e-commerce (‘ec’) driven-opportunities for italian technology providers … · 2019-11-06 ·...

© InterChinaConfidential

Strategy | Corporate Finance

www.InterChinaConsulting.com

E-commerce (‘EC’) driven-Opportunitiesfor Italian Technology Providers inChina’s Packaging Equipment Sector

Presentation

Presented to:

Prepared by: InterChina

Date: Oct 23, 2019


InterChina Leading Strategy and Corporate Finance Firm in China

Our Value

• China specialist.

• Strategy and Corporate Finance.

• Focused on 5 sectors.

• 25 years of experience.

Our People

• Located in Beijing and Shanghai.

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2

Our Clients

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Our Global Reach

• InterChina’s partner, Clearwater International, (CWI) focuses on providing corporate finance advice for mid-market transactions.

• 15 offices, 41 partners and 200 staff.

• 1100+ transactions w/ total value of €43 bn.


Buildingautomation

infrastructurerailway

Packaging, print, paper, converting equ.

Automation component; sub-system makers

Design, Engineering, Logistics, Services

OEMsMachinery / production equipment makers

Covering nearly the entire industrial value chain: Close to 200 clients have trusted InterChina to help them with their China growth issues…

3

http://www.pmmi.org/index.cfm

http://rds.yahoo.com/_ylt=A0Je5x5dhnZF8BQA.g.jzbkF;_ylu=X3oDMTA4NDgyNWN0BHNlYwNwcm9m/SIG=143846f3a/EXP=1165481949/**http:/www.gildemeister.com/internet/v3/cosupply.nsf/images/E264989272A97EAFC1256F4000310CA9/$file/logo_dmg.gif


Italian players export USD 200 m worth of systems to China, but account for only 5% of the USD 4 bn import market…

4

China’s top pack. equ. / technology importers (all 8 categories acc.), in USD m

Source: Euro monitor, product value is the accumulation of products with HS code: 84224000, 3923, 48191000, 48192000, 84719000, 3215, 84289040, 84798992, 84271010, 84271020, 84283300, 84283910, 84283920.

Italy’s exports to China, in USD m

Japan

216

114

227

644

397

310339

S.Korea

528

676

250

55

311

43

452

2014

658

631

677

358

158

354

319

219

67

1304965

886

547

2015

714

300

271

198

13953

2018

491

74

584

2016

456

960

240

215

Taiwan

67

511512

2017

565

513

274

739

5959

Germany

USA

China*

Italy

Malaysia

France

413

149

Singapore

Others

4,060

3,880

3,603

3,757

4,041

135

789

177

198

3(2%)

1(1%)

2018

73(37%)

Cat 1: Packing andwrapping equ.

Cat 2: Packaging materials

Cat 3: RFID / bar code readers

Cat 4: Packaging printingequ. & inks

Cat 5: AGV/RGV

Cat. 6: Automated warehouse equ.

Cat 7: Automatic palletizer

Cat 8: Automatic sortingequ., conveyors

8(4%)

17(9%)

20(10%)

28(14%)

47(24%)

* “China“ as an origin country means products manufactured in China, shipped out of China, and reimported. This includes bonded zones and export processing zones and spare parts which have been declared for export and re-entering China.


However, imports start to lose market share against local vendors which offer lower prices, more flexible solutions, and quicker services

5Source: China Customs, InterChina analysis

2,159 2,070

1,813 1,9002,099

4,8825,080 5,106

5,475

5,723

2014 2015 2016 2017 2018

-3%

+17%

China’s import of 7 Categories* China’s total market value of packaging equ.** , incl. import and locally made

China’s total packaging equ. market size, in USD m

* We exclude “packaging materials” (HS codes 3923, 48191000, 48192000, 3215 ) from this analysis as no corresponding data on the local (total) market can be established.


Already, 14% of China’s FMCG (excl. fresh produce) are sold online… this number is expected to grow to 1/3rd of all value by 2025

6

19%

14%

8%7%

6%4%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

30%

32%

China Mainland

1%

Taiwan Brazil

24%

ArgentinaUK

31%

20%

3% 3%

0%

South Korea

9%

USA

12%

France

8%

2018GlobalAverage:5.1%

2025E

As of 2018

E-commerce value share of FMCG (excluding fresh produce) sold in different countries

Source: Kantar World Panel, US Commerce Department


China’s e-commerce players keep growing at fast speed…

Source: Internet Research, Alibaba & JD GMV, InterChina Interviews and Analysis

Notes:

7

Unit: %

Alibaba still dominates China’s E-commence market

Pinduoduo

Alibaba

12%

others

VIP.com

JD

2018

100

20%

5%

16%

58%

2017

100100

58%

14%

33%

53%

2016

25%

3%3%

New entrance like Pinduoduo with skyrocketing GMV

Pinduoduoskyrocketed

in 2018

0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

2014 2015 2016 2017 2018

+98%JD

+234%+78%

+42%

+31%

+30%

+2%

+26%

+28%

Pinduoduo

Alibaba

Unit: USD bn

+371%

Pinduoduofounded in 2015.10

Top 3 E-commence platform GMV2014-2018

Top 3 E-commence platform market share 2016-2018


… and contribute already significantly to China’s economy

Source: Internet Research, Forward-the economist, Oxford Economics, IMF, InterChina Interviews and Analysis

Notes: 1EC including total 2C tangible products online sales , 2023 China’s GDP outlook based on IMF’s GDP annual growth rate

8

Unit: m

China’s express package volume grows at >20% yoy EC drives China GDP

Top 4 logistic companies monthly package numbers2017.11 VS 2018.11

66

8778

11388

115

48Shengtong

826

+24%

2017.11 2018.11

55

Yuantong

Others

Yunda

664

Shengfeng

456384

+31%

+32%

+45%

+14%

10.72

2016

0.99 (8%)

10.38

9.72

12.69

EC +23%

2017

0.66 (6%)

2015 2023E

16.98

11.58

0.86 (7%)

Others +6%

2.46 (15%)

2018

11.70

14.52

0.54 (6%)

9.16

2014

8.60

0.39 (4%)

9.70

8.99

Unit: USD tn

China’s EC 1 share of total GDP2014-2018, 2023E

7

6

4

3

2

20182017201620152014

Unit: bn

China’s total express package number2014-2018

1

6 EC packages

2018

7

Other packages

© InterChinaConfidential 9

Penetration rate of Automated Warehouse in China, compared with developed countries Y2018

But still: China features 7x less automated warehouses than Japan… automation penetration is alarmingly low, as labor is still preferred

Num. of automated warehouse, compared with developed countries Y2018

5,390

10,000

20,000

38,000

China JapanU.S.Germany

Unit: # automated warehousesUnit: penetration of automated warehousing

20%

80%

100%

China Developed contries

Automated

Non-automated

• Incl. warehousing logistics and production/factory logistics. • Incl. warehousing logistics and production/factory logistics.

Source: China Logistics Information Center Source: China Logistics Information Center


Cainiao (Alibaba’s logistics subsidiary) features 325 DCs across the country, yet most are not fully automated… they want to buy Chinese equipment at lower cost

10

Company Background• Company name: Cainiao• Homepage: https://www.cainiao.com/• Distribution centers/warehouse: 325 in China,

covering 20 provinces and municipalities (by July, 2019)

• Total floor space of distribution centers: 5.65 mil. square meters (by July, 2019)

• Packaging equ. budget: (a) Big distribution centers: USD 150~300 mil. (e.g. Jiaxingproject, involving 30 warehouses) (b) Medium distribution centers: USD >14 mil./center (c) small warehouses: USD <14 mil./center

E-commerce activity• Online sales orders: 800mil/day (2017 Tmall

11.11 shopping festival)1

• Online sales growth: 25% Y.O.Y. (2018 Tmall11.11 shopping festival) 1, reaching 1bil./day

Major challenges from e-commerce• Continually increased orders require faster

handling speed • To increase consumer shopping experience

and reduce the logistic cost

Source: 1 2nd resource, outsourced to/corporate with 3rd parties weak correlation to e-commerce; strong correlation to e-commerce

Sorting Labeling Cartoning Wrapping PalletizingNeed for assistance / new solutions

• Some of Cainiao’s distribution centers are surprisingly still quite labor intensive:• Cainiao has 3 types of distribution centers: (a) Highly automated distribution centers, where

big orders (e.g. 1mil. per SKU per year, typically from brands) with standard boxing are handled automatically (b) Semi-auto distribution centers, similarly, but certain handling steps are done manually (c) Manual distribution centers, where more manual steps are involved, using automated machine as assistance for product transaction. Such distribution centers handle smaller-orders, non-standardized size of boxes/ bags, typically face to Tmall store owners.

• Cainiao is looking to up their automation levels at the right cost, and with fewer equip. downtime:• Comments on foreign equip.: high cost both machine and service, non-replaceable spare-

parts, slow delivery time of spare parts, software-upgrading not accessible. Also requirement on high standardization of the sizing and position of boxes, which often cause downtime due to the current status of China logistic packaging.

• Cainiao will buy automation solutions from cheaper local players instead of from import / foreign players:

• Local players offer equip. that are less sensitive to irregular shapes and sizing of boxes/bags. Equivalent to a downgraded version of import/foreign brand.

• Much cheaper price both for equip. and service.

Serializing, coding, marking & labelling solutions for product tracking, labels, holograms, decorations, etc.

Printing technology, inks, consumables (e.g. use of higher graphics printing)

Robots (e.g. robots that can place products in corrugated boxes with human quality control)

Flexible storage end-of-line systems (for pallet forming wrapping, cartoning, automatic taping etc.)

Remote web-based plant vision, inspection and control systems

Services (software & platforms, packaging design, predictive maintenance, info-security, etc.)

Mostly referring to distribution centers in East China region

https://www.cainiao.com/


Beijing Jingdong Century Trading Co.,Ltd. (JD.com)features China’s most advanced EC DC (“Asia 1”), strong preference for Chinese suppliers

11

Company Background• Company name: Beijing Jingdong Century

Trading Co.,Ltd.• Homepage: www.jd.com• Warehouse locations: there are over 500

warehouses in China, with 23 highly automated Asia No 1 warehouses.

• Main products: EC service & logistic• Total size: USD 66,843 m sales (2018)• Packaging equ. budget: JD’s centralized

decision making for packaging equ. Purchasing. Most of budgets will be used on Asia No. 1 warehouses. Different warehouses will have different budget.

E-commerce activity• 2016 “6.18” JD order numbers: over 100

million orders during “6.18”• 2018 “6.18” order value: USD 18 billion

Major challenges from e-commerce• Orders are highly personalized• Bundle packaging requirements• Increasing cost of secondary/logistic

packaging

Source: 1 InterChina interview, 2 JD Annual Report, 3 JD Website 5 weak correlation to e-commerce, 6 strong correlation to e-commerce, 7 “6.18” online shopping festival of JD, 8

Labeling FFS* Cartoning Wrapping PalletizingNeed for assistance / new solutions

• Motivated to develop more automated warehouses:• JD self-purchased land, self-designed new logistic warehouse is called "Asia no. 1”, it can

be divided into three types: 1) Highly automated 2) Moderately automated 3) Ordinary • There are only 2-3 Asia no. 1 can be considered as highly automated, less than half of

Asia no. 1 are moderately automated (there are some process use automated solutions, like AGV, stocking robots etc.,), and all the others are just ordinary ones (manually with no or few automated process).

• Considering the total warehouse number of JD (over 500), the average automation level is still low, with the following reasons:

• Frequently changing warehouse planning makes storage and sorting automation almost impossible.

• With rapidly changed order volume, low cost effective to build an automated sorting or cartoning line.

• Automation lines have more strict requirements of plant space. • JD will prefer Chinese suppliers if machinery with similar features:

• With the development of local suppliers, most of the technology requirements can be fulfilled. There are very few machineries that only provided by foreign suppliers.

• Chinese suppliers can provide cheaper products, faster response, flexible business terms and more customized needs.

Serializing, coding, marking & labelling solutions for product tracking, labels, holograms, decorations, etc.

Printing technology, inks, consumables (e.g. use of higher graphics printing)

Robots (e.g. robots that can place products in corrugated boxes with human quality control)

Flexible storage end-of-line systems (for pallet forming wrapping, cartoning, automatic taping etc.)

Remote web-based plant vision, inspection and control systems

Services (software & platforms, packaging design, predictive maintenance, info-security, etc.)

Referring to Asia No. 1 warehouses in China.

Note: *FFS refers to form-fill-seal

http://www.jd.com/


BC category BC No. Details

Food, Fresh & Convenience

BC1

Vegetables, Fresh cut and Ready-to-eat foods, Preserves, Purees, Oil and Vinegar Pickles, Fresh and Dried Fruit, Compotes, Jams, Condiments, Ready and pre-cooked meals, Delicatessen, Spices and Aromas, Tea, Coffee, Packaged milk, Yogurt, Butter, Cheese, Cream, Ice cream, Frozen food, Pet food

Pasta, Bakery & MillingBC2

Cereals, Couscous and similar products, Flour and other Grains, Pet food, Bread and derivatives, Fresh pasta, Filled pasta, Dry pasta, Rice, Pizza, Biscuits, Crackers, Rice Cakes, Crisp Toasts, Brioches, Leavened products, Snacks, Ready-made cakes and other baked goods

Sweets, Confectionary & Snacks

BC3Candied fruit, Sweets, Jelly, Chewing gum, Confectionery, Liquorice, Cocoa and Chocolate, Chocolates, Nougat, Snacks and Bars, Sugar, Sweeteners

Liquid Food & Beverage BC4 Mineral water, Spirits, Beer, Wine, Soft Drinks, Drinks, Baby Drinks, Juices, Oil

Beauty & Personal Care BC5 Cosmetics, Creams, Perfumes, Personal Care Products, Personal and Dental Hygiene Products

Industrial & Durable Goods

BC6Furniture, Household appliances, DIY, Hardware, Automotive (cars, bicycles, motorcycles), Electronics, Building, Tissue, Paper, Publishing, Logistics and Transport, Industrial semi-finished products

Chemicals & Home Care BC7Household cleaning products, Cleaning agents, Detergents, Soaps, Waxes, Commodity chemicals, Glues, Inks, Varnishes and Enamels, Gases, Rubber, Petrochemicals, Paints, Plastics, Fibres

Pharma & Nutritional BC8Drugs, Parapharmaceuticals, Homeopathic products, Baby food, Free-from and dietary products, Probiotics, Functional & Energy products and drinks, Nutraceuticals

Meat Tech BC9Pre-sliced meats and cured meats, processed, fresh and preserved meat, cold cuts, meat-based ready meals, processed fish

We analyzed the e-commerce activities of 9 BCs (Business Communities), whereas we narrowed our one-on-one customer insights on 5 of those


We analyzed the e-commerce activities of 9 BCs (Business Communities)

13

2018 Online sales % as a percentage of total sales of a BC

BC1: Food, Fresh & Convenience BC2: Pasta, Bakery & Milling BC3: Sweets, Confectionary & Snacks

BC4: Liquid Food & Beverage BC5: Beauty & Personal Care BC6: Industrial & Durable Goods

BC7: Chemicals & Home Care BC8: Pharma & Nutritionals BC9: Meat Tech.

Tea Ice creamPackaged milk

Yogurt Food & meals1

4%

Condiments & oils 2

10%

15%14%

6%

4% *<3%

1 Food & meals: Ready and pre-cooked meals, Frozen food, Fresh cut and Ready-to-eat foods, Delicatessen, Pizza. 2 Bread: Bread and derivatives, Crisp Toasts, Brioches, Leavened products, Ready-made cakes and other baked goods, RiceCakes. 3 Others: Couscous and similar products, Flour and other Grains. 4 Condiments & oils: Condiments, oil & vinegar, pickles, spices and aromas. 5 Cleaning products: Household cleaning products, Cleaning agents, Detergents, Soaps,Waxes, Commodity chemicals. 6 Nutr: Drugs, Parapharmaceuticals, Homeopathic products. 7 Drugs: Free-from and dietary products, Probiotics, Nutraceuticals

Bread 2Biscuits, Crackers Others 3 Fresh pasta, Filled pasta,

Dry pasta, Rice

16%

2%

16%

<3% <3%

Snacks, Snacks and Bars

11%

Confectionery, Sweets, Jelly,

Liquorice, Nougat

Cocoa and Chocolate, Chocolates

Sugar, Sweeteners

7%

8% 8%

4%

BeerWine Soft DrinksSpirits Mineral water

7%4%

12%9%

4%1%

Cosmetics Creams Personal Care Products

28%26%

Personal and Dental Hygiene

Products

32%29%

24%

39%

Electronics Automotive Components

Household appliances

Tissue, Paper

14%

Furniture

37%

21%

8%

1%

1%

Cleaning products 5 Paints, Inks, Varnishes and Enamels

2%

8%

Functional & Energy products

and drinks

4%

Baby food Drugs 7

6%

13%

8%

5%

Nutr 6

BC avg.

4%

Pre-sliced meats & cured meats, processed, fresh & preserved meat, cold cuts, meat-based ready meals, processed fish


For each of the 5 BC and relevant product categories, brands are either ahead of the trend, or will catch up quickly in the next few years

14

11

10

5

137 10

20

15

289 291412 30862 4 5310

Food, Fresh & Convenience


Pasta, Bakery & Milling

Meat Tech

2019-2

023 C

AG

R O

nlin

e S

ale

s G

row

th %

Chemicals & Home Care

2018 Online Sales Penetration %

Liquid Food & Beverage

Beauty & Personal Care

Pharma & Nutritional

Industrial & Durable Goods

Current value share of e-commerce vs future growth of e-commerce business

Bubble: Relative size of each BC, in total value

50% growth (Y2017)

83% (Y2018)

42% (Y2017)

30% (Y2019H1)

5% (Y2018)40% growth (Y2018)

30% (Y2017)

30% (Y2018Q2)

25% (Y2018)

50% (Y2018 Y.o.Y.)

12% (Y2018 H1)

30% (Y2018)

20% (Y2018)

25~30% (Y2017-2018)


5 BCs will experience rapid online sales growth, and which require new packaging solutions / upgrades of packaging equ. and processes

15

BC1: Food, Fresh & Convenience BC3: Sweets, Confectionary & Snacks

BC4: Liquid Food & Beverage BC5: Beauty & Personal Care

BC8: Pharma & Nutritionals

6%

2016

7%

2017

4%

2018 2019

10%11%

2020

13%12%

2014

83

20232015

4%

8690

94100

109

117

127

CAGR ’19–‘23

4%

9%

CAGR ’19–‘23

CAGR ’19–‘23

CAGR ’19–‘23

CAGR ’19–‘23

USD bn

USD bn USD bn

USD bn

USD bn

202320182017 2020

10%8% 9%

47

2014

5%

20192015

5% 6%

2016

61

44

7% 7%

45

48 50

52

56

4%

8%

11%6% 7%

2016

7% 7%

20172014 2018 2019

333

9%

2023

8%

2020

330

6%

2015

347372

399

441

491

547 6%

12% 28% 34%16%

2014

20%18%

2015 2016

21%

2017 2018 2019

40%

2020

48%

2023

45

7065

55

4248

5259

4%

14%

5%4%4%

20202014

498

2015

438

20182016

7%

405

489505

7%6%

2017

6%5%

581

2019

539

2023

460

4%

9%

• Increased frequency and cadence of new product launches

• Fresh food categories still underrepresented in online sales

• Fast growth of ready to eat food, • Dairy products expected to sell

more online in the future.


• Overall segment still underrepresented in online sales

• E-commerce platforms now are targeting wine and spirits brands to bring them online


• E-commerce platforms are now targeting respective brands and companies to enlarge their online presence.

• Online is becoming a major channel for beauty and cosmetics brands in China

• Strong collaboration betw. brands and e-commerce platforms

• Nutraceuticals as a key driver for online sales


We interviewed 15 relevant co’s (3 of each of the 5 BCs) to gather their experience, needs, and outlook on how EC drives their pka equ. needs

16

BC Companies

BC1

Inner Mongolia Yili Industrial Group Co Ltd

Inner Mongolia Mengniu Dairy Industry (Group) Co Ltd

Foshan Haitian Flavouring & Food Ltd

BC3

Anhui Three Squirrels Electronic Commerce Co Ltd

PepsiCo China Ltd

Mars Foods (China) Co Ltd

BC4

Hangzhou Wahaha Group Co Ltd

Budweiser Wuhan International Brewing Co Ltd

Ting Hsin International Group

BC5

Unilever China Ltd

Hawley & Hazel

L'Oreal China

BC8

Shenzhen Eastroc Beverage Co Ltd

By-Health

Wyeth

Applied Discussion Guide

1. What is your current size (RMB m sales)?

2. What is your current growth (2019 over 2018, in %)?

3. How much of your product sales in China (in %) are going via online channels / e-commerce? 2017, 2018, 2019, 2023E?

4. How fast are the sales of your EC-driven products growing, yoy?

5. For which product do you see the biggest pick-up of online sales, and why?

6. Through which e-commerce channels are your products sold?

7. How well prepared does you company feel for the new online challenge in terms of product, packaging, fulfillment, storage, and so on?

8. What challenges does EC bring to your packaging and filling operations? What’s your biggest headache?

9. Due to rising business with EC, what will you do re. primary, secondary / tertiary packaging, and process and equipment involved?

10. Due to EC, where will you have most needs for change and upgrades along your process?

11. Due to EC, where / into what will you invest more in the coming year(s) / where will you require assistance from technology vendors?

11. What opportunities would Italian packaging equipment / technology players have?

12. Which products / equipments / solutions have you seen at fairs & exhibitions this and last year that you would deem interesting for your own factory?

13. What requirements on packaging equ. / techn. venders do you have?


There are new customer demands that can be addressed with innovative solutions, both technically and commercially …

• Fast-changing consumer preferences: Brandsare being pushed to diversify product SKUs and toaddress increasingly personalized consumer needsand single-serve orders.

• Challenging product and packaging design:Producing non-standard products in smaller volumeshas become a common practice for many companieswith EC sales.

• Under pressure: Frequently changed non-standardSKUs, and personalized orders still utilize manual orsemi-manual processing. Some companies do not seethe payback of replacing labor with automatedproduction lines for non-standard SKUs.

• Rough handling along the distribution channel:Rough handling by delivery men increase the spoilrate and risks of product damage, and increasecosts.

• Increasing awareness of eco-friendly concept:Brands are paying more attention to environmental-friendly concept, some already made effort inproduct materials/recycling and reuse of packagingboxes. In the long-term, it is possible for the conceptto be applied to production equip.

• Most concerns are related to secondarypackaging. Companies plan less to change theprimary packaging to have better suited SKUs for theEC channels. If changes on primary packaginghappen, then they are related to new (often higher-end) promotional lines. In some cases, plastic filmwindows in a carton box (a POS item) are removedas superfluous for EC sales.


• Changes strongly driven by EC focusedon smaller size （primary package and

lighter weight (primary and secondary package): e.g. • Smaller sized liquid laundry, sweets

and snacks • Change the product secondary

package of high-end cosmetics from window box to more endurable package material

• Brands now produce more SKUS with smaller amounts per run.

• High variance of online sales and more diversified SKU ordered by consumers has already changed the packaging process for many brands: A common practice adopted is to add more manual laborers. However, with rising labor cost and EC taking larger share of a company’s sales and volumes, more automated, and more flexible process are demanded.

• Rough handling of goods during the delivery process require more protection to the products. A common practice by brands is to invest more on the secondary packaging and logistic package e.g. adding extra wrap to products, changes of carton etc. (companies much less prioritize a new design or material of the primary packaging).

• While most brands are struggling to balance, some forward thinking companies started to think about new ways to recycle and reuse the wasted cartons. This would require a sophisticated system, with machine-learning capability that could read and select the condition of incoming second-hand cartons.

• Not necessarily EC driven, but areas to further improve still, incl. remote web-based plant vision, inspection and control systems, reduce the carbon emissions during production, etc.

• This require production equip. to be more eco-friendly, more smarter and more efficient to handle the increasing flexible production process.

Where will EC have most impact on customers’ processes?

18

Filling Labeling Cleaning FFS* Cartoning Wrapping PalletizingMaterialsDesign / features

Format

Packaging processPackage

What’s unique about China market

• The most discussion and challenges faced by brands in China market, still focus on secondary packaging for e-commerce. This is driven by the need to better protect the primary packaging. Although in certain categories where change in primary package is more suitable to e-commerce channel e.g. smaller-sized , this is not applicable to all BCs.

• To better cater to e-commerce, there might be solutions on other aspects for primary package, e.g. stronger materials, reusable materials, etc. However, given the current volume of e-commerce and level of standardization, many brands think it’s not cost-effective to do so.

Source: InterChina research and interviewsNote: *FFS refers to Form Fill Seal


Many co’s EC business is growing 40% and more p.a.... EC will account for a much larger share of their total business in a few years from now

19

90%Anhui Three Squirrels*

30%

Mars Foods (China) Co Ltd

20%

6%

L’Oreal China

25%

22%

Hawley & Hazel

4%

ByHealth

Hangzhou Wahaha Group

20%

25%

Unilever China Ltd

20%Wyeth

10%

6%Inner Mongolia Mengniu

6%

PepsiCo China Ltd

4%

6%

12%Inner Mongolia Yili

Ting Hsin Int’l Group

4%Shenzhen Eastroc

3% 5%Foshan Haitian

48%

3%

-20%

Budweiser Wuhan

70%

40%

40%

3%

32%

15%

10%

4%

32%

Online as % of total China sales YoY growth of online sales 2018

50%

40%

60%

45%

40%+

40%

20%

50%

55%

60%

55%

30%

15%

10%

70%

2018 2023E

Source: InterChina research and interviews. Note: * Three Squirrels started as an EC company and is only now developing offline channels

How relevant is EC and how fast is EC growing for the interviewed customers?


The sampled companies in ‘Liquid Food & Beverage’ as well as ‘Beauty & Personal Care’ present the best opportunities for Italian vendors …

20

Maturity curve of packaging technology needs in China

Source: InterChina Interviews & Analysis.

Focus on basics

Note: Illustrative / based on findings of sampled companies.

BC1Food, Fresh & ConvenienceBC3


BC4Liquid Food & Beverage

BC5Beauty & Personal Care

Focus on high-smart tech.

• More frequent new product launch, requiring new printingand primary packaging design.

• Require higher flexibility of cartooning robot to increase 2nd

packaging efficiency. • Moderate personalization of

products.

• Remote web-based plat vision, inspection and control system – requirement focus on the monitoring function, which is realized by Chinese players already.

• Packaging of SKU is less diversified.• The automation for non-standard 2nd packaging is low, currently still done manually, requiring higher

automation and integration of end-of-line system.• Overall upgrade needs focus more on 2nd packaging machine and end-of-line system, where

local players is becoming more competitive.

• Filling requires high standard primary packaging solutions -best addressed by foreign players.

• Requires simpler machine operations, whilst meeting the high standard of packaging at the same time.

BC8Pharma & Nutritional

• Standard format of product packaging, easy to realize mass production of primary packaging.

• More requirement focused on 2nd packaging. Require flexible solution to make room for manual work.

• Highest personalization levels. Product shapes vary and are irregular. • Multinational companies constantly looking for most updated technology and

solutions globally with innovative ideas. Some solutions needed are very forward-looking and currently not available in the market. E.g.: Reuse of packaging boxes based on smarter machine recognition.


Customers in China face most challenges at the end-of-the-line

21

14

12

9

6

7

4

5

4

3

3

3

High return rate of goods

Find ways to bundle packaging

Reduce packaging carbon footprint

Personalization of orders, tailored runs

Fake goods / counterfeit prevention

High damage or spoil rate; insufficient product protection

Finding ways to reduce size, weight and cost of an SKU

Faster product launches

Environm.-friendly / recyclable / reusable materials

Automating handling, fulfillment

Making products appear more “premium”

Inventory automation and optimization

Lack of consistent cold-chain logistics across China

0

0

N = 15 interviewed companies.^Several mentions by companies.

• The most mentioned challenges are relatedto secondary packaging issues, which alsomakes for the most significant differencebetween online and offline retail.

• All companies mention their challenges withsolving bundle packaging effectively, asconsumers assemble different SKUs in anonline shopping cart.

• Most companies are trying to find ways tobring cost down by reducing damage / spoilrates, which has increased significantly forthem due to EC (more touch points, moredistribution centers, etc.).

• It was mostly MNCs that are looking to bebest practice players in eco-friendly policycompliance.

Source: InterChina research and interviews

No. of times mentioned^

What are the key challenges for your company due to EC?


Customers appear to be already mature in the first few steps of packaging process, but will demand solutions for end-of-line…

22

64

2 3

1512

4

FFSCleaning PalletizingLabelingFilling WrappingCartoning

Due to EC, where do you have most needs for change and upgrades? (no. of times mentioned)

• Wahaha switched with high flexibility production line but with lower efficiency, hourly capacity from 80,000 bottles down to 20,000 bottles.

• Hawley & Hazel might need more productive machines with higher hourly output to tackle the increasing order from e-commerce.

• Eastroc added QR code inside the cap of its functional beverage, Consumers could scan QR code for a chance to get a prize.

• PepsiCo plays with the thought to introduce more consumer-engaging QR code for marketing purpose.

• Wahaha believes cleaning is directly linked with filling, the two processsshould have same level of flexibility and efficiency.

• Budweiser pays close attention to product quality and food safety, and would like to explore higher standard in cleaning aspects.

• Most factories of Mars in China do not have automated secondary packaging lines, the palletizing process is still done entirely by workers.

• Ting Hsin outsources certain secondary packaging work of instant noodles incl. cartoning, wrapping and palletizing process to third parties with part-time workers.

• Wyeth factory has realized the highly automated production and logistic process, but it will require a sophisticated web-based data management and production control system in the future.

• Mars developed a customized gift box specifically for EC, where consumers can select types of chocolates and packages.

• End-of-line is the main concern compared to primary packaging related processes. With rapidly expanding EC, customers first started to develop customizedcombos or bundle packaging, yet primary packaging is still similar to those sold offline.

• Current automation levels are higher in primary packaging / filling stage than the cartoning etc. stage. Many customers is still use 100% human workers tofinish the cartoning, wrapping and palletizing process. There is more potential needs for secondary packaging process to be upgraded.

• Because of yet relatively small volume of online sales comparing to total company sales, customers find it still costly to develop customized end-of-linepackaging system for EC. With the rising volume of EC, there is emerging demands of high flexibility, efficiency and integrated packaging system tofulfillment more complex bundle packaging needs.


Companies are mostly demanding flexible storage end-of-line systems

23

11

9

7

6

5

4

Flexible storage end-of-line systems (pallet forming systems,wrapping machines, cartoning machines, automatic taping machines

that can affix more or wider tape onto boxes for shipping, etc.)

Services (software & platforms, packaging design,predictive maintenance, info-security, etc.)

Serializing, coding, marking and labelling solutionsfor product tracking, labels, holograms, decorations, etc.

Robots (e.g. robots that can place productsin corrugated boxes with human quality control)

Remote web-based plant vision,inspection and control systems

Printing technology, inks, consumables(e.g. use of higher graphics printing)

• E-commerce brings more diversifiedorders, SKU combos and packagingdesigns that are far less standardizedcompared to offline retails. If onlyconsider technical aspects, the majoritycompanies interviewed appeal to higherflexibility. However, this usually comewith a big change and huge investmentwhich are the main concerns today.

• Companies have to manage non-standard SKUs at relative low batchvolumes, and are done manually today.With increasing EC volumes, this will notbe sustainable, and companies areinterested in introduce robotic solutions.

• Although not directly driven by ECalone, remote web-based plat vision,inspection and control systems areregarded as a must-to-have element.

Source: InterChina research and interviews

N = 15 interviewed companies

Due to e-commerce, where / into what will you invest more in the coming year(s) and where you will require assistance from technology vendors?

No. of times mentioned


Due to e-commerce and faster product launch cadences, flexibility in theoperation of the packaging lines has become key… and local players areaddressing this already successfully

24Source: InterChina Interviews & Analysis.

Fast switch body washfilling line developed bySaidone in operation withUnilever

• This is the local playerSaidone’s auto air-operatedfilling machine, with highspeed non-stop tacking filling,auto CIP cleaning systemand fast one button switch.

• The filling machine isdesigned to meet therequirement of quicklyswitching from 550ml to280ml bottles within 112seconds.

• The entire switching processis full automated, theoperator only needs to pressthe switch button.

Maybe in F&B or personal care, customers want moreflexibility, but it’s not a concern for pharmaceuticalscustomers currently, because the usual production volumetends to be really large in China, even for trial drugs, aswell as for specialty medication. - Double-Crane, ProjectManager

“Automation is always a topic in the packaging industry,but flexibility is becoming more important. Customershave shorter product lifecycles and more productscategories which requires more flexibility on thepackaging lines. This is a market trend, and it may verywell be that Chinese suppliers will have some advantagesin this area.” - Huituo, Overseas Sales Manager

“In the cosmetics category, customers are looking formore flexible solutions for packaging line set ups.The machine is also required to have shorteradjustment time for new production needs. Ourmachines have flexibility advantages compared toother Chinese suppliers… that’s our selling point.”- Saidone, Electrical Engineer


Chinese players are competitive in ‘good-enough’ product segmentsbut also face pressure from the need to upgrade their offering

25

• Upgrading in some downstreamsectors from low-price / lowquality to more premium qualitybrings new opportunity for R&Dintensive machinery makers.Especially larger Chinese playerswill offer more techn. advancedsolutions.

• China’s 13th Five-Year Plan(2016-2020) stimulus policies ontechnology and equip. upgrade,and support high-tech companieswith subsidy.

• More complete offerings:Leading Chinese playersincreasingly provide turn-keysolutions by offering machines forboth primary and secondarypackaging needs.

How Chinese players perceive their strengths and weaknesses

+ Substantial price advantages over int’l players, even for a comparable products.

+ Products find a market in developing countries such as South East Asia, India and Africa.

+ After-sales services: Much faster response time, more flexibility for commercial terms.

+ A more complete service: Value-added consultation on downstream markets, local policy and consumer trends.

- Most small players’ technology still inferior (overall product quality, operational stability / reliabilityCurrent domestic supply of high-end packaging equ. has not fully met the domestic demand. E.g. Large high-speed beverage filling machine.

- Design disadvantages: Chinese player’s products are less concise than int’l players’, large in size, taking more plant space. Increasing cost bases (raw materials, labor), whilst limited room for price increases put future profits at risk.

- Stricter gov’t regulations (i.e. sanitation, bacteria-free standards) increase need to spend more on R&D and better components

Overall trends


Leading Chinese players undercut prices of foreign / import equ., yet foreign players are still superior in output performance, stability, design, user interface

26

66%

Int’l player Zhongya

100%

-34%

Int’l player Yongsun

44%

100%

-56%

Int’l player

100%

Tech-Long

50%

-50%

100%

Int’l player Zhongya

66%

-34%

100%

Int’l player

64%

Yongsun

-36%

63%

Int’l player

100%

Tech-Long

-37%

Relative price gaps as perceived by 3 local players (“What is the price gap btw.an int’l player and your machine if the int’l competitors’ price is “100” ?”)

Zhongya Yongsun Techlong

Hig

her-

end /

pre

miu

m e

qu.

Low

er-

end /

sta

ndard

equ.

Source: InterChina interviews.


YoungSun Zhongya Tech-Long

Service team

• 200~300 staff (FTE) • 200~300 staff (FTE) • 100 staff (FTE)

Domestic service provision

• Via own technicians• 17 service stations (offices) national-

wide

• Via own technicians• No service offices• All technicians located at headquarters /

plant

• Via own technicians

Overseas service provision

• Dealers for standard machines• In-house technician – non-standard

machine

• Chinese technicians fly abroad to provide service

• Dealers for standard machines • In-house technicians – non-standard

machine

Service tariffs

• USD 17 to 113/ intervention within China• USD 120/intervention for overseas

services (all expense included (!))• Upon negotiation and could be lower

• USD 127 to 183 /day for junior technicians

• USD 226 to 282 /day for sr. technicians• Expenses included. • Overseas service fee incl. into the equ.

contract

• USD 169 to 212 /day (all included) for domestic service

• USD 300/day plus flight ticket costs for overseas service

Warranty • One year • One year • One year

Service content

• Remote guide for free.• Charge for core parts. Wearables – if

purchased consumable from YoungSun, for free.

• Provide reliable updating service and technical training once any renewal of technology comes out

• Free software updates• Charge for parts and plus service fee for

technician

Use of remote diagnostics

• Less than 5 customers • Less than 5 customers • For all units exported• 30% of domestically sold units

Chinese players feature relatively strong service offerings… a major decision points for local customers over international vendors


Current status against KSF

Key Success Factors for Italian brands

Position of Italian brands Level of importance to China market

Approach

In China for China

No local production, sales channel rely on import. Distant from China customers.

Local production reducing transportation cost, closer to customers. Perception of market commitment.

Strategic Focus Methodological approach. Based on China market status quo.

Credibility

Brand Awareness

Customer aware of Italian brands but do not have sharp-cut attitude compared to other foreign brands.

Need stronger differentiation point.

Track record Have some track record. Outstanding in primary packaging machine for beverage product.

Showing the capability.

Local Understanding

Limited China presence. China-focused sales approach, business relationships.

Technology

TraditionalStill Important

Bread and butter. Bread and butter.

NoveltyMachine vision, flexible, smart logical control etc.

New technology features to address the emerging new demand, and unmet needs that haven’t been solved.

Technology Development

Highly customized, leading technology to ensure performance.

Need to be prepared to the fast-changing China market environment.

ServiceInfrastructure

Pre-sales Pricing decision making back in Italy Closer communication with customers.

After-salesInternational good practice and training. But slower response time.

Providing fast-response to solve major issues.

Source: InterChina Interviews & Analysis.

High Low

Key success factors in China: Local production and a strong service delivery will be important to serve local customers effectively

!

!


Contact

Franc KaiserPartner, Shanghai

e [email protected] +86 136 6189 1710

w www.InterChinaConsulting.com

mailto:[email protected]

http://www.interchinaconsulting.com/

e-commerce (‘ec’) driven-opportunities for italian technology providers … · 2019-11-06 ·...

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