E-commerce adoption to rise, benefits F&B players

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The adoption of e-commerce is expected rise continuously, with analysts noting that this new sales channel is likely to benefit F&B players but it could place pressure on fashion retailers.

KUCHING: The adoption of e-commerce is expected rise continuously, with analysts noting that this new sales channel is likely to benefit food and beverage (F&B) players but it could place pressure on fashion retailers.

Affin Hwang Capital believed that the high-growth trajectory for e-commerce still has much further to go, as mass adoption of online shopping has only just begun.

“In constant terms, Euromonitor forecasts a forward five-year compound annual growth rate (CAGR) of 30 per cent for the segment, making up circa 12 per cent of the Malaysian retail market by 2023,” the research firm said in the latest consumer sector update.

“Based on findings outlined in the recent e-commerce Consumers Survey 2018 (ECS 2018) released by the Malaysian Communications and Multimedia Commission (MCMC), we surmise that e-commerce has reached more than half of the consumers in Malaysia.

“We find that the adoption rate of online shopping is significantly higher for individuals with an average monthly income of above RM3,000 (71 per cent) versus those below RM3,000 (44 per cent). This suggests that online spending is set to rise further with increasing affluence over time.”

For the packaged F&B producers, Affin Hwang Capital believe e-commerce is more of a boon than a threat to their business because of the opportunity to generate higher sales through a new channel while tapping into a new consumer base without attracting heightened competition.

“This is due to fewer consolidated players with established market share and brand loyalty housing numerous household brands within various product categories and greater product and/or price differentiation for F&B goods. Local F&B manufacturers who have partnered with online marketplaces and subsequently see positive sales traction include Nestle (Malaysia) Bhd and Mondelez.”

On fashion retailers, Affin Hwang Capital noted that this segment is more susceptible to e-commerce disruption.

“As e-commerce proliferates, given that fashion items are the most popular product category sold online in terms of both variety and value sales, we foresee certain fashion retailers, including Aeon Co (M) Bhd’s department stores Bonia Corporation Bhd (Bonia) and Padini Holdings Bhd (Padini) remaining at risk against the multitude of competitors in the market.

“A survey performed by McKinsey among global fashion industry executives found that the luxury players are more optimistic on future industry conditions, while mid-market players are the most pessimistic.”

The research firm believed this outlines the sentiment that segmentation is becoming increasingly important, whereby fashion brands which are perceived to be neither premium nor value-for-money are most susceptible to losing out over the long run.

“This also implies the need for Bonia to elevate its brand status and for Padini to reaffirm its mass-market appeal, in our view.”