Today is D-Day

September 23, 2015

Manuela Zoninsein Manuela Zoninsein
Chief Executive Officer
Smart Agriculture Analytics

Yimutian, FruitDay, Yun Nongchang: besides working in food and agriculture, what do these Chinese ecommerce kings have in common? They have all invested in building and managing their own proprietary distribution channels, and in recent weeks the world is starting to see the wisdom in this strategy.

In the past, JingDong was lambasted for the capital expenditures needed to keep capacity in delivery, inventory, sales, and payment in-house (not dislike Amazon). Alibaba, on the other hand, was lauded for disaggregating its distribution channels. Now the tables have turned: Alibaba’s shares are dropping in values, its ability to become an import powerhouse rather than just exporting Chinese manufactured products is questionable, and it is rapidly being overtaken by other players in the food and agriculture space. Competitors include the aforementioned companies plus up-and-comers like Ele.me, CloudFarm, and 900nong, all of which have received recent venture capital investments.

It might seem traditional or old-fashioned, but one of the main lessons to take away from the burst onto the online marketplace stage from Chinese players is that there is still huge value in controlling distribution channels. JingDong invested US$70m into FruitDay, in part to access that company’s fruit and vegetable distribution channels. is taking advantage of vertically integrated distributions systems to build financial products for farmers and citizens from lower-tier cities who don’t have credit histories; they invested in ZestFinance, a data analytics company, to extrapolate risk based off the data JingDong aggregated over years of interacting with those suppliers when building out their own supply chains. Yun Nongchang, or Cloud Farm, despite conflicted reporting of its monthly transaction volume, has demonstrated an ability to leverage distributor relationships to try and maintain monopoly-like access to particular farmers who supply product to the platform. CloudFarm, recently financed by Lenovo, claims to be the first vertically integrated online retailer in China of agriculture products like seeds and agrochemicals (with monthly sales volume apparently exceeding that of Alibaba).

The distributor is the gatekeeper to new markets. Though they are not the end-user so to speak, but they are the buyers, at least in emerging markets. The distributor maintains relationships to importers and traders; they can deal with logistics and transport; they train farmers on new technologies and provide post-sales support; they keep tabs and try to satisfy farmer needs; and perhaps most critically, they can pay for new products and technologies.

The “D” is what we at SmartAg see as bottleneck when it comes to opening up and accessing new markets. The “D” sits at the critical intersection of relationships needed to get new products into new markets. That’s why we’re calling today “D-Day”.
Manuela Zoninsein is a member of the speaking faculty at GAI Asia in Singapore, September 22-24, 2015.

The opinions expressed in this editorial are the author’s own and do not reflect the views of GAI News.

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