Appetite for Consumption Strategic Overview of the Modern Grocery Retail Sector in ASEAN DBS Asian Insights SECTOR BRIEFING 18 02
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SECTOR BRIEFING number DBS Asian Insights DBS Group18 Research • November 2015 Appetite For Consumption Strategic Overview of the Modern Grocery Retail Sector in ASEAN DBS Asian Insights SECTOR BRIEFING 18 02 Appetite For Consumption Strategic Overview of the Modern Grocery Retail Sector in ASEAN Alfie Yeo Equity Analyst DBS Group Research [email protected] Andy Sim Equity Analyst DBS Group Research [email protected] Production and additional research by: Asian Insights Office • DBS Group Research go.dbs.com/research @dbsinsights [email protected] Chien Yen Goh Editor in Chief Geraldine Tan Editor Martin Tacchi Art Director DBS Asian Insights SECTOR BRIEFING 18 03 04 Introduction 06 Gaining Traction in ASEAN A Favourable Context Regional Growth Opportunities Different Formats for Different Markets 16 Getting Ahead of the Competition Strategic Regional Expansion Future Success Factors 23 Conclusion 26 Appendix – Country Profiles Singapore Malaysia Thailand Indonesia The Philippines Vietnam DBS Asian Insights SECTOR BRIEFING 18 04 Introduction hanging consumer behaviour is transforming the way developed markets’ grocery retailers operate. The global retail landscape as a whole is becoming more and more consumer-centric, a trend that is pushing modern retail – convenience stores, supermarkets, hypermarkets, department stores, and Cmalls – to reshape operational, financial, and brand models to better fit their consumers’ increasingly complex wants and needs. This evolution of the global retail business has been rapid. As retailers develop across the world, they move beyond delivering basic products and services and start catering to customers’ specific preferences in terms of product variety and quality. Greater demand for safe and healthy food products has influenced suppliers’ and retailers’ product lines, while satisfying customers’ expectations of a holistic shopping experience has become increasingly critical. This new reality creates imperatives for retailers looking to harness new potential growth opportunities. Being well integrated across physical, digital and media touch points is no longer an option; rather, it is a key trait that better connected and more mobile consumers expect and demand across segments and markets. Understanding where they sit on that continuum will allow retailers to leverage as many consumer-centric opportunities as possible, no matter how well established they may already be in their respective segment/ market. Some of these trends are particularly visible in Asia, where economic growth and development have led to rapid urbanisation, rising incomes, increased consumer spending, and higher expectations. All of these factors are quickly transforming lifestyles and, in turn, are fast increasing the demand for quality goods, personalised services, and unique retail environments. With the exception of Singapore, penetration of modern retail remains low in emerging ASEAN economies, a reality that can translate into many potential growth opportunities for regional grocery companies. Indeed, ASEAN’s middle class population is expected to grow to about 500 million people by 2020, which means retail channels in Southeast Asia are set to shift from simple and traditional operations to more modern and complex formats. Companies in the five key ASEAN (ASEAN-5) economies of Indonesia, Malaysia, the Philippines, Singapore, and Thailand are constantly strategising to better capture customers’ attention. Whether it is expanding to new areas, establishing new formats, introducing new product lines, or multiplying their economies of scale, store network expansion and improved operating efficiencies are key success factors that enhance cash flow generation abilities and increase profitability. The advent of online grocery shopping, for instance, is an important long-term trend to watch for in the region. It is still a relatively new concept in many emerging ASEAN markets and challenges abound. Challenges for e-commerce retailers include low DBS Asian Insights SECTOR BRIEFING 18 05 internet penetration, difficulty in delivering fresh products to consumers in a time- and cost-efficient manner, little faith in online payment systems, many potential customers outside of established/connected urban clusters and a transport infrastructure that is not sufficiently reliable, to name but a few – but there is room for the sector to take off in the region. This report first examines the various ways in which the modern grocery retail sector is growing in key ASEAN markets. It then analyses the various expansion trends that can be harnessed by industry players to reach even more emerging consumers. The report concludes by evaluating the various ways modern grocery retailers can seamlessly integrate themselves into their shopper‘s consumption habits by strategically using real- time consumer data. The appendix provides an in-depth assessment of the trends and opportunities in modern grocery retail in each of the ASEAN-5 countries. The global retail landscape is becoming more and more consumer-centric, a trend that is pushing modern retail to reshape operational, financial, and brand models to better fit their consumers’ increasingly complex wants and needs DBS Asian Insights SECTOR BRIEFING 18 06 Gaining Traction in ASEAN rocery retail in the ASEAN-5 markets has been progressively transitioning from traditional to modern channels thanks to economic growth and development. New opportunities are being created in the sector, spurred by the urbanisation and modernisation of city centres, the rising incomes of a growing middle Gclass, and the ever-changing consumer habits within the region. All of these factors have generally led to a greater demand for better quality goods and personalised services, as well as more holistic retail environments. A Favourable Context The favourable economic and demographic context in which ASEAN-5 populations are living is a key driver of growth for modern grocery retail. Indeed, as populations become more affluent and urbanised, middle class consumers emerge and consumption habits/ priorities evolve. Urbanisation processes take different shapes and paces across ASEAN-5 populations. Individual urbanisation rates range from 1.32% in the Philippines to almost 3% in Thailand. Apart from Singapore whose entire population is urbanised, the share of urbanised populations in these countries has much headroom to grow: The percentage share of urbanised populations is just over or under 50% in Indonesia, Thailand, and the Philippines.1 Diagram 1: Urbanisation of ASEAN-5 populations Urbanisation Rate Urbanised Population 2010-2015 estimates (LHS) 2014, % of Total Population (RHS) Indonesia 2.69% 53% Malaysia 2.66% 74% Philippines 1.32% 44.5% Singapore 2.02% 100% Thailand 2.97% 49.2% While Source: CIA World Factbook (2014), DBS Bank calculations population We calculate that ASEAN-5’s urbanisation rate on a population weighted average basis growth is a is 2.3% (from 2010 to 2015), outstripping its population growth rate of 1.5%. The fundamental population weighted average growth of ASEAN-5 has registered a rate of about 1.5% for driver of food the last ten to 20 years. Malaysia was the fastest-growing country at 2%, followed by the demand, Philippines (1.9%), Indonesia (1.4%), Singapore (1.3%), and Thailand (0.5%). urbanisation While population growth is a fundamental driver of food demand, urbanisation provides provides opportunities for modern retail to grow, thanks in part to higher selling prices of better opportunities quality food raising the value demand in urbanised societies. This is normally backed for modern retail by higher disposable incomes and better marginal propensity to spend. The impact of to grow urbanisation on modern grocery retail growth is hence positive. DBS Asian Insights SECTOR BRIEFING 18 07 According to Nielsen, the middle class is defined as the category of people with the financial means to make purchase decisions of between US$16 and US$100 per day based on their level of disposable income. Nielsen estimates that ASEAN’s middle class population of 190 million in 2012 (28% of the region’s population) will double to 400 million by 2020 (55% of the region’s population)2. This trend is largely attributed to regional economic growth, which has been steady for the past ten years. Diagram 2: Rise of ASEAN middle class population, 2012-2020 Population (m) Rest of population 800 Middle class population 700 600 327 489 8.7% CAGR 500 400 300 400 200 100 190 9.8% CAGR 0 2012 2020 Source: Nielsen estimates (2015), DBS Bank calculations GDP per capita in ASEAN-5 countries has increased at a 23-year compound annual growth rate (CAGR) of 2-3.5%, bringing it to 1.6 to 2.2 times that of 1990. More notably, income per capita between 1990 and 2013 has risen by 2.4-4.2%, fuelling an increasing wealth trend in ASEAN-5.3 GDP growth is also largely positive in these ASEAN markets: It is expected to accelerate in the Philippines, Thailand, Singapore, and Indonesia and will likely decelerate in Malaysia.4 Diagram 3: GDP per capita in five ASEAN countries, 1990-2013 (US$/year) Source: ThomsonReuters Datastream (accessed July 2015), DBS Bank calculations DBS Asian Insights SECTOR BRIEFING 18 08 The demand The general trend of a rising and more affluent middle class is expected to drive the for imported, growth in food demand in ASEAN (except in Singapore, where this dynamic has already taken place). On a 2013 population-weighted basis, food consumption and per capita branded, and food consumption will, respectively, grow at a rate of 9.6% and 8.6% packaged food items is likely to Diagram 4: ASEAN food consumption growth, 2015-2019 increase as white collar workforces put convenience and comfort at the heart of their fast-paced urban grocery shopping experiences Note: 2013-2018 forecasts for Philippines Source: BMI Research, ThomsonReuters Datastream (accessed July 2015), DBS Bank calculations Consumer demand trends will also evolve thanks to increased exposure to international products; the demand for imported, branded, and packaged food items is likely to increase as white collar workforces put convenience and comfort at the heart of their fast-paced urban grocery shopping experiences.