www.pwc.com 2012 Outlook for the Retail and Consumer Products Sector in Asia Carrie Yu China & Asia Pacific Retail and Consumer Leader PwC Foreword As the economic and financial crisis in retailing will bring enormous benefit Furthermore, companies must remain the euro zone deepens and the outlook to retail and consumer products focused on serving their customers and for the US economy is far from certain, companies, while at the same time, be sensitive to their employees, since 2012 looks almost certain to be a industry players in the US and Europe they too are similarly affected by the difficult year. Asia unavoidably is will also stand to gain from such economic woes and uncertainties. affected by the fallout and economic growth in multi-channel retailing for a growth is expected to be slower than long time to come. History has proven time and again that the previous year. However, as growth those who have overcome challenges in retail and consumer goods in Notwithstanding the opportunities, will emerge not only more adaptive but Western markets is anticipated to be the challenges of sustaining growth in also stronger and more committed to sluggish in the foreseeable future, a volatile global economy remain to be their core values, thereby making them emerging Asian markets hold out more daunting. Retail and consumer successful and sustainable. robust promises for growth and products companies are renowned for expansion. Indeed, Asia will remain their resilience and persevering spirit. I would like to express my deep the main engine of global retail In times of difficulty, the industry gratitude to Chairman Zhang Jindong growth. needs to work together to confront the of Suning, Mr Daniel Zhang of Taobao many challenges ahead. Alliance and Mall, Mr Robert Kwee of SM While much attention is inevitably collaborative efforts will help to Hypermarket and Mr Rajesh Jain of focused on China, the main surmount many issues too huge for any Lacoste India for sharing their vision powerhouse in Asia, other emerging single company to handle. with us in the interviews. I would also markets in the region should not be like to thank our colleagues in the overlooked. Potentials and Traditional wisdom has told us: cash is region for their input, and the opportunities in India, Vietnam, king in times of uncertainty and Economist Intelligence Unit for their Thailand and Indonesia, among the volatility. Companies must re-examine assistance. We hope that this report others, are substantial. critically their cost structure, liquidity will provide some insights for and operation effectiveness and addressing the present challenges and At present, 24% of Asia’s population efficiency. We must continue to in capturing the opportunities. has internet access and the figure is embrace our core mission and values, rising quickly. In well-connected which should not be compromised by Sincerely, countries such as Japan, South Korea short-term pressure. and China, the growth of online December 2011 2012 Outlook for the Retail and Consumer Products Sector in Asia 1 This report was written in cooperation with the Economist Intelligence Unit’s industry and management research division. The economic and industry forecasts included are those of the Economist Intelligence Unit. Some historical figures may have changed since our last report based on revisions to official data by the countries concerned. Table of contents 4 Executive summary 6 Introduction Section 1: Retail 10 Food and general retail 10 Hypermarkets, supermarkets and convenience stores 11 — Q&A with Robert Kwee of SM Hypermarket 12 Food, beverages and tobacco 14 Health-related products 15 Fashion and apparel 18 Online retailing 19 — Q&A with Daniel Zhang of Taobao Mall Section 2: Consumer goods 22 Fast-moving consumer goods 25 Luxury brands 26 — Q&A with Rajesh Jain of Lacoste India 28 Durable consumer goods and electronics 29 — Q&A with Zhang Jindong of Suning Appliance Group 33 At a glance: Indonesia, Malaysia, Singapore, South Korea, Thailand and Vietnam 40 Conclusion 2012 Outlook for the Retail and Consumer Products Sector in Asia 3 Executive Summary The outlook for the global economy growth for Asia and Australasia (on a region competition from local retailers once again looks uncertain. While volume basis) is forecast to average is already intense. Now Asian retailers, emerging markets such as those in Asia almost 6% between 2011 and 2015, notably from Japan and South Korea, will continue to grow, the rate of remaining above all other regions. are stepping up their push into markets expansion is expected to be somewhat such as China and Southeast Asia. subdued in the near term, especially in This report discusses the outlook for export-dependent economies. six retail and consumer products Although inflation is depressing However, fundamental trends in Asia’s sub-sectors in Asia — food and general food and general retail sales on a markets, most notably rising incomes, retail, fashion and apparel, online volume basis, increased prosperity ensure that over the medium- to retailing, fast-moving consumer goods is driving new trends such as rising longer-term Asia will be a key engine (FMCG), luxury brands, and durable demand for functional foods. The of growth for the global retail and consumer goods and electronics. It impact of inflation on the food and consumer goods industries. focuses, in particular, on China, Hong general retail sector is well illustrated Kong, India, Japan and Taiwan, and by China’s numbers. China’s consumer The region’s prospects for growth looks at how the industry is faring in expenditure on food, beverages and continue to attract increased attention 2011 and is expected to grow through tobacco will more than double in from multinational retail and 2015, and opportunities and 2011-15, reaching US$1.4 trillion, consumer products firms. While challenges in the years ahead. partly driven by very rapid increases in investing increasing amounts in bricks food prices. Yet, market demand for and mortar operations, companies in The main findings of the report are as these products grew only 1.1% in 2010 the sector are increasingly seeking to follows: and is forecast to expand 3% in 2011. sell their products online, to tap into At the same time, as incomes rise and rising demand beyond the major cities Global retailers will continue to concerns about health and food safety and to cater to rapidly changing expand in Asia but will remain increase, sales of functional foods in consumer tastes. Mainland China hampered by restrictions. Asia Pacific are set to outperform those (“China”) is a particular priority, Meanwhile, an increasing number of in traditional European and US where rising incomes and government Asian retailers are stepping beyond markets. policies aimed at shifting towards a their borders. Many global retailers more consumption-led model of are trying to expand rapidly in high- Demand for fashion and apparel will growth are expected to lead to robust performing Asian markets. While remain buoyant, with foreign expansion. announcing substantial investment brands increasingly targeting the plans for China, large-format retailers casual and sportswear markets. Our While inflation is currently affecting such as Wal-Mart, Tesco and Metro forecast that clothing demand in Asia retail sales in volume terms, the continue to face a host of restrictions in and Australasia will surpass demand in underlying trends of rising incomes other markets like India, Malaysia and Western Europe and North America in and relatively strong growth will Indonesia (and to a certain extent in 2011 remains on target. International ensure solid future expansion. Annual China). In most countries across the casual wear and sportswear retailers 4 PwC 2012 Outlook for the Retail and Consumer Products Sector in Asia Executive Summary are expanding frantically in Asia, most FMCG firms will find Asia’s markets While the US will remain the largest notably in China, where overall increasingly challenging as market for luxury goods, China will demand for clothing is forecast to grow consumer tastes continue to change, be the top contributor to growth in 7.9% in 2011. India, where demand for as more companies enter the fray this sector. Chinese consumers from clothing is predicted to rise by 9.5% in and established market leaders mainland and Greater China 2011, is also attracting attention. revamp their strategies. Although (including Hong Kong, Macau and there may be cyclical downturns along Taiwan), counting Chinese tourists, are Online retailing will see the way, the overall prognosis for already the world’s number two luxury phenomenal growth, with local FMCG sales is highly positive based on customers behind those from the US. retailers maintaining their edge. rising affluence in the region. Notable Luxury sales in mainland China rose Online sales are expected to rise by an is the outlook for the health and beauty 30% in 2010 and are forecast to grow average of 20% a year in Asia in the segments, where growth is being 25% in 2011 to euro11.5 billion near term and by as much as 40% driven by young, urban, increasingly (US$15.5 billion), when sales in annually in some markets such as affluent Asian consumers. China’s Greater China will likely exceed sales Japan1. While growing access in beauty and personal care market was in Japan for the first time2. Chinese currently under-penetrated markets the world’s fourth-largest in 2010 second-and-third-tier cities will be like India will support the rapid behind the US, Japan, and Brazil and important markets. growth overall, online retail markets will be worth US$34 billion by 2015. in already well-connected countries such as Japan and Taiwan will Chinese tourists will continue to continue to expand as well. Pure-play fuel demand in neighbouring online retailers, both local and foreign, countries for health and beauty will attempt to expand rapidly, with products and luxury goods.