Bogdan Alecu – Senior Editor, Ziarul Financiar
Cosmin Căpățâneanu – Commercial Director Simplify
M: Hello. With us today is Cosmin Căpățâneanu, Commercial Director at Simplify by KLG. Hello, Cosmin!
Cosmin: Hello, Bogdan! Thank you very much for today’s invitation.
M: Thank you for being with us! Cosmin, explain us a little more, what does Simplify service mean? Because this year, unlike other years, we are talking more and more about e-commerce.
Cosmin: Simplify is the newest e-fulfillment service launched in Romania this year. It is a newly launched service by KLG Europe. KLG is an old company in Europe, we are 100 years old. Currently, KLG operates in several countries around the world: the Netherlands, England, China and of course, Romania. When we refer to Romania, KLG has, in addition to the 50,000 sqm warehouse near Bucharest, it has other 8 warehouses all over the country. This hub distribution system allows us to cover deliveries in around 24 hours, maximum 48 hours for certain areas, if we refer to deliveries of palletized goods. KLG is also a company that offers other transport services, we offer sea freight transport services, rail transport, air freight transport, international road transport, and now we are getting closer to the e-fulfillment area – we also offer logistics services.
M: But what does this e-fulfillment mean? How does it help the end customer?
Cosmin: E-fulfillment means logistics for online stores. It is the simplest definition.
M: So you are not working with the end customer, but with the store?
Cosmin: We do not work with the end customer. Our Simplify customers are online stores.
M: Speaking of online stores, how has this market evolved in 2020?
Cosmin: The evolution of online stores in 2020, it was obviously growing, even if we put aside the pandemic context. It was a growing trend in 2019. According to ARMO, the Romanian Association of Online Stores, there was a 20% increase in 2018. The online market increased to 4.3 billion euros in 2019. And here we are talking exclusively about physical products, so called the e-tail market. We are not talking about services, hotel reservations, tickets, downloadable content, we are talking exclusively about physical products. The forecast for 2020 was around 5 billion, so we will probably end the year with a figure of more than 5 billion.
M: In Simplify`s case, what investments were required in order to launch the service?
Cosmin: We have been planning our investments for a year and will go around 1.5 million, but we are not stopping here. Our plan is to reach an investment that will increase to 5 million euros in 5 years from now.
M: And where does the money come from, who provides the financing? I am asking you this because last year there was a big transaction in which KLG Europe was taken over by a Chinese group.
Cosmin: Yes, the KLG Europe group was taken over by Sinotrans last fall, one of the largest logistics and transportation companies in China. Now, going back to the money used for the Simplify product, they are coming exclusively from KLG Europe’s own funds. So we are not talking about funds brought from abroad, but a service launched exclusively in Romania. The funding comes from KLG Romania.
M: I was curious if they still took over KLG Europe, if they somehow participated in financing or maybe launching new products, because the Chinese have a lot of experience with online deliveries. Aliexpress delivers all over the world.
Cosmin: Currently, there is no plan that will impact KLG Romania. The very close connection we have is the fact that the Sinotrans group has a daily shuttle, air freight transport that brings goods in Europe for Aliexpress too. The goods are taken to Belgium and from there, they are further delivered to the final customers. Still, there is no connection between KLG Romania and this shuttle from China.
M: I see. I was asking you because, I know there is also a rail transport connection between China and Budapest, Hungary. They deliver to Poland and Hungary. I was curious if somehow there was any chance to attract a direct connection to Romania. Because, all the countries from the region import a lot from China.
Cosmin: We do import a lot from China. Currently, we are importing by sea freight and rail transport service. There are also customers using the Chinese railway transport services, but still the most preferred service is the sea freight one.
M: I understand. Cosmin, but when it comes to Simplify and online orders, where have you noticed the strongest growth this year? Which areas or companies have you worked with?
Cosmin: We are not having a very large client portfolio, so it is difficult to name some, but from the discussions we had with other partners, the industries that will continue to develop and that have already grown in 2020 are Home & Deco, DIY industry, fashion, cars and toys. These are the main industries according to eMAG marketplace.
M: In the case of KLG, what are the next plans for the logistics platform? I know that there, on the A1 highway, it has been invested a lot in expansion.
Cosmin: Currently, on the A1 highway, we have a warehouse of 50,000 sqm at kilometer 23. Probably, in the next period the storage area will remain 50,000 sqm. We will not invest in adding more storage areas, but we will invest a lot in the Simplify platform. Even if the platform is ready to add new customers, we will not stop here. We are looking to see how we can add automation solutions such as elevators, lanes, and of course, maybe the most important investment, it will be in the software part. All of these are our priorities.
M: Will we also have a warehouse at KLG as we see on Amazon, with robots?
Cosmin: In the short term, certainly not. Maybe after this period of 3-5 years we will be there. Currently, the Romanian e-fulfillment market is not very well developed and independent. For example, there are very few companies offering this service. From our point of view, it is a rather small market if we compare it with the volumes traded online for the moment. Definitely, it is a growing market. In my opinion, for the near future it will be impossible for an online store to move to the next level without outsourcing logistics services to an e-fulfillment platform.
M: How about the market potential?
Cosmin: It will be easier to give you some numbers. As I said earlier, the market in 2019 was 4.3 billion. We will probably reach around 5 billion in 2020. If we look at what 4.3 billion means, it means around 12 million euros per day traded online. So, we are talking about e-tail, physical products. In 2019, another number behind this volume is an important number that says that out of the total population in Romania, 23% made at least one online order. This is a figure that comes after a Eurostat study. This figure of 23%, an important information, places us on the second-to-last place in the European Union. We outrun only Bulgaria, which has a percentage of 22%. So, we can say that we are somehow in the last place. I think that says it all about the potential of this market. At the urban level, on the other hand, we are a little better. Amongst the Internet users around 56% of them place orders at least once a month.
M: I see. So, the potential is enormous both in urban areas, but especially in rural ones and among companies that are struggling to work with this e-fulfillment service.
Cosmin: Exactly. Besides, we initially began with e-fulfillment. We started at the end of last year, when together with my colleagues I decided to do this service. Well, in January I set off, quite relaxed with it. We thought of doing a branding, to give it a different name from KLG, which happened, but with the pandemic, we started to accelerate its development and now it is a functional service.
But what I wanted to say is that we realized that we could do much more than this. Simplify is no longer an e-fulfillment service as I originally thought. It is an ecosystem, and currently, in Romania this is unique. And why do we call it an ecosystem? Because given the perspective of KLG Europe, we can take over much more than logistics services for online stores. We can take over the entire supply chain, starting with the sourcing moment from the supplier, until the final delivery to the consumer. This way, we would give entrepreneurs more time to deal with profitable activities for the development of the store.
M: Right! Are there any companies that have recently turned to e-commerce and now use your services?
Cosmin: There are companies that have recently turned to this service. There are also quite large companies that currently deliver to Romania and do not have a local e-fulfillment warehouse. They start to look more and more for suppliers to collaborate with for this service and to make deliveries directly from Romania, in order to optimize this type of delivery, which for some means 3-4 days. There are players in the market who make deliveries in one day or two. To optimize this time, there will probably be big players who will come to Romania.
M: Cosmin, what about the problems that companies face? In your case, what are the problems, infrastructure, and needs of people to work in warehouses?
Cosmin: The infrastructure is the way it is. It doesn’t make sense to complain about it. More important is to find solutions and overcome this situation, the same for people who work in the warehouse. It is a situation that has been perpetuated for many years, and here we are always looking for solutions. Indeed, it is difficult. We are hiring people to work in warehouses from a distance of 100 km.
M: Where do people come the farthest from?
Cosmin: They come from an area of up to 100 km around the warehouse, but this is already an unbearable distance for colleagues, because of the time spent on the road. Coming to the office and returning home is quite long. It takes an hour and a half, two hours away to get to the warehouse. It is quite complicated to come to work and spend so much time on the road.
M: Is this why digitization or automation is becoming the future? In order to have robots in warehouses.
Cosmin: From this point of view, this is the future. I do not think it will happen right away, at least not at an e-fulfillment center like this. Maybe there will be online stores that will want to keep their logistics internalized and through the product pattern they must be able to automate a lot in the next period. But, for Romania, the concept of e-fulfillment will take some time until it will develop.
Instead, at Simplify, we automate and optimize through the software integrations. This leads to a much shorter time spent by our people in the warehouse to prepare orders. We are doing this quite well and we have a continuous plan for improvement. The warehouse is a paperless warehouse, people do not decide where to put the goods, what to do with it, but simply the software decides all these things, from the moment the goods enter the warehouse, until the moment they leave. The decisions are outsourced to the software platform.
M: Because we are still talking about investments, how could Romania attract more investments from KLG, especially considering that now the company also has a new shareholding?
Cosmin: Here, we are probably returning to infrastructure, it is the first thing to do. And I also mention the workforce. These are the two things that are critical in attracting investment in this industry. Without such solutions, it is difficult to believe that massive investments can be made.
M: I understand. Okay, Cosmin, thank you so much for the information. Let us hope that the e-commerce part will continue to grow, of course we will still have retail sales. And, best of luck!
Cosmin: Definitely, we will still have retail sales. Thank you very much for the invitation!
M: Thanks, Cosmin! Thanks also to our viewers and I wish you a good day!