Like their counterparts in Silicon Valley, China’s largest tech companies struggled to prove online groceries can be a viable business. Then the novel coronavirus struck. Its spread has extended a lifeline to a slew of money-burning businesses – many backed by big name venture capital funds and tech giants from Alibaba Group Holding to Tencent Holdings – that in some cases were on the brink of collapse in 2019. Millions of consumers shunning supermarkets and meal-delivery services are testing promises by Tencent -backed Missfresh or Alibaba’s nationwide Hema chain to ship fresh food to their doorsteps. Those that deliver can expect many of first-time customers to stay even after the epidemic burns itself out. The boom is one more way in which the abrupt onset of the epidemic is transforming consumer behaviour in the world’s No. 2 economy. Usage of other online services from mobile gaming to internet malls is surging as the epidemic confines millions to their homes. “Before the Lunar New Year, many of these firms were looking precarious and their only lifeline was the deep pockets of their big backers,” said Michael Norris, research and strategy manager at Shanghai-based consultancy AgencyChina. “Right now, fresh grocery delivery platforms are seen as an essential for consumers to minimise risk of infection.” Not all of them are equipped to handle the sudden increase in demand. The most immediate obstacles include a shortage of delivery staff, inventory management and the difficulties of navigating physical roadblocks put up by local governments trying to curb the disease’s spread. And if the coronavirus outbreak hurts the economy, expect that also to squeeze funding overall for all tech start-ups. The epidemic has led consumers to seek eating options that are healthier than takeaway, especially with online chatter about the risks of takeaway delivery people transmitting the disease. There’s less of a concern around fresh food since delivery frequency is lower than takeaway and many people take comfort in cooking their own meals. Norris sees the outbreak ushering in another boom era for e-commerce in China. Overall, he expects online to account for a third of China’s retail sales in 2020, up from around a quarter last year. Alibaba’s Hema chain, including 18 stores at the epicentre of the outbreak in Wuhan, have operated non-stop during the extended Lunar New Year break. Online orders have spiked, prompting Hema to increase its vegetable supply across Beijing, Shanghai and Guangzhou, the company said in a statement. Missfresh saw a quadrupling in online orders for groceries during the first five days of the Lunar New Year compared with the same time last year. The company sold 40 million food items including eggs, lettuce and beef during the seven-day period. And JD.com said its sales of fresh food increased by 215 per cent, reaching almost 15,000 tonnes during the 10-day period ending February 2, compared with the same period last year. It’s an unexpected windfall for grocery delivery services that have perennially struggled with the logistics of transporting perishables like fruit and vegetables and shoppers’ innate preference for testing and selecting the freshest produce on sight. That’s good news for a sector that faces a broader funding squeeze. Last year, a raft of start-ups raced to replenish their war chests before what many foresaw as a capital winter brought on by a slowing economy. Missfresh was said to be seeking a new round of fundraising last July at a $3 billion valuation. The company hasn’t announced completion of that financing. “The spike in online grocery demand presents an education opportunity,” said Snow Hua, managing partner of Cherubic Ventures, which has also invested in online grocery start-ups like China Fresh. “Long-term though, investors will still be looking at fundamentals like whether this business model is sustainable and which companies have a better supply chain, storage and delivery system.” For some, the boost may have come too late. Dingdong, backed by Sequoia and Qiming Ventures, halted expansion in certain regions last year amid setbacks in operation, Caijing reported. Dingdong discontinued all their services in Xie’s hometown of Ningbo as of February 7. The suspension was to help combat the epidemic, a spokeswoman for the company said, adding that it’s fully operational in other cities including Shanghai, Hangzhou and Shenzhen. Signs of strain are also emerging. Missfresh manager Liu Guofeng said that, during the first week of the Lunar New Year holiday, its vegetable supply ran out every day around 4pm, whereas it would normally take three to four days to deplete. Users rush to place orders before midnight every day when the company replenishes its stock. It’s also tried to court drivers working for meal delivery services Meituan and Ele.me, doubling the payout for riders per order from February 1 to February 8 and handing out 1,000 yuan (US$143) in subsidies if they work eight days straight. “There’s a huge shortage on deliverymen,” said Liu. “Also a lot of villages are blocking the roads so not many people have been able to return to work.” To address labour shortages, Hema has agreed to hire staff from Chinese restaurants now that dining out has plummeted. Infographics: All you need to know about the coronavirus outbreak Delivery times too have elongated. Requests that used to take 30 minutes to deliver can now need half a day to arrive, Xie said. Yet once the chaff is weeded out, the remaining players will end up with a far more established and loyal customer base. The current crisis has forced customers to turn online and at least some will remain active buyers, while surviving start-ups will have had the chance to hone their infrastructure and offerings. “Even though the virus outbreak brings a lot of challenges, it will also create opportunities for these online grocery start-ups,” said Richard Peng, founder of Genesis Capital, a Missfresh backer. “It’s fundamentally changing user habits, as they open up to the idea of buying groceries online.” Purchase the China AI Report 2020 brought to you by SCMP Research and enjoy a 20% discount (original price US$400). This 60-page all new intelligence report gives you first-hand insights and analysis into the latest industry developments and intelligence about China AI. 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