E-commerce (‘EC’) driven-Opportunities for Italian Technology Providers … · 2019-11-06 · E-commerce (‘EC’) driven-Opportunities for Italian Technology Providers in China’s
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
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.
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
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)
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)
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
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
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
Sweets, Confectionary & Snacks
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.
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?
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.
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?
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
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” ?”)