The Rising Trend of Near-Expired Food
Foods nearing their expiry date emerged as a new trend in China with huge market size of 30 billion yuan.
The popularity of Wefood in Europe and America led to a new wave of Gen Zs buying and consuming near expired food in China. According to the “2020 China’s Near-Expired Food Industry Market Analysis and Consumer Research Report” released by iiMedia Consulting, 47.8% of the near-expired food consumers are 26–35 years old. In Douban, the “I Love Near-Expired Food” online community group has had over 80,000 members since its emergence in September 2020. The number of readers on the topic of youths buying near-expired food on Weibo has exceeded 100 million. In XiaoHongShu, there are more than 3,800 relevant remarks regarding such food products.
The Competitive Landscape of China’s Near-Expired Food Industry
The idea of “near-expired food” is self-explanatory. It refers to the food that is about to reach the expiration date but has yet expired. Near-expired food is commonly available in larger supermarkets, such as Walmart and Carrefour. According to a survey conducted by iiMedia Consulting, the market size of near-expired food in 2020 has exceeded RMB30 billion (US$4.7 billion). A lot of retailers have emerged in this fast-growing market, focusing solely on selling discounted near-expired food. According to data from Qixinbao, the number of young companies related to “discount”, “near-expiration” and “special sale” amounted to 4,124. Additionally, the number of newly established companies in 2020 with similar keywords is currently at 2,228. As of August 2021, around 13,759 companies are providing near-expiration food-related offerings.
Several top enterprises in the near-expired food sector have emerged as a result of additional financing. Examples of such enterprises include e-commerce platforms “HaoShiQi” and “Sale” and offline chain stores “HotMaxx”, bazaars, Tesco, “ShiHuiBang”, “XiaoXiangShengHuo”.
China’s Near-Expired Food Discount Stores
1) Casual snacks (imported food)
Snacks are the most popular in the near-expired food market, where the younger generation are the primary consumers. However, consumers at different levels have different focus points. For instance, white-collar workers and students in first- and second-tier cities are price-sensitive, pursuing cheap and affordable products, whereas users in third- and fourth-tier cities rarely consume overseas products in their daily lives. Therefore, buying imported near-expired snacks from e-commerce platforms is an excellent way to satisfy their curiosity at affordable prices.
In addition, the high profit margin of imported food is also an important reason why it has become a popular choice for near-expiration food stores. When buying near-expired food, consumers are highly sensitive to prices. Thus, stores will need to reduce prices by more than 60% to attract a larger number of consumers. Such discounts will inevitably lead to lower profits. The imported food has a branding effect and higher profit margins, so when it is sold as a near-expiration food product, it can still maintain a relatively large profit margin.
2) Discounted Products
As an unofficial rule of thumb, products whose shelf life has passed one-third cannot enter the supermarket channels. Therefore, many foods that are nowhere near their expiration date will also enter the near-expired food market. Among them, foods left with 20%-50% of the shelf life often usher in new rounds of sales peaks due to higher discounts and unaffected taste.
3) Tiered Pricing
The price of near-expired food is closely related to its shelf life — the closer the expiration date, the lower the price. Therefore, temporary foods generally adopt a tiered discount promotion method.
4) Supply of Near-Expired Food
There are three main sources of near-expired food. One is the products that are removed from the shelves of large supermarkets, the other is the return and exchange of goods on the e-commerce platform, and the third is the sellers’ products. The supply of near-expired food depends on the normal food’s sales volume in peak periods. When the food product sells, the near-expired food supply will be reduced accordingly.
High Barriers to Entry
Market Leader of the near-expired food industry, Interest Dollar Tree’s revenue in the United States will exceed US$255.1 million in 2020. Discount stores in China are still in their infancy, and even the most prominent players have plenty of growth opportunities. However, getting into the game is not straightforward, and there are several issues to consider.
1) Supply chain issues
The near-expired food products are caused mainly by defects during production and errors in the capacity forecast, inventory management, logistics and transportation of the manufacturers. Merchants need a degree of flexibility and predictability. Otherwise, there will be issues concerning availability and cost. Secondly, due to the large correlation between price and date, it is difficult to manage the inventory of near-expired foods. Streamlined operations are required to reduce problems such as food waste.
2) Profit problem
Consumers of near-expired food are mostly price-sensitive, and they expect high discounts on products. The existence of a large number of competitors in the industry further reduces profit margins. Maintaining high profits for a prolonged duration is still a problem that businesses need to address.
The current top players are supported by large start-up capital. However, to compete and expand to gain market dominance, the franchise model needs to find a way to achieve long-term supernormal profits.
3) Food safety issues
The main concern in the near-expired food industry will still be around food safety. The current law only defines the term “near-expired food”. Whether the food near the expiration time is affected by factors like temperature, logistics, inventory environment can only be found upon consumption. The main aim for consumers is to “buy non-discounted quality at a discounted price.” Once there is a quality problem, consumers will not purchase again. A survey conducted by iiMedia Consulting in 2020 shows that more than 60% of consumers have a negative impression of near-expired food.
What is the Future of Near-Expired Food Discount Stores?
Due to the rapid development of the industry and the lack of strict supervision, there have been many deceptive practices in selling near-expired food. Examples include selling expired food, tampering with product production dates, and selling counterfeit products. The near-expired food market must first solve the standardisation problem for it to be sustainable in the future.
Many industries can generate huge markets based on China’s population even if the industry is further segmented. However, the life cycle of short-demand markets such as near expired foods is limited in the long run. Therefore, businesses need to develop categories and expand profit channels. Most of the near-expired food stores have begun to adopt the “near-expired + normal” mixed sales form. They use low-priced near-expired food to attract consumers to the store and guide them to buy products with higher gross profit afterwards. HotMaxx, for example, positions itself as an “imported snack shop” and convenience store.
Currently, the product types and business models for offline sales of near-expired foods are generally similar, and differentiation has not yet been reflected. Businesses will have to find out how to build protective barriers and stand out in a competitive market.
