Benlai: Cut Me a Check

If you have ever taken taxi in Beijing and have been stuck in traffic (a fate impossible to avoid), you might have noticed an ad for Benlai, an e-commerce site promoting healthy food.

As the Chinese saying goes: “food is the sky for the people”. Nothing is more paramount in importance to the Chinese than dinning, and there is a great amount of money to be made. Furthermore, the concern regarding the quality of food seems to imply that there is also demand for organic and safe good.

This is where Benlai comes in. The site was meticulously described in BusinessWeek China. The article describes how a good of former member of the media decides to utilize their professional skills to package and market food to make it appealing. The site has already raised over $15 million, and wants to build its own distribution network and offer great food all at a premium price.

The story behind Benlai is even more fascinating than its business model. Among its army of media veterans, the alpha dog of the group is doubtlessly Yu Huafeng. Formerly the general manager and deputy editor of the Southern Metropolis News, Yu was briefly mentioned by Philip P. Pan for his part in uncovering SARS and a series of other scandals that reflected the lesser pleasant aspects of China’s march towards modernity. For his efforts, Yu was sentenced to 12 years of imprisonment. He was released after 4 years, and Benlai is his third crack at Internet ventures after a couple of high profile gigs at Netease and Alibaba.

As much as I want to root for Benlai to succeed, I harbor great doubt for its future. The entire business of Benlai could be summed up in one word: premium. That means they want to people pay extra dollars in a city where many people routinely calculate over pennies.

So far, Benlai’s marketing effort is focused on two fronts: ads in taxi and free samples to office workers. Now, people who ride on taxi may be better off than those forced to take crowded subways, but they are still price sensitive. The new plan to raise taxi prices by less than a dollar supposedly would eliminate a great amount of demand, because these people would choose the metro or the bus instead to save a buck.

As for office workers, we can see how the react to Benlai’s marketing effort on Dianping. Most people like their free sample, but they would never pay for Benlai’s product out of their own pocket. You can’t really blame them either. On one hand, while office workers do make more than others on average, they do live in Beijing, where rent alone eats away half of their earnings. On the other hand, even if they could afford Benlai’s product, they could buy them elsewhere for a cheaper price. Benlai’s products usually have slightly inferior, but much cheaper alternatives. Even for the same product, Benlai is usually more expensive: itcharges 10% more than Tmall sites.

Therefore, for Benlai to work, it must achieve three goals. It must first find and convince the ever elusive Chinese people who are willing to pay for premium products; they do exist, but there are not as many of them around as people usually assume, and they are usually rather calculating in how to spend their money and what they spend on. Secondly, it must convince them that Benlai is a premium brand, which means the upstart needs to win against the shops already offering this service. Last but not least, it needs to convince the rich to pay extra for its offering. This will be an uphill battle, to say the least.