W20514

SUNYUKI: ORGANIC FRESH-FOOD DISTRIBUTION CHANNELS

Jing Liang, Professor Shilei Yang, and Professor Jing Chen wrote this case solely to provide material for class discussion. The authors
do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain
names and other identifying information to protect confidentiality.

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Copyright © 2020, Ivey Business School Foundation Version: 2020-06-22

One afternoon in January 2015, Miao Long, the founder and chairman of Sunyuki Agricultural Co., Ltd.
(Sunyuki), was reading an internal report about his company’s growth. Long had founded Sunyuki in 2010
as one of the first online fresh-food retailers in southwest China. To meet the growing consumer demand
for a healthier lifestyle, Sunyuki provided safe, fresh, organic foods to high-end consumers who had a
strong preference for high dietary quality. The company started as an online retailer that required customers
to register as members before placing orders. Sunyuki then used its own delivery service to ship each order
to the customer. As a leading digitally native fresh-food grocery, Sunyuki achieved soaring average annual
growth rates of almost 100 per cent since its launch (see Exhibit 1). However, the company’s internal report
that Long was reviewing indicated a significantly decrease in the past year’s membership growth. It was
becoming difficult to attract new customers through online channels alone. A short time later, while driving
out to Sunyuki’s organic farms in the suburbs, Long kept thinking about his company’s distribution strategy.
Should Sunyuki continue to provide organic fresh foods only online? Should it consider off-line distribution
instead, by opening physical stores? Or should Sunyuki consider both online and off-line distribution, as
an omnichannel strategy?

SUNYUKI

Headquartered in Chengdu, Sichuan Province, Sunyuki was a leading e-commerce agricultural retailer of
organic fresh products. Its business covered agriculture production, product processing, cold chain
distribution, and agricultural scientific research. The company had its own farming system and sold the
food product to member customers using its own delivery service. After its launch, Sunyuki attracted nearly
30,000 member customers. Its active and stable customer base placed an average of 1.53 orders per month
with an average cost of ¥221.321 per order.

Since its founding in 2010, Sunyuki had grown into a ¥36 million business, with expenses of ¥26.8 million
and a gross profit increase of 16 per cent in 2014 (see Exhibit 1). Sunyuki was one of China’s first online
retailers of fresh food. When it was founded, the organic agriculture business was still in the infancy stage.
Long, who saw himself as “a farmer,” believed that the Chinese organic and fresh agricultural industry
would become a promising industry, and that an increasing number of people in China would demand
quality of life, healthy eating, and food safety. Targeting higher-end consumers who preferred safer and
1
¥ = CNY = Chinese yuan; ¥1 = US$0.161 on January 1, 2015; all currency amounts are in ¥ unless otherwise specified.

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healthier foods, Sunyuki offered a wide variety of organic foods, including vegetables, fruit, meat, poultry,
eggs, seafood, and non-staple foods, which were promoted as healthy, delicious, fresh, and convenient.
Reflecting its premium quality, Sunyuki organic food was priced approximately 1.5–4.0 times higher than
conventional agricultural products in the market (see Exhibit 2).

Over its five years of growth, Sunyuki had developed a supply distribution network across multiple climate
zones, including 14 vegetable farms and two agricultural bases (see Exhibit 3). Two of its vegetable farms
had received China Conversion to Organic Production Certification, and the other 12 had been granted the
China Organic Production Certification from the China Quality Certification Center. Sunyuki was also
certified with the Hazard Analysis Critical Control Point and with the ISO 22000 food safety management
systems standards. In addition to producing foods independently, Sunyuki co-operated with contracted
suppliers and local farmers to maintain its supply capacity.

SUNYUKI’S OPERATIONS

To meet the special requirements of distributing and delivering organic fresh products, Sunyuki established
its own cold chain and delivery teams so fresh food could be delivered directly from its farms to its central
warehouse and then to the customers. The farm staff picked and prepared the products based on Sunyuki’s
automated demand-forecasting system, and then transported the products to the central warehouse in
advance. The central warehouse, located in Chengdu’s industrial park, was 10,000 square metres in size
and featured low-temperature workshops, a multi-temperature zone, a cold storage warehouse, and a
processing centre. After a customer placed an order online, the products were shipped from the central
warehouse to the customer using Sunyuki’s own delivery system.

Right from the founding of the company, Long began building Sunyuki’s brand identity with a strong
emphasis on product quality, which was highly dependent on the upstream supply. By 2015, Sunyuki’s 14
organic farms, with varying climate zones, continuously produced more than 200 seasonal vegetables
throughout the year. Sunyuki member customers were mainly attracted through community promotion that
relied heavily on the efforts of its sales force. To better serve customers, Long invited members to witness
the production process of crops in its suburban demonstration farms, about an hour’s drive outside Chengdu.
However, despite member customers being highly appreciative of the experiential project, only a small
percentage of Sunyuki customers took advantage of the opportunity.

Long felt that the supply chain’s upstream system had gradually expanded and improved, whereas the
downstream system was less successful. The main issue was the slowing membership growth. Customer
expectations and demand for higher-quality food were continuously increasing, but new digitally native
fresh-food companies had not yet entered the market. Therefore, Sunyuki should have increased its
membership and customer base. Having saturated promotion within the community, Sunyuki faced the
challenge of finding new approaches to effectively attract new member customers.

Generating repeat purchases from passive customers was another critical issue. With high set-up expenses
for the cold chain delivery of fresh goods, each order had to bear a part of the cost. However, the nature of
online retail channels meant that limited information was available to consumers on Sunyuki products
beyond the product’s name and picture, which made it difficult to convince new customers to purchase
products they were not already familiar with. One more problem to resolve was Sunyuki’s delivery model—
from the farm to the central warehouse to the customer’s household—which involved high logistics costs
and required relatively high response time delivery. One strategy that could attract new customers,
effectively showcase Sunyuki products, reduce logistics costs, and shorten delivery times was to develop
off-line, or physical, stores throughout the city of Chengdu.

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CHINA’S FRESH-FOOD E-COMMERCE INDUSTRY

Generally, the term “fresh food” referred to products that were ready to sell without further processing,
such as fresh fruit and vegetables, uncured meat, aquatic products, milk, eggs, and dry goods. The total
fresh-food production in China significantly increased by 21 per cent between 2009 and 2015 (see Exhibit
4). Food safety issues, however, had led to a severe crisis of confidence in the food industry. Chinese people
were increasingly concerned about food sources and safety. According to a study from iResearch, 57 per
cent of respondents (832 out of 1,459) indicated that food safety was the most important factor in choosing
fresh-food platforms, followed by price (11.8 per cent).2

The online retail of fresh food used an Internet platform to directly distribute fresh products to customers
through either the company’s or a third-party’s logistics system. Given the nature of online sales of fresh food,
customers could receive accurate information on the company’s products, but food quality was heavily
dependent on the quality, speed, and freshness of the food’s delivery. Fresh food had a relatively short quality
guarantee period, and needed to be refrigerated or frozen to keep it fresh.

The e-commerce market for fresh food in China was valued at ¥4.2 billion in 2010 and increased to
approximately ¥290 billion in 2014. Industry forecasts indicated fast growth over the next five years (see
Exhibit 5). Growth in consumer disposable income and the reform of government policies were cited as
two major contributing factors to the market’s expansion. With an increase in the per capita disposable
income of urban residents in China, the total food expenditure as a fraction of personal consumption
expenditure (referred to as the Engel’s coefficient) had declined in recent years (see Exhibit 6). Improved
consumer quality of life was also increasing the demand for food safety, health, and convenience, creating
great opportunities for the development of online fresh-food retail. In addition, the China National
Development and Reform Commission had successively promulgated plans for the development of cold
chain logistics, providing further infrastructure support for the circulation and development of agricultural
products. 3 In 2015, the State Council issued policies supporting and encouraging the construction of
agricultural e-commerce platforms to ensure the quick development of fresh-food e-commerce.4

Fresh vegetables were classified into three levels according to pesticide use: nuisance-free, “green,” and
organic vegetables. Nuisance-free was the most basic requirement of vegetables. It meant that low-toxicity
chemical fertilizers and pesticides could be used in the process of vegetable cultivation, but the content of
harmful substances was controlled to within the prescribed standards. “Green” vegetables were vegetables
that had been certified by the agricultural sector to use “green” food labels, and their cultivation generally
involved very limited harmful chemical synthetic substances. “Green” vegetables represented the middle
ground between nuisance-free vegetables and organic vegetables. The highest level was organic vegetables,
with an absolute prohibition on the use of pesticides, fertilizers, hormones, herbicides, synthetic pigments,
and other synthetic substances in the process of cultivation. Organic vegetables had to be certified by legal
organic food certification bodies.5

The supply chains of online fresh-food retail consisted of upstream supply, distribution system, and
downstream demand, similar to most industry supply chains. The upstream supply in the fresh-food chain

2
iResearch, 2016 China’s Fresh Food E-commerce Report [in Chinese], July 8, 2016, accessed October 26, 2019,
www.iresearchchina.com/content/details8_24410.html.
3
National Development and Reform Commission of the People’s Republic of China, The Development Plan of Agricultural
Product Cold Chain Logistics [In Chinese], July 30, 2010, accessed October 26, 2019,
www.ndrc.gov.cn/zcfb/zcfbghwb/201007/W020140221367714546942.pdf.
4
The State Council of the People’s Republic of China, National Guidelines on Increasing Reform and Innovation to Accelerate
Agricultural Modernization [In Chinese], February 1, 2015, accessed October 26, 2019, www.gov.cn/zhengce/2015-
02/01/content_2813034.htm.
5
China Green Food Development Center, “Product Guide” [in Chinese], accessed October 26, 2019, www.greenfood.agri.cn.

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included farmers and bulk food suppliers. E-commerce businesses provided a transactional platform to
connect buyers with sellers, and sometimes accumulated consumer demand information for use in precision
marketing. The logistics distribution system included warehouses and cold chains. The demand side in the
supply chain consisted of consumers who purchased products online (see Exhibit 7).

Fresh-food e-commerce companies could be classified into two categories: self-run or platform. Self-run
companies produced or purchased the products and delivered them to the end consumer through their own
logistics and distribution systems. Platform companies provided and supported the online trading system
but were not directly involved in the purchase and distribution of the products.6

Sunyuki was a self-run online fresh-food retailer that established its own high-standard farms to produce
organic food, and guaranteed the safety and quality of the products from the source. Self-operated farms
required considerable capital investment and a responsible food supply chain, which made Sunyuki a rarity
in this industry. Most self-run firms, such as Fruitday and Benlai, co-operated with and purchased food
from upstream suppliers for final delivery to the customer.7

ONLINE AND OFF-LINE SELLING

In China’s booming e-commerce market, various business models coexisted. Some traditional (or off-line)
retailers developed online platforms, and some e-commerce giants expanded their business to the traditional
or off-line market to create an omnichannel. For the fresh-food industry, both online and off-line channels
had their own advantages and disadvantages. However, there were four important factors to consider:
stimulation of customer demand, ease of obtaining product information, means of evaluating the products,
and the seller’s operational space and customer’s purchase time.8

Stimulation of Customer Demand

Online channels were more suitable for content-driven products that could attract the customer’s attention
through the stories behind the products. For example, organic rice might not be particularly attractive on a
supermarket’s grains shelves, but it could attract more interest on a website that displayed the organic
production process, such as natural planting with 130-day growth cycles or watering with mountain springs.
On the other hand, off-line channels could stimulate purchasing by intuitively exhibiting products in front
of the customer; some shoppers could decide to buy a product simply by seeing other customers do so.

Ease of Obtaining Product Information

Generally, information was more readily available online, especially when customers had a clear need in
mind. Online information was quick, comprehensive, and provided by numerous sources. On the other
hand, off-line channels could disclose more details through tactile, or touch, and on-site service. For
example, many customers could decide what to buy for dinner as they perused the vegetable market.

6
iResearch, op cit.
7
Ibid.
8
Jing Li, “E-commerce Retail: Offline or Online” [In Chinese], November 2016, accessed April 17, 2020,
www.woshipm.com/operate/446500.html.

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Means of Evaluating the Products

One key factor in the success of an online or off-line business was whether subjective experience or
objective information from a third party had a greater effect on the purchase process. The off-line context
enabled consumers to make their own judgment after personally observing and touching a product.
However, online channels were more suitable for standard products on which consumers could make a
purchasing decision based on third-party information. Because fresh foods were non-standard products, off-
line channels could provide a full sensory experience of the products to the customer, driving sales through
perceived quality.

Seller’s Operational Space and Customer’s Purchase Time

Online shopping could save space for the retailer, by storing fresh food and keeping it fresh in the central
warehouse before delivery. However, off-line shopping could shorten the time from purchase to receipt of
the food. An online channel allowed the customer to quickly complete a digital transaction and await
delivery at home, whereas off-line channels could satisfy immediate demand. For example, consumers who
needed fresh food to cook immediately tended to purchase off-line, from a local store, but if no physical
stores were available nearby, online shopping would be preferred.

Overall, whether online or off-line selling dominated depended on the product type, information
requirements, means of evaluating the products, local demographic characteristics, and proximity to
physical store locations. Online channels could provide massive amounts of information, benefiting sales
of standard, content-driven goods. Online shopping could also save travel time for customers, and shelf
space for retailers. With the application of big data, online channels were conducive to the speed and breadth
of marketing. On the other hand, off-line channels could stimulate on-site purchases by displaying physical
products, allowing customers to evaluate quality directly and receive the available products immediately.

In addition to the individual advantages of each channel, retailers cold use both systems to complement
each other and create a synergy effect. For an online store, a physical store could effectively expand market
coverage and provide an important way to stabilize positive customer behaviour online. Studies showed
that customers shopped faster, spent more, and were less likely to return items after experiencing the brand
off-line.9 A positive off-line purchasing experience could also enhance product discovery and brand loyalty,
thereby generating cross-channel purchase intention, 10 and promoting multi-category shopping in an
omnichannel environment. Even if the physical store was only used as a showroom to exhibit (rather than
sell) the products, it could improve overall operational efficiency and increase overall demand. 11
Conversely, superior service in the online channel, such as fast delivery, could have a positive spillover
effect on the physical store and result in higher overall sales.12

9
David R. Bell, Santiago Gallino, and Antonio Moreno, “Offline Experiences and Value Creation in Omnichannel Retail,” SSRN
Electronic Journal (January 2018).
10
Steffeen Jahn, Tim Nierobisch, Waldemar Toporowski, and Till Dannewald, “Selling the Extraordinary in Experiential Retail
Stores,” Journal of the Association for Consumer Research 3, no. 3 (2018): 412–424.
11
David R. Bell, Santiago Gallino, and Antonio Moreno, “Offline Showrooms in Omnichannel Retail: Demand and Operational
Benefits,” Management Science 64, no. 4 (2017): 1629–1651.
12
Marshall L. Fisher, Santiago Gallino, and Joseph Jiaqi Xu, “The Value of Rapid Delivery in Omnichannel Retailing,” Journal
of Marketing Research 56, no. 5 (2019): 732–748.

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OPPORTUNITIES AND CHALLENGES FOR SUNYUKI

Long was evaluating the potential opportunity of Sunyuki launching physical stores to complement online
sales. Long believed that Sunyuki physical stores would serve as a marketing communications tool for the
online channel to promote the brand. They would be “showing and experiencing” areas that would enable
consumers to become familiar with Sunyuki products. By promoting brand awareness, the physical stores
would increase the number of new local customers and serve as a vehicle to increase Sunyuki’s membership
base. The stores could eliminate customer concerns about product quality by allowing consumers to
physically experience Sunyuki’s organic fresh foods. They would also gather information about consumer
preferences to better serve customers. Sunyuki could increase sales not only through the new stores but also
through the existing online channel by stimulating brand awareness through the synergy of the omnichannel
effect. Long thought that Sunyuki stores could be locally located in communities where new customers
could become aware of the brand, the products, and the health benefits of organic foods. These customers
could eventually become new Sunyuki member customers.

According to Long, the Sunyuki stores could be built to serve as mini inventory warehouses located nearby
the end consumer. They would significantly shorten delivery time and reduce costs of cold chain logistics.
Improvements in delivery could also help increase customer loyalty for Sunyuki products at both online
and physical stores, thus enhancing Sunyuki long-term strategies. However, the potential launch of physical
stores also invited various challenges, such as high operating costs. According to the company’s initial
community advertising and membership campaign, most Sunyuki member customers were located in
relatively high-end communities across the city, which would be the potential locations for physical stores
(see Exhibit 8). Opening self-built physical stores meant great financial pressure on Sunyuki, which online
operations did not pose, including fixed assets, rental, utilities, and labour expenses. Establishing physical
stores would mean a long-term, asset-heavy investment that would be difficult to budget in a short time and
would put Sunyuki at risk if its off-line strategy did not succeed.

In addition, Sunyuki’s current supply chain would unavoidably face more complex inventory management
challenges after opening physical stores. The mechanisms of supply chain management for off-line stores
and online distribution were quite different. With only online channels, customers placed orders on the e-
commerce platform. The orders were then handled and sorted in priority at Sunyuki’s central warehouse,
before distribution to the customer’s address through cold chain logistics (see Exhibit 7). With the newly
opened physical stores, member customers could place orders online or purchase products in the stores.
Acting as mini warehouses nearby the end consumers, the new stores would also be responsible for home
delivery within their area. Delivery time could be reduced from one day to less than one hour (see Exhibit
9). However, inventory management would become more complicated. The fresh goods stored in the
physical stores would be fulfilling both local customer purchases in the physical stores and online orders
within their area. But with fresh vegetables having a shelf life of only three days, keeping an excess of
supplies in the stores would inevitably result in a huge loss if they could not be sold in time. On the other
hand, maintaining only the minimum inventory could fail to meet demand and lead to lost sales.

Long was also concerned about the uncertain synergy of the omnichannel environment. The new physical
stores could cannibalize online orders and sales for that area, causing a substitution effect. With the opening
of new stores in their area, customers who previously placed orders online might be inclined to buy the
organic foods in the new stores located nearby their homes. Therefore, if off-line stores could not provide
differentiated services to enhance the customer’s purchasing experience, the new channel could undermine
Sunyuki’s core advantages as a fresh-food e-commerce business that offered online service and home
delivery of its organic food. Although Sunyuki expected to attract new members through the new physical
stores, it also faced the challenge of balancing the online and off-line sales growth rates to enhance the
membership experience and produce economies of scale.

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POTENTIAL ISSUES FOR SUNYUKI IN THE FUTURE

As one of the first online fresh-food businesses in southwestern China, Sunyuki had experienced the
growing pains and development of organic agriculture at the infancy stage. Initially, few customers were
able or willing to accept the high cost of organic food and the new system of online shopping for fresh food.
Sunyuki devoted huge efforts and investments to promoting its products, implanting the concept of
consuming organic food, and cultivating new consumer habits. Based on its own data, Sunyuki estimated
the average cost of acquiring a new member customer at approximately ¥100. However, after being
convinced of the benefits of organic foods, some consumers could choose to buy from Sunyuki’s
competitors, as the fresh-food industry continued to grow quickly and competition intensified. Because
fresh foods were non-exclusive products, customers could choose to buy the foods from competitors after
visiting Sunyuki’s stores. With more competitors entering the market, Sunyuki faced the major issue of
maintaining member customer stickiness and brand loyalty.

Another issue Sunyuki faced regarding the positioning strategy of new physical stores was differentiation
from typical grocery stores. Long considered two possible directions for its physical stores positioning
strategy: community pre-warehouse and supermarket + catering.

Community Pre-warehouse Model

Long felt that the community pre-warehouse model would be an asset-light strategy of locating stores as
close as possible to the end consumer. This model would be integrated with warehousing, sourcing, and
delivery functions to significantly increase speed of delivery. Studies had shown that as a brand
enhancement tool, faster delivery could lead to the increase of sales in both online and off-line retail.13 If
Sunyuki organic foods could be accessed and distributed to customers within a concentrated area, delivery
time could be reduced to less than half an hour, solving one major concern of organic food customers and
improving the brand loyalty. According to Long, the physical stores could be located within each
community with only one or two workers needed, which would keep fixed assets, rental, and labour
expenses well below those of typical stores (see Exhibit 10). This model would also reduce product losses,
shorten the distribution chain, and reduce the cost of cold-chain delivery. However, Long worried that it
would not help Sunyuki acquire many new customers.

Supermarket + Catering Model

The supermarket + catering model, as well as various similar arrangements, required a much heavier-asset
operation. New stores would be positioned not only as locations for customers to purchase fresh foods but
also as integrated kitchens and restaurants that provided customers with an on-site consumption experience.
This model was expected to attract new customers and stimulate consumer purchasing options. In such a
venue, customers could taste the fresh food, learn how to cook new recipes, and exchange healthy lifestyle
information with both Sunyuki and other customers. Through direct interaction with customers, Sunyuki
would promote its brand and boost sales. As this model emphasized, customers could go to the Sunyuki
store to experience and also consume the fresh foods. Long envisioned the physical area of a multi-purpose
store to be about 700 square metres, with high fixed assets and operating expenses (see Exhibit 10),
requiring considerable financial investment.

13
Ibid.

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Sunyuki’s Next Steps

Two key factors would influence which model to choose: local population and rental costs. The local area
needed to attract a sufficient number of customers to sustain the operations of a physical store. Obviously,
areas with higher population density would generate higher customer traffic, and Chengdu’s population
density varied across the different parts of the city from approximately 3,000 to 40,000 people per square
kilometre (see Exhibit 11). Regarding rental fees in the city’s different locations, the range was based on
proximity to the city centre. Chengdu was geographically built as expanding from the centre to the
surrounding areas. The closer a store was located to the centre, the higher the rental fee would be. Based
on Sunyuki’s own research, monthly average rental fees in the city’s nine major trading areas varied from
¥86.93 to ¥490.34 per square metre (see Exhibit 10).

Sunyuki was facing challenges for market expansion under its current operations. With rapid growth in the
fresh-food industry and intensifying competition in the market, Long needed to carefully consider his next
steps. Sunyuki had to plan appropriately for its distribution channel strategy, to avoid potentially major
problems. If Sunyuki decided to expand off-line by opening physical stores, how should it proceed?

Jing Liang is a PhD student at Southwestern University of Finance and Economics, China.

Shilei Yang is a professor at Southwestern University of Finance and Economics, China.

Jing Chen is a professor at Dalhousie University, Canada.

This case was funded by the National Natural Science Foundation of China (Grant No. 71871186 and 71331004),
and the Fundamental Research Funds for the Central Universities (JBK18JYT02, JBK1902009).

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EXHIBIT 1: SUNYUKI AGRICULTURAL CO., LTD. SELECT FINANCIAL INFORMATION, 2010–2014

(IN MILLIONS OF ¥)

40.00 20%
35.00 10%
30.00 0%
-10%
25.00
¥ Million

-20%
20.00
-30%
15.00
-40%
10.00 -50%
5.00 -60%
- -70%
2010 2011 2012 2013 2014

Revenue Operating revenue

Operating costs Gross profit

Note: ¥ = CNY = Chinese yuan; ¥1 = US$0.161 on January 1, 2015.

Source: Company documents.

EXHIBIT 2: TYPICAL ONLINE FRESH-FOOD PRODUCT PRICES (IN ¥ PER KILOGRAM)

Vegetables Fruits Meat Aquatic Product

Representative item Spinach Tomato Watermelon Orange Pork Shrimp
Price 1 1.0–4.0 2.0–5.6 1.0–2.1 2.6–9.0 20.0–40.0 36.0–60.0
Price 2 4.8–14.0 6.6–13.8 3.2–8.3 11.0–23.0 21.8–52.0 46.0–80.0
Price 3 43.2–47.2 35.0–41.25 14.9–16.9 29.6–35.52 95.6–217.9 168.1–172.5

Note: Price 1 represents the wholesale price of products in the traditional agricultural market; Price 2 represents the retail
price of products on the fresh-food e-commerce platform; Price 3 represents the selling price of organic products on the
Sunyuki platform; ¥ = CNY = Chinese yuan; ¥1 = US$0.161 on January 1, 2015.
Source: Company documents; iResearch, 2015 China’s Fresh Food E-commerce Report, accessed August 27, 2019,
www.iresearchchina.com/content/details8_19345.html.

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EXHIBIT 3: SUNYUKI AGRICULTURAL CO., LTD. ORGANIC FARMS AND CENTRAL WAREHOUSE

High mountain cold farm

Central warehouse

Plain temperate farm

Subtropical farms

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EXHIBIT 3 (CONTINUED)

China Organic China Conversion to

Map
Farm Name Suburb Production Organic Production
Number
Certification Certification
1 Qingxia Farm Mianyang √
2 Gaoyuan Farm Phase I Xinfan √
3 Chongyi Farm Dujiangyan √
4 Anha Farm Xichang √
5 Xijiao Farm Xichang √
6 Gaoyuan Farm Phase II Xinfan √
7 Munigou Farm Aba √
8 Shunjiang Farm Pujiang √
9 Langhuan Farm Liangshan √
10 Daqing Base Xichang √
11 Lianghe Farm Dujiangyan √
12 Puge Farm Liangshan √
13 Qiliba Farm Liangshan √
14 Yangjiaoba Farm Liangshan √

Source: Sunyuki Agricultural Co., Ltd., “Introduction to Organic Farms” [in Chinese], accessed December 30, 2015,
www.sunyuki.com/farms; “Relation: Sichuan (913068),” Open Street Map, accessed December 12, 2019,
www.openstreetmap.org/relation/913068#map=7/29.338/101.926&layers=TG.

EXHIBIT 4: OUTPUT OF FRESH FOOD IN CHINA, 2009–2015

(IN HUNDREDS OF MILLIONS OF TONS)

12.0
10.6 10.9
10.1 10.3
9.7 0.9 1.0
10.0 0.9
9.0 9.0 0.9 0.9
0.9 0.9
0.8 0.9
0.8 0.9 0.8
8.0 2.5
100 Million Tons

0.8 0.8 2.3

2.2 2.3
2.1
1.9 2.0
6.0

4.0
6.2 6.3 6.5 6.6
5.5 5.9
5.3
2.0

0.0
2009 2010 2011 2012 2013 2014 2015

Vegetable Fruit Meat Others

Source: National Bureau of Statistics of China, “National Data,” accessed August 27, 2019,
http://data.stats.gov.cn/easyquery.htm?cn=C01.

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EXHIBIT 5: ACTUAL AND ESTIMATED GROWTH IN THE CHINESE FRESH-FOOD E-COMMERCE

MARKET, 2010–2019 (IN BILLIONS OF ¥)

3,500 300.0%
285.7%

3,000 2,888.4
250.0%

221.5%
2,500
200.0%
2,103.2
2,000
150.0% 150.0%
1,500 1,402.8
122.7%
100.0%
1,000 914.0
86.9%

542.0 50.0%
500 68.6%
290.0 53.5% 49.9% 37.3%
130.2
4.2 10.5 40.5
0 0.0%
2010 2011 2012 2013 2014 2015e 2016e 2017e 2018e 2019e

Fresh food e-commerce market (CNY billion) Annual growth rate

Note: Data from 2015 to 2019 represents iResearch forecasted estimates; ¥ = CNY = Chinese yuan; ¥1 = US$0.161 on
January 1, 2015.
Source: iResearch, 2015 China Fresh Food E-commerce Report, October 19, 2015, accessed August 27, 2019,
www.iresearchchina.com/content/details8_19345.html.

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EXHIBIT 6: PER CAPITA DISPOSABLE INCOME AND ENGEL’S COEFFICIENT OF URBAN

RESIDENTS IN CHINA, 2009–2014 (IN ¥)

40,000 37.90% 40%

36.50% 35.70% 36.30% 36.20%
35.00%
35,000 35%

30,000 28,844 30%

26,955
24,565
25,000 21,810 25%
19,109
20,000 17,175 20%

15,000 15%

10,000 10%

5,000 5%

0 0%
2009 2010 2011 2012 2013 2014
Per capita disposable income (CNY) of urban residents
Engel's coefficient (%) of urban residents

Note: ¥ = CNY = Chinese yuan; ¥1 = US$0.161 on January 1, 2015

Source: National Bureau of Statistics of China, “National Data,” accessed August 27, 2019,
http://data.stats.gov.cn/easyquery.htm?cn=C01.

EXHIBIT 7: FRESH-FOOD E-COMMERCE MARKET INDUSTRY CHAIN IN CHINA

Source: Prepared by the case authors based on iiMedia Report, 2019 China Fresh Food E-commerce Industry Business
Model and User Portrait Analysis Report [in Chinese], March 2019, accessed April 17, 2020, www.iimedia.cn/c400/63898.html.

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 Page 14 9B20A054

EXHIBIT 8: SUNYUKI AGRICULTURAL CO., LTD. AVERAGE MONTHLY SALES HEAT MAP, 2014

Central
warehouse

5
1
4

3 7

Note: Map numbers 1–9 represent potential Sunyuki store locations; dotted circles represent areas within a radius of one
kilometre.
Source: Company documents and “Karte” [in German], Open Street Map, accessed December 12, 2019,
www.openstreetmap.de/karte.html.

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EXHIBIT 9: SUNYUKI AGRICULTURAL CO., LTD. ONLINE + OFF-LINE DISTRIBUTION

Online platform

Cv
Advertising
Orders
Orders
Farmer

Cv Home delivery
Central warehouse Offline store (within 1 hour)
Consumer

Cv Cv Cv
Pick up in
Food supplier store/consume

Cv
Cold chain distribution(within 1 day)

Source: Prepared by the case authors based on company files.

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EXHIBIT 10: ESTIMATED COSTS OF OFF-LINE CHANNELS (IN ¥)

Community Mini Warehouse Physical (Off-line) Store Multi-Purpose

Mini Warehouse Physical Store Multi-Purpose

Fixed Asset Investment 150,000 500,000 9,800,000
Monthly rent costs of Average monthly Average monthly Average monthly
potential locations total rent costs total rent costs total rent costs
(see Exhibit 8) (in ¥ per 25 square (in ¥ per 100 (in ¥ per 700 square
in ¥ per square metre metres) square metres) metres)
1 490.34 12,259 49,034 343,238
Average monthly 2 162.16 4,054 16,216 113,512
rent costs for 3 236.77 5,919 23,677 165,739
potential off-line
4 190.15 4,754 19,015 133,105
channels
5 306.13 7,653 30,613 214,291
6 235.00 5,875 23,500 164,500
7 202.51 5,063 20,251 141,757
8 162.96 4,074 16,296 114,072
9 86.93 2,173 8,693 60,851
Monthly utilities expenses 3,000 10,000 65,000
Monthly human resources costs 8,000 18,000 21,000

Note: ¥ = CNY = Chinese yuan; ¥1 = US$0.161 on January 1, 2015.

Source: Prepared by the case authors with company documents and information from Suyuki, “Stores” [in Chinese], accessed December 17, 2019,
www.sunyuki.com/forward/store; Chinese House Prices website [in Chinese], accessed August 27, 2019, www.creprice.cn/city/cd.html?type=lease&proptype=22; 51Job,
“Sunyuki” [in Chinese], accessed August 27, 2019, https://jobs.51job.com/all/co2497682.html.

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EXHIBIT 11: CHENGDU POPULATION DENSITY

Note: km2 = square kilometre.

Source: “Chengdu” [in Chinese], City Population, accessed December 12, 2019,
www.citypopulation.de/zh/china/townships/chengdu; “Karte” [in German], Open Street Map, accessed December 12, 2019,
www.openstreetmap.de/karte.html.

This document is authorized for use only in Jing Shao's Supply chain management at University of International Business and Economics (UIBE) from Apr 2021 to Aug 2021.