Fruitday Turned American Cherries into a Hit. Can It Survive the Fresh-Food E-Commerce War? | Founders Speak

Wang Wei founded Fruitday to "change the fruit business the way books and clothing were changed." Now that it has moved into O2O, he seems to have come full circle, back to where he started.

Few people set out to "change the fruit business the way books and clothing were changed." Wang Wei's story sounds like an inspirational tale.

In the early years his family sold fruit on Wuning Road in Shanghai, like the fruit stalls found on streets all over the city. Wang Wei grew up around fruit and helped his parents mind the business during school holidays. The family stayed in the fruit trade for more than 30 years, moving from a street stall to a specialty fruit shop and then into supermarkets and hypermarkets. Wang Wei lived through each of these changes in how fruit is sold and watched imported fruit win more and more buyers. Along the way, of course, he grew fond of fruit.

He also watched e-commerce take off in China, grow explosively and hit offline retail hard. That gave him the idea of changing fruit, a traditional business, the way books and clothing had been changed.

Wang Wei, one of the founders of Fruitday

Today he is one of Fruitday's founders, with more than 1,000 employees under him. Founded in 2009, the fruit e-commerce company raised a US$70 million Series C a few months ago, led by JD.com, with SIG, Clearvue and other investors following.

Fruitday says its 2014 sales topped 500 million yuan, up 150%. In January this year alone, sales passed 100 million yuan. Wang Wei says Fruitday has grown by triple digits every year for six years, but since last year he has clearly felt that "people have got used to buying fruit online."

According to Analysys International's 2015 China Food E-Commerce Market Report, China's fresh-food e-commerce market was worth 28.98 billion yuan in 2014, up 122.6% from the year before. It is expected to reach 54.4 billion yuan this year.

Fresh food has become the most active corner of e-commerce and the one investors watch most closely. Vertical fresh-food sites such as Fruitday and Meiwei Qiqi have multiplied fast, and general platforms such as Tmall, JD.com and Amazon are spending more on fresh food, so the market keeps growing. According to IT Juzi, 34 companies entered fresh-food e-commerce in 2015 alone.

Fruitday's timing was good. Every e-commerce company seems to have one product that makes it famous overnight. Benlai Life made its name on Chu oranges, selling them on sentiment. Fruitday used cherries: imported ones.

Wang Wei chose cherries because he felt they suited Chinese tastes. Many Chinese call the imported kind chelizi, a transliteration of "cherries." They are well known in the imported-fruit market, and many people love them but find them expensive.

In the summer of 2013, Fruitday priced American Northwest cherries at 119 yuan for 4 jin (about 2 kg) and sold them on pre-order. In the first week it sold 168 tonnes; across all its platforms the total reached 208 tonnes.

The sales caused a stir in the industry and became the "hit product" that opened the market for Fruitday.

"Unlike the usual chain of trucks, wholesale markets, distributors and shelf-stocking, with transfers at every step, Fruitday picks and packs in the early morning and ships straight away by air. The fruit reaches China in 13 hours, and because it goes through the customs green channel, it is in Fruitday's warehouses around the country 5 hours later. Deliveries are scheduled by order, and the fruit reaches the consumer in about a day. The whole trip takes only 3 days," Wang Wei told QDaily. He likes to tell this story at all kinds of public events and to the media. In some ways it was what made American Northwest cherries a hit.

Customers order in advance; the seller picks the fruit at the source and delivers it within a set time. This model is now common in fresh food, but two years ago few did it, because it demands a great deal from the supply chain. "From the start we have been building a system suited to how the fresh-food business works, from picking at the source to packaging, transport, warehousing, sales and customer service, so that we can control the time between picking and arrival in China," Wang Wei said.

Because it pushed imported cherries so hard, Fruitday accounted for 45% of all cherries sold online in 2014. Today, 29.9 yuan per jin has become more or less the standard price for imported cherries.

But the real heart of this success story is the consumer, and it means much more than the supply chain Wang Wei talks about.

Chen Jiajie, who joined Fruitday last year as vice president in charge of marketing, told QDaily that Fruitday's core customers are people aged 25 to 35. Around the world they are usually called "young consumers"; in China they have grown into the middle class.

We have cited the figures from McKinsey's report on China's middle class over the next decade more than once: China's middle class, with annual incomes of US$9,000 to US$34,000, will grow sharply over the next 10 years, and by 2022 more than 75% of Chinese urban consumers will belong to it.

They are not content with local products or with food whose safety is uncertain; they want convenience, and so on and so on. Beyond their basic needs, they can and will pay more for quality.

So Fruitday's imported cherries are only a symptom; what drove its success was consumers trading up. From vertical e-commerce companies like Fruitday to giants like Alibaba, everyone is working to give China's growing young middle class the instant gratification of global e-commerce.

The latest figures from the market research firm Euromonitor International, released in April, show fruit sales reached 152 million tonnes in 2014. As e-commerce spreads, more consumers are accepting imported and high-end fruit. The fruit market is expected to grow at a compound annual rate of 3% over the next five years, reaching 171 million tonnes by 2019.

A product that becomes famous overnight can easily trap a company in one way of doing things, which is why selling on sentiment alone gets harder and harder. Fruitday's route to a "hit product" looks like the sounder one.

To consumers, "imported" often means guaranteed quality, which makes it a very handy selling point. Fruitday says about 80% of its fruit is imported, so it can easily repeat the American Northwest cherry formula with other fruit. After that success, Fruitday brought in Chilean cherries to sell in winter and began promoting grapefruit, avocados and other fruit the same way.

But another important factor cannot be ignored: farmers all over the world want to get into the Chinese market.

Wang Wei says the company was lucky early on. A friend happened to know a member of the Washington apple association in the United States, which was looking for a Chinese partner to promote its apples. When they met, the association was impressed by how well Wang Wei knew fruit, and the two sides soon began working together. The apple association then recommended Fruitday to the American cherry association and the US Consulate General in Shanghai, and that led to the American cherry hit.

After that, Fruitday kept building good relationships with consulates and fruit associations from many countries and was often invited to visit top farm owners around the world. For those growers, this is the best moment to enter the Chinese market, and the results show up immediately.

Cherry imports to China from the US and Chile have climbed very fast; today roughly 70% to 80% of Chile's cherries are eaten by Chinese consumers. "They're afraid that one day the Chinese will suddenly stop eating cherries," Chen Jiajie said. Over the past few years, they have developed several hundred kinds of fruit.

Fruitday also caught several lucky breaks in timing.

It was founded in 2009, the year Taobao turned 10, which you can also count as the 10th year of e-commerce in China. That year Taobao became China's largest retailer, with transactions of 208.3 billion yuan. So 2009 is also seen as the year Chinese e-commerce grew out of its start-up phase.

In the year Fruitday was born, Alibaba launched the more upmarket Tmall. JD.com raised US$21 million from a group of investors, the first funding any Chinese e-commerce company received after the 2008 global financial crisis. In June 2009, JD.com's sales for that single month passed 300 million yuan, equal to its sales for all of 2007.

All of this showed e-commerce maturing in China, and Fruitday in fact started out in a more developed e-commerce environment. It first opened stores on high-traffic platforms such as Tmall, JD.com, Amazon and Yihaodian. Then the rapid growth of mobile internet over the past year or two led Fruitday to take more of its sales channels into its own hands. Last May it launched its own app and began moving customers onto its own platform. Wang Wei calls this the shift to mobile internet. According to figures he provided, the app has now been downloaded 5 million times, and about 50% of those who installed it have bought something.

Subsidies and discounts have also helped. Fruitday now markets far more aggressively than before, with a named promotion almost every month, such as the "717 Fresh Party," the "August Hit Product Festival" and the "September Back-to-School Season." Open the app and you will see tags such as "special offer," "free gift" and "flash sale" tempting you to buy. Chen Jiajie said they are already thinking of closing the third-party online stores that are not selling well. Another important reason, of course, is that "we don't want people to think Fruitday is just an online shop. What we want to build is an e-commerce brand."

Not every fruit seller caught these lucky breaks. Beyond good timing, Fruitday also got some things right. What Wang Wei stressed again and again in the interview was that it built its own logistics and delivery from the very start.

That control over the supply chain comes from its business model: pick at the source, deliver itself, build its own cold storage, and keep everything in its own hands.

The fruit supply chain, Wang Wei says, is full of details. "Every fruit keeps best at a different temperature, sometimes only 0.5 degrees apart. Gold kiwifruit, for example, has to be kept at minus 0.5 degrees and green kiwifruit at 0 degrees, so it is a fairly complex cold-chain system."

To cut losses in transit, the company even considers when cargo flights land. "To keep sunlight from changing the storage temperature, we try to choose flights that land in China before dawn." After landing, the fruit goes to a warehouse, where workers on the line pick out fruit that spoiled or got crushed on the way. Pictures of the "problem" fruit to remove are posted at every workstation.

"Not everyone is willing to spend big on this stuff," Wang Wei said. The IT system behind Fruitday's supply chain costs tens of millions of yuan a year. They have done the sums on supply-chain spending, he said: the industry's average loss rate is 15%, Fruitday's is 5%, and that saves about 50 million yuan a year, so it pays off. Because of this early groundwork, Fruitday can now open warehouses very quickly. The new Beijing warehouse, for example, took only 2 months from choosing the site to going into use.

The most obvious change Wang Wei has seen over the past few years is that customers now buy in smaller, more frequent amounts. "Most people used to come once a week and buy a lot. Now most customers, especially new ones, come at least three times a week. Each order is smaller, but they order more often." Fruitday's products used to come mainly in large 5-jin packs; now most are 1 or 2 jin.

This also has to do with better e-commerce logistics and with what customers now expect from delivery. We have reported before on people's growing "IWWIWWIWI (I want what I want when I want it)" mindset: in short, when consumers want something, they want it right away. A QDaily Research Lab poll asking "What do we increasingly need right away?" drew 2,537 votes, and the top answer was "If a delivery takes more than three days, it feels like I've waited a lifetime" (23.1%).

"So every time we raise money, we really do the same things with it: improve the supply chain, raise product quality, and improve the service."

Fruitday also caught investors' attention fairly early, so it has had money.

In 2011, after moving to Zhangjiang Software Park in Shanghai, Fruitday received its first outside investment; it has not disclosed the investor. In 2013 it took money from SIG in its Series A, and SIG has joined every round since. With JD.com's latest investment, the two sides say they will work closely together in fruit and fresh food: Fruitday becomes a major supplier for JD.com's fruit category, and JD.com provides logistics support and helps it expand nationwide.

"Our focus in 2015 is geographic expansion. Fruitday wants to become a national company," Wang Wei said. Fruitday has already built large warehouses in Beijing, Shanghai, Guangzhou, Shenzhen and Chengdu, but it started in Shanghai, and more than 90% of its orders still come from East China, or more precisely, from Shanghai.

"With a logistics system behind us, we hope to copy Shanghai's success across the country," Chen Jiajie said. But fresh food is hard to copy from place to place, because eating and buying habits differ everywhere.

Fruitday set up a separate operations team in Guangzhou only in April this year, and Guangzhou and Shenzhen now account for about 30% of all orders. "Guangzhou's fruit market is very mature and very price-sensitive. We found that if we're just a few yuan cheaper, orders suddenly shoot up," Chen Jiajie said.

He said Beijing is a market Fruitday is studying carefully; a press conference there two months ago marked its formal entry. One interesting thing they found, Chen Jiajie said, is that "what sells best in Beijing is, first, sentiment, second, organic, and after that, domestic fruit."

If you are a long-time Fruitday customer, you will notice an obvious change in the app: Fruitday now sells fish, shrimp, meat, eggs and other fresh food. The main reason is that it does not want to lose customers. "We found that some customers would go to another platform for fresh food and end up buying their fruit there too, which is very bad for us," Chen Jiajie said. In the end the company decided to meet all its customers' fresh-food needs and broaden its range.

Jing'an Temple store

Nor does Fruitday want to miss out on O2O (online-to-offline), the fashionable idea of the moment. Wang Wei sees it as a new venture for Fruitday, started from a higher starting point.

In the Fruitday app, "Tiantian Daojia" (Fruitday Home Delivery) sits at the first entry point. It used to sell only juice and small packs of fruit; it now covers six categories (fresh fruit, breakfast/afternoon tea, juice, set meals, vegetables and fresh food) and promises delivery within 2 hours. This is the online half of Fruitday's O2O.

In Beijing and Shanghai you can also find Fruitday's physical stores, usually in business districts and aimed mainly at office workers, in places such as Wangjing in Beijing and Jing'an Temple in Shanghai. The stores have a fresh, clean look.

We visited one of the three stores at Jing'an Temple. Fruitday says all three rank near the top of its Shanghai stores. We went last Friday between 2 and 4 p.m. In that time almost no customers walked in; only 5 people came in to buy, mostly a cup of juice or a box of grapes or plums (the physical stores currently sell only fruit and juice). The staff told us most people order in the app and have it delivered to their door.

Over those 2 hours, about 9 couriers in uniforms bearing the logos of companies such as Xiansuyun, Xianjisong and Feixianbao came in to collect orders. One courier said that he makes 4 to 5 runs a day with a full delivery box. We saw about 8 boxes go out; some held 11 boxes of different fruit, others more than 20, and most juice was carried by hand. The staff said the store handles about 600 to 700 orders a day, and as many as 1,000 on a good day.

Fruitday now has 30 stores like this in Shanghai and more than 20 in Beijing. If they all sold as much as the store we visited, they would handle roughly 30,000 to 50,000 orders a day.

These stores serve mainly as storage and delivery points. The store on Xiangyang Road in Shanghai shows this even more clearly. QDaily's office on Fuxing Middle Road is outside the delivery range of every nearby store, so we went to pick up an order ourselves. We found a tiny shop of about 10 square meters, crammed with boxes, with several staff busy picking and sorting, and freshly squeezed apple-orange juice and cantaloupe juice set out on the counter. It looked rather messy.

Wang Wei plans to open 100 stores across Beijing, Shanghai, Guangzhou and Shenzhen by the end of this year. But Fruitday was not the first to try fruit O2O. Yimixian, founded in October 2014, Xuxian, launched in September 2014, and MissFresh, which began operating in December 2014, all set themselves up from the start as fresh-food O2O platforms. Benlai Life's O2O project, "Benlai Convenience," launched in Beijing in May this year and runs through a WeChat official account. Meiwei Qiqi, backed by Amazon, rolled out 1-hour delivery at about the same time. Yiguo Fresh, whose Series B last year was led by Alibaba, teamed up in July with Guoku, a fresh-food O2O platform that sells fresh-cut fruit... and the list could go on and on.

Fruitday is clearly already in the fresh-food e-commerce O2O war, though the idea has still brought it more funding. For Wang Wei it looks like a full circle: he seems to be back in the days of the street fruit stall.