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Source: Kantar Retail Research and Analysis
China Retail Market’s Multi-Channel Landscape with Stiff Competitions
• Typically 1,000-5,000 sqm
• 8,000-10,000 SKU
• > 3 checkout counters
Hypermarket
Standard Supermarket
Mini Supermarket
• Typically 200-1,000 sqm
• 2,000-5,000 SKU
• Nearby neighborhood
• ≦ 3 checkout counters
Premium Supermarket
• Typically 2,000-5,000 sqm
• Over 40% imported products
• 8,000-10,000 SKU
• Store size over 6,000 sqm
• 20 checkout counters or more
• Over 10, 000 + SKU, offering a full selection of
grocery items and general merchandise
• Store size from 9,000 to 20,000 sqm
• 20 checkout counters or more
• 4,000-20,000 SKU, offering large pack sizes and a
combination of private label products
• Membership card required• This channel includes stores that focus on a
single or closely related categories
Health and Beauty
Baby Specialists
Electronics• Store size from 250 to 1,000 sqm
• 3,000-8,000 SKU, including a wide collection of
private label products
• Strong budget positioning
Cash & Carry
Discount Store
Supermarket Convenience Store
Category Specialist
Modern TradeTraditional Trade
eCommerce
• “Mom & Pop” Stores, Owner is the clerk
• Store size varies, generally <200 sqm
• No checkout counters
• Offering groceries, wine, and tobacco
• C2C
• B2C
- Platform
- BBC
1. Pure Play
2. Brick & Clicks
3. Vertical
4. WeCommerce
• Below 250 sqm
• 24-hour operation
(18 hours in selected regions)
• 1,000-4,000 SKU
• Chain operation,
usually more than 20 chain stores
• ≦ 3 checkout counters
• Various value added services provided
Source: Kantar Retail Research and Analysis
As the Retail Market Continues to Evolve, Each Channel Faces Different Opportunities and Challenges
T5 MT retailers <30% of MT
T5 MT retailers >60% of MT
T5 MT retailers <60% of MT
T5 MT retailers <40% of MT
PioneersHypermarkets
Primary Formats Competition
Discounters & CVS as emerging formats
Secondary Formats
Category Specialists
eCommerce
Traditional Trade largely impacted
Differentiation to Survive
CVS, C&C
Premium Super
T5 MT retailers >70% of MT
2016E: 42%
Exploration ConcentrationPenetration Maturation Post-Modern
Source: Kantar Retail Research and Analysis
Traditional Trade Still Remains An Important Role in China’s FMCG Retail Market Compared
with Modern Trade & eCommerce
2014-2016E China FMCG Market’s
Shipments Share by Channels
Most brand manufactures have focused their business on MT and eCommerce,
But Traditional Trade is still the biggest channel of China’s retail market
54.9% 51.6% 49.3%
40.2%41.5% 41.6%
4.9% 6.9% 9.0%
2014 2015 2016E
eCommerce
MT
TT • Traditional Trade includes many types and different sizes
stores, such as traditional grocery stores and wine &
tobacco shops
• TT and MT complements each other, to meet residents’
demand for purchasing daily necessities conveniently
• TT also has its own value-added function: A place for
residents to socialize since most customers are regular
and familiar with each other in the community
14-16ECAGR
41%
5%
-2%
For Most FMCG Companies, Traditional Trade Accounts for More than 60% of Total Sales
12.2% 11.4% 11.1%16.7%
12.2% 14.3%11.1%
8.3%
21.6% 17.1% 25.9%25.0%
27.0%
17.1%
29.6%
50.0%
27.0%
40.0%
22.2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
快速消费品 Food/Beverage/Alcohol Personal Care/Cosmetics/Bazaar
Baby Product
% of Traditional Trade to Total Sales Value
More than 80%
60% - 80%
40% - 60%
20% - 40%
Less than 20%
FMCG
Food, Beverage
and Alcohol are
the most
dependent on
traditional trade.
Source: Kantar Retail 2016 FMCG Online B2B Industry Study – Manufacturer Questionnaire
Source: Kantar Retail’s Calculation Based on National Bureau of Statistics Data
Highly Fragmented FMCG Traditional Trade Comprises Nearly 7 Millions Local Stores across
All City Tiers
Tier 1BJ, SH, GZ, SZ
Tier 2Municipalities, Provincial Capitals,
SEZs & Independently Planned Cities
Tier 3Other Prefecture-Level Cities
County-Level Cities & Counties
Towns & Rural Areas
2016E Traditional Trade (TT) Store Count by Tier
0.53 million TT stores, 7% of total
1.14 million TT stores, 16% of total
1.81 million TT stores, 25% of total
1.51 million TT stores, 21% of total
2.16 million TT stores, 30% of total
Nearly 55% of the Manufacturers Has More than 200 Distributors to Operate Traditional Trade
45.1%
32.4%
57.7% 54.5%
54.9%
67.6%
42.3% 45.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
快速消费品 Food/Beverage/Alcohol Personal Care/Cosmetics/Bazaar
Baby Product
# of Distributors for Traditional Trade
More than 200
0 - 200
Source: Kantar Retail 2016 FMCG Online B2B Industry Study – Manufacturer Questionnaire
FMCG
Source: Kantar Retail Research and Analysis
Excessive Layers of Traditional Distribution Result in Inefficiency and Poor Profitability
Brand
Manufacturers
Regional
Distributors
City
Distributors
Wholesalers
Local
Stores
• Weak bargaining power
• Cluttered product supply
• Opaque information
• Cumbersome purchase process
• Limited product category
• Unwarranted product quality
• Lack of store operation
guidance
• Poor product distribution result with lower
efficiency and profitability
• Imprecise resource allocation, problematic in-
store execution, and high distribution cost
• Slow distribution of new product
• Lack of control over prices
• Uneven distributor service qualities
• Counterfeits and powerful local brands
• Lack of integrated and traceable data
• Decentralized channel, ineffective and immature
distribution methods
• Low turnover ratio resulted from
inventory pressure
• Stressful cash flow
• High logistics cost
• Faces stronger demands on gross
margin, expenses, and supports
from both brands and sub-distributors
Challenges in
Traditional
RTM Model
Distribute Sell-in/Service
• 10 FMCG B2B companies
started in 2013
• 14 FMCG B2B companies
started in 2014
• JD Xintonglu launched• CCOOP launched• Over 20 FMCG B2B companies started in 2016 H1
Source: Kantar Retail Research and Analysis
2013-2014FMCG B2B Took off
2016 Rapid Growth
2015Industrial leaders and well-known investment agencies entered the market, the Model was Endorsed
• Yijiupi lauched
• Jinhuobao launched
• 21 FMCG B2B
companies started in 2014
Received over¥
¥5 Billion
Capital Fund
Covered >1 million
stores
Over 50
FMCG B2B
Companies
9 InvestmentsCovered 130,000 Stores
29 FMCG B2B
Companies
17 InvestmentsCovered 470,000 Stores
50 FMCG B2B
Companies
• Huimin received $100 million capital fund
• ZHTX received ¥75 million from Riverhill
• Yijiupi received ¥200 million from
Bertelsmann
• Jinhuobao received ¥ 38.4 million capital fund
• Yijiupi received $100 million B+ round capital fund
• Huimin received ¥1.3 billion B round capital fund
• Yijiupi received $100 million C round capital fund
• ZHTX received ¥ 700 million form Minsun and HNA
holding
• DS365 received millions RMB angel round
capital fund from K2VC
• Dinghuo123 received millions RMB angel
round capital fund from K2VC
FMCG B2B Companies Grow Rapidly with Capital Support Since 2013
FMCG Online B2B Market at its Starting Point with Great Potential
Source: Kantar Retail Research and Analysis
2016E 2018E
16% StoresOwners Used Online B2B
6.8 millionLocal Stores
2%of Shipment
44% StoresOwners Used Online B2B
18.7%of Shipment
Growing Stickiness:
• Nearly 2.7 million stores start
to use online B2B platform
• 2 orders each week
• Order size over RMB1,500
• Accounting for 50% of store’s
stock value
Over RMB 330 billion Market Potential
6.1 millionLocal Stores
Around RMB 40 billion Market Size
Limited penetration at this moment
• 1.1 million stores have started to
use Online B2B Platform
• An order every 4-7 days
• Order size RMB950
• Accounting for 25% of store’s
stock value
Source: Kantar Retail 2016 FMCG Online B2B Industry Study – Manufacturer Questionnaire
FMCG Online B2B Platforms Receive Great Attention, yet the Industry is at Its Beginning
Most manufacturers are still
hesitating, and have concerns over
• Confliction with existing traditional trade
model and partnered distributors
• Pricing control and product distribution
management
• Insufficient business capability of current
sales team to handle B2B platforms
• Stability of the business model and the
disruptive landscape of B2B players
• Low penetration of the B2B platforms and
poor service
32.8%
35.8%
17.9%
13.4%
Has your company started to use online B2B platforms for traditional trade business?
Online B2B business accounts
for less than 1% of
manufacturers’ traditional
trade.
• Less than 15% of the manufacturers
have tried online B2B platforms in
selected regions. For them, online
B2B business has not formed at
large scale.
• More than 60% of the manufacturers
interface directly with online B2B
platforms.
Offline teams, who are closely
related to the online B2B business,
are not familiar with the industry.
Never heard of online B2B
Heard of online B2B and takes a wait-and-see attitude
Not yet started but is planning
Already started
Two Business Models of Online B2B
Manufacturers
/Distributors
1
2
Warehouse of
Platform
3Stores
Platform buyout
ownership of goods
Unified warehousing and logistics
Store place order
on platformSelf-run
Platform
Stores
2
3
4
Manufacturers/distributors in charge of delivery
4
Manufacturers/distributors ship items
to the warehouse of platform
Order transferred
to sellers
Go-between
marketplace
1
Provide item info.
Self-run ModelGo-between
marketplace Model
Manufacturers
/Distributors
Place order
on platform
Source: Kantar Retail Research and Analysis
OR
Comparisons between Two Models
Profit Model
Pros
Challenges
Self-run Model
• Buyout ownership of goods to control quality
• Self-run sales team to guarantee service quality for stores
• Self-run warehouses and logistics to ensure on-time delivery
• Manufacturers leverage platform’s logistics system to achieve deeper distribution
• Simplify operation of manufacturers/distributors to accelerate trade efficiency
• Gap between selling and buying price
• Relatively heavy assets limits expansion speed
• Platform takes inventory risks and financial pressure
• Relatively limited product selection for store owners
• Manufacturers with limited control power over pricing
• Possibility of conflicts with distributors
• Lower data transparency
Go-between
marketplace Model
• Commission fee
• No inventory and finance pressure
• Asset light model to accelerate expansion speed
• Relatively wide product range for store owners to pick
• Complementary resources and advantages with local distributors
• Manufacturers with control power over pricing
• Data transparency
• No ownership of goods, no control over product quality
• Depth and width of distribution relies on existing distributors’ coverage, does not solve efficiency problem in traditional trade fundamentally
• Uneven service quality of sales team in different areas under franchise mechanism
• Possibly higher delivery cost under inefficient third party delivery service
Source: Kantar Retail Research and Analysis
Besides Start-up Companies, Traditional Retail Industry Players and Internet Companies Also
Invest in B2B
Self-run online platforms:
• Xintonglu (JD.com)
Start-up
CompaniesHuimin.com, Jinhuobao, etc.
Traditional
Retailers/ Service
Providers
Internet
Companies
Traditional retailers:
• Quanshihui (Quanshi CVS)
• Fadaojia (RT Mart)
• Yunhou Wholesale (Bubugao)
Retail service providers:
• Integrated service provider:
Esunny (Etenal Asia)
• Logistics: Wanshanggou
(Yantaiyishang)
• Wholesale:Zallgo (Zall)
Zhanghetianxia, etc.
1. Go-between marketplace online
platform:
• Lingshoutong (Alibaba)
2. SaaS provider:
• Huixiadan, Qianmi.com, Yunpos, etc.
Self-run ModelGo-between
Marketplace Model
Source: Kantar Retail Research and Analysis
Coverage (# of Stores) Self-run B2B Go-between Marketplace B2B
>400,000 惠民 掌合天下
200,000-400,000 零售通电商互联
100,000-200,000 新高桥,易酒批 供销大集
50,000-100,000 进货宝,新通路51订货,卓尔购,云蚂蚁,云宝商
盟
10,000-50,000 易生活,棒小店,蜗牛快采
>10,000 全时汇 快消帮,万商购,批多多,天天买
B2B Players with Various Scales under Each Business Model
Source: Kantar Retail Research and Analysis
Platforms Emerged across China; North China with The Best Progress
Source: Kantar Retail Research and Analysis
BJ, TJ, Hebei
Sichuan & Chongqing
Hubei & Hunan
Shandong
Henan & Shaanxi
Fujian & Guangdong
National B2B Players
Regional B2B Players
Local B2B Players
Jiangsu
Zhejiang
SH
2016 Online FMCG B2B Companies’
Coverage in Traditional Trade
Note:data as of Nov. 2016
Development of Online FMCG B2B is Still at Early Stage, but with High Expectation from
Manufacturers
Distribution
• Low distribution and weak penetration,
especially in small and medium stores
and low tier markets
• Serious problems with counterfeits at
retail terminals
Channel
control
• Weak channel control power
• Disordered pricing system
• Low working capital turnover
Cost/
Efficiency
• High channel operation cost and
management cost, resulted from
immature TT sales model and uneven
distributor quality
Marketing• Marketing resources not distributed
accurately, and unable to trace effect
• Low efficiency of marketing activities
Information
and Data
• Lack of traceable and complete supply
chain data
• Lack of understanding to stores
Problems Manufacturers
Face in TT
Expectations of Manufacturers
on Online B2BCurrent Situation
• Further expand to new market and achieve
sales improvement
• Accelerate distribution system efficiency
• Improve distribution and penetration in low tier
markets
• Transparent channel management
• Control over pricing system
• Push capital turnover up
• Simplify distribution process while minimize
channel expansion cost
• Control distributors’ quality
• Precise marketing investment and controllable
ROI
• Effective brand building at terminal stores
• Effective new product launch
• Provide complete trade data
• Assist manufacturers to understand up-to-date
sales situation
• Better understanding of stores from data
• Improved distribution from online B2B, but only
with a small amount of contribution
• Most manufacturers take online B2B as supplement of
current business
• Manufacturers have concerns over future conflict
between online B2B and traditional distribution system,
as well as control difficulty
• No platform with strong power to push terminal sales
currently
• Cost reduction
• Most manufacturers take online B2B as trial,
currently no one reduces number of distributors
• B2B platforms only assist in store expansion and
sales, with very limited assistance in marketing,
service maintenance, and promotion
• Limited data share of B2B platforms under
cooperation with manufacturers; Limited data
insight resulted from few data dimensions
Source: Kantar Retail Research and Analysis
• To brand manufacturers: A
more transparent overall market
picture and a traceable channel
investment
• To local stores: A more
systematic shelf display and a
more rational purchase decision
aligned with market trends
• To distributors: Enhanced
inventory turnover and financial
efficiency as a result of grasping
market dynamics
In-depth
Platform
Services under
Data Support
FMCG B2B platforms start to
standardize and modernize local stores
in the form of franchise:
• To brand manufacturers:
strengthened channel control, new
source of income
• To local stores: increasing customer
loyalty, enhanced working capital
turnover
Extension to
2C Business
• Platforms differentiate with competitors by
pursuing specialized products, forming
competitive advantage
• Platforms carry out a richer marketing
activities to promote terminal sales
• B2B platforms go beyond product sale
and distribution by developing service
qualities of covered stores, and
progressively transit to establishing brand
images with manufacturers
Closer Liaison Between
Brands & Platforms
Private Labels
• Based on the big data, B2B
platforms can provide local stores
certain amounts of credit support
to encourage new product
development, creating more sales
opportunities
• Go-between marketplace platforms
can also provide supply chain
finance to support distributors or
logistics by relieving their cash
flow pressure
Supply Chain Finance
Prospects of Online B2B Market
• Private label product has a
higher gross margin with a
control over pricing and
marketing
• Private label offers more choices
to local stores, gaining a
differentiation advantage
Source: Kantar Retail Research and Analysis
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©2016 – Kantar Retail. All Rights Reserved.
Disclaimer: The analyses and conclusions
presented herein represent the opinions of
Kantar Retail. The views expressed in this
publication do not necessarily reflect the
views of the companies covered by this publication.
This publication is not endorsed, or
otherwise supported, by the management of
any of the companies covered herein.
Copyright Notice: No part of this publication
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