Asia has in recent years, established itself as a strong B2C e-commerce region, and is home to three of the top 10 online grocery markets – China, Japan and South Korea. Currently, FMCG retail sales growth currently sits at around 4% per annum and the total retail e-commerce is predicted to grow by 20%, or an additional $2.1 trillion, by 2020.
Additionally, the key driving trends behind the growth of online grocery shopping in Asia include an enhanced e-commerce infrastructure and improvements in logistics that create an environment of efficient purchases and deliveries.
FIA will host a Lunch Series session titled ‘Food E-Commerce Across Asia: Risks and Opportunities’ on 27 September 2018. Panellists Alaap Tatwawadi of Google, Ganesh Kashyap of Mondelēz, Patrik Jonasson of GS1, Chong Nyet Chin of NTUC Fairprice and Chee Chin Yew of PwC, will discuss what opportunities and challenges lie ahead as food e-commerce is set to eclipse offline sales within the next five years.
Ahead of the lunch series session, we ask the panellists several questions on the role of e-commerce on their business, the opportunities that collaboration brings and potential regulatory frameworks that can come into play.
What does e-commerce mean for your business and how is it changing the way you do things?
Ganesh Kashyap (GK), Mondelēz: E-commerce has had a big impact on how consumers shop for snackfood. For example, in China more than 10% of snackfood purchases are now made by consumers online and many other Asian markets are not far behind. We have created an explicit focus on winning in e-commerce. Firstly, we established a dedicated team of specialists across key Asian markets who partner with eTailers and eMarketplaces, as well as manage our Direct to Consumer storefronts. Secondly, we redefined our product assortment in a way that is efficient for the e-commerce environment – for example larger packs, differentiated flavours and unique gifting formats. Thirdly, we shifted a larger portion of advertising spend toward investment in Digital and eCommerce media. These bets are starting to pay off. Our eCommerce sales are growing in high double digits as a result and we have a large, thriving eCommerce portfolio in China, India, Australia and key South East Asian markets.
Chong Nyet Chin (CNC), NTUC Fairprice: As e-commerce rapidly expands across Asia, consumers’ behaviors and habits change too. Their expectation in convenience and customer experience has increased two-fold. Customers expect their smartphone to be a one-stop shop, putting pressure on brick and mortar retailers to adopt innovative technology so that they can deliver a seamless omni-channel experience. Within the retail sector, there has also been an explosion in innovative technologies to boost customer experience and predict customers’ behaviors. Technology has fuelled an on-demand culture and created customers’ expectation of a ‘connected experience’ across all channels. To keep pace with this digital drive, brick and mortar retailers will try to adopt technology-driven solutions to attract and retain the increasingly tech savvy middle-income consumers in the region.
It is undeniable that the physical retail landscape is increasingly competitive and the industry needs to recognize this trend while brand owners and/or producers have to be prepared to grant customers an added edge of shopping experience without compromising food safety and quality, be it online or offline.
Chee Chin Yew (CCY), PwC: As a business consulting company, we are seeing our customers struggling to grapple with the complexity and the dynamism of E-commerce. It has created an unprecedented challenge for the seasoned marketer and supply chain manager whose winning formulae are not working anymore. For those who have started e-commerce divisions, they are facing the issue of catching up with the fast pace of development, with the advent of new e-commerce business models and fickle consumer behaviours.
What impact is e-commerce having on traditional supply chains?
Alaap Tatwawadi (AT), Google: There are approximately 350 million internet users in SEA, who represent over 60% of the population in this region. These users are mobile first and a spend 180 minutes online daily on an average. While a lot of this time goes in social networking and video consumption, they are also actively searching for information. We know that 70% of customers research online before making a purchase. While a majority of these purchase today are offline, the number of online buyers is expected to go up 4x to 250 million by 2025. Grocery and Food delivery are expected to be two of the major categories driving this growth. The impact on the supply chain will be in terms of:
• Assortment - what to offer online and what to offer offline
• Cost – pricing pressures will mount as the customer may have access to a wider assortment online
• Customer centricity – brands will have to start worrying about shipment packaging, delivery time lines, after sales support and returns which are standard terms of service in the e-commerce space
GK: Traditional FMCG supply chains focused on efficient and effective delivery to the retailer. In e-commerce, the supply chain needs to focus on delivery to the consumer doorstep, and this ‘last mile’ supply chain has a big impact on the consumer experience. Get this last-mile right, and you create loyalty and stickiness to your online offer. Get it wrong and you not only lose sales, but in the process cause significant damage to your brand reputation. This means FMCG companies like us need to think of the supply chain as an integral part of the consumer offer and manage it as critical e-commerce capability.
Patrik Jonasson (PJ), GS1: For us the emergence of e-commerce has been the emergence of digital identities. We manage the barcode number system globally, and when products are on retail shelves the need for a product barcode is pretty obvious and the application is straight forward. In the world of e-commerce, we have now moved in to a new field where the unique identification actually is more important and more impactful. It affects everything from stock take to transparency and supply chain processes. So we have expanded our focus from traditional brick and mortar retail to omni-channel retail, and the unique identification that we bring to global trade has proved to be key to success in e-commerce as well, just like the product barcode has been in traditional retail for the past 45 years. Today over four trillion consumer products are manufactured and sold each year around the world – each with a standard GS1 barcode. What was once about getting a barcode for a product – is now about connecting the product to the world. It’s about bridging the physical world with the digital world. The foundation is the unique identification that we help enable.
CNC: The food supply chain from processor to marketplace or finally onto the tables of consumers has not changed, e-commerce is just another channel to market food products and extended the last mile of delivery into the hands of consumers. In fact, the food chain from farm to table should not have adverse impact as food safety and the assurance of quality produce should remain consistent throughout, be it traditional or digital mode.
It’s easy to lose sight of the crucial factor of food safety. Once food safety is compromised, the reputation of brand owners would be lost and trust in the supply chain dented. As such, responsible food companies in Asian countries should strengthen their food control and traceability system especially if they are involved in e-commerce food sales. The food industry needs to recognize that there is an additional last mile delivery in this ‘new’ supply chain compared to the traditional one. Not only is it a challenge for bricks and mortar retailers, it will be a challenge for regulators, producers and most of all how to keep the food chain safe. The producers or brand owners have to ensure their packaging is sufficiently protected during the last mile delivery and have to be prepared in educating the new players in e-commerce on cold chain, food hygiene, traceability so that they can efficiently deliver the final product to their customers without compromising the integrity of brand owners.
Another significant impact due to e-commerce will be the rising flow of cross border food sales into the country, mostly not inspected by food authorities. This has created opportunities for counterfeit and fraudulent foods that have violated local regulations. Authorities in Asian countries need to review their official food controls to include measures to regulate e-commerce food sales. Regulatory requirements need to be introduced so that all businesses involved in e-commerce food trade must be registered or authorized by the competent authority, e.g. Food Standards Agency in UK. The industry as a whole, should also put effort in increasing consumers’ education on proper handling of food and identifying counterfeits.
CCY: There are fundamental changes to the supply chains. E-commerce is requesting businesses to provide constant feedback to their supply chains. And there are times when special promotion are done, eg: double 11 festival from Taobao, which required the supply chain to withstand the sudden upsurge of purchases.
What do you feel is the biggest opportunity that e-commerce presents to the industry?
AT: E-commerce provides access to customers that can’t be reached through brick and mortar retail. Brands that overcome the challenges mentioned above will grow faster than competition because they will not only have a much larger customer base to tap into, but also a rich pool of insights that will enable them to create bespoke customer experiences. The other big opportunity is for SMBs. They can offer products and services outside their hitherto limited geographic boundaries and grow the overall internet economy.
GK: The single biggest opportunity for food companies – like Mondelez International - is to leverage e-commerce to build brands and connect with consumers. Traditional FMCG approach to building brands was developing a brand message, reaching as many consumers as possible with the same message, then measuring effectiveness through brand-recall and sales performance. With e-commerce and digital media, the brand message can be personalised in real time to an individual consumer based on their profile, and the message can be changed based on the click-through and sales performance. We now can create a single view of the consumer, build deeper connections to our brands – and use this powerful insight to adapt our portfolio to stay relevant in more consumption occasions. At Mondelez, we see this as a strategic growth opportunity – over and above e-commerce’s role as a selling channel.
PJ: It is the connection to the consumer and to be able to do this anywhere, anytime. Mobile apps allow consumers to purchase whenever and wherever convenient. Shopping is no longer a set, separate activity. It is just a part of daily life, interwoven into all our other activities. The success of these instant shopping experiences is critically dependent on product identification and information that effectively connects the consumer to what they want. As e-commerce grows year after year, so does a consumer’s reliance on accurate digital information. Consumers want to feel confident in the information they are relying on to make a purchase decision. They want to be sure that a product is what it says it is. They expect more product information than ever before, to make an informed purchase decision. And they expect the content to be accurate, complete and consistent across all channels.
CNC: The biggest opportunity that e-commerce now presents to the industry will be helping e-commerce players in optimizing not only the last mile deliveries but also the first mile efficiency. The emphasis on not breaking the cold chain is especially relevant in this new norm of end-to end supply chain especially if the product or produce is fresh, chilled or frozen. The opportunity in e-commerce should increasingly shift from a zero sum game of online against physical stores to many creative ways of pricing, selection experiences and merchandising of food products as well as digital transformation integrated into physical stores to provide an omni-channels experience. The leveraging of technology can be more efficiently used in the areas of food safety and quality assurance especially in tracing the country of origin and to show uncompromised supply chain.
CCY: Ubiquity & Equality. With 24x7 availability and mobile apps, E-commerce has spoilt the consumers with convenience. Purchases can be done virtually anywhere and anytime. Residents in smaller city enjoy the same convenience over their peers in big cities. This has opened up an entire new market segment which traditionally might have been miss out due to physical restriction on the location of brick-and-mortar stores.
Does e-commerce present any opportunity for collaboration?
AT: E-commerce is a hotbed for collaboration. And this goes beyond the market place, the buyer and the seller to include technology providers and ever publishers. Some of Google’s most innovative work over the past couple of years has been in this space. While on one hand we have solutions like Google Pay that are enabling simpler and quicker transaction at point of sale, on the other hand we have bespoke solutions like the McDelivery Capacity Planning setup that was developed in Singapore and is now being scaled worldwide. As long there is willingness to innovate and collaborate there is tremendous opportunity for business growth.
GK: Absolutely, success in e-commerce comes from tight collaboration across an ecosystem of partners. For example, we have collaborative partnerships in place with major eTailers and eMarketplace operators, as well as Social Media and Search platforms. Our last-mile logistics capability in markets like India and China is through tight collaborative partnerships with third party logistics companies who have deep expertise and reliable delivery systems. We have worked with other industry players on digital campaigns and joint promotions on e-commerce. And increasingly, we are leveraging collaborative partnerships to develop and launch e-commerce only product innovations into the market.
PJ: Yes certainly. Just consider the stakeholders in an e-commerce supply chain, from the seller, marketplace, or e-tailer, to the freight, logistics, customs clearance, last mile, and then the returns in some cases. Today the delivery is part of the product experience, and because of this, close collaboration is vital. If we look at food trade, it is growing immensely, especially in North East Asia markets like Japan and China. Here there needs to be a high level of trust in the supply chain partners, as the temperature of the food while being transported is part of the end quality of the product. As an example, it is estimated that food controlled deliveries is 20% of Japan posts revenue today. Collaboration and trust is key here, and will become more important in the future. To be able to collaborate among supply chain stakeholders it all starts, with unambiguous identity, which is the foundation for interoperability and cooperation across global supply chains.
What kind of e-commerce regulatory framework that you think should be available in order to help your business or your clients?
PJ: With the growth of e-commerce trade, physical borders are transforming into virtual borders, requiring different types of regulatory controls. Cross border internet purchasing has caused the volume of small shipments to explode worldwide. All this results in an increasing number of goods to inspect and extra complexity to the role of border management. Economic realities are driving governments and industry to look for new efficiencies in the global supply chain. At the same time, better security and regulatory compliance are expected from government. As governments and regulators stress consumer protection, transparency becomes a must. Where there is improved transparency, safety and fraud risks can be minimized. The ecosystem is constantly changing as new technologies are introduced but as different pilots are showing there is one constant and that is the unique identifier (both physical and digital).
Any regulatory framework needs to have a holistic framework, everything from tax, to safety issues are included, and normally are handled by different government agencies. If this is approached in a holistic way, with an all of government collaborative approach, we will have regulations that are more conducive to business without disruption, but if regulations are created in silos, we will be in trouble.
CCY: As e-commerce is ubiquitous, the collaboration can be in various forms and varying levels of creativity. The example of collaboration with internet celebrities to promote a certain product is a proven business model.