Investment (黄河投资) take 18% stake in JD.
They are both competitors and alliances, according to iYiou. JD will exchange online traffic and logistic support for Yonghui's offline customers and more-than-15-year offline operating experiences.
Why would they do it:
- Enhancing bargaining power
In Porter's five forces, when buyers are more concentrated and have large volumes of orders, they will have greater bargaining power with suppliers. This will be truer if two large buyers choose to combine.
For each 7fresh stores, there around 3,000 SKUs and around 75% of them are fresh products.
- Improvements in supply chain
Other than getting large in scale, more importantly, 7Fresh and Yonghui will work together on improving the supply chain of fresh fruits.
According to Qian Zhan, a Chinese research institution, for a long time, the supply chain system for fresh fruit and vegetables are lagging. So, there is an inevitable trends for the low-efficiency supply chain to be improved.
- Increase market power
7Fresh and Yonghui working together will not increase its bargaining power, but also increase its competitiveness in the market to compete with those who are backed by Alibaba. In addition, they both have the things that each other needs.
Although 7Fresh only has 30 stores in China and just started, it will receive traffic, operation support and more from JD Group. In short, its key competency might be from JD's traffic and users base.
Yonghui has an extensive offline operation and expansion knowledge can help 7Fresh to exercise its borderless retail ambitions.
- Distinguishing from peers
Different Pinduoduo's approach - rural areas to cities, 7fresh and Yonghui will try to bring relatively premium overseas fruits to the Chinese consumers at reduced costs. Thai fruits also enjoy high popularity among the Chinese consumers, according to the China Chamber of Commerce of Foodstuff and Native Produce, in 2017, Thailand has imported the most fruit to China, taking up about 21% of the total imported fruits.
The market overview
According to a report published by Guotai Junan, a top investment bank in China, the fresh fruit and vegetable market is the last blue ocean in the Chinese e-commerce market. From 2012 to 2016, the market size increased from CNY 4 billion to 95 billion. In 2020, the market has possibilities to reach CNY 600 billion. Thus, this market is critical for e-commerce and traditional retail players.