China Insights
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FMCG online B2B market size to grow 8 times by 2018

Han Yang

Assistant Consultant, Market Insights China Team

Retail 28.12.2016 / 04:45

FMCG B2B Cover EN

Kantar Retail estimates that the FMCG online B2B market will grow to 330 billion yuan in 2018 from nearly 40 billion yuan in 2016.

Kantar Retail’s latest 2016 FMCG Online B2B Market Study analyses the emerging sector’s status quo and future trend from the perspectives of FMCG manufacturers, traditional channel distributors, grocery shops and B2B platforms.

Traditional Trade Still Important in China’s FMCG Retail Market

Traditional Trade includes many types and different sizes stores, such as traditional grocery stores and wine & tobacco shops.

Most brand manufactures have focused their business expansions on Modern Trade and e-Commerce, but Traditional Trade is still the biggest channel of China’s retail market, which boasts a network of about 6.8 million shops in all city tiers across China.

Traditional Trade and Modern Trade complements each other to meet consumers’ demand for purchasing daily necessities conveniently. Traditional trade also has its own value-added function: it’s a place for residents to socialize because most customers are regular and familiar with each other in the community.

TT Market Share

 

Excessive Layers, Low Efficiency, Fragmented

However, excessive layers of traditional distribution result in inefficiency and poor profitability. In the existing model, manufacturers have to partner with national and local distributors to cover the whole China market. Increasingly, challenges come from imprecise resource allocation, problematic in-store execution, high distribution cost, slow distribution of new product, lack of control over prices, counterfeits and powerful local brands, etc. According to Kantar Retail’s survey, nearly 55% of participating FMCG manufacturers have to work with more than 200 distributors to operate traditional trade. In food/beverage/alcohol categories, nearly 70% of surveyed manufacturers have to work with more than 200 distributors.

Existing TT Model


Number Of Distributors In TT


For distributors, they suffer from low turnover ratio resulted from inventory pressure and stressful cash flow while local stores have weak bargaining power, cluttered product supply and limited product category, to name a few.

FMCG B2B Companies Grow Rapidly

Against this backdrop, FMCG online B2B sector took off in 2013. Some Internet FMCG platforms began to make forays into Traditional Trade sector to reinvent this industry with Internet thinking. They wish Internet models can help reduce layers of distributors and upgrade the service quality of shops. In 2016, the trend hit a new high as more than 5 billion yuan capital funds have been poured into this sector. By November 2016, there are more than 70 FMCG B2B platforms in China. Beijing, Tianjin and Hebei provinces are where this business has become most advanced.

FMCG B2B Coverage In TT


 

Two Business Models of FMCG B2B

There are two models in FMCG B2B sector, namely self-run model and go-between marketplace model.

Self-run model earns its profits from gap between selling and buying prices. They will buy in large volume from FMCG manufacturers and sell to end small shops. Their buyout ownership of goods can help control quality. Self-run platforms’ sales teams can guarantee service quality for stores while self-run warehouses and logistics will ensure on-time delivery. Typical players are Huimin.com, Jinhuobao, Xintonglu (JD.com).

Go-between market place model earns money through commission fee and advertising revenue. This asset-light model will give manufacturers more control over price and transparent access to information and data. Typical players are Lingshoutong (Alibaba) and Zhanghetianxia.

At Starting Phase with Great Potential, Lots of Attention

According to our survey, less than 15% of FMCG manufacturers have already worked with online B2B platforms in selected regions. Online B2B business accounts for less than 1% of manufacturers’ traditional trade. Most manufacturers are still hesitating and have concerns over confliction with existing traditional trade model and partnered distributors, pricing control and product distribution management, stability of the business model and the disruptive landscape of B2B players.

FMCG B2B Usage

Future Trend and Suggestions

Although currently only 16% of shops have tried FMCG B2B, more small shop owners will inevitably try to source their products through the Internet. We estimate that by 2018, though the absolute number of small shops in China will drop to 6.1 million from 6.8 million in 2016, 18.7% of all shipments through traditional trade, or 330 billion yuan annual billing will go through FMCB B2B, or 8 times the current size. Nearly 2.7 million shops, or 44% of all shops by then, should be using online B2B platforms and place 2 orders each week. The average order size will reach 1,500 yuan and products through FMCG B2B will account for 50% of stores’ stock value.

FMCG B2B Forecast

For FMCG brands, we would suggest:

1. Select several platforms from each of the models and try them out in some currently weakly covered regions and review performances regularly;

2. Then move on to identify stronger platforms to expand the partnership to wider geographical regions. And start to micro-manage on regional operations and sales monitoring, offer marketing budget support and review the return on investment for these trial projects;

3. Carry out in-depth surveys for market and store-owners, and match the results with order numbers to fully understand store owners’ demand; then provide specifically designed products for FMCG B2B partner platforms, and increase marketing spending through these channels;

4. Gradually phase out or upgrade traditional trade distributor networks.

Source: Kantar Retail


Editor's notes

* To know more details about the complete version of 2016 FMCG Online B2B Market Study, please contact us at:

Email: Bill.Li@kantarretail.com

Phone: +86 21 2287 0512

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