Direct sale for farm produce

Money Glitz | Avery Chen 26 Aug 2019

Jou Sun, an agri-marketing startup which operates an online farmers' market with direct sourcing in Hong Kong, is aiming to provide fresh and traceable groceries for customers and offer higher income to farmers by cutting out the middlemen.

Founded in 2015 as a concierge grocery shopping service, Jou Sun hired part-time shoppers, mostly housewives, to go to the wet markets and supermarkets to buy groceries for customers. But after a year and a half, the startup found the business operation was not easy to scale as it was difficult to find suitable shoppers.

Also, Jou Sun figured out that the initial business model was not cost-effective and efficient enough, as shoppers bought groceries at market prices and the company needed to charge customers more fees for delivery and packaging.

"There is a huge gap between what farmers are getting paid and what the customer is buying," Jessica Lam, co-founder of Jou Sun, says. For instance, consumers buy vegetables at HK$10 per catty in the supermarkets or wet markets, but the farmers only get 50 HK cents or HK$1 per catty, she adds.

"At that point, I was trying to think about how we can actually get to the source instead of buying from the retailer," Lam says. The direct sourcing model, which has merchants harvest and package on-demand, can help customers achieve cost savings and access fresher food due to lower labor costs and inventory shrinkage, the company says.

The chief technology officer and co-founder, Chris Li, has built up a real-time order management system (OMS) to help every stakeholder in doing their thing, Lam says. When a customer places an order, it goes into OMS and splits into two parts. The system then compiles a list for farmers of what they need to harvest every morning, and informs SF Express, its exclusive logistics partner, which will do consolidation packing in their temperature-controlled warehouse in Tsing Yi and then deliver.

Meanwhile, Jou Sun's staff at the Wan Chai office can monitor the whole process from placing an order to completed delivery.

Jou Sun now has 50 vendors on its platform. "It'll be very expensive for each individual vendor to build all this," Lam says.

However, Hongkongers' purchase behavior -- people prefer to shop in the physical stores due to the dense urban layout, higher delivery fees and labor costs -- brings more challenges to Jou Sun.

Hong Kong's online shopping penetration was 35.8 percent in 2019, increasing from 27.8 percent in 2016 but still much lower than China, South Korea and the United Kingdom of over 80 percent, data from the Census and Statistics Department showed.

But Li believes that Hong Kong is getting more and more e-commerce friendly, given more online platforms and digital payment options.

The convenience is another competitive advantage of Jou Sun, especially for working women who don't have enough time to shop in wet markets on weekdays. Lam and Li say its platform recorded a rush of traffic during lunchtime, just before the work day ends, and after dinner.

Although Jou Sun adopted a next-day delivery pattern, Lam believes that on-time delivery is also what people expect.

The company has two-hour delivery time for signature delivery with over 90 percent orders on-time. If the order is late, Jou Sun will offer coupons for users.

"I think one thing that we're battling is more and more young families are eating out," Lam adds. "Myself included, a lot of young generation moms don't actually know how to choose vegetables and don't actually know how to choose fruit. So in this process, we actually try to educate.''

Jou Sun has been profitable on a per order basis and an operational basis, but has not yet turned a profit on a net basis, as investment in research and development continues, Lam says. The platform has 15,000 users now with average order size around HK$700.

She says the company's revenue has been at least doubling every year and will start its first marketing campaign next month as they now are confident of taking five times to 10 times traffic with a scalable model.

Jou Sun is planning on fundraising for expanding to business-to-business services, providing more products with competitive prices by sourcing directly from Chinese farms, and further investment in R&D and marketing to improve brand recognition.

Lam says the start-up is meanwhile, talking to some labs in Hong Kong about starting testing partnerships for vegetables in China.

"There are some really high-quality farms in China," Lam says. "It's really unfortunate, those farms really want to grow something better, but wholesalers, who compete on price, will always choose the cheapest vegetables to buy.''

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