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Mobile penetration is often lauded as the driving factor for the growth of retail online, especially in China and Southeast Asia.

But according to Nielsen: What’s Next in Ecommerce 2017, more mobile phones doesn’t exactly mean more online demand for FMCG or groceries online.

The relationship between purchasing groceries online and smartphone penetration proves to be unpredictable and the reasons behind it are unique to each market.

grocery ecommerce growth

Grocery ecommerce penetration in Singapore is lower than France despite the higher smartphone penetration. Source: Nielsen

Take a look at the UK, the early entry of retailers like Tesco online in 1996 helped shape the country’s mass shopping behavior so now more than 20 years later, consumers are accustomed to buying groceries online.

Meanwhile in Singapore, going to the mall to shop for daily goods has become part of everyday life as malls are often situated near convenient and high-foot-traffic locations such as metro stations.

Shopping in a mall has also become a leisure activity and therefore still ‘a thing’ despite the online uproar and country’s high smartphone penetration. The same behavior can also be witnessed across Southeast Asia, which is why,

Retail space in the region keeps growing simultaneously with the growth of ecommerce, unlike in the West

grocery ecommerce growth

For grocery commerce, mobile & connectivity only accounts for 40% of its growth contribution.

What does it mean for FMCG companies?

Ecommerce may only contribute to roughly 10% of total retail sales worldwide but with the industry predicted to have 20% combined annual growth rate (CAGR) by 2020 to become a $4 trillion market, it is still higher than the expected CAGR of 4% for the FMCG category.

In four years, retail ecommerce size will rival the global FMCG market – Nielsen

Although compared to the fashion or electronics categories, the contribution of online to FMCG is still low, there is an undeniable shift in consumer habits that would be unwise for FMCG companies to ignore.

News of Danone’s partnership with Lazada only highlights the increasing number of FMCG companies, take Nestle and Unilever for example, realizing the importance of online channels as part of their growth strategy, especially in Southeast Asia.

*Introducing eIQ DataBite series that shares interesting charts and research findings relevant to consumer habits and ecommerce in Southeast Asia. 

Indonesia is commonly thought of as Southeast Asia’s largest market as it contributes to 40% of the region’s economic output, has the largest population in the region and endorsed as the ideal cash cow for many businesses (VCs and startups alike).

But according to alpha-beta and Nielsen findings in a recent report highlighting consumer demand in the region, Indonesia does not dominate the largest consumer markets for items like shampoo, soft drinks and detergent.

ecommerceIQ

*Nielsen doesn’t report demand for chocolates in VN. Covers six largest cities in Myanmar, includes carbonated soft drinks, isotonic drink and sports drinks. Source: Nielsen.

 

It is the Philippines that actually accounts for a larger share in one third of the consumer product categories looked at by Nielsen (cigarettes, beer, chocolate, diapers, instant noodles, vitamins, moisturizer, etc.).

Other notable stats was Myanmar’s increasing impact on ASEAN’s consumer demand for items like chocolate and diapers and the popularity of facial moisturizer in Thailand.

Euromonitor 2016 reports predict that most consumer demands in Southeast Asia are being driven by online channels. Unilever brand, St.Ives, launched an official shop-in-shop on Shopee through aCommerce Brand Services in July and sold out its all-natural SKUs in a day and a half.

Keep in mind

Indonesia shouldn’t be the only market that foreign FMCG companies look at when assessing the Southeast Asian market, especially as the market becomes saturated with resource rich outsiders.

According to Euromonitor (2016), well-educated Filipinos between 25 and 34 years account for just 3% of the population but more than 20% of discretionary consumption – that is, spending on categories other than basic needs.

By 2020, this particular demographic group is expected to contribute 50% of the country’s discretionary expenditure, much of which is starting to be conducted online.

Read more about the Philippines ecommerce landscape here.

A long touted argument about Southeast Asia’s lack of potential as a market for ecommerce has been its severe fragmentation. Indonesia, the region’s largest market may have a population of over 263 million individuals but majority of retail sales comes from the country’s capital, Jakarta (population: 10 million).

The same can be said about Thailand and mega-city Bangkok, the Philippines and Manila, and Vietnam and Ho Chi Minh City.

But new research findings from Nielsen and AlphaBeta show that in ASEAN, ‘middleweights’ are also contributing heavily to revenues and are becoming ‘hotspots’ for retail growth.

The demand for items such as diapers, detergent, chocolate, facial moisturizer is actually witnessing faster growth in small or middleweight regions – places with populations under 5 million.

ecommerceIQ

Source: Nielsen, Rethinking ASEAN 2017

ecommerceIQ

Source: Nielsen, Rethinking ASEAN 2017

Many of the cities and provinces in the list have probably never appeared on the radar for FMCG brands and companies looking at ASEAN and there are plenty of reasons why:

  • Poor infrastructure
  • Lack of financial maturity
  • Limited broadband access  
  • Less spending power

But these were and are the same problems in China but ecommerce companies such as JD and Alibaba have created initiatives such as “Rural Strategy” to cover 485 countries and 25,000 villages across 29 provinces to build up ecommerce in rural areas.

Why so much focus on such small pockets?

Because once urban markets saturate, rural towns will naturally be next.

The Fung Business Intelligence Centre predicts that the transaction value of Alibaba’s rural ecommerce market will surpass that of local urban areas in the next 10-20 years and according to eMarketer, by 2019 China will add 139 million digital buyers coming from less urban areas as internet access expands.

Some companies in Southeast Asia such as online payments company Kudo are already looking outwards and finding success by connecting rural residents to modern day retail. No surprise that Grab acquired them up earlier this year to reach ‘millions of unbanked citizens and provide a solution in the market’.

While everyone is fighting for the ‘rising middle class’, maybe it’s time to take a harder look at areas where the populations are only becoming ‘middle class’. Only then can companies really untap Southeast Asia’s entire market potential.

In the US, consumers have more channel choices when it comes to purchasing toiletries, soft drinks, processed food and other fast moving consumer goods than ever before.

According to Nielsen, 50 retailers accounted for nearly 80% of all FMCG sales in 2016. Specialized companies drove more than half of all FMCG growth over the last few years by focusing on particular verticals, while the bigger companies on average posted flat growth.

Beauty and pet care specific companies are experiencing higher sales than others, evident by the popularity of beauty subscription boxes – Althea and Birchbox – and pet food/accessories platforms such as Chewy.com in the US.

The wide FMCG umbrella is increasingly filling with online players that are offering what Nielsen coins the “total customer” something more than simply walking into a department store.

A total customer is someone who wants to the ultimate shopping experience from top quality, to brand value and a personalized product offering.

In the US, beauty care and pet care are the two categories with the highest ecommerce dollar share of total sales.

As the grocery-retail landscape continues to incorporate digital, there are six core (and relatively broad) factors that make determine whether customers will likely stay your customers.

  1. Trust
  2. Value
  3. Experience
  4. Assortment
  5. Convenience
  6. Personalization

It’s pretty obvious to most retailers that the total customer wants products delivered on time without damages, special discounts to save money, and an easy to navigate online interface.

But the latter three factors: assortment, convenience and personalization are particularly important to the more digitally engaged shopper as they tend to have higher expectations.

So what kind of things will appeal to this group?

Well, when it comes to experience, assortment and personalization, these online players are currently doing it right.

According to Nielsen, “click and collect” services like Amazon Fresh Pick Up will increasingly bring perimeter-store shoppers online. Currently available to only employees, Amazon-run stores will have groceries brought out to your car if you order online as a Prime Member.

In China, both Alibaba and JD.com lead online grocery sales. Why? Because delivery men on electric bicycles pick up orders from supermarkets and small corner shops to provide same day delivery.

Grocery delivery service Instacart from the US focused on personalization by partnering with PlateJoy last year to deliver customized meals to customers who shared their health and taste preferences.

Entering groceries in Southeast Asia

Although not as mature as the west, the rising popularity of on-demand platforms such as honestbee and HappyFresh, and food delivery specific services such as foodpanda, Line Man and UberEats creates a highly competitive space.

Each player is attempting to entice Southeast Asians with aggressive promotions and value added services. In Thailand, HappyFresh often has “buy-one-get-one” periods, 30% flash sales and more recently, begun targeting pet owners, stated by Nielsen as a growing vertical for ecommerce.

Source: HappyFresh Thailand Facebook

Competitor honestbee is instead working on creating a “convenience ecosystem” for its shoppers by adding extra verticals such as a laundry service and food delivery.

It’s very likely each market in Southeast Asia will have its own dominant grocery service as the region is highly fragmented and therefore highly differentiated preferences but one thing they all have in common is their obsession with convenience and personalization.

Known to a growing number of marketers, Instagram isn’t simply for documenting lunches or #throwbackthursdays, the social media platform is also a tool and platform for ecommerce.

And it’s relevancy to retail increases as Instagram released a function earlier in the year that allows ads within Instagram Stories – the social channel’s Snapchat clone.

Instagram has officially started selling ads through Facebook’s Ads Manager and Power Editor to allow brands to display ads within a user’s Stories feed that links out to a third party site.

The new direct response feature basically allows brands to allocate CTAs in their ads, directing a potential customer to their ecommerce page or to find out more about the brand.

The ads can be used to achieve a few objectives:

  • View the video
  • Visit a website
  • Install an app
  • Complete a specified conversion task i.e. adding a product to a shopping cart

How have brands used IG Stories overseas?

Dairy Queen

For its ad on Instagram Stories, Dairy Queen promoted its Blizzard ice cream using the caption: “Served upside down, or the next one free”.

Dairy Queens used Stories to target its demographic on the social media platform

Consumers targeted were between the ages 18 – 34 and depending on their interests, they would be targeted with different flavours of the ice cream. For example, those interested in carnivals were shown the Funnel Cake Blizzard.  

The campaign reached over 20 million people in the US and its effectiveness was tested using ‘ad recall’ tests – where a sample of respondents are exposed to an ad and at a later point in time asked if they remember.

Dairy Queen noted an 18 point lift in advert recall among 25 – 34 year olds, a group that responds more effectively with online advertising.

Ben & Jerry’s

Ben & Jerry’s specifically used Instagram Stories to promote its new product, Pint Slices, to target individuals in the US as the product was only available there.

Both Dairy Queen and Ben & Jerry’s took to Instagram Stories to promote new products and to increase conversions offline

The campaign drove up ad recall by 14 points, brand awareness by 6 points and created a 2 point increase in purchase intent among potential customers, according to Ben & Jerry’s Nielsen brand effect study.

Apart from ice cream brands, other companies such as e-payment device SumUp tested out the function.

SumUp’s Stories ad

The new ad function is currently being employed by a handful of brands in the US, and is gradually becoming more popular in Southeast Asia.

Considering the platform’s popularity in the region – Thailand has 9.1 million Instagram users, Indonesia has 28 million – brands have an opportunity to speak directly to consumers, without targeted consumers even following their page. Here are a few examples of what brands are doing in the region:

ZAP Clinic Indonesia

The image lists out promotions and a flash sale, and at the bottom provides a CTA: “See More” that takes curious visitors to its site.

KFC Thailand

By clicking on “Learn More”, customers are taken to KFC Thailand’s home delivery page, where a simple click of “Order Now” will have KFC delivered to the user’s home address in under an hour.

KFC Thailand had a clear CTA for Instagram users

As marketing channels become clogged with brand content, ads on IG Stories create a way for companies to better reach their already loyal consumers through content – especially seeing as viewers are anywhere from 64-85% more likely to buy after watching a product video. 

Market research company Nielsen recently published insights about Asia’s retail landscape during the digital disruption. Two words were consistently used: ‘change’ and ‘uncertainty’.

How have the last five years affected Asian consumers, and in turn, retail performance?

1. Increasingly comfortable consumers

Almost three out of four Asia Pacific consumers believe they are financially comfortable enough to buy things because they want them. This correlates with the upgrade in everyday items, where Asian consumers are choosing more premium versions of daily necessities like milk and shampoo.

Asia Pacific benefits from vast opportunities within its own borders. This is a region with burgeoning population growth, a predominantly young workforce, improving living standards and a growing middle class with an increasing desire to spend.

Two out of three consumers across the region feel they are better off than they were five years ago, the global average is 55%.

2. More access to technology and products 

61% of consumers in Asia Pacific cite ‘improved technology’ as the key service they didn’t have access to five years ago.

More premium products, broader assortment and better technology are the key factors that have driven ecommerce forward in the region.

Access to better technology, increasing internet penetration and the rise of different online platforms mean that consumers in Asia Pacific constantly have new ways to shop, to interact with each other, and are always accessible.

37% of respondents from Asia Pacific also cite “better retail formats” as something new that did not exist five years prior.

Very simply, Southeast Asians are more financially stable than five years ago, have more access to a variety of products and technology that enables them to live comfortably. This has resulted in the much-discussed ‘ecommerce boom‘ and will continue to allow the online retail industry to flourish.

This is also the first time Nielsen has included a portion of survey results from consumers in Myanmar, an indication that the country’s developing economy will play a more significant role in Southeast Asia’s growth as a retail market to look out for. For more on Myanmar, read eIQ Insights on the country’s ecommerce potential here.


Survey results included in this article were originally published on Nielsen.