Digital transformation has just become more urgent than ever before. In Chemicals in particular, Coronavirus has accelerated the need for eCommerce capabilities. As this earnings season as shown, distributors that had stronger ecommerce infrastructure fared better. This trend is only going to accelerate the user behavior shift from analog to digital.
That’s bad news for large incumbent distributors, as Amazon Business is quickly becoming the king of B2B ecommerce. However, while Amazon Business has emerged as the dominant generalist marketplace, there’s still room for a number of vertical-specific marketplaces to be successful in specific sectors of B2B distribution. With Amazon not yet dominant in Chemicals, incumbents still have the chance to take action to embrace the marketplace business model for their own purposes.
This landscape analysis is part of our B2B marketplace series, which takes a deep look into key verticals within B2B distribution where marketplaces are quickly gaining traction. Here we take a look at the B2B Chemicals distribution landscape and the many B2B marketplaces who have emerged in the last few years to challenge incumbents.
While incumbents may be nominally competing against some of these startups, over the long term both these marketplaces and incumbents share the same major competitor: Amazon Business and other multicategory, generalist marketplaces like Alibaba that aim to dominate many sectors of B2B.
There’s ample opportunity for incumbents to partner with these vertical-specific B2B marketplaces to help create a moat against Amazon and others. And for these marketplace startups, working with well-placed incumbents can bring scale and additional value added services that can help establish them as one of dominant marketplaces in a winner-take all B2B landscape.
So how vulnerable is Chemical distribution to marketplace disruption? Let’s take a look.
Marketplaces thrive in fragmented markets. And Chemicals distribution certainly fits the bill. The chemicals industry boasts $5 trillion in total revenue, the biggest markets being North America, Europe, and the Asia-Pacific region. The United States alone accounted for 17% of the total global chemicals market in 2017, which amounts to a staggering $765 billion in sales. The chemical distribution market, in particular, is projected to reach $317 billion globally by 2025, growing by a CAGR of 5.7% from 2018 to 2025.
Distribution is quite fragmented. For example, the three biggest chemical companies in the world do about $90 billion in sales, and together they didn’t even account for 2% of the entire industry.
In this report we set out to highlight the most prominent startups in the chemical tech landscape. We analyzed the Americas, Asia and Europe. There are two key business models relevant to B2B ecommerce. One group is the B2B marketplaces who go end to end connecting buyers and sellers. The other is SaaS startups that enable B2B ecommerce, typically supporting one side of the transaction.
Looking at the current B2B marketplace landscape in Chemicals, we see a few established startups as well as a number of earlier stage marketplaces that opened up in the last few years. Knowde, based in the US, recently announced a $15m round led by Sequoia. And Molbase, based in China, has raised $10m.
However, as we’ve seen in other areas of B2B, it’s possible for marketplaces to achieve substantial GMV scale, in the mid to high 8 figures into the low 9 figures USD, with relatively small amounts of capital raised. Given that B2B eCommerce as an industry isn’t as competitive – yet – as consumer Retail and that transaction sizes are much larger in B2B, it’s likely that the more mature B2B marketplace startups may already be approaching break even or profitability, at least within their core geographic markets.
For distributors, the easiest path to B2B marketplace success to buy, invest in or partner with an existing, established B2B marketplace. Given the large number of quickly growing B2B marketplaces in chemicals, this is likely to be the best route for incumbents looking to capture platform innovation. These established marketplace already have the technology and the marketplace liquidity – both supply and demand – in place.
However, another route would be to acquire a SaaS startup that can help you support a large network of sellers, and to use that technology to build the network yourself. This route can be more challenging, especially when competing against a large number of existing marketplaces who have already reached liquidity. But given the scale and dry powder that incumbent distributors possess, this may be the preferred route to success in some instances.
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