BDA-淡馬錫中國消費趨勢洞察研究China Consumer Mega Trends-20151130

CapturingtheChineseConsumptionOpportunitythrough2020

PartI:ChinaConsumerMegaTrendsConfidential?BDA20152TableofContentsMegaTrends:Demandvs.SupplyCategoryThesis:InvestmentHighlightsKeyTopics:MoreIn-depthDiscussions3TableofContentsMegaTrends:Demandvs.SupplyInvestmentDriventoConsumptionDrivenCategoryThesis:InvestmentHighlightsKeyTopics:MoreIn-depthDiscussionsChinaisheadingfortransitionfrominvestment-orientedeconomytoconsumption-orientedeconomy4Source:GlobalInsight,BDAresearchandanalysis10.4%6.2%2020E20102000ChinaRealGDPUnit:USDTNInvestment-OrientedEconomyConsumption-OrientedEconomyChinaeconomywillcontinuetoenjoysubstantialgrowthNote:Allfiguresarecalculatedas2010actualvalueandexcludeinfluenceofexchangerateChinarealGDPsurgedby2timesfrom2000to2010,whichismainlydrivenbyinvestment,meanwhilepersonalconsumptionexpendituresshareofrealGDPdroppedfrom46%to33%.ChinarealGDPwillenjoyrobustgrowthatCAGRof6.2%from2010to2020,whichismainlydrivenbypersonalconsumptionratherthaninvestment,with43%sharecontributedbyconsumptionand38%byinvestment.Thetransitionfrominvestment-orientedeconomytoconsumption-orientedeconomyismainlydrivenby:1)continuousandrapidurbanization,2)governmentreformsinsocialsecurity,consumptionstimulationandfinancialsystem,and3)industrialinnovationstocreatejobsinservicesectorandtoimprovedisposableincome.Intheupcomingtenyears,Chinaurbanizationwillcontinuetogrowatcurrentpace,whichenlargesthegapsofurbanandruralareasinpurchasingpowerandproductofferingsandfurtherboostsdevelopmentofconsumptionmarket.Chinagovernmenthastakenproactivemeasurestoexpanddomesticdemandsoastostrikeabalancebetweeninvestmentandconsumptionandmaintainsustainabledevelopmentofeconomy.Incomeincreasewillhaveaboomingeffectinconsumption.Futureincomewillbeincreasedby1)reformsandinnovationsinindustrialandfinancialsectorsthatdriveinvestment-relatedrevenuegrowth;2)rapiddevelopmentofservicesectorthatcreatemorejobs.5TableofContentsMegaTrends:Demandvs.SupplyDemandSideDynamicsCategoryThesis:InvestmentHighlightsKeyTopics:MoreIn-depthDiscussionsThedemandsideisexperiencingmajorchangesthrough2020,fromdemographicstopreference6DemographicsdynamicsPreferencedynamicsAddressablesizeofconsumptionwillbeincreasedsubstantially.China’sGDPpercapitahassurpassedUSD6,000in2012andfurthersurgedtoUSD7,500in2014.TheincreasingGDPpercapitaisdrivingfurthergrowthofconsumption.Evolvingconsumptionstructurewilldrivemorediscretionarydemands,consumptionupgradesandconsumers’KPCchange.Evolvingconsumerdesiresareexpectedtodrivemuchgreatergrowthindiscretionaryconsumptionthaninbasicconsumption,moreservicethangoods.Consumptionupgradesareembodiedbyconsumers’tradingmoreforunderpenetratedcategoriesandtofitinvariousscenarios,andbyconsumers’tradingupforpremiumproducts.Consumers’keypurchasingcriteria(KPC)willseekbalancebetweenfunctionalityvs.health,individualityvs.popularity,brandingvs.valueformoney,etc.GeneralTrendChinaSpecialSource:BDAresearchandanalysisRapidurbanization:Chinaurbanpopulationhasincreasedfrom645MNin2009to749MNin2014withexpectedurbanizationrateclimbingto62%in2020.Risingincome:Thedistributionofincomeforurbanresidentswillshiftsignificantlyupwardoverthenext10years.Agingpopulation:China’spopulationisrapidlyagingduetoincreasinglifeexpectancyandlowerfertilityrate,withelderpeopleagedover60accountingfor20%ormoreoftotalpopulation.Advancededucationlevel:Thepercentageofpeoplereceivingpopulationhasbeenincreasedfrom4%in2000to12%in2015.Asmallwaveofbabyboom:Asmoreandmore80shaveenteredfertilityperiodsandthe“selectivetwo-childpolicy”havebeentakeneffect,anincreasingnumberofnewbornbabieswillspurnewandmoresegmenteddemand.Unbalancedregionaldevelopment:Ever-changingregionaldifferenceswillbelong-existingandcreategreaterdiscrepancyinconsumptionnotionbydifferentregionalgroups,andgreaterdiscrepancyinconsumptionspendingondiscretionaryneeds.Urbanization

isexpectedtobring125MNadditionalurbanpopulationintier3and4citiesby20207China’sUrbanPopulationandUrbanizationRate,2009-2020E62%55%2020E2014+12551%54%53%50%201148%2009201320102012Unit:MNChinaUrbanizationlagsbehindmostdevelopedcountries…Australia90%93%Japan85%SouthKorea74%55%ChinaRussia84%Brazil83%USGermany74%Source:NBS,WorldBank,BDAresearchandanalysis…expectedurbanizationratewillgraduallyclimbto62%thankstoincreasinglymatureinfrastructuresComparisonofUrbanPopulationRate,2014Chinaurbanizationrateincreaseisbackedbyrapideconomicgrowth,promotedbyequalizationofpublicservices,supportedbyinformatization,improvedtransportationnetworkandotherwell-developedinfrastructures.DemographicsEconomicgrowthboosttheincreaseofhouseholdannualdisposableincomeinChina,whichfurtherleadstotheuprisingofmiddleclass8China’sAnnualHouseholdIncomeDistributionbySocialClass1,2010vs2020ENote:1.Socialclassherebyisdefinedandclassifiedintoupperaffluent,loweraffluent,middleclass,emergingmiddle,aspirantandpoorbyhouseholdannualdisposableincome.Unit:HouseholdsinMN0%Poor(<RMB25K)Aspirant(RMB25-40K)Emergingmiddle(RMB40-60K)Middleclass(RMB60-100K)Loweraffluent(RMB100-200K)Upperaffluent(>RMB200K)2020E26215%25%26%201020228%30%17%Source:BCG,BDAresearchandanalysisHouseholdannualdisposableincomepercapitawillbeincreasedsubstantiallyfromUSD4,000in2010toUSD8,000in2020.Thedistributionofincomeforurbanresidentswillshiftsignificantlyupwardoverthenext10years.Middleclasswillrisesharply.By2020,thesizeofChina’surbanmiddleclasswilllikelyhavedoubled,Morethan130millionurbanhouseholdswillbelivingatthemiddle-classorabove.DemographicsDemographicswise,asmallwaveofbabyboomandthecontinuouslyagingpopulationwilldrivetheevolvementofChina’sagestructure,andbringmoreconsumptioncateringtotheirsegmentedneeds9Source:Euromonitor,BDAresearchandanalysis0-1920-3940-592015E27%33%19%200035%23%11%>602020F26%32%22%DemographicStructureChangeofChina,2000-2020EAsmallwaveofbabyboomhelpsstabilizedemographicstructurein2020:Asmoreandmore80shaveenteredfertilityperiodsandthe“selectivetwo-childpolicy”havebeentakeneffect,anewroundofbabyboomwillboostconsumers’tradingupandmoresegmentedneeds.Populationcontributionofpeopleagedbelow19yearsoldarestabilizedthankstothesmallwaveofbabyboom.Acceleratingagingpopulation:China’spopulationisrapidlyagingduetoincreasinglifeexpectancyandlowerfertilityrate,andwillbeoneofthekeydriversoflong-termstructurechangeoffutureconsumptiondynamics.Increasingagingpopulationwillboostdemandforeldergroupofpeople,andhealthyfood,healthcareandinsurancesectorswillbenefitfromthetrend.Post-90sand00swillgraduallybecomemajorforceinconsumptionspending:Chinahasexperiencedababyboomintheearly1990sandpeoplebornthattimearebettereducated,havebetterearningsandgreaterpurchasingpower.Theyareplayinganincreasinglyimportantroleinconsumption.DemographicsThepercentageofpeoplewhoattainhighereducationinChinaexhibitsanincreasingtrendsince2000,whichprolongspeople’senrollmentratesandincreasetheiranticipationforlife10China’sPopulationDistributionbyEducationalAttainment1(2000-2020E)Asdisposableincomeincreases,consumersdesiretoreceivebettereducationandtorealizeambitionsinworkfields.Asconsumersreceivehighereducation,theyaremoredemandingfordiscretionaryneedssuchastravel,entertainment.Theextendedenrollmentratesbroughtbyhighereducationindicatemoretimespentwithcolleagues,schoolmatesandfriends,withwhomtherelationshipwillinfluenceourconsumptionpatterns.PrimaryEducationSecondaryEducationHigherEducation2020E16%66%13%2015E19%65%12%201021%63%11%200526%60%7%200030%57%4%NoEducation1Source:Euromonitor,BDAresearchandanalysisNote:1.Thedenominatoristhepopulationagedover15yearsold.DemographicsTheincreasingGDPpercapitadrivesmuchgreatergrowthindiscretionaryconsumptionthaninbasicconsumption,andmoreservicethangoods11Source:McKinseyConsumer&ShopperInsights,BDAresearchandanalysisHouseholdProductsHealthFood&HealthcareServicesPersonalCare&ServiceApparels100%Housing&UtilitiesEntertainmentFood2020ETelecommunications12%13%4.389%6%12%10%1.5510%5%8%8%5%4%20104%5%11%EducationTravelCulturalRecreationService5%3%6%7%9%20000.648%6%7%12%3%2%10%4%4%Semi-discretionaryCategories10.9%DiscretionaryCategories13.4%Total10.9%2010-2020ECAGRUnit:USDTNAnnualHouseholdConsumptionbyCategory,2000-2020ENote:Categorybreakdownofannualhouseholdconsumptionmaynotaddupexactlyto100%duetorounding.BasicCategories7.2%20142011201220132010Benchmarkedwithdevelopedcountries,wefindthatconsumptionexpenditurewillburstwithinafewyearsafterGDPpercapitareachesUSD6,000.HouseholdfinalconsumptionexpenditureofJapangrewataCAGRof21%in1970s,whenGDPpercapitaincreasedfromUSD2,234toUSD9,308.Unit:USDChinaGDPperCapitaTheincreasingGDPpercapitawilldriveconsumptiongrowthPreferenceConsumptionupgradeisembodiedbyconsumers’tradingmoreinunderpenetratedcategoriesandnewsegmentscarvedouttofitinvariousscenarios…12UnderpenetratedSectorsPenetrationGreatlyImprovedCosmeticsFood&BeverageApparelsConsumerschaseaftermoreprofessionalandfunctionalapparelssuitableforoutdooractivities.Outdoorwearhasoutpacedothersegmentsunderapparels.OutdoorWearWell-PenetratedSectorsNewScenario-drivenSegmentsCarvedoutSportswearBefore:Onesetofcostumeversatileforalloccasions;Now:Dressupseparatelyfordifferentoccasions,suchaswearingsportswearwhengoingtogym.Men’sgroomingHandcareGumChocolateConsumernotonlydesiresbasicneedoffacialcarebutalsodiscretionary

need

forotherpartsofbodylikehandsandlip;desiretolookmorebeautifulalsoapplytomen,whichboosttheuprisingofmen’sgrooming.Asconsumers’livingstandardimprove,snackslikechocolatewithhighASPareaffordableandwillenjoyrobustgrowth.Faster-than-peersgrowthrateof12%YoYin2014.Before:BasicneedforonesetoffacialcreamalldaylongNow:Facialcarefromdaytonightbyusingmorekindsofproductslikedaycream,nightcream,sleepmaskBefore:ConsumersdemandforchewinggumtobetastyNow:Consumerswantittobeportable,thuschewinggumsaremadebydifferentshapeindifferentcontainers;somearesugar-freetofulfillneedsforhealthSource:BDAresearchandanalysisFacialCarePreference...andconsumers’tradingupformid-end&premiumproducts13Source:Bain,BDAresearchandanalysisYoghurtBeerBabyInfantFormulaProductMixChangeImplicationsPremiumHighEndLow-to-midEnd33%41%27%42%17%46%HighEndLow-to-midEnd38%62%29%71%22%78%HighEndLow-to-midEnd201426%29%71%201374%201223%77%Continuedproductpremiumizationdrivenbyshiftingconsumerhabits:China'sbeervolumesin2014grew-1.5%YoY,howeverASPimprovementdroveoverallindustryvaluegrowthbackintopositiveterritory.Consumersaredrawntowardsnewproductsandhigher-endbeerthankstodisposableincomeincrease.PriceIncrease(2012-2014)2.5%CAGR13.5%5.4%5.2%2012-2014InflationRateContinueddemandgrowthforhigh-qualityproducts:Consumersarehighlyconcernedaboutfoodsafetyintermsofbabyproducts,andpremiumandhigh-endproductsareconsideredtohavebetterquality,thusdrivetheconsumptionupgradeswithininfantformula.Increasingdemandformorenutritiousproducts:Consumerscaremostaboutnutritionandfreshnessindairyproduct,andhigh-endyoghurtcaterstheirdesireforplainerandmorenutritiousproducts.PreferenceKeypurchasingbehaviordynamicsofconsumerswillbeevolvedtoabalancebetweenfunctionalityvs.health,moreemphasisonindividuality,distinctionbetweenbrandsandvalueformoney

14Functionalityvs.

HealthyIndividualityvs.PopularityBrandingvs.ValueforMoneyConsumerswillstrikeabalancebetweenfunctionalityandhealth:Food&Beverage:tastyvs.nutritious,healthyCosmetics:functionalvs.naturalSource:BDAresearchandanalysisKeyLeversin2010KeyLeversin2020Consumersdesiresweresimpleandfunctionality-drivenFood&Beverage:tastyCosmetics:functionalConsumersvaluemoreaboutindividualandpersonalizedfeatureswhenchoosinggoodsandservices:Apparels:demonstrateownidentity,fashionable，stylishConsumerelectronics:easytooperate,portable,fashionableConsumerssoughtforpopularandbasicfeaturesinvariouscategories:Apparels:comfortable,durabletowearConsumerelectronics:durabletouse,goodquality

Consumersmakedistinctivepurchasingdecisionsandmeasurethemintermsofvalueformoney.Takeapparelsasexample:Forversatilebasics/privatelabels:cheapandgoodismostimportantForfastfashion:styleandquickupdatedaremoreimportantthancheapandgoodForaffordable

luxurybrands:consumerswillpayhighpriceforbrandingwhereitsvalueliesConsumers’brandloyaltywillbeincreasedastheywillbebettereducatedviasuppliers’brandandmarketingcampaignsConsumerscan’texactlydistinguishbetweenbrandsandlabels.Consumershadtheirownpreferencestobrandsbutlackedbrandloyalty.Theypreferredtochoosefromtheirbelovedbrandsratherthanwithinonespecificbrand.Preference15TableofContentsMegaTrends:Demandvs.SupplySupplySideDynamicsCategoryThesis:InvestmentHighlightsKeyTopics:MoreIn-depthDiscussionsThesupplysideisalsoexperiencingmajorchangesthrough2020,fromstructure/conducttoperformanceChannelmixdynamics:onlinechannelquicklyrampingupasdisruptersOnlineshoppingcontinuestopenetratetheretailmarketbyallsectorsCross-bordere-commercearealsoflourishingasanewchannelforforeignbrandsOversupplyofcommercialpropertieswillpersistforthenextfewyearsChannelintegration:O2Ohasstartedtoboominbothphysicalgoodsandservicecategories,optimizingtheoperationefficiency16Structure/conductdynamicsPerformancedynamicsTheretailchannelwillbecomemoreconsolidatedwhilethedistributionchannelwillbecomemoreflattenedBrick-and-mortarfightsbackwillseekonlineplaywithomni-channelConsolidation:marketcompetitionbecomesmorefierceForbothgoodsandservices,thoseeasytobestandardizedandreplicatedtendtohavehigherconcentrationlevel,whilethoserelyonlocalproductionortalentskillstendtobefragmentedCompetitionisfierceamongdomesticbrandsalongwithproductstandardizationandpricewar,andisintensifiedbytheever-growingimportedgoodsLeadingplayershavebeentakingefforts,i.e.upstreammonopolizationorstandardizationofprocess,tolowerthebarrierofconsolidation,makingfastexpansionviableGlobalvs.Local:globalplayershavebeenaggressivelyexpandingintolowertiercitieswhilelocalplayersareactivelycatchingupinR&DcapabilitiestomakeuptheirdisadvantagesrespectivelyFiercecompetitionwillfurtherpushforwardthemarketconsolidation;consolidationwillapproachtoanendinseveralsectorsanddominantplayerswillemergeGlobalplayersoutbeatlocalplayersintermsofcategoriesthat1)originatedabroadwithfirst-moveradvantage;2)strongR&Dcapabilitiesorknow-howrequired;3)highfoodsafetyconcernLocalplayersoutperformglobalplayersintermsofcategoriesthatis1)uniquelyChineseconcept;2)withlowentrybarrier;3)whereupstreammonopolyhasbeenformedChannelsSuppliersOnlineshoppingcontinuestopenetratetheofflineretailmarketinalmostallcategories175%20117%12%201020138%20122014CAGR:+77%0%200720063%20081%1%2%2009OnlineGMVOnlineGMVas%ofTotalChinaRetailSalesApparelConsumerElectronicsHomeApplianceFurnitureCosmetics&PersonalCareFood&BeverageMom&BabyOthers26%19%29%35%16%10%7%13%16%19%3%2%13%17%20144%20136%OnlineGMVandPenetrationRate,2006-2014Unit:RMBBNOnlinePenetrationRatebyCategory,2013-2014Source:NBS,BDAresearchandanalysisChannelsO2O(online-to-offline)hasstartedtoboominbothphysicalgoodsandservicecategories18GroceryDeliveryO2OFoodDeliveryO2OLocalServiceO2OGeneralMerchandiseO2OCommonPracticeO2Oplatformscooperatewithsupermarkets/CVS/communitystores,andprovideon-demanddeliveryservicestocustomerswhoplaceorderontheplatformO2Oplatformscooperatewithrestaurants,andallowcustomerstoorderfoodontheplatformandgetdeliveredeitherbytheplatformorby3rdpartydeliveryteamsO2Oplatformscooperatewithserviceproviderssuchashousecleanersandmasseurs,andallowcustomerstobookservicesontheplatformSubsectorsofO2OO2Oplatformscooperatewithdepartmentstoresorappliancestores,allowingcustomerstopurchaseontheplatformandgetdeliveredorpickupatofflinestoresMarketSize(RMBBN)PhysicalGoodsO2OServiceO2O2015E2021F2017F2020F59203164181072018FCAGR:+60%2019F<12962016F2472022F2022F2021FCAGR:+19%2020F2018F2019F2017F2016F2015ECAGR:+31%2022F1642021F1352020F1102019F872018F672017F482016F322015E182022F2020F652021F83CAGR:+39%502019F382018F272017F192016F122015E<1Source:BDAresearchandanalysisChannelsThefloorspaceinshoppingmallshasincreasedramaticallyinrecentyears;theover-supplyofcommercialpropertieswillpersistforthenextfewyears194%0.3319%Hangzhou0.33Wuxi0.3728%Xi’an0.342%0.350.39Changsha13%TianjinHefei12%6%Chengdu22%0%Wuhan0.500.58Zhengzhou21%0.484%0.600.68Shenyang24%19%0.89Shenzhen0.2015%Guangzhou

0.409%Beijing0.524%4%0.18NanjingChongqing0.2114%0.36Qingdao0%Dalian0.2810%Changchun0.54ShanghaiNanningComparisonofPerCapitaSellingSpaceofDSandSM(2013)US:0.6SqmpercapitaTW:0.38Sqmpercapita

Source: JonesLangLaSalle,CBRE,DTZandBDAanalysisNote:1.BDAdefinescitieswithpercapitasellingspacehigherthanTaiwanasoversuppliedcities;andcitieshavepercapitasellingspacehigherthanUSas“severelyoversupplied”;CitieswithpercapitasellingspacehigherthanHongkongas“potentiallyoversupplied”.HK:0.28SqmpercapitaOver-suppliedPotentiallyover-supplied1ThepercapitasellingspaceinWuhanandChengduhassurpassedUS,facingsevereover-supplyissueSimilarwithGuangzhou,whereseveralshoppingmallsstartedoperationlastyear,thesellingspacepercapitainTianjinhassurpassedTW,turningintooversupplyExistingspacein3Q12Newlyaddedin3Q13Unit:SqmperCapitaCross-bordere-commerceareflourishingasanewchannelforforeignbrands,withmom&babyandhealthfoodsectorsbenefitingthemost202015E20132012+63%+74%+78%+58%2016E2014Long-termmarketgrowthisdrivenbyconsumptionupgrade,increasingdemandforproductswithhighquality,sustainablepriceadvantageaswellasimprovementofinfrastructures(suchasgovernmentpolicysupport,language,payment,andlogistics).ChinaOverseasOnlineShoppingMarketSize，2012-2016EUnit：RMBBNSource:BDAresearchandanalysisUnit：RMBBN21HealthFood10Mom&BabyApparel&FootwearBags&CasesCosmetics33OverseasOnlineShoppingGMVbyCategory,2014GrowthPotentialofDifferentCategoriesDuetohugeaddressablemarketsizeandsignificantdifferenceinproductqualitybetweendomesticandoverseasbrands,webelievemom&babyandhealthfoodwillbenefitthemostfromoverseasonlineshoppingLargestPotentialSmallestPotentialChannelsThesenewdisrupterswillinducefurtherconsolidationandflatteningofChina’schannels,andalsofacilitatetheconsolidationofsuppliers21OnlinePenetrationOnlineGMVoutgrowsofflineretailsales,andonlinechannelscontinuetopenetrateofflinemarketsinvariouscategories,whichissqueezingtheshareoftraditionalofflinechannels.Offlinechannelswillbecomemoreconsolidated.Theoversupplyofcommercialpropertieshasresultedinpoorperformanceofprofitabilityforsomeofflinechannels,andisthereforepushingtheconsolidationofofflinechannels,whichhasbeenaggravatedbytherisingonlinepenetrationandO2O’sboomingLeadingofflinechannelswillenjoyimprovementofmarginduetoconsolidation,butmaybealsoimpactedbyonlinechannels’disruptionDistributionchannelswillgenerallybecomemoreflattened.SomeofflineintermediarychannelsarebeingeliminatedduetotheemergenceofonlineshoppingchannelsandO2Oplatforms,andtheoverallchannelstructurewillgraduallybeflattenedSupplierswillalsoexperiencefurtherconsolidationWithofflinechannelsbeingmoreconcentratedandledbymodernchannels,supplierswillalsobecomemoreconsolidatedasleadingbrands’advantagesinmodernchannelswillbestrengthenedO2O’sBoomingO2Obusinesshasstartedtoboominbothphysicalgoodsandservicecategories,andisconnectingonlineconsumerswithofflinesuppliersandserviceprovidersdirectlyOversupplyofCommercialPropertiesOfflinecommercialpropertieshasalreadybeenoversupplied,withalotofshoppingmallssufferingfromvacancyduetoinsufficientmerchantsattractedCross-borderE-commerce’sRamp-upCross-bordere-commerceisrampingupquicklydrivenbyconsumptionupgradeandimprovementofoverseasonlineshoppinginfrastructures,andisplayinganever-growingroleindistributingforeignbrands’productsSource:BDAresearchandanalysisChannelsFiercecompetitionwillfurtherpushforwardthemarketconsolidation;Consolidationwillapproachtoanendinmanysectorsandmoredominantplayerswillemerge2227%7%5%66%37%30%70%62%64%70%59%51%74%31%25%57%73%67%Source:Euromonitor,BDAresearchandanalysisChina(2009)China(2014)US(2014)Children’swearTissueConfectionaryAirConditioner1Alcohol1KitchenCleanersCR5Note:1.Forairconditioners,alcoholandtissue,thedominatorsofmarketshareistotalvolumeProductstandardization:Asmanufacturingabilitybecomesmature,gapsamongproductsofdifferentbrandswillnarrowFiercepricewar:Asproductsturnhomogeneous,playersareforcedtolowerpricestogainshare,andthosewhoareabletocutcostwillstandoutSuppliersAdditionally,importedgoodsarealsogainingtractionalongwiththepopularityofcross-borderecommerceandtariffcut,whichintensifycompetition23201220132014+63%+78%2015E+74%+58%2016ECategoryImportTariffbeforeJun1st,2015ImportTariffafterJun1st,2015Cosmetics5%2%Diapers7.5%2%Footwear22-24%12%Suits/FurGarments14-23%7-10%Cross-bordere-commerceareboomingImporttariffhasbeencutforspecificcategoriesChina’soverseasonlineshoppingmarket,2012-2016EUnit:RMBBNImportgoodsaregainingtraction+15%201420132012ImportedConsumerGoodsAs%ofTotalSocialRetailValueChina’sImportedConsumerGoods,market,2012-2016ESource:NBS,MinistryofCommerce,BDAresearchandanalysisUnit:RMBBNSuppliersForbothgoodsandservices,thosewhoareeasytostandardizedandreplicatedtendtohavehigherconcentrationlevel,whilethoserelyonlocalproductionortalentskillstendtobefragmentedSectorsemphasizefreshness(localserving)ornarrowinlogisticrange(localproduction)areusuallyoflowconsolidationlevelForexample,freshfoodemphasizeslocalsupplytoguaranteealongershelflife,resultinginabunchofregionalsupplierswhoconnecttolocalplantationunitsAlso,beersectorisalsoregionallydividedbynatureduetohighlogisticcost(lowASP,fragilebottle)andscatteredchannel(largeshareoflocaldiningoperation);Landscapediffersalotamongregionsandlotsoflocalplayersexist24GoodsServiceNaturallyConcentratedNaturallyFragmented

Sectorswhichemphasizedlessonlocalservingorlocalproduction,andmorestandardizedgoodstendtobemoreconsolidatedForexample,packagedfoodtendtobemoreconsolidated,asitdoesnotrequirefreshnessandhaslowlogisticcost,easyforleadingplayerstoexpandnationwideSectorswheretalentedskillsarelessimportant(easytoreplicate)andstandardizedprocessareeasytoapply,tendtohavehighconcentrationlevelWesternfastfoodareeasiertoreplicateacrossregions,asithaslimitedrawmaterials,andtheservingsarealreadysemi-ready,whichonlyneedsimpleprocessinginstore.Sectorswheretalentskillplaysanimportantroleandstandardizationlevelislow,tendtohavelowconsolidationlevelForexample,plasticsurgeryhighlyreliesonsophisticatedskillofsurgeons,makingitdifficulttoexpandquicklyduetotalentreserverestraintAlso,Chinesefullmealsareoflowstandardization,resultingfromhighlydiversifiedrawmaterialsanddishesSource:BDAresearchandanalysisSuppliersInspiteofsectors’naturalfeature,leadingplayershavebeentakingeffort(upstreamacquisition,talentskillweakeningandstandardizationofprocess)tolowerthebarrierofconsolidation,makingfastexpansionviable25Sectorsemphasizefreshness(localserving)ornarrowinlogisticrange(localproduction)areusuallyoflowconsolidationlevelGoodsServiceAttempttoLowertheBarrierRestraintofConsolidationConsolidationopportunitieslieinupstream,wherecapitalinvestmentpushacquisitionoflocalsupplyInfreshfoodsector,leadingplayersareabletoachieveconsolidationthroughactiveacquisitionofupstreamsupply,e.g.plantingbases,slaught