where to play · brands start to open fs and officially manage business on pdd with product...

WHERE TO PLAYin a New Digital and eCommerce World

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eCommerce Size of Prize 2022: 18 Trillion CNY with 30% of total retail sales contribution

Source: National Bureau of Statistics, Kantar Consulting Analysis

eCommerce Retail Sales and % of Total Retail Sales (Unit: CNY, BN)

6% 8% 11% 13% 15% 20% 23% 25% 28% 30% 32%EC% of

Total Retail

Sales

1,1491,853

2,8213,829

5,156

7,175

9,386

12,014

14,417

16,579

18,186

2019E2012 2013 20172014 2015 2016 2018E 2020E 2021E 2022E

CAGR:

+44%

CAGR:

+18%

Internet User：

Online Shopper

Penetration:

Spending：

811 Million939 Million

73%82%

CNY 15,855 CNY 23,618

2018E-2022E

Least

MatureSTAR

Most

Mature

Less

Mature

Most FMCG and consumer health products continued high growth rate with only exception in

Baby category

Cosmetics

Pet Supplies

Computers & Office Supplies

Apparel

Personal Care

Furniture & Furnishing

Household Cleaning

Home Appliances

Alcohol

Baby ProductsAutomotive

Dairy Products

Food & Snacks

Consumer Electronics

Books & DVDs

Luggage & Accessories

Beverage

Nutrition & Healthcare

Sports & Outdoors

Jewelries

10%

20%

30%

40%

50%

60%

0% 5% 10% 15% 20% 25%

20

17

-18

YO

Y G

row

th (

%)

% of 2018 EC Total Size

Source: Kantar Consulting Data and Analysis

Most FMCG &

Health Products

Average Category GR: 35%

Average: 5%

eCommerce takes 18% of FMCG total sales with various categories at different stage of

development

Source: Kantar Consulting Analysis

1%3%

5%7%

10%

13%

18%

23%

28%

32%

35%

Beverage Foods

House

Cleansing

Baby &

MumsBeauty and

Personal Care

2%10% 20%30%

25%40%25%40% 40%50%

Online Sales Percentage of Total FMCG Sales Online Sales Contribution for Each Category (2017-2022E)

15%30%

Pet Products

02

Young & Elder

Female & Male

High Tier & Lower Tier

Cross Border eCommerce (CBEC)

Social Commerce

B2B

O2O

Go Abroad

New Business Model

01 Grow Shopper PenetrationWhere

the growth comes from?

02Cross Border eCommerce (CBEC)

Social Commerce

B2B

O2O

Go Abroad

New Business Model

Where


Digital and eCommerce quickly penetrate Chinese consumers across different age groups

Source: National Bureau of Statistics of China, CNNIC, Kantar Consulting Analysis

Internet penetration of different consumer ages in ChinaAge

group

69%

7%

84%

74%

13%

90%

12%

28%

16%

5%

22%

2012

13%

2015

97%

8% 10%

97%

15%

83% 94%

73%

42%

30%

21%19%

2018E2013

6% 8%

100%99%

48%

89%

77%

33%

11%

20%

18%

7%

2014 20172016

82%

37%

20%

10%

93%

85%

100%

21%

100%

55%

100%

Online

shopper

penetration

41%

99%

96%

54%

40%

32%

# Online

shopper

65 Mn

243 Mn

182 Mn

70 Mn

18 Mn

14 Mn

10-19

20-29

30-39

40-49

50-59

60 and above

Under 10 / /

Linked to Children Account Special Offer

Source: Literature Research, Kantar Consulting Analysis

Rapid consumption growth from elder people made giants take action

Launched on Feb. 1st ,2018

• Parent Order and

Children Pay

• Selected products

and special discount

• Simplified Shopping Process and Elderly Centric Design

Simplified Interface

• Big Font Size &

Concise Page • Number of elder users (>60)

grew by 60%

• Number of elder users (>50)

was nearly 30 mn

• Average consumption was

nearly CNY 5,000 / year

• Consumption of elder

people grew by 86%

Taobao in 2017

JD in 2017

• Purchased 44 pieces on

average per year

• Average spending of elder

people was 1.3 times

higher than total average

Male online shoppers’ proportion is also increasing across platforms


46%

Female

Shopping Festivals

31%

18%

Male

Shopping Festivals

69%

54%

82%


Tier 3-5 cites have shown strong growth momentum and penetration growth potential

National Avg. 73%

87%

80%

72%68%

45%

Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 & Rural

2015 2016 2017 2018E

Online shopping penetration by city tier

Source: Questmobile, Survey data

“Small Town Youngsters” (小镇青年) as the key driver of lower tier eCommerce growth

18-30

years old

Living in

tier 3-5 cities

Population:

212 Mn

Monthly Income (CNY) Distribution of

online shopper age between 18 and 30

“Small Town

Youngsters”

(小镇青年)

Similar income level compared

with Tier 2 Online Shopper

2-3 driving hours to

tier 1&2 cities

No housing loan, low

living expenses, low

working pressure

More leisure time to

consume and travel

With much easier life

13%25% 30%

20%

35% 29%15%

14% 20%52%

26% 21%

Tier1 Tier 2 Tier 3-5

Above 10,000

Below 5,0008,000-9,999

5,000-7,999

Young & Elder

Female & Male



Social Commerce

B2B

O2O

Go Abroad



0.3% +8%

0.3% +3%

0.4% +5%

0.9% +252%

1.2% +51%

1.8% +42%

3.6% +60%

7% +442%

24% +52%

51% +36%

2014 2015 2016 2017 2018E

Jumei

Dangdang

Amazon

NetEase

Gome

VIP

Suning

PDD

JD

Tmall

Note: *NetEase growth rate calculated as ’15-’18 CAGR; PDD growth rate calculated as ’16-’18 CAGR


Alibaba and JD monopolize Traditional B2C China eCommerce but faced new competitors

China EC Sales Breakdown by Channel Major B2C eTailers Sales Breakdown

2018E

Share

14-18E

CAGR

56%49% 45% 43% 40%

44%51% 55% 57% 60%

2014 2015 2016 2017 2018E

B2C

C2C

New business model exploration by big eCommerce giants:

Expand Category

Portfolio

New Market

Strengthen Core

Business

New Retail

Explore Low Tier

eCommerce

Alibaba JD

02

Young & Elder

Female & Male


Social Commerce

B2B

O2O

Go Abroad

New Business Model



Source: Kantar Consulting Research, Data & Analysis

China cross-border eCommerce to increase 4 times by 2022

38 61

94 120

165

640

2014 2015 2016 2017 2018E 2022E

Unit: CNY, Billion

4%

X4

1523

41

65

88

193

2014 2015 2016 2017 2018E 2022E

15%

Unit: Million

Import B2C Cross-Border eCommerce GMV Chinese Cross-Border Online Shopper Population

2%12%

9%

6%4%

CBEC Online Shopper

Penetration

CBEC GMV of Total

Online Retail Sales

25%

Source: Kantar Consulting Research, Data & Analysis, Government Website

Free Trade Zones and Pilot CBEC Cities have been further expanded to Western and Northern

China in July 2018 as an encouraging signal

Pilot Cross-Border eCommerce Cities (2016) Pilot Cross-Border eCommerce Cities (2018)

FuzhouPingtan

Hangzhou

Qingdao

Ningbo

Shenzhen

Tianjin

Hefei

Dalian

Zhengzhou

Chengdu

Chongqing

Guangzhou

Suzhou

Shanghai

Beijing

Nanjing

Shenyang

Hohhot

Changchun

Harbin

Nanchang

Wuhan

Changsha

Nanning

Haikou

Guiyang

Kunming

Xi'an

Lanzhou

Xiamen

Tangshan

Wuxi

Weihai

Zhuhai

Dongguan

Yiwu

2016Total 15 cities

2018Total 37 cities

New Provinces of Pilot CBEC CitiesProvinces of Pilot CBEC Cities

CBEC has shown obvious importance to certain categories already and grew shares across all

CBEC Domestic EC

CosmeticsPersonal

Care

Baby

Products

Luggage &

Accessories

Jewelries

& Gifts

Household

Cleaning

Pet

Supplies

Food &

Snacks

Dairy

Products

Sports &

OutdoorsAlcohol

Home

Appliances

Consumer

ElectronicsBeverage Apparel

32%

21%17%

9%

Nutrition &

Healthcare


International retailers and manufacturers are both aggressive towards CBEC opportunity,

bringing new competition pressure

Chemist Warehouse

Aldi

MatsumotoKiyoshi

Costco

Multiple products and brands been successfully

introduced via CBEC

For the same SKU, different pricing across different channels between Domestic and CBEC

International

Retailer

Tmall Global

Flagship

￥185> >

General Trade

02

Young & Elder

Female & Male



B2B

O2O

Go Abroad

New Business Model



Group

Purchase

Social

Promoter

2 types of Social Commerce:

Source: Public financial release

2017.12016.92015.9

Pinhaohuo (PHH,

self-run business) &

Pinduoduo (PDD,

marketplace business)

went online

PHH merged

with PDD

Completely transited

into PDD as a

marketplace platform

Initiate a group

purchase

Purchase

alone

Self-run Marketplace

Social sharing encourages rapid growth

GMV

245m

Annual Active Shoppers

515m

293m

Business Model Business Scale

897

141

4,751

Unit: CNY, Billion

As a social sharing marketplace, the three y.o. PDD becomes the 3rd biggest B2C eTailer

In the past 12 months ended Dec 31, 2017

• Encourage social media sharing for lower

price

• 57% shoppers start to use PDD after

receiving messages from WeChat group

chat

Timing and the value-for-purchase goods contribute to PDD’s rapid expansion

• 200k sellers left Taobao in 2015 due to quality

control

• Juhuasuan was integrated to Tmall in 2016 –

low priced group purchase no longer feasible

Lower priced smart phones

and WeChat penetration

Easy to Operate: one-

minute store opening on

PDD

Social networks generate

low-cost organic traffic

01

02

03

04

• Easy online store opening by posting a product

picture vs. Complex operation on Taobao/Tmall

Individual Merchants’

transition from Taobao to

new Marketplace

RMB 310

RMB 225

RMB 11VS.

• Enabled online purchase in lower tier cities • Cost to acquire a new active shopper

Source: Alibaba, JD 2017 Financial Reports; PDD IPO

Kantar Consulting 2018 Online Shopper Survey - Q: Which product categories have you purchased on PDD before？

PDD’s current low-end positioning with copycat issues but high penetration of FMCG

5%

8%

16%

16%

16%

17%

18%

20%

23%

28%

31%

35%

36%

41%

42%

52%

Alcohol

Car accessory

Drinks

Instant drinks

Oil&instant food

Dairy

Mom and baby

Fresh food

Electronics

Cosmetics

Sports&outdoors

Textile

Personal care

Household goods

Snacks

Apparel

Copycat products as a big concern

VS.

VS.

100

33

397

Category penetration on PDD Basket size by platform

Estimated based on each 2017 financial data

Unit: CNY

6 variants, 22 units in a bundle

Price: CNY 88

Brands start to open FS and officially manage business on PDD with product differentiation

Differentiated product variants Differentiated bundle offerings

• Smaller bundle size with lower bundle price

• More variants in a bundle

• Basic product variants

• Value-centric products

• Bottled laundry detergent

• Herbal natural soap

• Powder laundry detergent

• Basic soap11 variants, 12 units in a bundle

Price: CNY 39

Major eCommerce platforms have all launched group-purchase model to compete against PDD

Brands YunjiStore

OwnersShoppers

DeliverySupply

Delivery

Local & CBEC

Warehouse

Domestic

brands

CBEC brands

1k brands

& 4k SKUs

Yunji works directly with brands and fully leverages individual’s social power to promote its

products

Self-run/Marketplace model

• Product portfolio supply

• Co-create marketing content

• Daily/Promotion price

guideline

• Provide platform and sales

training

• Communicate brand essence

• Cascade marketing content

• Promote and sell products

• Invite shoppers to become

new store owners

S B b C

Store owner

Shopper

Purchase a CNY 398

product package

Complete sales and

other requirements to

be promoted

Utilizing social network effect, Yunji is able to expand quickly and reaches out to more

shoppers

Fulfill requirements to be promoted

The CNY 398 product package

Service manager

Sales manager

Store owner

Shopper33m

4.5m

30k

4k

Exploit social networking connections

02

Young & Elder

Female & Male



Social Commerce

O2O

Go Abroad

New Business Model




Traditional Trade, which is highly fragmented, still plays a vital role in lower tier city distribution

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

2018E Traditional Trade(TT) Store Count by Tier

0.47 million TT stores, 7% of total





Online B2B market presents a new way to transform our traditional RTM model

Manufacturer

Sub-

distributors

Wholesalers

Distributors

Outlets

Challenges in Traditional RTM Model Value brought by B2B Model

Manufacturer

Outlets

B2B

Low distribution efficiency,

esp. in lower tiers

Lack of price control

Untraceable commodity flow

Challenging distributor

management

In lack of transparency in trade

investment

Lack of store level data

Enhance availability in lower

tier cities62%

Minimize distribution

complexities and lower cost 54%

Able to gain whole value

chain data 47%

% means number of manufacturers who started

B2B would agree…

Distributors


B2B gains popularity among store owners with positive feedback

2017 Every 8 days 10% 881 RMB

Online B2B Order Frequency B2B Ticket SizeB2B as % of

Total Order Value*

Every 6 days19%

1,200 RMB4 times/month 5 times/month

74%would increase Frequency

70%would increase Ticket Size

2018E

Traditional trade stores evolve into modern grocery stores by B2B transformation

Traditional grocery store with

limited assortment and

inefficient operation4. Data management

system and POS

3. Improved assortment with internet products

Traditional GT

5. Rich services available within Ali/JD ecosystem

6. Connect with delivery platforms to boost sell-out

2. Renovated and modern layout

1. Standardized retail banner

New B2B Store

B2B complements those brands without strong offline distribution, adding great pressure to

big brands and required Designated B2B strategy

• Best selling segments from online

• Tailored for GT stores: smaller pack size for

better trial and lower basket size

• On-going adjustment by store level

performance

Three Squirrel exclusive partnership with Alibaba

Internet Brand Landing into

Offline GT

Differentiated Portfolio &

Tailored Activation

Portfolio Strategy

Price Strategy

Promotion Strategy

Store Owner Demand Generation

B2B Online Perfect Store

…Store Owner CRM

Special LST shelves in selected Tmall Stores

Detailed B2B Strategy called for

Action

• Distribute exclusively on LST for 1 year

• Develop LST exclusive products

• Offer favorable traffic exposure on LST

App in snacking category

CNY 15 million per month

02

Young & Elder

Female & Male



Social Commerce

B2B

Go Abroad

New Business Model



Online & Offline

Self-run new retail store

O2O definition

Offline to Online

Platform Offline Retail Partnership

Digitalizing physical store

Online to Offline

Introducing online portfolio to

offline for experience and

consumer education

Retail revolution in new retail context

Modern Trade Traditional Trade Restaurant and Dining

New

RTM

B2B

New Digital Activation Platform

O2O

Traditional

RTM

Shopper

Manufacturer

Channel is not separating shoppers and instead they connect shoppers

Multi-channel Omni-channel Channel-less

All Channels

No IntegrationAll Channels

Points of connectionFully integrated platform

Multiple retailers’ digital screens to manage to win omni-channel retailing

02

Young & Elder

Female & Male



Social Commerce

B2B

O2O

New Business Model



Untapped eCommerce Opportunities in SEA

* SEA refers to Southeast Asia

260 mn Internet user,

90% with mobile

Mobile-First Internet

7,000 start-ups in the region

Encourage Internet start-ups

Southeast

Asia

by 5.5% Annually

Strong GDP Growth560 mn in SEA*

Large Population

Only 3% Online Retail Sales

Contribution with 41% CAGR

Unsaturated eCommerce

16-17 GR: 50%

Booming Digital Consumer

11 Billion USD

2017 SEA eCommerce Size

Rising adoption of online shopping

Alibaba, JD and Tencent’s footprint in SEA

Establishment Investment Partnership

VN THIDID

To be launched#1 B2C giant

across SEA

#1 C2C platform

in ID

#3 Retail

Platform in VN

JD Indonesia

Online Retail Site#2 B2C giant

across SEA

86% held by Alibaba

Local brands opportunities to explore SEA opportunity

Current Chinese Brand on Lazada Potential Brands

“We hope that we can

change from “Made in

China” to “Create in

China” and hope to go

abroad with manufacturers

to make product available

around the world ”

- Director of Tmall Oversea

Where you want to play?

Highly dynamic and evolving China eCommerce market landscape

C2C

… ………

Marketplace

Pure

Player

Category

Specialists

C2

CB

2C

Bricks

& ClicksMarketplace

Source: Kantar Consulting Data and Analysis

Domestic EC Cross Border EC Social EC O2O B2BOversea

Commerce

To Store

…

Self-runTo Home Export

Overseas

Development

Fresh Food Luxury CosmeticsMBS MBS

KA

Import

Shopper

Management

CBEC

TT B2B

Business Model

Transformation

Where to Play

(short-term vs. long-term)

Online

/ OfflineO2O

Role of the channel

Contact:

Eva Wu

Associate Marketing Manager– eCommerce & Omni-Channel

[email protected]

where to play · brands start to open fs and officially manage business on pdd with product...

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