Retail & Consumer Sector in Yangtze River Delta Region, Top 20 Startups
The new series ‘20 Startups in 20 Global Hubs’ tracks the cities which are attracting a significant amount of VC investment in one industry. This article focuses on important startups in the retail & consumer area in the YRD region.
In this article series, we explore new concepts, products, content and channels that have emerged around the world, supported by technological breakthroughs and the growth of innovation hubs in the most dynamic of global economies.
China is the world’s fastest-growing consumer market and is also on the way to surpass the United States to become the world’s biggest. Moreover, the country has unveiled a series of measures in 2019 to boost consumer spending amid trade tension with the US. Therefore, we saw it as imperative to choose a hub (or several hubs) in China to represent these trends in the latest phase of the ‘new industrial revolution.’
Alibaba, the best-known e-commerce juggernaut in China, made its humble beginning in Hangzhou. Through years of endeavor, the company has affected millions of people’s shopping habits as well as the industry landscape. Its payment arm Ant Financial, which has grown into a USD 150 billion fintech giant, has also played a crucial role in China’s cashless transition.
Another e-commerce player, Pinduoduo, is nipping at Alibaba’s heels: this USD 45 billion upstart is based in Shanghai, from where it has been trying to reshape the industry chain by providing products to new consumers with new channels and profit models.
The Yangtze River Delta Region, which consists of 26 cities including Shanghai, Hangzhou, Nanjing, Ningbo and others, has been chosen as the hub to represent China’s consumer market. Herein we find a glimpse of the game-changing players in the region, along with an introduction to VC trends from the past five years.
The Yangtze River Delta (YRD) Region is a triangle-shaped megalopolis that lies in eastern China. Approved by the State Council of the People’s Republic of China, the region consists of Shanghai and 25 other cities in three provinces: Jiangsu, Zhejiang and Anhui.
The area of the YRD region is 212,000 square kilometers, accounting for 2.2% of China’s total land area. In 2018, the population in this region was over 150 million (11% of the total population）while GDP reached over USD 2.6 trillion, making up over 20% of China’s total amount.
Several factors have contributed to this region’s prosperity:
The urbanization rate exceeded the national average. Shanghai’s urbanization rate reached 88.1% in 2018, and Jiangsu and Zhejiang provinces were around 10% higher than the national level of 60.6%.
The well-developed infrastructure. The YRD region has well-developed sea, land, and air transportation. As of 2018, there were a total of 16 civil aviation airports among 26 cities, over three times the coverage of the national level. Intercity rail, high-speed rail, subway and light rail are highly inter-connected, leveraging the power of transit-oriented development (TOD).
The most densely distributed port group. Ningbo Zhoushan Port and Shanghai Port are representatives of the Yangtze River Delta port group. Its cargo throughput and container throughput account for approximately 35% and 34% of China’s major ports, respectively, meaning one-third of China’s export total is handled in YRD ports to every corner of the world.
From the perspective of industrial structure, the YRD region’s manufacturing industry is more complete in compared with other urban agglomerations, the service industry is relatively well-developed, and the industries among cities are well-complementary. Specifically, Shanghai has the advantage of the service industry. Jiangsu, Zhejiang and Anhui have superiority in manufacturing. Besides, Shanghai, as a science and technology innovation center, has transferred its achievements to three other provinces that are not constrained by lands and other factors.
The consumer market in a region is positively related to its economic development. According to a report released by Tsinghua SEM, retail ranked fifth in the industry with the most extensive labor distribution in the YRD. It ranked fourth in the high-level talent industry. Moreover, the positioning of Shanghai as an international city and the desperate need of the YRD region to attract talents will also promote the development of the retail & consumer sector.
VC investment in Yangtze River Delta Region
Please be noted that this series’ analysis of retail & consumer statistics in three different regions worldwide all applied Crunchbase data to conduct the research.
The VC investment implies investors’ predictions of future trends.
From the VC investments in the YRD region for the past five years, we can see a general uptrend with choppy fluctuations. Except for an outlier in the third quarter of 2018, when Suning Sports raised USD 600 million, investment in the retail & consumer sector in this region has not been significantly affected by the precipitous decline of China’s VCs in 2019 in general.
In the YRD region, there were more than 70 investment cases in 2019, with a total amount exceeding USD 1 billion. Though it was not as explosive as VC investment in 2018, the deal amount was much higher than the performance from 2014 to 2017.
Looking into each sub-category, we can also observe a jump in investment amounts in 2018 compared to other years. In the e-commerce sector, several hot spots emerged and launched a rapid roll-out, covering social e-commerce, second-hand e-commerce and cross-border e-commerce. Also, the community group buying, unmanned convenience store, smart vending machine and live streaming have led the momentum of investment in 2018.
One year later, the concepts of social e-commerce, community group buying, fresh grocery and unmanned convenience stores gradually cooled down with most players either facing a cash crunch or directly declaring bankruptcy. However, this does not mean that retail & consumer investments’ futures have been thrown into jeopardy. The rise of the pet economy has driven the development of pet food manufacturers and daily necessities companies. Fubei Pet Food and Furrytail are well-known startups in the Yangtze River Delta that nailed their new round of funding in the second half of 2019.
At the same time, some good projects have been evolving, despite the ebb and flow of VC popularity. For example, the Suzhou-based Tongcheng Shenghuo (同程生活) is a community-based group buying platform that launched in the second half of 2018. It survived the most competitive period for community group buying and secured Series B funding round in the third quarter of 2019. Another example is Club Factory. As a successful case of Chinese enterprises going overseas, the company completed a Series D financing of 100 million US dollars in the fourth quarter of 2019 and has grown into the third-largest e-commerce platform in India.
In terms of different financing types, Series Bs have bagged most of the funds from VC institutions. Consumer products, consumer services and e-commerce segments account for more than half of the funds in each round. In the past five years, the total financing amounts of Series B, C and D in the YRD region are USD 1645 million, USD 1,238 million and USD 875 million, respectively. These three segments mentioned above are also the ones that connect most with consumers, accounting for 73%, 50% and 57% of the total financing amounts.
Top 20 Startups
EqualOcean screened 20 companies among the retail & consumer-related VC investments in the Yangtze River Delta to shed light on future trends. E-commerce, though it raised the largest amount of capital, has been exploring new fields apart from traditional e-commerce players. Club Factory and Jollychic represent examples of Chinese startups seeking to do business abroad and localize. Webuy group and Xiangwushuo are examples of social-networking e-commerce. In the consumer products sector, where we can witness the embrace of new consumer brands (check the 2019 China’s new consumer brand report), Hefu Noodle and NEIWAI are two exciting brands that are acting as trailblazers in China’s consumption upgrade. While 2019 witnessed a transformational year for retail technology, this segment’s players in the YRD region are also at the forefront of digitalization, personalization and experience-oriented revolution. iTrigger.cn, the Alibaba backed retail tech company focused on business analysis and CRM solutions, joined the Alicloud ‘China Gateway’ to empower the traditional retail stores via cloud computing.
The next retail & consumer ‘20 in 20’ article will set sight on Mumbai India and uncover the exciting trends in this city.