Disrupting Chemical Sales: The Rise of Online Marketplaces
Winning platforms are likely to be those that deliver a wide range of products, superior service and an abundance of suppliers
The Rise of e-Commerce
The chemical sector is a laggard in the adoption of digital solutions at the customer interface. Buying and selling chemicals feels more complex than it really is and involves too much research, phone calls, emails and, in some cases, even a fax.
Around the turn of the century, it looked like the chemical industry was ready for the digital age. Leading chemical producers were engaging in e-commerce, and many marketplaces, such as Omnexus or CC-Chemplorer, were established. None of these platforms, however, lived up to their high expectations, and none gained the necessary scale to thrive. As the hype subsided, many portals exited the market in subsequent years.
This time is different as new technologies are available and pushing digital is at the top of the agenda for many chemical company CEOs.
In recent years, many leading producers have launched online stores, many of which are open to competing producers to create marketplaces, including CheMondis (Lanxess), Chemberry (Clariant), OneTwoChem (Evonik) and, most recently, Asellion (Covestro). Sebastian Brenner, managing director of CheMondis, highlights his independence from Lanxess: “While we are owned by Lanxess, we are a fully independent operating company. There is no connection whatsoever, except financially, to Lanxess. We have our own team, office and IT systems. No transactional data is shared with Lanxess.”
Distributors are also stepping up their game. Market leader Brenntag founded DigiB as a digital hub in 2017, Univar owns ChemPoint, and Stockmeier invested in Chembid, a metasearch engine that consolidates information from multiple online sources. Independent marketplaces either focus on scale (e.g., Molbase, LookChem) or grow from specific applications (Knowde). All these marketplaces are open to any qualified buyer or seller, as opposed to proprietary online stores, which generally only offer the product of a single vendor (Fig. 1).
Leading chemical producers, such as BASF, Wacker, Covestro and others, are open to cooperating with marketplaces. All have opened up flagship stores on Alibaba’s 1688.com to generate additional business in China. Smaller marketplaces are rapidly expanding their portfolios. For example, Knowde, a Silicon Valley–based start-up focused on chemicals for cosmetic applications, is rapidly expanding both its product portfolio (moving into polymers) and geographic reach (opening an office in Amsterdam). Similarly, Chemberry focuses on personal care, but the company will soon expand into home care products.
Different Parts of the Value Chain
While all of these marketplaces bring producers and buyers together, the solutions differ significantly in terms of product, geographic coverage, user experience and functionality. Marketplaces put their emphasis on different parts of the customer buying journey. Chemberry and Knowde attract customers by focusing on valuable information and search features for formulations. CheMondis, Pinpools and Kemgo focus on facilitating actual transactions. GoBuyChem has a unique business model as it currently focuses on select commodity chemicals and covers the entire customer buying journey, including logistics: GoBuyChem buys free carrier and sells delivered duty paid (Fig. 2).
Knowde offers extensive service in the cosmetics industry: Fast response times, quick delivery of samples and a broad range of formulations enable small firms and start-ups to develop their own products quickly and reduce go-to-market times. Kemgo, Pinpools and OneTwoChem offer specific requests for chemicals and quotes on which producers and distributors can bid or make counteroffers. Most platforms do not offer significant logistical services, but Molbase and GoBuyChem do offer additional services, such as full logistic support and just-in-time deliveries, challenging the distributor business model.
James Wen, cofounder and secretary of the board of Molbase says, “Molbase is an integrated service provider. We create superior value for our customers and suppliers because we have the most comprehensive product portfolio, large supplier and customer bases, many value-added products and services, and because we combine the benefits of the marketplace with a physical supply chain and associated services” (Fig. 3).
In general, marketplaces are not the best sources that customers should turn to if they need advice beyond standard requests. Indeed, most marketplaces are not the sales channel of choice for inexperienced users or users with more sophisticated individual needs. The vast majority of marketplaces refer the customers directly to the producer for information beyond the minimum legal requirements, including specific application support, better suitable chemicals and new developments.
Outlook: What it Takes to Win
Not all marketplaces will thrive. In fact, we believe that only a few ultimately will be successful. Producers launching their online shops are probably aware of this. Winners will be the marketplaces that attract the most business to their platforms, enabling them to offer value-added features that, in turn, will increase the attractiveness of the platform. In our experience, relentless focus on three priorities is key to attract business:
- most comprehensive product portfolio;
- a high-quality offering; and
- a deep bench of actively involved suppliers.
Marketplaces need to ensure that their product portfolios cover their customers’ range of demands so that they don’t lose customers to other marketplaces. For that reason, some marketplaces (for example, Knowde and Chemberry) opted to provide comprehensive portfolios only for select applications. Marketplaces should recruit suppliers to close gaps in their product portfolios in case customers cannot find a particular chemical. Molbase and others actively promote this service for customers who cannot find a chemical that meets their requirements.
Quality is also important. Ensuring the availability of listed chemicals, providing relevant information and delivering reliable service are all necessary to earn customer loyalty and trust—both of which are essential for marketplaces that want to take more share of wallet.
Competition for Quality
Competition is necessary in order to deliver the right quality for the best price, so it’s important to get the appropriate variety of suppliers actively engaged in a marketplace. While most specialized marketplaces have a regional (or smaller) focus, many chemicals travel a long distance between producer and buyer, so a global supply base is necessary to be competitive. We tested a selection of marketplaces for their coverage of 10 chemicals (2 pigments, 2 organic solvents, 3 multipurpose chemicals, 2 food additives and 1 plasticizer) and the number of suppliers for each chemical covered.
Obviously, this analysis is just a snapshot. For instance, CheMondis is rapidly expanding as Managing Director Sebastian Brenner points out, “We are adding several hundred products every month at the moment and have several thousand scheduled for upload” (Fig. 4).
Molbase stands out as the most comprehensive and mature chemical marketplace. It benefits from China being the largest domestic chemical market in the world with the most fragmented producer landscape. Dongliang Chang founded Molbase in 2011 (along with other cofounders), and two years later, the company launched Molbase.com as an online platform to make chemical sales transactions transparent, simple and highly efficient. Today, the platform covers 100,000 companies, more than 55 million pieces of chemical compound data, more than 9 million chemical compound products and more than 40,000 franchised stores. While the marketplace focuses on China, Molbase has ambitions to become a global player and already serves customers outside of China. Molbase also differentiates from other platforms in the extent of the logistical and financial services it provides.
Another indicator of the maturity and attractiveness of these marketplaces is the amount of traffic they attract. Six marketplaces already receive more than 100,000 monthly visits. Among the marketplaces with transactions, Molbase leads its peers by a strong margin, with the exception of Alibaba’s 1688.com, which includes many products beyond chemicals. Again, obviously, this is just a snapshot as many players have just launched their offerings and are just beginning to compete for customers’ attention (Fig. 5).
The Future of Chemical Marketplaces
Bain’s analysis shows that there is still plenty of room for these marketplaces to grow and improve. The global market for chemical sales stands at around $4 trillion. An ever-increasing share of the market is commoditizing, which escalates the urgency to provide chemicals at competitive rates. Marketplaces are a means to reduce costs that don’t add value for customers and suppliers alike, and they increase transparency, which customers expect for commodity chemicals.
An ever-increasing number of start-ups—some sponsored by producers and distributors—recognize the business potential of chemical marketplaces. Consolidation among marketplaces, however, is likely to occur as producers become more sophisticated in leveraging marketplaces to their benefit, especially for commodity products, second- and third-tier customers, and noncore geographies. In fact, we expect producers to use their marketplaces as a bargaining chip to facilitate cross listing their products on other platforms, and we expect that ultimately collaboration and consolidation will take place among marketplaces that are independent, producer led or sponsored by distributors. Ultimately, leading platforms will leverage their access to customers, suppliers and information to provide superior value-added solutions connected to the sales of chemicals and technical and logistical services (Fig. 6).
Some of these value-added services will play an important role in the transition toward more customer-driven supply chains. Leading marketplaces will integrate the physical supply chain and may choose to take ownership of certain chemicals. Those marketplaces will be able to optimize their own procurement as well as procurement as a service to others by trading on the basis of superior information—for instance, supply information provided by producers (namely, stock levels) and demand information that leverages predictive planning on the basis of a deep set of customer demand data with exposure to key end markets. Marketplaces will use similar algorithms and artificial intelligence as leading demand-planning solutions deployed by producers. The accuracy will be much better, however, because of the broader and deeper data pool. As marketplaces internalize the physical supply chain, build up warehouses and manage distribution logistics, their networks will increasingly become more efficient as the density and volume of shipments within a geography increase.
Since the marketplaces own the information generated, they will be in a position to contribute to the overall efficiency of the broader supply chain network, including customers and producers. Marketplaces can accelerate the information layer of the supply chain between customers and producers—for instance, by encouraging customers to share more information about their replenishment needs and consolidating this information for producers to support their production planning.
New Market Entrants
With the exception of Alibaba, we have not seen technology giants enter the chemical market at scale, possibly because there were more attractive growth opportunities to pursue. We expect other technology players to consider entering this market, however, because of its size and the benefit that technological disruption can provide to the system. One way to enter would be to acquire a leading distributor as a foundation upon which to build the marketplace. Distributors have all the ingredients: the chemical knowledge, access to producers and customers, and the physical supply chain. Technology giants have the technology to build the platform and apply artificial intelligence to develop value-added services from the abundance of data generated by the platform.
The digitization of chemical sales will profoundly change the way chemicals are sold. Not all market participants will benefit from this disruption. Indeed, proven business models in the chemical value chain, especially those of agents, traders and distributors, will be threatened. As a Chinese proverb goes, “when the wind of change blows, some people build walls, others build windmills.”
Bain & Company
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