Alibaba less dominant in China's fragmented FMCG market

As Single's Day approaches, a report shows Alibaba commands a smaller share of online FMCG retail than it does overall ecommerce sales.

Source: Alibaba
Source: Alibaba

CHINA - The Chinese online FMCG market is fragmented and characterised by category-specific or specialist platforms, according to OC&C Strategy Consultants’ Bits & Bytes: FMCG’s shift to e-commerce in China report. 

Despite having a 70 percent share of the overall commerce market, giant online retailer Alibaba only commands around 52 percent of the online FMCG market share, the report said. 

The survey, conducted in the third quarter of this year, covered 13 sub-categories ranging from infant milk formula to beauty and personal care. More than 4,600 respondents from 16 cities participated in the survey.

Food safety and credibility issues

Due to concerns over food-safety issues in China, the report mentioned that platforms with an international origin registered strong performances in sales of products like infant milk formula. Amazon and Yihaodian were rated the top two platforms by consumers in this category.

In addition, FMCG shoppers were moving away from Alibaba due to credibility concerns, the report noted. Alibaba’s platforms were neither ranked among the top five nor the most highly rated when respondents were asked to rate various ecommerce platforms based on their experience.

However, both Alibaba platforms, Tmall and Taobao, still received the highest brand awareness and shopper penetration across the major FMCG categories. 

“Online platforms in China are always fighting for customer traffic and market share, yet consumers often perceive buying on Alibaba a bargain, thanks to its promotions,” Jack Chuang, partner, Greater China, at OC&C Strategy Consultants, in a statement.

Other advantages enjoyed by Alibaba include its one-stop shopping destination, familiarity to consumers, as well as its ubiquitous payment system Alipay. It also boasts of an impressive FMCG portfolio with 23,000 chocolate and confectionary listings and 25,000 shampoo listings on Tmall, compared to 13,800 and 13,600, respectively on its closest competitor, JD.com.
 

Customised offerings

With such a fragmented online FMCG market, Chuang said, brands can benefit and achieve their online objective through partnering with strategically-alligned platforms and by customising their offerings to cater to various needs of different market segments.

For instance, Glengoyne exclusively sells its single-malt whisky on Womai due to the platform’s reputation for authencity and expertise in alcohol logistics. In terms of customised offerings, Elizabeth Arden targets price-sensitive consumers on VIP.com, whereas Algenist targets sophisticated consumers by selling exclusive products on Sephora.

“Brands need to figure out the level of control and capability which an online store demands, so as to determine whether to establish in-house operations or to rely solely on platforms,” said Chuang. He added that brands should leverage each platform’s unique strengths, whether it be its large traffic flow, strong authencity and quality or more personalised customer service. 

“At the same time, companies should treat e-commerce not only as a sales channel but also as a platform to build their brand,” said Chuang. 

China has far surpassed any other country in the online FMCG market. Euromonitor stated that the Chinese FMCG online market grew from $1.4 billion in 2010 to more than $25.3 billion today. Price and convenience were often identified as the top reasons for consumers in China to buy FMCG online. US FMCG player Costco recorded US$3.5 million sales on Singles Day in 2014.

Singles' Day bonanza

Following its record-breaking $14.3 billion sales on the November 11 Singles' Day sales last year, Alibaba has announced that its Singles' Day sales this year will be extended to 24 days. Steven Kwok, manager, Greater China, OC&C Strategy Consultants said the extended period of sales will bear a positive impact on online FMCG sales.

"Previously, a 24-hour window geared shoppers towards higher-ticket purchases that provided a larger amount of discounts," said Kwok in an email reponse. "With a longer window of opportunity, consumers can branch out towards the lower-value, less impulse-driven categories (such as FMCG) that they would otherwise not have considered initially."

While Alibaba is expected to retain its position as the dominant player in the Singles' Day sales, Wal-Mart's sales of its ecommerce business to JD.com and its stepped up investment recently may give the latter a competitive edge in FMCG sales.

"Wal-Mart is experienced in terms of category management, pricing controls, and forms of promotion schemes. Customers will benefit from the more relevant and attractive deals, and this will in turn help improve JD.com's margins," said Kwok.