A truck with the logo of Yiguo.com in Shanghai, March 30, 2016. [Photo/IC]

Chinese home appliance retailer Suning Commerce Group is leading a $200 million round of new fundraising in Yiguo.com, a fresh produce e-commerce platform backed by Alibaba Group Holding Ltd, bringing the total of Yiguo's fundraising in 2016 to $500 million.

Zhang Ye, CEO of Yiguo, said the funds raised will be used to develop its supply chain capacities, logistics infrastructure and distribution channel expansion.

Zhang said he expects 11-year-old Yiguo to be profitable in 2018, but he did not disclose Yiguo's financial goals.

"In a market with developed standards, buyers would not ask the seller to help them pick a 'sweet' watermelon because it is assumed that every watermelon on sale must be 'sweet'. In China, we want to set standards in terms of food safety, quality, supply chain, distribution channels and logistics. It will take huge funds to reach this goal," said Zhang.

The fresh produce e-commerce market has been experiencing difficulties, with low penetration and a small market share.

According to a research report by Kantar Worldpanel, a market research services provider, e-commerce platforms' share in the fresh produce sector is below 5 percent, the lowest among all online tradable products. E-commerce platform's market share in clothing, books and fast-moving consumer goods is above 20 percent.

According to a research report published earlier this year, only 1 percent of some 4,000 fresh produce e-commerce players are profitable, 4 percent break even, and 95 percent are loss-making.

Several market players, including yummy77.com, which was among the top 20 players in terms of users and transaction volumes, closed down in the past 12 months due to significant losses, according to the research.

Bruno Lannes, a partner with Bain & Co China, said fresh produce platforms are facing difficulties because consumers still have concerns over the quality of products and their shopping experience.

"When buying fresh produce, consumers would like to touch, smell and feel, as a way to confirm the quality is good. When consumers are not as satisfied as expected when fresh produce are delivered, the shopping experience is not nice and they stop shopping for fresh goods online. It is really difficult for players to always maintain the highest standards because there are so many steps to manage and handle," said Lannes.

But Wang Wei, head of Muheng Investment Management and Consultancy Ltd, remains confident about the market's prospects.

"Despite the difficulties in the fresh produce e-commerce market, the outlook for big players with high standards, large market share and a solid footprint is most likely to be good, because the market volume could reach trillions of yuan. As both a consumer and an investor, I believe that demand for high-quality fresh produce will grow at a fast pace," said Wang, whose company also provided financial backing to Yiguo.