Shanghai’s lockdown is giving China’s online grocery apps a second chance

Shanghai’s lockdown is giving China’s online grocery apps a second chance thumbnail

Midnight, 6 a.m., 8 a.m., 8: 30 a.m., 9 a.m.: these times are ingrained in Queeny Song’s mind. For over a week in April, the 24-year-old Shanghai resident had to get her phone out at these five points every day to refresh a different grocery delivery app in hopes of grabbing a hard-to-get delivery slot. During Shanghai’s month-long lockdown these online grocery apps were a lifeline to stranded residents. Song says that about 60 to 70% of her groceries have been purchased through online apps since the lockdown began. Without them, she would run out of food.

The Shanghai lockdown is the latest stage in a two-year roller coaster ride for China’s online grocery industry. Its rise and fall and rise again has mirrored the tightening and loosening of China’s covid-19 restrictions: apps like Dingdong, Alibaba’s Hema, and Meituan’s Maicai have struggled whenever lockdowns are relaxed.

Now, China’s zero-covid strategy continues, and the harsh lockdown measures have given this industry another chance to shine, after a disappointing year of business returns. It is not clear if it will continue to succeed once things return to normal.

The rise and fall of online grocers

Around 2015, Chinese tech companies, including Alibaba, started experimenting with ideas to incorporate grocery shopping into the country’s thriving e-commerce landscape. It wasn’t until 2018 and 2019 that the industry really began to take off, with dozens of new startups competing for attention and investments. Startup failures were common, and growth was slow.

It was the first nationwide lockdown in China, in the first few months of 2020, that really supercharged the industry’s growth. As Chinese people first began to grapple with what it meant to be sheltering in place, they relied on these apps, most of which launched in 2018 and 2019, to have their supplies delivered.

It quickly grew into one the most coveted new tech industries in China with venture capital funding flooding in and tech giants like Meituan and DiDi eager to get a piece. A February 2021 McKinsey report predicted that “online grocery shopping will likely be one of the most contested and contentious consumer facing sectors in China in 2021.”

And contested it was, as players in the market were not afraid to spend: according to an anonymous executive at the now-defunct Chengxin Youxuan, the e-grocer arm of DiDi, quoted in the Chinese business publication Caixin, “The entire market was burning at least 10 billion yuan ($1. 57 billion) every month.” In June 2021, startups Dingdong and MissFresh filed to go public in the United States on the same day, racing to be the first Chinese publicly traded online grocery company.

But things started to fall last year. These companies failed to make a profit despite all the hype and money. Lockdowns were lifted and people went back to physical shopping. Worse, they were caught in China’s new antitrust fight. The Chinese government quickly imposed fines as well as pen editorials questioning industry’s value. The once-promising startups, as well as large tech companies, decided to reduce their expansion plans, make massive layoffs or file for bankruptcy. Ele.me and DiDi, two successful tech companies who rely on online grocery for their growth, have decided to close down these services. In the past year, at least two other online grocery startups closed their doors. The latest lockdowns give the industry a second chance. Millions of people continue to download these apps every day, even though other Chinese cities, such as Hangzhou and Beijing, are also under lockdown. Dingdong’s app climbed to third place on the App Store’s China’s free app charts in April. The daily battle

While lucky Shanghai residents may be able to receive free grocery packages from their local governments or employers, many people, like Song needed to find a way to purchase their groceries. Some residents formed neighborhood groups through messaging apps, collecting everyone’s order and bulk-buying directly from nearby farms or food factories.

But Song soon realized that she couldn’t make her own grocery shopping decisions because she was buying groceries with her neighbors. Song lives in an older residential area where more than three-quarters of the residents are seniors or families with kids. Despite her neighbors placing large orders for things like five pounds pork, these purchases would take her a long time to eat. The only alternative for her is grocery apps. To get a slot, she frantically refreshes Dingdong and Hema every day. But with the lockdown affecting the supply chain for many goods including groceries, placing orders on those apps takes luck and dedication. Shanghai residents are flocking to the apps to purchase as many items as possible before stock runs out. It can be frustrating and stressful.

Li, a Shanghai-based consultant who chose to keep her surname private because she wants to remain anonymous, also got up at 5am every morning to try out half a dozen apps. During the lockdown, she failed to secure one order while her mother, who lives under the same roof, managed three. Li once placed hundreds of RMB worth groceries in her shopping cart. But when she got to the payment stage, the only thing that was left was a bag full of candies.

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“Because of the explosive increase in Shanghai users’ demand, the purchase experience will certainly be different from how it was in ordinary times. In an email response to MIT Technology Review, Dingdong, a grocery app, stated that placing orders will not be a success rate. “In this situation our product principle is prioritize impartiality.” Dingdong said that it restocks at the exact same time every day and approves a random amount of orders each time.

How the industry handles these issues could determine how life will look when it returns to normal. When people can shop at their local grocery stores again, how will it retain these new customers? It’s hard to say, but investors are no longer as optimistic as they were in 2020, and users are likely split. Song says she will keep apps such as Dingdong or JD on her smartphone, as she is grateful that they have kept her safe during scary times.

Li is another Shanghai resident who thinks differently. It is still my second choice. “I’m not shopping on them because they are expensive, but I can’t buy them in any other way,” she said. “After the pandemic, I’m sure I won’t use them anymore.”

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