China E-commerce: Challenges & Opportunities Myths, Realities & Unlocking Potential
Minh-Ha Nguyen October 26, 2012
China E-commerce: Background & Context
China has more than half a BILLION people online
- 2 -
China Internet Users (In Millions)
Source: CNNIC
210
298
384
457 513 538
2007 2008 2009 2010 2011 Jun-2012
China already the world’s largest Internet population
- 3 - Source: Boston Consulting Group
457
238 102 46 38
703
277
110 51 41 0
250
500
750
1,000
China USA Japan UK S. Korea
20102015E
Internet Users By Country (2010 - 2015E) (in Millions)
+1.5% +2.1% +1.5%
+3.1%
CAGR= +9.0%
34% 51% 76% 85% 80% 88% 74% 79% 77% 79% Internet Penetration
China’s e-commerce market expected to become world’s largest by 2015
- 4 - Source: Boston Consulting Group
71
177
38 37 18
305 268
49 64 27
0
100
200
300
400
China USA Japan UK S. Korea
20102015E
E-commerce Market Size By Country (2010 - 2015E) ($Billions)
+8% +12% +5%
+9%
CAGR= +34%
…and China’s e-commerce market still has more room to grow
- 5 - Source: Boston Consulting Group
145 170
62 29 29
329
199
75 37 32
0
100
200
300
400
China USA Japan UK S. Korea
20102015E
eShopper Population By Country (2010 - 2015E) (in Millions)
32% 47% 72% 73% 61% 68% 66% 73% 77% 79% eShopper % of
Internet Users
+2.3x
Chinese Internet users very active across a wide range of online activities
- 6 - Notes: * Data as of June 2012 Source: CNNIC
210 187 251 274
388
OnlineShoppers
OnlinePayments
Users
SocialNetworking
Website Users
MicroblogUsers
Mobile InternetUsers
Chinese Online Behavior & Penetration
(Millions of Users)
39.0% 34.8% 46.6% 50.9% 72.2% Penetration
China mobile Internet usage growing dramatically
- 7 - Notes: * Data as of June 2012 Source: CNNIC
28.9% 39.5%
46.0%
60.8% 65.9% 66.2% 65.5%
69.3% 72.2%
73 118
155
233 277
303 318
356 388
2008.6 2008.12 2009.6 2009.12 2010.6 2010.12 2011.6 2011.12 2012.6
CAGR= +52%
China Mobile Internet Users & Penetration
Internet access via mobile devices surpassed desktop PC, paving way for M-commerce
- 8 - Notes: * Data as of June 2012 Source: CNNIC
73% 69% 71% 72%
Desktop Computer Mobile Phone
Dec-11 Jun-12
China Internet Access By Device Type
- 9 -
Grocery expected to be fourth largest online category by 2016
Source: McKinsey
- 10 -
Consumer acceptance towards buying Food & Beverage online varies by geography
Source: Insights China by McKinsey (2010 update)
- 11 -
Channel shift taking place in retail worldwide
Source: McKinsey
26% Home Improvement
30% Apparel
2016
2.081
2% 1%
1%
Grocery
100% =
Other GM Baby & Mom Toys & Games Health & Beauty
2%
9%
28%
China Online Market Split, 2016 RMB Billions
Grocery
100% =
Other GM Baby & Mom Toys & Games
Health & Beauty
47%
Consumer Electronics
Apparel
2010
7.847
1% 1% 1%
2%
15%
13%
20% 20% 31%
Consumer Electronics
Home Improvement
China Retail Market Split, 2010 RMB Billions
Online Penetration Percent
4
5
4
1
8
7
Grocery
Baby & Mom
Health & Beauty
Toys & Games
13
Apparel
5
20
19
34
16
11
19
2010 2016
Consumer Electronics
Home Improvement
China E-commerce: Challenges
- 13 -
China e-commerce: Myths vs. Realities
• Promise of China E-commerce: o More goods to more people more quickly o Low-cost distribution channel
MYTH True
- 13 -
REALITY: • China e-commerce as low-cost channel
for physical goods is a myth
• However, it’s not all bad news! E-commerce does offer many benefits
- 14 -
1. Immature Logistics Infrastructure
2. High Marketing Costs
3. Difficulty Charging Price Premium Online
4. “Spoiled” Chinese Consumers
5. “Gaming” by Chinese Consumers
China e-commerce faces daunting economics, driven by 5 key factors:
China E-commerce: Opportunities
- 16 -
It’s not all bad news: E-commerce does offer numerous benefits
• Quickly reach large number of consumers across China • Brand awareness, brand building • Instant consumer feedback
− Improve inventory management − Maximize pricing effectiveness − Generate new product ideas
• For multi-channel players: − Complements B&M offering (infinite shelf space) − Increases overall market share (vs. single channel)
• Plus… undeniable trend:
− Channel shift taking place worldwide − Shift moving away from Taobao and towards B2C
- 17 -
Unlocking Potential: Opportunities for E-commerce Retailers
• Employ lower cost marketing channels − Social media − Word-of-mouth
• Sell unique goods • Establish reputation for quality + service • Make your website a “destination” • Have functionalities that drive sales • Smart marketing • Execute well
• Have plan for mobile commerce… now! • Be scrappy (think like a start-up)
Proactively Manage Costs
Increase Topline
Be One Step Ahead
- 18 -
Unlocking Potential: Opportunities for Manufacturers
• Benefits: − Preferential treatment (promo space) − Consumer insights − Combat counterfeit, food safety issues − Increase awareness, trial, usage
• Especially categories that are: − High-involvement − Authenticity concerns
Develop True Partnership With E-tailers
Establish Direct Consumer
Relationship
• Potential ideas: − Price promotions if it drives volume − Non-price value-added benefits − Creative ways to provide unique goods
• Potential ideas: − Direct delivery − Provide related information − Leverage social media