11th Client Event 2014 - aps.com.sg Client... · 11th Client Event 2014 . 7-11 September, Beijing &...

11th Client Event 2014

7-11 September, Beijing & Tianjin

Wang Kangning Investment Director,

APS China Research, Shanghai

eCommerce or Perish? The Road to Omnichannel Retailing

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Outline

eCommerce Fast and Furious Growth

Traditional Retailers Start Getting Defensive

Grocery Retailers

Joining the Game

Yonghui Superstores

Strategies in the eCommerce Age

4

If C2C eCommerce is included, China’s Internet economy represents 7% of its GDP, exceeding all the G7 countries.

eCommerce is becoming a new growth engine for China’s economy.

In 1H2014, online sales in China grew by 45.9%.

Internet economy as % of GDP

Source: McKinsey Global Institute analysis

New growth engine in China

China’s eCommerce: Fast & Furious Growth

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eCommerce gaining ground, now 9% of retail sales

785

1320

1841

2420

3119

3790

445070.2% 68.3%

39.5%

31.5%28.9%

21.5%17.4%

4.3%6.3% 7.9% 9.1% 10.4% 11.5% 12.4%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2011 2012 2013 2014E 2015E 2016E 2017E0

1000

2000

3000

4000

5000

eCommerceMarket Size (inbn RMB)

YoY Growth

As % of TotalSocial Retail


Source: iResearch

Online sales’ growth rate in China

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Source: iResearch

Online shopping has a broadening appeal


Age Distribution of Online Shoppers Distribution of Online Shoppers by Annual Online Spending

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What Drives eCommerce Demand?

Better pricing (PULL factor)

Disruption to conventional margins distribution

Tax arbitrage loopholes

Offer a bird’s eye view on pricing

Convenience (PULL factor)

Shopping at one’s finger tips

Reduce exposure to pollution in major cities

Insufficient modern retailers in lower-tier cities

Wider product offering (PULL factor)

Boundary-less shopping experience

Efficient distribution of resources domestically

Rising demand from affluent Chinese

Quality and safety (PUSH factor)

Counter measure to Chinese food safety scandals

Assurance of quality via overseas purchases


8

Pricing is key to online purchases, among other considerations

Source: iClick Community statistics


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Penetration of eCommerce differs across categories

Sources: SW Research, U.S. Department of Commerce, Euromonitor, Data Monitor, Forrester, eMarketer, Gartner Morgan Stanley, Strategy&analysis

* Appliances refer to large-sized home appliances only; official U.S penetration for home appliances is not available and the aggregation of different estimates from websites is used instead.


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No category is immune from eCommerce


Source: iResearch

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China’s omnichannels lag behind that of U.S. Top Online Retailers in China and the U.S.

China U.S.

Rank Name Category 2013 Online Sales Name Category 2011 Online Sales

1 TMall Multi-category 441.0 (bn RMB) Amazon Multi-category 48.1 (bn USD)

2 JD.com Multi-category 125.5 Staples Inc. Office Supply 10.6

3 Suning.com Multi-category 28.4 Apple Inc. Handphone 6.7

4 QQ Wanggou Multi-category 27.4 Walmart.com Grocery 4.9

5 Xiaomi Handphone 22.1 Dell Inc. Computer 4.6

6 Yixun.com Multi-category 15.5 Office Depot Inc. Office Supply 4.1

7 Amazon China Multi-category 15.0 Liberty Interactive Media 3.8

8 VIP Shop Fashion 14.4 Sears Holdings Multi-category 3.6

9 DangDang Multi-category 12.5 Netflix Video 3.2

10 Gome.com 3C & Appliances 12.0 CDW Corp IT Products 3.0

11 Yihaodian Grocery 9.9 Best Buy Co. 3C & Appliances 3.0

12 Jumei.com Cosmetics 6.0 OfficeMax Inc. Office Supply 2.9

13 Vancl.com Apparel 4.6 Newegg Inc. Multi-category 2.7

14 1Mall Multi-category 4.0 Macy’s Inc. Fashion 2.2

15 Lefeng.com Cosmetics 3.0 W.W. Grainger Inc. MRO Supply 2.2

Traditional Retailers: Start Getting Defensive

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Department Stores: Under Threat Producer

$2

Wholesaler

$4

Distributor

$6

Retailer

$8

Consumer

$10 Offline Apparel

Producer

$2

Wholesaler

$4

Distributor

$6

Consumer

$8

Producer

$2

Wholesaler

$4

Consumer

$6

Online

Apparel

The Biggest Winner:

Consumers


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3C & Appliances Retailers: Weathering the competition

Gome’s omnichannel strategy has helped it fend off online competition

Source: Company Presentations, UBS, Goldman Sachs


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3C & Appliances Retailers: Competitive pricing in key categories Jun-2014 JD Suning Tmall Gome

iPad Mini (White)

iPad Mini (Black) MD531CH 16G

Price ¥1,998 ¥1,988 ¥1,888 ¥2,098

Price ¥1,968 ¥1,988 N.A. ¥2,098

Delivery and Payment Terms

24 hour delivery，free-delivery，Pay on arrival 24 hour delivery，free-delivery，return

within 15 days Free-delivery，return within 7

days Free-delivery

Digital Camera Canon EOS 60D (18-

135) Mid-end

Price ¥6,099 ¥6,020 ¥5,768 ¥5,846


24 hour delivery，free-delivery，No. of comments13150 free-delivery，return within 15 days，No.

of comments281 Free-delivery，return within 7 days，No. of comments 20

Free-delivery，No. of comments 11816

Remarks Wide selections, Free gift of tripod, case and SD Card worth

200~300 RMB. Very professional explanation of product features Product feature explanation not as good as

Jingdong, 3rd party vendor, no free gifts 7 boundling offers, very

confusing Product feature explanation too simple, 3rd party vendor

Laptop ASUS X550X3217CC

Price ¥3,199 ¥2,999 ¥2,698 ¥2,798



within 15 days，3rd party vendor Free-delivery，return within 7

days Free-delivery

Air Conditioner Midea KFR-35GW/DY-

IF(R3)1.5hp

Price ¥2,488 ¥2,488 ¥2,488 ¥2,799


24 hour delivery，free-delivery，Pay on arrival，free installation by Midea

Need to pay seperately for steel holders Out of Stock Out of Stock

Remarks Narrow selection of Aircons, especially that

Gree is unavailable in Suning

LED TV Hisense 42K370 42-inch

Price ¥3,999 ¥3,699 ¥2,799 ¥3,599


3rd party vendor, no free delivery 24 hour delivery，free-delivery，return


days Free-delivery

Handphone Galaxy S4 I9508 White

Price ¥2,899 ¥3,024 ¥2,899 ¥2,715




days 3rd party vendor

Source: APS


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2012 - 1Q2014 Same Store Sales Growth

Muted SSS growth at hypermarkets as more consumers shop online

Grocers are starting to feel the pain, but some are better positioned

Sources: iSearch, company reports, EcommercePlus, iUserTracker

Grocery Retailers: Joining the Game

-8%

-4%

0%

4%

8%

12%

1H12 2H12 1H13 2H13 1Q14 2Q14

Sunart Ticket Size

Sunart Traffic *

Yonghui

Walmart China

Carrefour China

CRE

Sunart

Sources: Company reports, Morgan Stanley Research, Deutsche Bank Research * Sun Art traffic flow numbers for 1Q14 and 2Q14 are both assumed to be the same as 1H14’s announced numbers due to lack of quarter-by-quarter disclosure by the company.

2010 – 2013 Yihaodian Revenue Growth

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Chinese families take to shopping for groceries online In tier-1 cities, almost half of the households bought grocery items online—however, the value of groceries purchased online is still very low, indicating great potential for growth.

In tier-1 Chinese cities: 46% of families purchase FMCG online

In China, 16-23% of consumers buy packaged food online, such as beverages, biscuits and infant milk formula.


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Low average basket value of RMB 80~100 makes delivery fee relatively costly.

Consumers are reluctant to pay delivery fees exceeding 5% of total basket value.

It’s estimated that a basket value of RMB 200 (15% gross margin) is needed to cover the fulfillment and shipping costs of RMB 30.

Shoppers are relatively satisfied with the shopping experience in traditional supermarkets.

They will still place a high value on the in-store experience that bricks-and-mortar retailers can offer.

The need for immediate consumption (food and beverage), well-developed cold chain and freedom to “touch and feel” before selecting (fresh produce) calls for large numbers of fulfillment centers and warehouses close to consumers.

Thus making the economics of grocery eCommerce less attractive compared with “long-tail” categories such as books and general merchandize.

Huge potential for omnichannel retailing that can leverage on existing physical stores.

Barriers to online grocery retailing:


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Home Delivery

Ocado, LeShop, AmazonFresh, Yihaodian

High service level, but at best breaking even for now

ASDA, Tesco, Walmart

Leverage on existing stores, but low efficiency in store picking

Click-and-Collect

Auchan, Farm Stores

High efficiency, time saving, but low service level

Tesco, Yonghui

Low cost structure, but losing popularity as it offers little additional convenience.

Warehouse Picked Store Picked

The successful omnichannel model for traditional grocery retailers would require the right combination of home delivery and click-and-collect capabilities, along with a differentiated product suite and in-store shopping experience.

4 main models of online grocery retailing


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Online Retailers: Continue to enhance user experience. Need to invest in cold supply chain capabilities. Partner with traditional offline retailers to further penetrate customer base as well as broaden and

differentiate product offerings. Traditional Food Retailers:

eCommerce is both a threat and an opportunity, embrace omnichannel. More attention to user experience. Delivery service is a must in future. Leverage on existing logistics and store network advantages. Further vertical integration, store layout and product innovation needed to remain competitive.

Packaged Food Suppliers:

Packaged food companies need more “freshness” in their products. Healthier offering to suit modern consumption lifestyle. Remodel packaging to cater to B2C delivery.

Implications for the food retailing industry:


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Success Factors: Back to Basics

Suppliers Strengthen Supply Chain

Cost Competitive Logistics

Product Innovation More Direct Sourcing

Electronic Data Integration

Online or offline Retail, the same principles:

Consumers Enhance User Experience

Convenience

More Services Customization Social Media

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Yonghui Superstores: Strategies in the eComerce Age

Stay Focused on Key Category: Fresh produce (45% of total sales)

Well established and highly efficient supply chain—more than 60% of fresh produce directly self-sourced through a 700-member sourcing team.

Complemented by superior store-level merchandizing and product display skills at its c. 300 stores located in 15 provinces.

eCommerce Initiatives: Testing a click-and-collect retail model in Fujian province

Will offer home delivery service after supply chain re-alignment, but in a measured approach.

Open to collaboration with eCommerce platforms such as JD.com and TMall.

Private Label: A way to differentiate and increase their share in consumer surplus

Currently low single digit private label offering, need a more developed ecosystem to expand it.

Dairy Farm, its strategic investor, will be instrumental in helping Yonghui on private labels.

Deepening Integration with Suppliers: Strategic partnership with suppliers

Deep collaboration in supply chain integration, food safety testing, organic food certification and product innovation.

Central Kitchen: More prepared food items in future

To cater to the busier lifestyle of the new generation of patrons.

Differentiated product offerings for online and offline channels.

Upgrading community wet markets

Expected to upgrade 300 wet markets in Shanghai.

Being closer to the consumers will open further opportunities to offer more value-added services.

Excellent supply chain and beyond……

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Thank You

Your Questions Are Welcome

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