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A New Delivery Satisfying Southeast Asia's Appetite Through Digital The packaged food and drink sector in Southeast Asia September 2016 A new delivery Satisfying Southeast Asia’s appetite through digital In this report 3 Steady performance amidst global uncertainty 9 ASEAN-6’s growing appetite 15 The evolving customer journey 23 A digitally enabled omnichannel 37 The way forward Foreword Relative to other regions, the Southeast Asian economy enabled. This creates substantial opportunities for has been performing steadily over the past few years in manufacturers and retailers of packaged food and drink to spite of global volatility, which has impacted quite a few gain consumer mindshare. At the same time, it poses a growth markets. This robust economic performance has threat for companies which do not re-invent their business translated into rapid growth in the packaged food and models in the wake of the digital revolution. The customer drink sector, and this trend is expected to continue till now has much more to choose from, and will prefer to 2020. However, consumer evolution and increasing engage only with players that offer ‘always-on’ service and competition are making it more difficult for companies a seamless omnichannel experience. to succeed here. Achieving this objective will require innovation on a First of all, Southeast Asia is not a homogenous region, substantial scale, with better adoption and integration of especially when considering the packaged food and digital technology into every aspect of the customer drink sector. There are multiple markets at different journey. In this report we focus on five digital enablers stages of maturity and differing consumer needs. In this which are essential to providing a differentiated experience report, we categorise the countries based on the size of for the new-age shopper of food and drink across Southeast the economy, projected growth in consumer spending Asia. It all starts with knowing your customer better by and gross domestic product (GDP) growth. Here, deriving insights using data analytics, followed by Singapore emerges as an ‘advanced’ market whereas attracting them through digitally enabled communication Vietnam, Indonesia and the Philippines are ‘emergent’ and consumer interaction. The goal then is to serve the territories. Malaysia and Thailand are somewhere in customers through the various channels available, of which between and can be categorised as relatively e-commerce is emerging as among the most significant. ‘established’. The focus of this report is on these six Organisations also need to continuously engage with countries, which have been collectively termed as customers throughout their journey, listening to them and ‘ASEAN-6’. Other countries such as Cambodia, Laos and driving conversations through social media. Myanmar are expected to be at the frontier of growth over the next five years; however their absolute market Finally, adopting digital does not mean that players should size and potential remain low as compared to the others. neglect the traditional channels of communication and engagement. Media such as television broadcasting remain Secondly, the socio-economic changes in the region are popular in the region and central to any advertising having a significant impact on consumer behaviour. The campaign. Traditional retail stores will also continue to ASEAN-6 consumer journey is becoming increasingly play an important role for shoppers, especially in the complex and needs to be looked at in the context of ‘emergent’ economies. The industry therefore needs to differing needs and occasions. Consumers are also converge the modern and the traditional to create true exposed to multiple channels of engagements and customer value and provide a unique experience. smartphone adoption is making them more digitally David Wijeratne Charles Loh Growth Markets Centre Leader Consumer, Industrial Products and Services Leader PwC South East Asia Consulting Steady performance amidst global uncertainty Challenges abound globally since 2013, with growth While GDP growth in Southeast Asia (SEA) slowed markets* not escaping unscathed. China’s economic from 6.9% in 2010 to just 4.8% in 2015, it still re-balancing, economic distress in Brazil and other outperformed other growth markets and remained one Latin American countries (e.g. Venezuela) and of the world’s fastest growing regions. SEA GDP also recessionary fears in Russia have limited the quadrupled from 2000 through to 2015, surpassing the performance of growth markets in 2015. According to US$2 trillion mark, and is expected to reach 5.5% in the IMF, growth markets grew 4.0% in gross domestic 2020 (see Figure 1). Formation of the ASEAN Economic product (GDP) collectively during 2015, the slowest Community was a breakthrough for the region, as it pace since the financial crisis of 2008–9. However, this becomes a single market to allow free flow of goods, is expected to be temporary, with GDP growth in services, investments, capital and labour. Yet the growth markets set to rebound to 5.5% by 2020 versus slowdown in China’s economy continues to weigh advanced economies at just 1.8%. heavily on SEA countries, particularly export-reliant economies including Thailand, Malaysia and Singapore. * Growth markets refer to Emerging Markets according to the IMF definition, which is classified according to per capita income, export diversification and degree of integration into the global financial system. There are three blocks of growth markets – Frontier (e.g. Myanmar and Nigeria), Fast Growing (e.g. Indonesia and Mexico) and Emerged (e.g. China, India and Brazil) 3 | The packaged food and drink sector in Southeast Asia | PwC Figure 1: Combination of robust economic growth and rapid food and drink spending in Southeast Asia 2010-20 GDP growth vs packaged food and drink % CAGR World +2% +6% 5.4 3.8 4,525 3.1 3,154 3,435 10 15 20 10 15 20 North America Western Europe CEE +3% +6% +4% (2%) 4.6 (3%) +2% 2.6 2.0 2.0 2.2 2.3 785 1.8 889 293 340 2.0 591 6626 821 763 250 (2.8) 10 15 20 10 15 20 10 15 20 10 15 20 10 15 20 . 10 15 20 SEA +9% 6.9 +9% 4.8 5.5 164 108 Latin America MENA 70 +8% +7% +6% 6.1 +4% 5.2 3.7 330 10 15 20 2.7 649 221 10 15 20 391 471 2.3 169 (0.1) 10 15 20 10 15 20 10 15 20 10 15 20 GDP Growth 2010-15 % CAGR Packaged Food & Drink (US$bn) 2015-20 % CAGR Source: International Monetary Fund (IMF) and Euromonitor The positive economic numbers from SEA are set to spill over to the packaged food and drink industry. Coupled with consumers’ increasingly sophisticated needs and expectations, packaged food and drink consumption in SEA is expected to reach US$164 billion by 2020, growing at an annual compounded growth rate (CAGR) of 8.8% from 2015. The potential of SEA will continue to attract global interest despite moderating economic growth rates in the next five years. Southeast Asia in 2020 US$3 trillion GDP 670 million people 5th largest economy 53% urban population US$2 trillion US$165 billion on consumer spending packaged food and drink Source: IMF, Oxford Economics, BMI and PwC Analysis PwC | The packaged food and drink sector in Southeast Asia | 4 Figure 2: SEA packaged food and drink industry registers stronger CAGR over 2015-20 Packaged food and drink sales, 2010–20, US$ billion +9% 164 +9% 108 +12% 70 +6% +7% 56 +13% +6% +11% +6% +4% +7% +16% 33 +5% 30 +4% 33 22 24 24 17 17 14 17 9 12 7 3 3 4 7 SEA Indonesia Malaysia Philippines Singapore Thailand Vietnam 2010 2015 2020 2010-15 % CAGR2015-20 % CAGR Source: Euromonitor While SEA exhibits high growth potential, the individual countries within it are diverse and sit at different stages of the economic, consumer spending and grocery retail spectrum (see Figure 3). We have identified four clusters of countries in Southeast Asia, based on expected growth in GDP and consumer spending in 2020. Figure 3: S outheast Asia diverse in development 2015–20 GDP growth CAGR vs consumers’ spending growth CAGR 2015 -20 Consumer Spending % growth CAGR 9.0 Frontier Emergent 8.0 Cambodia Vietnam 7.0 Laos Indonesia 6.0 Myanmar Established 5.0 Advanced Singapore Malaysia Philippines 4.0 Thailand 3.0 2.0 1.0 0.0 0.01.0 2.03.0 4.05.0 6.07.0 8.09.0 10.0 Advanced Established Emergent Frontier 2015-20 GDP Growth CAGR Note: Bubble size = 2015 GDP per capita (PPP), US$ Source: IMF, Oxford Economics and PwC Analysis 5 | The packaged food and drink sector in Southeast Asia | PwC Advanced Singapore, with its 100% urban population and stable political climate, is the region’s most advanced 1 economy. Average GDP growth is expected at 2.4% Coca-Cola Singapore Beverages announced while household spending is set to reach 6.5% CAGR the shift of its bottling operations from 2 over 2015–20. Singapore to Malaysia, with its manufacturing Despite being a developed market, Singapore is still plant in Singapore to close by February 2016. attractive for packaged food and drink manufacturers. Despite this, the company will retain its The Singapore government continues to invest in value-added services, including research and infrastructure to boost research and development development, in Singapore with a further activities with the aim of establishing the city-state as a investment of US$100 million to align with the 3 regional business hub of choice for businesses operating country’s economic vision. in SEA. Singapore is also actively moving up the manufacturing chain for value-added services instead of grappling for companies’ interests to produce locally. PwC | The packaged food and drink sector in Southeast Asia | 6 Established Political concerns together with the move to rationalise subsidies and introduce the Goods & Service Tax (GST) have led to a dip in consumer confidence and spending in Malaysia.
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