CPG giant moves further into China

Unilever reported lackluster earnings for the first half of 2015 with an 11% drop in net profit to €2.67bn although sales rose by 2.9% to €27bn (adjusted for currency fluctuation). According to the company “consumer demand remains weak” and that “emerging markets continue to be subdued.” This is concerning for the company as nearly half of its sales are from emerging markets.

However, it did note good growth in India and modest growth in China thanks to e-commerce. In fact, it seems China is a particular focus for the company thanks to its recent partnership agreement with Alibaba. The relationship between the two companies dates back to 2011 when Unilever first opened a virtual store on Alibaba’s Tmall online marketplace. With the latest agreement, the relationship has been expanded with a focus towards accessing rural Chinese consumers. This agreement will include working with Alimama, Alibaba’s online marketing platform, which will advertise to consumers through online-offline retail integration. Alibaba’s Tmall Global will provide cross-border e-commerce and expand distribution channels as well as cooperation between the two companies in terms of data analytics and supply chain management.

The Chinese rural market is one that Alibaba has targeted for further growth. According to Business Insider, slightly less than 10% of goods purchased on Alibaba owned marketplaces were delivered to rural areas in the first quarter 2015. This market, which represents about 44% of the total Chinese market, is growing and while perhaps not as financially affluent as those consumers in the Tier 1 and Tier 2 Chinese cities, they are adapting to mobile commerce quickly. Business Insider further noted that Alibaba is planning to spend RMB10bn over five years to set up 1,000 county offices and 100,000 village offices throughout rural China in the next three to five years. These facilities will deliver goods purchased through Taobao.

The Unilever and Alibaba partnership may prove a winning solution to attract the rural population by focusing on such necessities as food products and toiletry items. In terms of delivery, it appears China Post Group may be among those to benefit. According to Alibaba’s logistics arm, Cainiao, it is working with partners including the China Post Group to build this massive rural delivery network. The Xinhua News Agency further suggests that China wants to enable delivery to every village by 2020.

To find out more about the global CPG logistics markets market please take a look at Ti’s Global CPG Logistics 2015 report.