Netherlands: Growth of e-commerce in FMCG

The Fast Moving Consumer Goods (FMCG) market in Europe is highly competitive. This market is quite saturated, with thight margins and difficult to predict consumer behavior. The battle to win consumers is forcing companies to give highest priority to cost reduction, risk management and logistics efficiency. Moreover, the recession has changed the behaviour of almost all consumers. Instead of impulsive shopping, price value trade-offs and extensive search for value are nowadays leading.

In this respect, you can imagine that e-tailing and e-commerce are becoming more and more trending topics. Online presence of companies has improved enormously in recent years. Every company which delivers their products to end-consumers, has its own webshop. MediaMarkt, the electronica retail chain with a franchise-formula, part of the German METRO Group, was one of the last large retail chains which hasn’t a webshop untill now. Their invisibility on the web was due to regional price differences of their products. Up to now, because even the MediaMarkt now opened its webshop. Other examples are the British company, The Body Shop, which started last November with their webshop in the Netherlands.

It’s important to take care of a reinforcement between online and offline shop, instead of the other way around. On the other hand, companies with a pure online focus, like bol.com and wehkamp.nl, are reaching the highest turnover levels.

A recent research of JP Morgan reveals that the worldwide growth of e-commerce in 2011 will be 19%. In 2012 this growth will be more than 20%. The online sales in the US and Europe will grow at a stable level, but Asia will emerge as a growing e-commerce market.
Regarding e-commerce in Europe, the main importance and presence in this segment is coming from West-Europe. In this are, the market is expected to grow with 11% per year in the coming four years. The turnover from online shopping in Western Europe in 2009 was equal to € 68bln. The most popular products to buy online are books, event-tickets and clothing.

Recent transactions in the e-commerce market support the above statement. In 2007 Sanoma acquired mrticket.nl, an online ticketing agency. In 2010, the Italian company Arnoldo Mondadori Editore acquired Mondolibri, active in the book segment. Recently, Sanoma Digital acquired (a part of) No Search, an internet marketing company, active in the development of several fashion portals like Fashionchick.nl. As mentioned earlier, online fashion is a high growth segment in the e-commerce market. Based on recent transactions in the e-commerce market, the estimated EBITDA multiple for mid-market companies is on average around 6-8 times EBITDA.

Despite the international character of the European e-commerce market, only 7% of all European consumers buy their products in webshops in other EU-countries. Probably, this number will rise in coming years. Looking at the Dutch e-commerce market, you’ll see that the Netherlands are rather active in this online segment, because 71% of all consumers buy products online. An important reason for the growth of the e-commerce market is the trust that consumers have in the security regarding payments. Just 7% of the Dutch population is worried about this financial security. In the Netherlands, since several years an online secure payment system exists, callled iDeal, which means that customers can easily connect with their bank to make safe online payments. This type of payment is an important succes factor in the e-commerce market.

To further realise growth in the e-commerce market in the future, it will be important to develop a cross-channel strategy in the coming years. Consumers will buy offline as well as online and mobile commerce is a new channel, which will develop in the near future. In the Netherlands 69% of the consumers buy products via 2 or more different channels, in the US this percentage is even higher, 78%. In general, for the retail sector, branding and customer loyalty are important factors for succes. Nowadays, social media is used to reinforce branding and to promote several in-store loyalty programs as well as customer loyalty programs. In the near future, social media could be used as well for sharing online purchasing activities. Recently, wehkamp.nl has invested in social shopping applications in their webshop, so that customers can shop online together with friends, or could start a private shopping session.

Other key factors, which are important to realise the predicted growth in the future are the focus on expansion in other countries as well as a variety of segments in different webshops. Furthermore, the e-commerce segment is of interest to several private equity clubs. It is expected that this will lead to consolidation in the market, which will lead to larger e-commerce companies and a stronger competitiveness in the market.

Jan Willem Jonkman
Managing Partner
BlueMind Corporate Finance

January 2011