View
6
Download
0
Category
Preview:
Citation preview
© InterChinaConfidential
Strategy | Corporate Finance
www.InterChinaConsulting.com
E-commerce (‘EC’) driven-Opportunitiesfor Italian Technology Providers inChina’s Packaging Equipment Sector
Presentation
Presented to:
Prepared by: InterChina
Date: Oct 23, 2019
© InterChinaConfidential
InterChina Leading Strategy and Corporate Finance Firm in China
Our Value
• China specialist.
• Strategy and Corporate Finance.
• Focused on 5 sectors.
• 25 years of experience.
Our People
• Located in Beijing and Shanghai.
• Multicultural partnership.
• 50 professionals.
• Chinese, senior, industrial background.
2
Our Clients
• Medium-sized to Fortune 500.
• 600+ strategy projects.
• 170+ transactions (USD 8+ bn).
• 2/3 of projects are returning clients.
Our Global Reach
• InterChina’s partner, Clearwater International, (CWI) focuses on providing corporate finance advice for mid-market transactions.
• 15 offices, 41 partners and 200 staff.
• 1100+ transactions w/ total value of €43 bn.
© InterChinaConfidential
Buildingautomation
infrastructurerailway
Packaging, print, paper, converting equ.
Automation component; sub-system makers
Design, Engineering, Logistics, Services
OEMsMachinery / production equipment makers
Covering nearly the entire industrial value chain: Close to 200 clients have trusted InterChina to help them with their China growth issues…
3
© InterChinaConfidential
Italian players export USD 200 m worth of systems to China, but account for only 5% of the USD 4 bn import market…
4
China’s top pack. equ. / technology importers (all 8 categories acc.), in USD m
Source: Euro monitor, product value is the accumulation of products with HS code: 84224000, 3923, 48191000, 48192000, 84719000, 3215, 84289040, 84798992, 84271010, 84271020, 84283300, 84283910, 84283920.
Italy’s exports to China, in USD m
Japan
216
114
227
644
397
310339
S.Korea
528
676
250
55
311
43
452
2014
658
631
677
358
158
354
319
219
67
1304965
886
547
2015
714
300
271
198
13953
2018
491
74
584
2016
456
960
240
215
Taiwan
67
511512
2017
565
513
274
739
5959
Germany
USA
China*
Italy
Malaysia
France
413
149
Singapore
Others
4,060
3,880
3,603
3,757
4,041
135
789
177
198
3(2%)
1(1%)
2018
73(37%)
Cat 1: Packing andwrapping equ.
Cat 2: Packaging materials
Cat 3: RFID / bar code readers
Cat 4: Packaging printingequ. & inks
Cat 5: AGV/RGV
Cat. 6: Automated warehouse equ.
Cat 7: Automatic palletizer
Cat 8: Automatic sortingequ., conveyors
8(4%)
17(9%)
20(10%)
28(14%)
47(24%)
* “China“ as an origin country means products manufactured in China, shipped out of China, and reimported. This includes bonded zones and export processing zones and spare parts which have been declared for export and re-entering China.
© InterChinaConfidential
However, imports start to lose market share against local vendors which offer lower prices, more flexible solutions, and quicker services
5Source: China Customs, InterChina analysis
2,159 2,070
1,813 1,9002,099
4,8825,080 5,106
5,475
5,723
2014 2015 2016 2017 2018
-3%
+17%
China’s import of 7 Categories* China’s total market value of packaging equ.** , incl. import and locally made
China’s total packaging equ. market size, in USD m
* We exclude “packaging materials” (HS codes 3923, 48191000, 48192000, 3215 ) from this analysis as no corresponding data on the local (total) market can be established.
© InterChinaConfidential
Already, 14% of China’s FMCG (excl. fresh produce) are sold online… this number is expected to grow to 1/3rd of all value by 2025
6
19%
14%
8%7%
6%4%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
China Mainland
1%
Taiwan Brazil
24%
ArgentinaUK
31%
20%
3% 3%
0%
South Korea
9%
USA
12%
France
8%
2018GlobalAverage:5.1%
2025E
As of 2018
E-commerce value share of FMCG (excluding fresh produce) sold in different countries
Source: Kantar World Panel, US Commerce Department
© InterChinaConfidential
China’s e-commerce players keep growing at fast speed…
Source: Internet Research, Alibaba & JD GMV, InterChina Interviews and Analysis
Notes:
7
Unit: %
Alibaba still dominates China’s E-commence market
Pinduoduo
Alibaba
12%
others
VIP.com
JD
2018
100
20%
5%
16%
58%
2017
100100
58%
14%
33%
53%
2016
25%
3%3%
New entrance like Pinduoduo with skyrocketing GMV
Pinduoduoskyrocketed
in 2018
0
50
100
150
200
250
300
350
400
450
500
550
600
650
700
2014 2015 2016 2017 2018
+98%JD
+234%+78%
+42%
+31%
+30%
+2%
+26%
+28%
Pinduoduo
Alibaba
Unit: USD bn
+371%
Pinduoduofounded in 2015.10
Top 3 E-commence platform GMV2014-2018
Top 3 E-commence platform market share 2016-2018
© InterChinaConfidential
… and contribute already significantly to China’s economy
Source: Internet Research, Forward-the economist, Oxford Economics, IMF, InterChina Interviews and Analysis
Notes: 1EC including total 2C tangible products online sales , 2023 China’s GDP outlook based on IMF’s GDP annual growth rate
8
Unit: m
China’s express package volume grows at >20% yoy EC drives China GDP
Top 4 logistic companies monthly package numbers2017.11 VS 2018.11
66
8778
11388
115
48Shengtong
826
+24%
2017.11 2018.11
55
Yuantong
Others
Yunda
664
Shengfeng
456384
+31%
+32%
+45%
+14%
10.72
2016
0.99 (8%)
10.38
9.72
12.69
EC +23%
2017
0.66 (6%)
2015 2023E
16.98
11.58
0.86 (7%)
Others +6%
2.46 (15%)
2018
11.70
14.52
0.54 (6%)
9.16
2014
8.60
0.39 (4%)
9.70
8.99
Unit: USD tn
China’s EC 1 share of total GDP2014-2018, 2023E
7
6
4
3
2
20182017201620152014
Unit: bn
China’s total express package number2014-2018
1
6 EC packages
2018
7
Other packages
© InterChinaConfidential 9
Penetration rate of Automated Warehouse in China, compared with developed countries Y2018
But still: China features 7x less automated warehouses than Japan… automation penetration is alarmingly low, as labor is still preferred
Num. of automated warehouse, compared with developed countries Y2018
5,390
10,000
20,000
38,000
China JapanU.S.Germany
Unit: # automated warehousesUnit: penetration of automated warehousing
20%
80%
100%
China Developed contries
Automated
Non-automated
• Incl. warehousing logistics and production/factory logistics. • Incl. warehousing logistics and production/factory logistics.
Source: China Logistics Information Center Source: China Logistics Information Center
© InterChinaConfidential
Cainiao (Alibaba’s logistics subsidiary) features 325 DCs across the country, yet most are not fully automated… they want to buy Chinese equipment at lower cost
10
Company Background• Company name: Cainiao• Homepage: https://www.cainiao.com/• Distribution centers/warehouse: 325 in China,
covering 20 provinces and municipalities (by July, 2019)
• Total floor space of distribution centers: 5.65 mil. square meters (by July, 2019)
• Packaging equ. budget: (a) Big distribution centers: USD 150~300 mil. (e.g. Jiaxingproject, involving 30 warehouses) (b) Medium distribution centers: USD >14 mil./center (c) small warehouses: USD <14 mil./center
E-commerce activity• Online sales orders: 800mil/day (2017 Tmall
11.11 shopping festival)1
• Online sales growth: 25% Y.O.Y. (2018 Tmall11.11 shopping festival) 1, reaching 1bil./day
Major challenges from e-commerce• Continually increased orders require faster
handling speed • To increase consumer shopping experience
and reduce the logistic cost
Source: 1 2nd resource, outsourced to/corporate with 3rd parties weak correlation to e-commerce; strong correlation to e-commerce
Sorting Labeling Cartoning Wrapping PalletizingNeed for assistance / new solutions
• Some of Cainiao’s distribution centers are surprisingly still quite labor intensive:• Cainiao has 3 types of distribution centers: (a) Highly automated distribution centers, where
big orders (e.g. 1mil. per SKU per year, typically from brands) with standard boxing are handled automatically (b) Semi-auto distribution centers, similarly, but certain handling steps are done manually (c) Manual distribution centers, where more manual steps are involved, using automated machine as assistance for product transaction. Such distribution centers handle smaller-orders, non-standardized size of boxes/ bags, typically face to Tmall store owners.
• Cainiao is looking to up their automation levels at the right cost, and with fewer equip. downtime:• Comments on foreign equip.: high cost both machine and service, non-replaceable spare-
parts, slow delivery time of spare parts, software-upgrading not accessible. Also requirement on high standardization of the sizing and position of boxes, which often cause downtime due to the current status of China logistic packaging.
• Cainiao will buy automation solutions from cheaper local players instead of from import / foreign players:
• Local players offer equip. that are less sensitive to irregular shapes and sizing of boxes/bags. Equivalent to a downgraded version of import/foreign brand.
• Much cheaper price both for equip. and service.
Serializing, coding, marking & labelling solutions for product tracking, labels, holograms, decorations, etc.
Printing technology, inks, consumables (e.g. use of higher graphics printing)
Robots (e.g. robots that can place products in corrugated boxes with human quality control)
Flexible storage end-of-line systems (for pallet forming wrapping, cartoning, automatic taping etc.)
Remote web-based plant vision, inspection and control systems
Services (software & platforms, packaging design, predictive maintenance, info-security, etc.)
Mostly referring to distribution centers in East China region
© InterChinaConfidential
Beijing Jingdong Century Trading Co.,Ltd. (JD.com)features China’s most advanced EC DC (“Asia 1”), strong preference for Chinese suppliers
11
Company Background• Company name: Beijing Jingdong Century
Trading Co.,Ltd.• Homepage: www.jd.com• Warehouse locations: there are over 500
warehouses in China, with 23 highly automated Asia No 1 warehouses.
• Main products: EC service & logistic• Total size: USD 66,843 m sales (2018)• Packaging equ. budget: JD’s centralized
decision making for packaging equ. Purchasing. Most of budgets will be used on Asia No. 1 warehouses. Different warehouses will have different budget.
E-commerce activity• 2016 “6.18” JD order numbers: over 100
million orders during “6.18”• 2018 “6.18” order value: USD 18 billion
Major challenges from e-commerce• Orders are highly personalized• Bundle packaging requirements• Increasing cost of secondary/logistic
packaging
Source: 1 InterChina interview, 2 JD Annual Report, 3 JD Website 5 weak correlation to e-commerce, 6 strong correlation to e-commerce, 7 “6.18” online shopping festival of JD, 8
Labeling FFS* Cartoning Wrapping PalletizingNeed for assistance / new solutions
• Motivated to develop more automated warehouses:• JD self-purchased land, self-designed new logistic warehouse is called "Asia no. 1”, it can
be divided into three types: 1) Highly automated 2) Moderately automated 3) Ordinary • There are only 2-3 Asia no. 1 can be considered as highly automated, less than half of
Asia no. 1 are moderately automated (there are some process use automated solutions, like AGV, stocking robots etc.,), and all the others are just ordinary ones (manually with no or few automated process).
• Considering the total warehouse number of JD (over 500), the average automation level is still low, with the following reasons:
• Frequently changing warehouse planning makes storage and sorting automation almost impossible.
• With rapidly changed order volume, low cost effective to build an automated sorting or cartoning line.
• Automation lines have more strict requirements of plant space. • JD will prefer Chinese suppliers if machinery with similar features:
• With the development of local suppliers, most of the technology requirements can be fulfilled. There are very few machineries that only provided by foreign suppliers.
• Chinese suppliers can provide cheaper products, faster response, flexible business terms and more customized needs.
Serializing, coding, marking & labelling solutions for product tracking, labels, holograms, decorations, etc.
Printing technology, inks, consumables (e.g. use of higher graphics printing)
Robots (e.g. robots that can place products in corrugated boxes with human quality control)
Flexible storage end-of-line systems (for pallet forming wrapping, cartoning, automatic taping etc.)
Remote web-based plant vision, inspection and control systems
Services (software & platforms, packaging design, predictive maintenance, info-security, etc.)
Referring to Asia No. 1 warehouses in China.
Note: *FFS refers to form-fill-seal
© InterChinaConfidential 12
BC category BC No. Details
Food, Fresh & Convenience
BC1
Vegetables, Fresh cut and Ready-to-eat foods, Preserves, Purees, Oil and Vinegar Pickles, Fresh and Dried Fruit, Compotes, Jams, Condiments, Ready and pre-cooked meals, Delicatessen, Spices and Aromas, Tea, Coffee, Packaged milk, Yogurt, Butter, Cheese, Cream, Ice cream, Frozen food, Pet food
Pasta, Bakery & MillingBC2
Cereals, Couscous and similar products, Flour and other Grains, Pet food, Bread and derivatives, Fresh pasta, Filled pasta, Dry pasta, Rice, Pizza, Biscuits, Crackers, Rice Cakes, Crisp Toasts, Brioches, Leavened products, Snacks, Ready-made cakes and other baked goods
Sweets, Confectionary & Snacks
BC3Candied fruit, Sweets, Jelly, Chewing gum, Confectionery, Liquorice, Cocoa and Chocolate, Chocolates, Nougat, Snacks and Bars, Sugar, Sweeteners
Liquid Food & Beverage BC4 Mineral water, Spirits, Beer, Wine, Soft Drinks, Drinks, Baby Drinks, Juices, Oil
Beauty & Personal Care BC5 Cosmetics, Creams, Perfumes, Personal Care Products, Personal and Dental Hygiene Products
Industrial & Durable Goods
BC6Furniture, Household appliances, DIY, Hardware, Automotive (cars, bicycles, motorcycles), Electronics, Building, Tissue, Paper, Publishing, Logistics and Transport, Industrial semi-finished products
Chemicals & Home Care BC7Household cleaning products, Cleaning agents, Detergents, Soaps, Waxes, Commodity chemicals, Glues, Inks, Varnishes and Enamels, Gases, Rubber, Petrochemicals, Paints, Plastics, Fibres
Pharma & Nutritional BC8Drugs, Parapharmaceuticals, Homeopathic products, Baby food, Free-from and dietary products, Probiotics, Functional & Energy products and drinks, Nutraceuticals
Meat Tech BC9Pre-sliced meats and cured meats, processed, fresh and preserved meat, cold cuts, meat-based ready meals, processed fish
We analyzed the e-commerce activities of 9 BCs (Business Communities), whereas we narrowed our one-on-one customer insights on 5 of those
© InterChinaConfidential
We analyzed the e-commerce activities of 9 BCs (Business Communities)
13
2018 Online sales % as a percentage of total sales of a BC
BC1: Food, Fresh & Convenience BC2: Pasta, Bakery & Milling BC3: Sweets, Confectionary & Snacks
BC4: Liquid Food & Beverage BC5: Beauty & Personal Care BC6: Industrial & Durable Goods
BC7: Chemicals & Home Care BC8: Pharma & Nutritionals BC9: Meat Tech.
Tea Ice creamPackaged milk
Yogurt Food & meals1
4%
Condiments & oils 2
10%
15%14%
6%
4% *<3%
1 Food & meals: Ready and pre-cooked meals, Frozen food, Fresh cut and Ready-to-eat foods, Delicatessen, Pizza. 2 Bread: Bread and derivatives, Crisp Toasts, Brioches, Leavened products, Ready-made cakes and other baked goods, RiceCakes. 3 Others: Couscous and similar products, Flour and other Grains. 4 Condiments & oils: Condiments, oil & vinegar, pickles, spices and aromas. 5 Cleaning products: Household cleaning products, Cleaning agents, Detergents, Soaps,Waxes, Commodity chemicals. 6 Nutr: Drugs, Parapharmaceuticals, Homeopathic products. 7 Drugs: Free-from and dietary products, Probiotics, Nutraceuticals
Bread 2Biscuits, Crackers Others 3 Fresh pasta, Filled pasta,
Dry pasta, Rice
16%
2%
16%
<3% <3%
Snacks, Snacks and Bars
11%
Confectionery, Sweets, Jelly,
Liquorice, Nougat
Cocoa and Chocolate, Chocolates
Sugar, Sweeteners
7%
8% 8%
4%
BeerWine Soft DrinksSpirits Mineral water
7%4%
12%9%
4%1%
Cosmetics Creams Personal Care Products
28%26%
Personal and Dental Hygiene
Products
32%29%
24%
39%
Electronics Automotive Components
Household appliances
Tissue, Paper
14%
Furniture
37%
21%
8%
1%
1%
Cleaning products 5 Paints, Inks, Varnishes and Enamels
2%
8%
Functional & Energy products
and drinks
4%
Baby food Drugs 7
6%
13%
8%
5%
Nutr 6
BC avg.
4%
Pre-sliced meats & cured meats, processed, fresh & preserved meat, cold cuts, meat-based ready meals, processed fish
© InterChinaConfidential
For each of the 5 BC and relevant product categories, brands are either ahead of the trend, or will catch up quickly in the next few years
14
11
10
5
137 10
20
15
289 291412 30862 4 5310
Food, Fresh & Convenience
Sweets, Confectionary & Snacks
Pasta, Bakery & Milling
Meat Tech
2019-2
023 C
AG
R O
nlin
e S
ale
s G
row
th %
Chemicals & Home Care
2018 Online Sales Penetration %
Liquid Food & Beverage
Beauty & Personal Care
Pharma & Nutritional
Industrial & Durable Goods
Current value share of e-commerce vs future growth of e-commerce business
Bubble: Relative size of each BC, in total value
50% growth (Y2017)
83% (Y2018)
42% (Y2017)
30% (Y2019H1)
5% (Y2018)40% growth (Y2018)
30% (Y2017)
30% (Y2018Q2)
25% (Y2018)
50% (Y2018 Y.o.Y.)
12% (Y2018 H1)
30% (Y2018)
20% (Y2018)
25~30% (Y2017-2018)
© InterChinaConfidential
5 BCs will experience rapid online sales growth, and which require new packaging solutions / upgrades of packaging equ. and processes
15
BC1: Food, Fresh & Convenience BC3: Sweets, Confectionary & Snacks
BC4: Liquid Food & Beverage BC5: Beauty & Personal Care
BC8: Pharma & Nutritionals
6%
2016
7%
2017
4%
2018 2019
10%11%
2020
13%12%
2014
83
20232015
4%
8690
94100
109
117
127
CAGR ’19–‘23
4%
9%
CAGR ’19–‘23
CAGR ’19–‘23
CAGR ’19–‘23
CAGR ’19–‘23
USD bn
USD bn USD bn
USD bn
USD bn
202320182017 2020
10%8% 9%
47
2014
5%
20192015
5% 6%
2016
61
44
7% 7%
45
48 50
52
56
4%
8%
11%6% 7%
2016
7% 7%
20172014 2018 2019
333
9%
2023
8%
2020
330
6%
2015
347372
399
441
491
547 6%
12% 28% 34%16%
2014
20%18%
2015 2016
21%
2017 2018 2019
40%
2020
48%
2023
45
7065
55
4248
5259
4%
14%
5%4%4%
20202014
498
2015
438
20182016
7%
405
489505
7%6%
2017
6%5%
581
2019
539
2023
460
4%
9%
• Increased frequency and cadence of new product launches
• Fresh food categories still underrepresented in online sales
• Fast growth of ready to eat food, • Dairy products expected to sell
more online in the future.
• Increased frequency and cadence of new product launches
• Overall segment still underrepresented in online sales
• E-commerce platforms now are targeting wine and spirits brands to bring them online
• Increased frequency and cadence of new product launches
• E-commerce platforms are now targeting respective brands and companies to enlarge their online presence.
• Online is becoming a major channel for beauty and cosmetics brands in China
• Strong collaboration betw. brands and e-commerce platforms
• Nutraceuticals as a key driver for online sales
© InterChinaConfidential
We interviewed 15 relevant co’s (3 of each of the 5 BCs) to gather their experience, needs, and outlook on how EC drives their pka equ. needs
16
BC Companies
BC1
Inner Mongolia Yili Industrial Group Co Ltd
Inner Mongolia Mengniu Dairy Industry (Group) Co Ltd
Foshan Haitian Flavouring & Food Ltd
BC3
Anhui Three Squirrels Electronic Commerce Co Ltd
PepsiCo China Ltd
Mars Foods (China) Co Ltd
BC4
Hangzhou Wahaha Group Co Ltd
Budweiser Wuhan International Brewing Co Ltd
Ting Hsin International Group
BC5
Unilever China Ltd
Hawley & Hazel
L'Oreal China
BC8
Shenzhen Eastroc Beverage Co Ltd
By-Health
Wyeth
Applied Discussion Guide
1. What is your current size (RMB m sales)?
2. What is your current growth (2019 over 2018, in %)?
3. How much of your product sales in China (in %) are going via online channels / e-commerce? 2017, 2018, 2019, 2023E?
4. How fast are the sales of your EC-driven products growing, yoy?
5. For which product do you see the biggest pick-up of online sales, and why?
6. Through which e-commerce channels are your products sold?
7. How well prepared does you company feel for the new online challenge in terms of product, packaging, fulfillment, storage, and so on?
8. What challenges does EC bring to your packaging and filling operations? What’s your biggest headache?
9. Due to rising business with EC, what will you do re. primary, secondary / tertiary packaging, and process and equipment involved?
10. Due to EC, where will you have most needs for change and upgrades along your process?
11. Due to EC, where / into what will you invest more in the coming year(s) / where will you require assistance from technology vendors?
11. What opportunities would Italian packaging equipment / technology players have?
12. Which products / equipments / solutions have you seen at fairs & exhibitions this and last year that you would deem interesting for your own factory?
13. What requirements on packaging equ. / techn. venders do you have?
© InterChinaConfidential 17
There are new customer demands that can be addressed with innovative solutions, both technically and commercially …
• Fast-changing consumer preferences: Brandsare being pushed to diversify product SKUs and toaddress increasingly personalized consumer needsand single-serve orders.
• Challenging product and packaging design:Producing non-standard products in smaller volumeshas become a common practice for many companieswith EC sales.
• Under pressure: Frequently changed non-standardSKUs, and personalized orders still utilize manual orsemi-manual processing. Some companies do not seethe payback of replacing labor with automatedproduction lines for non-standard SKUs.
• Rough handling along the distribution channel:Rough handling by delivery men increase the spoilrate and risks of product damage, and increasecosts.
• Increasing awareness of eco-friendly concept:Brands are paying more attention to environmental-friendly concept, some already made effort inproduct materials/recycling and reuse of packagingboxes. In the long-term, it is possible for the conceptto be applied to production equip.
• Most concerns are related to secondarypackaging. Companies plan less to change theprimary packaging to have better suited SKUs for theEC channels. If changes on primary packaginghappen, then they are related to new (often higher-end) promotional lines. In some cases, plastic filmwindows in a carton box (a POS item) are removedas superfluous for EC sales.
© InterChinaConfidential
• Changes strongly driven by EC focusedon smaller size (primary package and
lighter weight (primary and secondary package): e.g. • Smaller sized liquid laundry, sweets
and snacks • Change the product secondary
package of high-end cosmetics from window box to more endurable package material
• Brands now produce more SKUS with smaller amounts per run.
• High variance of online sales and more diversified SKU ordered by consumers has already changed the packaging process for many brands: A common practice adopted is to add more manual laborers. However, with rising labor cost and EC taking larger share of a company’s sales and volumes, more automated, and more flexible process are demanded.
• Rough handling of goods during the delivery process require more protection to the products. A common practice by brands is to invest more on the secondary packaging and logistic package e.g. adding extra wrap to products, changes of carton etc. (companies much less prioritize a new design or material of the primary packaging).
• While most brands are struggling to balance, some forward thinking companies started to think about new ways to recycle and reuse the wasted cartons. This would require a sophisticated system, with machine-learning capability that could read and select the condition of incoming second-hand cartons.
• Not necessarily EC driven, but areas to further improve still, incl. remote web-based plant vision, inspection and control systems, reduce the carbon emissions during production, etc.
• This require production equip. to be more eco-friendly, more smarter and more efficient to handle the increasing flexible production process.
Where will EC have most impact on customers’ processes?
18
Filling Labeling Cleaning FFS* Cartoning Wrapping PalletizingMaterialsDesign / features
Format
Packaging processPackage
What’s unique about China market
• The most discussion and challenges faced by brands in China market, still focus on secondary packaging for e-commerce. This is driven by the need to better protect the primary packaging. Although in certain categories where change in primary package is more suitable to e-commerce channel e.g. smaller-sized , this is not applicable to all BCs.
• To better cater to e-commerce, there might be solutions on other aspects for primary package, e.g. stronger materials, reusable materials, etc. However, given the current volume of e-commerce and level of standardization, many brands think it’s not cost-effective to do so.
Source: InterChina research and interviewsNote: *FFS refers to Form Fill Seal
© InterChinaConfidential
Many co’s EC business is growing 40% and more p.a.... EC will account for a much larger share of their total business in a few years from now
19
90%Anhui Three Squirrels*
30%
Mars Foods (China) Co Ltd
20%
6%
L’Oreal China
25%
22%
Hawley & Hazel
4%
ByHealth
Hangzhou Wahaha Group
20%
25%
Unilever China Ltd
20%Wyeth
10%
6%Inner Mongolia Mengniu
6%
PepsiCo China Ltd
4%
6%
12%Inner Mongolia Yili
Ting Hsin Int’l Group
4%Shenzhen Eastroc
3% 5%Foshan Haitian
48%
3%
-20%
Budweiser Wuhan
70%
40%
40%
3%
32%
15%
10%
4%
32%
Online as % of total China sales YoY growth of online sales 2018
50%
40%
60%
45%
40%+
40%
20%
50%
55%
60%
55%
30%
15%
10%
70%
2018 2023E
Source: InterChina research and interviews. Note: * Three Squirrels started as an EC company and is only now developing offline channels
How relevant is EC and how fast is EC growing for the interviewed customers?
© InterChinaConfidential
The sampled companies in ‘Liquid Food & Beverage’ as well as ‘Beauty & Personal Care’ present the best opportunities for Italian vendors …
20
Maturity curve of packaging technology needs in China
Source: InterChina Interviews & Analysis.
Focus on basics
Note: Illustrative / based on findings of sampled companies.
BC1Food, Fresh & ConvenienceBC3
Sweets, Confectionary & Snacks
BC4Liquid Food & Beverage
BC5Beauty & Personal Care
Focus on high-smart tech.
• More frequent new product launch, requiring new printingand primary packaging design.
• Require higher flexibility of cartooning robot to increase 2nd
packaging efficiency. • Moderate personalization of
products.
• Remote web-based plat vision, inspection and control system – requirement focus on the monitoring function, which is realized by Chinese players already.
• Packaging of SKU is less diversified.• The automation for non-standard 2nd packaging is low, currently still done manually, requiring higher
automation and integration of end-of-line system.• Overall upgrade needs focus more on 2nd packaging machine and end-of-line system, where
local players is becoming more competitive.
• Filling requires high standard primary packaging solutions -best addressed by foreign players.
• Requires simpler machine operations, whilst meeting the high standard of packaging at the same time.
BC8Pharma & Nutritional
• Standard format of product packaging, easy to realize mass production of primary packaging.
• More requirement focused on 2nd packaging. Require flexible solution to make room for manual work.
• Highest personalization levels. Product shapes vary and are irregular. • Multinational companies constantly looking for most updated technology and
solutions globally with innovative ideas. Some solutions needed are very forward-looking and currently not available in the market. E.g.: Reuse of packaging boxes based on smarter machine recognition.
© InterChinaConfidential
Customers in China face most challenges at the end-of-the-line
21
14
12
9
6
7
4
5
4
3
3
3
High return rate of goods
Find ways to bundle packaging
Reduce packaging carbon footprint
Personalization of orders, tailored runs
Fake goods / counterfeit prevention
High damage or spoil rate; insufficient product protection
Finding ways to reduce size, weight and cost of an SKU
Faster product launches
Environm.-friendly / recyclable / reusable materials
Automating handling, fulfillment
Making products appear more “premium”
Inventory automation and optimization
Lack of consistent cold-chain logistics across China
0
0
N = 15 interviewed companies.^Several mentions by companies.
• The most mentioned challenges are relatedto secondary packaging issues, which alsomakes for the most significant differencebetween online and offline retail.
• All companies mention their challenges withsolving bundle packaging effectively, asconsumers assemble different SKUs in anonline shopping cart.
• Most companies are trying to find ways tobring cost down by reducing damage / spoilrates, which has increased significantly forthem due to EC (more touch points, moredistribution centers, etc.).
• It was mostly MNCs that are looking to bebest practice players in eco-friendly policycompliance.
Source: InterChina research and interviews
No. of times mentioned^
What are the key challenges for your company due to EC?
© InterChinaConfidential
Customers appear to be already mature in the first few steps of packaging process, but will demand solutions for end-of-line…
22
64
2 3
1512
4
FFSCleaning PalletizingLabelingFilling WrappingCartoning
Due to EC, where do you have most needs for change and upgrades? (no. of times mentioned)
• Wahaha switched with high flexibility production line but with lower efficiency, hourly capacity from 80,000 bottles down to 20,000 bottles.
• Hawley & Hazel might need more productive machines with higher hourly output to tackle the increasing order from e-commerce.
• Eastroc added QR code inside the cap of its functional beverage, Consumers could scan QR code for a chance to get a prize.
• PepsiCo plays with the thought to introduce more consumer-engaging QR code for marketing purpose.
• Wahaha believes cleaning is directly linked with filling, the two processsshould have same level of flexibility and efficiency.
• Budweiser pays close attention to product quality and food safety, and would like to explore higher standard in cleaning aspects.
• Most factories of Mars in China do not have automated secondary packaging lines, the palletizing process is still done entirely by workers.
• Ting Hsin outsources certain secondary packaging work of instant noodles incl. cartoning, wrapping and palletizing process to third parties with part-time workers.
• Wyeth factory has realized the highly automated production and logistic process, but it will require a sophisticated web-based data management and production control system in the future.
• Mars developed a customized gift box specifically for EC, where consumers can select types of chocolates and packages.
• End-of-line is the main concern compared to primary packaging related processes. With rapidly expanding EC, customers first started to develop customizedcombos or bundle packaging, yet primary packaging is still similar to those sold offline.
• Current automation levels are higher in primary packaging / filling stage than the cartoning etc. stage. Many customers is still use 100% human workers tofinish the cartoning, wrapping and palletizing process. There is more potential needs for secondary packaging process to be upgraded.
• Because of yet relatively small volume of online sales comparing to total company sales, customers find it still costly to develop customized end-of-linepackaging system for EC. With the rising volume of EC, there is emerging demands of high flexibility, efficiency and integrated packaging system tofulfillment more complex bundle packaging needs.
© InterChinaConfidential
Companies are mostly demanding flexible storage end-of-line systems
23
11
9
7
6
5
4
Flexible storage end-of-line systems (pallet forming systems,wrapping machines, cartoning machines, automatic taping machines
that can affix more or wider tape onto boxes for shipping, etc.)
Services (software & platforms, packaging design,predictive maintenance, info-security, etc.)
Serializing, coding, marking and labelling solutionsfor product tracking, labels, holograms, decorations, etc.
Robots (e.g. robots that can place productsin corrugated boxes with human quality control)
Remote web-based plant vision,inspection and control systems
Printing technology, inks, consumables(e.g. use of higher graphics printing)
• E-commerce brings more diversifiedorders, SKU combos and packagingdesigns that are far less standardizedcompared to offline retails. If onlyconsider technical aspects, the majoritycompanies interviewed appeal to higherflexibility. However, this usually comewith a big change and huge investmentwhich are the main concerns today.
• Companies have to manage non-standard SKUs at relative low batchvolumes, and are done manually today.With increasing EC volumes, this will notbe sustainable, and companies areinterested in introduce robotic solutions.
• Although not directly driven by ECalone, remote web-based plat vision,inspection and control systems areregarded as a must-to-have element.
Source: InterChina research and interviews
N = 15 interviewed companies
Due to e-commerce, where / into what will you invest more in the coming year(s) and where you will require assistance from technology vendors?
No. of times mentioned
© InterChinaConfidential
Due to e-commerce and faster product launch cadences, flexibility in theoperation of the packaging lines has become key… and local players areaddressing this already successfully
24Source: InterChina Interviews & Analysis.
Fast switch body washfilling line developed bySaidone in operation withUnilever
• This is the local playerSaidone’s auto air-operatedfilling machine, with highspeed non-stop tacking filling,auto CIP cleaning systemand fast one button switch.
• The filling machine isdesigned to meet therequirement of quicklyswitching from 550ml to280ml bottles within 112seconds.
• The entire switching processis full automated, theoperator only needs to pressthe switch button.
Maybe in F&B or personal care, customers want moreflexibility, but it’s not a concern for pharmaceuticalscustomers currently, because the usual production volumetends to be really large in China, even for trial drugs, aswell as for specialty medication. - Double-Crane, ProjectManager
“Automation is always a topic in the packaging industry,but flexibility is becoming more important. Customershave shorter product lifecycles and more productscategories which requires more flexibility on thepackaging lines. This is a market trend, and it may verywell be that Chinese suppliers will have some advantagesin this area.” - Huituo, Overseas Sales Manager
“In the cosmetics category, customers are looking formore flexible solutions for packaging line set ups.The machine is also required to have shorteradjustment time for new production needs. Ourmachines have flexibility advantages compared toother Chinese suppliers… that’s our selling point.”- Saidone, Electrical Engineer
© InterChinaConfidential
Chinese players are competitive in ‘good-enough’ product segmentsbut also face pressure from the need to upgrade their offering
25
• Upgrading in some downstreamsectors from low-price / lowquality to more premium qualitybrings new opportunity for R&Dintensive machinery makers.Especially larger Chinese playerswill offer more techn. advancedsolutions.
• China’s 13th Five-Year Plan(2016-2020) stimulus policies ontechnology and equip. upgrade,and support high-tech companieswith subsidy.
• More complete offerings:Leading Chinese playersincreasingly provide turn-keysolutions by offering machines forboth primary and secondarypackaging needs.
How Chinese players perceive their strengths and weaknesses
+ Substantial price advantages over int’l players, even for a comparable products.
+ Products find a market in developing countries such as South East Asia, India and Africa.
+ After-sales services: Much faster response time, more flexibility for commercial terms.
+ A more complete service: Value-added consultation on downstream markets, local policy and consumer trends.
- Most small players’ technology still inferior (overall product quality, operational stability / reliabilityCurrent domestic supply of high-end packaging equ. has not fully met the domestic demand. E.g. Large high-speed beverage filling machine.
- Design disadvantages: Chinese player’s products are less concise than int’l players’, large in size, taking more plant space. Increasing cost bases (raw materials, labor), whilst limited room for price increases put future profits at risk.
- Stricter gov’t regulations (i.e. sanitation, bacteria-free standards) increase need to spend more on R&D and better components
Overall trends
© InterChinaConfidential
Leading Chinese players undercut prices of foreign / import equ., yet foreign players are still superior in output performance, stability, design, user interface
26
66%
Int’l player Zhongya
100%
-34%
Int’l player Yongsun
44%
100%
-56%
Int’l player
100%
Tech-Long
50%
-50%
100%
Int’l player Zhongya
66%
-34%
100%
Int’l player
64%
Yongsun
-36%
63%
Int’l player
100%
Tech-Long
-37%
Relative price gaps as perceived by 3 local players (“What is the price gap btw.an int’l player and your machine if the int’l competitors’ price is “100” ?”)
Zhongya Yongsun Techlong
Hig
her-
end /
pre
miu
m e
qu.
Low
er-
end /
sta
ndard
equ.
Source: InterChina interviews.
© InterChinaConfidential 27
YoungSun Zhongya Tech-Long
Service team
• 200~300 staff (FTE) • 200~300 staff (FTE) • 100 staff (FTE)
Domestic service provision
• Via own technicians• 17 service stations (offices) national-
wide
• Via own technicians• No service offices• All technicians located at headquarters /
plant
• Via own technicians
Overseas service provision
• Dealers for standard machines• In-house technician – non-standard
machine
• Chinese technicians fly abroad to provide service
• Dealers for standard machines • In-house technicians – non-standard
machine
Service tariffs
• USD 17 to 113/ intervention within China• USD 120/intervention for overseas
services (all expense included (!))• Upon negotiation and could be lower
• USD 127 to 183 /day for junior technicians
• USD 226 to 282 /day for sr. technicians• Expenses included. • Overseas service fee incl. into the equ.
contract
• USD 169 to 212 /day (all included) for domestic service
• USD 300/day plus flight ticket costs for overseas service
Warranty • One year • One year • One year
Service content
• Remote guide for free.• Charge for core parts. Wearables – if
purchased consumable from YoungSun, for free.
• Provide reliable updating service and technical training once any renewal of technology comes out
• Free software updates• Charge for parts and plus service fee for
technician
Use of remote diagnostics
• Less than 5 customers • Less than 5 customers • For all units exported• 30% of domestically sold units
Chinese players feature relatively strong service offerings… a major decision points for local customers over international vendors
© InterChinaConfidential 28
Current status against KSF
Key Success Factors for Italian brands
Position of Italian brands Level of importance to China market
Approach
In China for China
No local production, sales channel rely on import. Distant from China customers.
Local production reducing transportation cost, closer to customers. Perception of market commitment.
Strategic Focus Methodological approach. Based on China market status quo.
Credibility
Brand Awareness
Customer aware of Italian brands but do not have sharp-cut attitude compared to other foreign brands.
Need stronger differentiation point.
Track record Have some track record. Outstanding in primary packaging machine for beverage product.
Showing the capability.
Local Understanding
Limited China presence. China-focused sales approach, business relationships.
Technology
TraditionalStill Important
Bread and butter. Bread and butter.
NoveltyMachine vision, flexible, smart logical control etc.
New technology features to address the emerging new demand, and unmet needs that haven’t been solved.
Technology Development
Highly customized, leading technology to ensure performance.
Need to be prepared to the fast-changing China market environment.
ServiceInfrastructure
Pre-sales Pricing decision making back in Italy Closer communication with customers.
After-salesInternational good practice and training. But slower response time.
Providing fast-response to solve major issues.
Source: InterChina Interviews & Analysis.
High Low
Key success factors in China: Local production and a strong service delivery will be important to serve local customers effectively
!
!
© InterChinaConfidential
Contact
Franc KaiserPartner, Shanghai
e Franc.Kaiser@InterChinaConsulting.comm +86 136 6189 1710
w www.InterChinaConsulting.com
Recommended