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Talk to most experts in Southeast Asia about the potential of ecommerce in the region and they’ll find common ground: the real bottleneck towards growth lies primarily in logistics that can’t keep up.

Decrepit infrastructure, outdated customs processes, and the sprawling landscape all add up to a scenario notoriously murky to navigate. Indonesia, for example, is the largest internet market in Southeast Asia and it’s expected to drive the bulk of growth in ecommerce. Economic indicators are rosy and consumers have higher disposable incomes.

The problem? It’s a massive archipelago consisting of 17,000 islands. Ecommerce deliveries can take up to a week if delivery is even offered at all, leaving customers frustrated and uncertain whether they’d engage in a purchase again.

It’s a similar story in the Philippines, which has over 7,000 islands. Countries like Thailand may be geographically easier to navigate but it’s not without its own set of challenges: the Kingdom witnesses the second-highest road accidents in the world, just marginally behind Libya.

But simply adding more delivery vehicles and hiring people to drive them won’t instantly solve the problem. Within the logistics industry, there are issues such as fuel pilferage, lack of adherence to safety rules and regulations, and rash driving. These problems entail an inherent cost for fleet operators ordinarily passed on to end consumers in the form of delivery fees. And that’s a cost which can be avoided.

Thai company Drvr is trying to tackle these challenges head-on. It uses telematics, which allows devices to send and receive information across large distances, to track vehicle performance, driver behavior, unscheduled stops, and so on. Drvr installs an array of sensors inside vehicles to help managers keep track of the fleet and also provides a SaaS platform that displays an overall dashboard. It can be modified and tweaked according to client requirements, of which Mercedes Benz is one.

CEO and co-founder David Henderson, who hails from Seychelles, first moved to Thailand in 2014 following a stint at a telematics firm in Australia. The challenges of solving mammoth problems in Asia was the primary motive – he had originally pitched the idea to his previous employer but they were far too risk-averse for his liking. So he decided to quit and branch out on his own.

“The product we had two years ago was simply a GPS tracking product,” David tells ecommerceIQ. “We’ve matured significantly as a company since, and it’s fair to say that we have one of the most advanced fleet management and IOT platforms in the world now.”

The Drvr analytics dashboard

Why start in Thailand?

David explains that his target market isn’t just the logistics sector, but any business that owns and operates a large fleet of vehicles. This could entail players in transportation as well as construction. Such businesses need to keep a keen eye on the health of their vehicles to make sure that drivers and support staff aren’t running amok.

“Thailand is a natural market for us because there are over 3 million vehicles manufactured here annually with commercial vehicles accounting for half that number. That’s the primary reason we’re based here,” he explains.

Drvr’s core solution aims to make fleet operators operate efficiently. It achieves this via a number of ways – the first, as mentioned earlier, is via the predictive analytics platform it offers. The driver version of its app also combines gamification elements to help coax drivers into following the rules. There are rewards every time they adhere to a certain standard such as the maintenance of an average speed or keeping unscheduled stops to a minimum – these could be in the form of cash bonuses or enhanced performance reviews, but is agreed mutually between the fleet manager and driver. The company says this helps reduce the element of confrontation between them and HR.

“One of our immediate use cases that we can prove to our customers is in the case of fuel theft. Fuel theft is a major issue, not just in Thailand but right across the world in fact. It takes on different forms in different areas – [in Thailand] it tends to be siphoning but in Australia and other places […] people tend to fraudulently buy fuel or fill up their own car with the company credit card. We can detect these scenarios and prevent them from happening,” says David.

Before Drvr came along, the common solution to this issue was that companies would simply pay their drivers lower. These would lead to distorted economic incentives – drivers would simply shrug their shoulders and pilfer more fuel from the vehicle in order to sell it for cash. And the cycle would worsen.

David doesn’t disclose how many customers he has but does say that the startup turned a profit last month. While they’re based in Thailand, the largest market is currently Myanmar in terms of volume. However, both Indonesia and the Philippines are high on his list of priorities.

“We see Indonesia as the critical market in Southeast Asia – volume-wise, it’s just one with huge potential. Margins are a bit lower, admittedly, but there are big opportunities there,” he adds.

“At the same time it’s very tricky to get a foothold – we’ve failed a couple of times because of the difficulty of finding a reliable local partner. If you’re successful in Indonesia, it’s a massive tick on your profile.”

What trends does he notice?

Fleet analytics companies aren’t exactly mindblowing tech and there’s a few of them around already such as Cartrack and Coolasia. For David, however, they’re trying to set themselves apart in terms of the sophistication of their platform and the clients.

Mercedes Benz trucks, one of their key clients, actually ships all vehicles in Myanmar with Drvr sensors pre-installed. This provides a certain degree of validation when pitching to other companies. Drvr is also helping facilitate the growth of a subscription vehicle model – whereby fleet owners ‘rent’ vehicles from manufacturers as opposed to simply buying it outright and then allowing it to depreciate over its lifecycle.

This scenario – which David claims is already happening in markets like Australia – necessitates razor-sharp analytics so manufacturers know how to charge on an hourly or monthly basis. Analysts need to understand costs specifically and it’s simply not possible to do that without carefully monitoring existing vehicles to figure out when it’s liable to break down, what the fuel costs are, and other predictive analytics.

He claims Drvr is working with manufacturers interested in this model – the sensors and analytics will help them build a financial model – but doesn’t name names.

Will IOT engulf Asia?

Some people might scoff at the idea of high-tech commercial vehicles plying the backwaters of Asia given how cheap labor costs are, but David doesn’t believe it’s so far-fetched. He agrees on the fact that the economic imperative, for now, is missing but says the costs of devices and provisioning the service is “much lower than what it was in the past.”

“If you’re in ecommerce or logistics, the reality is that customers expect goods to be delivered the same day or as quickly as possible. In order to facilitate that you can’t have drivers sleeping on the side of the road or stealing fuel. It damages your brand and the perception of your service. Even the most old-fashioned Thai companies are beginning to realize that,” he explains.

Coffee is the second-most traded commodity in the world after crude oil. The ubiquitous drink commands a sizable US$100 billion market globally, with exports accounting for US$20 billion.

But as traditional coffee drinking markets in the West exhibit signs of stagnation, Asia is stepping up to fill the void. Indonesia, India, and Vietnam are ranked within the top five fastest-growing markets in the world.

 

Part of the reason behind this spurt is product innovation in the value chain. The number of new coffee products in Asia rose by 95% between 2011 and 2016, offering consumers tantalizing choices and catering to local palettes.

Specifically, it was the growing role of coffee pods that spurred and accounted for 26% of global coffee retail innovation in 2016.

“As emerging market consumers develop their taste for coffee, innovation is stepping up a notch as drinkers trade up from instant to fresher-tasting coffee […] pod and capsule sales will [continue to] increase,” says Johnny Forsyth, global drinks analyst at Mintel.

This presents a rare opportunity for FMCG brands to cash in. Tea has generally been the caffeinated drink of choice across most of Asia but a combination of glitzy marketing, an increased footprint of global coffee brands like Starbucks, and “cafe socialization” is changing habits.

Nescafe Dolce Gusto doubles down on Asia

The Dolce Gusto machine was first introduced by Nescafe in 2006 as a cheaper alternative to its premium Nespresso offering. The mechanics are similar; consumers insert ‘pods’ of coffee to make instant drinks like cappuccinos, latte macchiato, espresso, and hot chocolate.

Sales of the machines have been rising steadily in Asia due to Nescafe’s social media campaigns to engender brand loyalty.

The company launched its first Southeast Asian customer relationship management program in Singapore. The email marketing campaign segmented users based on their individual profiles and alerted them about offers, new flavors, and seasonal products.

“From the highly-engaged Facebook following, we know that consumers enjoy that the brand is sophisticated but not too serious […] It has allowed us to develop a new, innovative programme which really engages members,” said Will Adeney, VP of marketing analytics for Ogilvy One.

More recently, in Malaysia, Nescafe deployed social listening strategies to further entrench Dolce Gusto as a fan-centric brand. The company learnt coffee drinking wasn’t an activity done in isolation; connoisseurs loved to document it on social media with a prodigious amount of hashtags. Engagement from followers was robust.

Key themes and hashtags linked to coffee in Malaysia.

This helped Nescafe develop marketing campaigns around user-generated content. Its fans were already posting brand images on social – why not give them an enhanced platform?

Nescafe leveraged user-generated content along with its own collateral.

Why does this matter? Because according to Nielsen, the most credible advertising comes from people we know and trust.

83% of people have faith in the recommendations of friends and family.

Another interesting caveat: 53% of millennials indicated that user-generated content has influenced their purchasing decisions.

To tackle developing markets like Thailand, Nescafe launched a subscription commerce campaign powered by ecommerce enabler aCommerce. The offer, first introduced in August 2016, enticed consumers to sign up for a yearly subscription of coffee pods with the perk of a free Dolce Gusto machine.

Consumers only needed to pay via credit card, which would be billed automatically every month for a total of 12 recurring payments. It was a novel concept in Thailand, which still mainly relies on cash-on-delivery as its primary payment mechanism.

But the success of the campaign prompted the global coffee behemoth to launch another similar subscription campaign, this time revolving around Nescafe Gold & CoffeeMate.

Blending online & offline

Coffee drinking in Asia may be accompanied by a blitz of social media activity, but there’s a large offline component, too. It’s a way for friends and family to bond, building meaningful experiences and connections along the way.

It’s because of this factor Nestle has relied on pop-up campaigns inside shops and department stores. Visitors to a Tokyo mall last month were greeted by Pepper, the famous humanoid robot, who proceeded to ask them if they wanted a coffee.

An embedded tablet helped determine the size, type, and strength of the beverage and payments were facilitated via Alipay.

The timing of the campaign deliberately coincided with Chinese New Year celebrations and was designed to grow the brand in mainland China, where Starbucks is aggressively promoting its stores.

Another campaign in Australia placed expertly-trained staff across large department stores in the country to educate potential customers about the benefits of Dolce Gusto machines.

This particular promotion targeted Mother’s Day, typically one of the busiest retail days in Australia.

In 2013, Credit Suisse analysts estimated that about 55 % of Nestle’s coffee sales came from developing markets.

Such continued product innovation and catchy campaigns probably mean the figure is much higher now.

To tackle new and competitive markets like Southeast Asia, the best retail strategy is a blend of online strategies like subscription commerce to capture Internet-savvy consumers and traditional offline customer touchpoints to win over the world’s next population of coffee drinkers.

Most parents will buy rattles and dolls for their children from a very young age up until the child hits his/her mid-teens – with just the types of toys purchased changing as the child grows older.

The potential of the global toys & games industry is heavily influenced by demographic trends such as the number of households and birth rate. There’s also a seasonal variation in the types of toys & games currently popular around the world; depending on blockbuster action flicks, emerging WWE stars, and fashion trends.

Thailand’s demographics in particular hint at a widening market for the toys & games industry. The natural birth rate in 2017 was about 240,000 – this refers to the number of births in a year subtracted from the number of deaths – representing a population growth rate of about 0.4%.

Population growth rates peaked in the 1970s at about 3% but aggressive public awareness campaigns by Thai authorities have brought this figure down substantially.

At the same time, annual household income more than doubled from $1,089 in 1999 to $3,276 in 2015. Thai families might not be growing as quickly as before but they definitely have more to spend.

Source: Ceicdata

Higher disposable income also means the sale of toys & games isn’t restricted to children only. Older consumers are forecasted to impact sales too, especially in categories like action figures and accessories.

According to Euromonitor, the value of Thailand’s toys & games industry was estimated to be worth US$376 million in terms of sales volume in 2015. The same report forecasts sales to increase to US$541 million by 2020, or by an average of 9% a year.

That’s a sizeable chunk that brands like Hasbro and Mattel should be eyeing carefully, especially as internet retail is predicted to grab a larger piece of the pie in the coming years, making it critical to double down on mobile/web acquisition channels.

Where do Thai consumers buy toys?

ecommerceIQ initiated a survey to understand online consumer purchase habits for toys & games in Thailand. There were over 300 participants spread across the country.

What was interesting to find was the availability of offline retail wasn’t a bottleneck to transacting online. Only 2.9% of respondents said they ignore online channels because of malls or shopping centers.

The largest inhibiting factor for online purchases is the prevalent lack of trust.

Thai people feel either the pictures online are either heavily photoshopped or they’re usually disappointed when receiving the product after purchasing.

Top reasons why customers don’t shop online for toys in Thailand. Source: ecommerceIQ

But not all is lost. Survey respondents in the 18-24 & 25-34 age category were, on average, 43% likely to indulge in online purchases for toys and games. Those were the two youngest tiers surveyed and it is likely as they grow older they’ll carry these preferences with them.

If online channels optimize the overall buying experience, it’s plausible that the proclivity towards web shopping will increase when it comes time for them to buy toys for their children.

Another encouraging trend that forecasts enhanced ecommerce market share in the future is the amount that users spend online. People with higher basket sizes are more likely to shop online. The largest segment actually spends north of $100/order.

And what toys are people in Thailand purchasing exactly? The survey shows Nerf guns are wildly popular for online purchases along with board games like Monopoly and Transformers action figures.

The overall survey results are consistent with Euromonitor’s analysis of the toys & games industry in Thailand that says the popularity of internet shopping is expected to continue its trajectory of rapid growth, fueled by younger shoppers.

40.1% of this category were secured by web channels in 2015, as compared to 13% in 2010 (although this does include video games, which our survey results excluded).

Euromonitor also makes another prediction: traditional toys and games distributors are expected to expand their internet retailing options over the coming years as more users flock towards this medium.

How can toy brands take advantage?

It’s not enough to list your products on a marketplace and engage in paid campaigns every now and then. Users don’t trust online advertisements; they’re eager to purchase but the one thing holding them back is the nagging uncertainty that the product won’t match expectations.

Often they’ll visit an offline store to see the product up close and personal before purchasing. Little wonder why influencer marketing is becoming so important in a brands’ marketing mix.

Influencer marketing platform MuseFind says 92% of consumers trust an influencer more than an advertisement. And with adblockers flooding browsers, it’s likely that your target consumer simply won’t even view your advertisement, no matter how much money you pour into the campaign.

In Southeast Asia, brands can take a cue from China’s bold forays into live streaming. Quartz predicts this is now a U$5 billion industry with once ordinary citizens catapulted into superstardom simply by broadcasting their lives for the world to see. Such online influencers routinely recommend products they use and their audiences follow suit. Evocative marketing is becoming the new normal.

Other than live streaming, product reviews by YouTube stars is another channel that potential shoppers gravitate towards. An unboxing video can help lower the trust barrier significantly as users know what to expect inside the package.

Some juvenile YouTube stars have racked up millions of subscribers on their page with their videos routinely garnering 10 million+ views.

Children need to feel they’re on the same wavelength as their peers, so if it’s ‘cool’ to buy a new toy then they’ll pester their parents until they get their hands on it.

And what’s cool is what’s trending on the internet.

The Background

Swearing by its mission to be “the first choice carrier with touches of Thai”, Thai Airways International (THAI) has long been identified by its quality service, onboard catering and friendly welcome, as reflected by its position among the top 20 best airlines in 2017 by Skytrax.

The national carrier of Thailand was founded in 1960 as a joint venture between Thailand’s domestic carrier, Thai Airways Company (TAC), and Scandinavian Airlines System (SAS) to later become state-owned in 1977 through an acquisition by the Ministry of Finance. The Ministry today holds more than 50% of the company’s shares.

Aside from being a commercial airline, the national carrier extends its offerings to transport goods, parcels and mail by air to cities around the world.

Its catering department also brought its renowned first-class menu to land through a bakery franchise called Puff & Pie in 1997 that surprisingly became one of the unit’s main income generators.

The efforts led to more boutique restaurants openings in 2013, targeting young customers that look for unique dining experiences.

Puff & Pie Bakery shops are located at many airports, leading public hospitals, and government offices in Thailand. Source: EDTGuide

Shielded by the local government and profiting successful side-businesses, how did the prestige national airline hit so much financial turbulence?

The Challenge

From 2013 to 2014, Thailand’s economy essentially shut down as the citizens protested against then Prime Minister Yingluck Shinawatra, the sister of Thailand’s former president, Thaksin Shinawatra.

The country’s political unrest damaged the tourism industry as many travellers were weary of visiting Thailand due to safety concerns and locals suffered from slow economic recovery.

Protests against then Prime Minister Yingluck Shinawatra. Source: The Malay Mail

Less flights into the country naturally impacted THAI as witnessed in the company’s reported cumulative losses since April 2013 of over $500 million. Lower passenger numbers, fuel prices and foreign exchange losses were also among top attributing factors.

Following the protest of Yingluck in 2014, Thai Airways’ annual number of passengers dropped from 21.5 million in 2013 to 17.8 million in 2014.

Thai Airways annual passenger numbers from 2008 to 2014. Source: CAPA – Centre for Aviation and company reports

To make matters worse, the airline had expanded its fleet by seven aircrafts to 100 planes in the fourth quarter of 2013, which was one of the factors, among weak Thai baht, that resulted in a total net loss of $487 million.

Thai Airways annual net loss (in THB, billions): 2008 to 2014. Source: CAPA – Centre for Aviation and company reports

Even the company’s catering business couldn’t reverse the heavy losses.

Those [catering unit] high-margin businesses currently contribute only 20% of our revenue, while 80% of revenue is from ticket sales,” said Usanee Sangsingkeo, Executive Commercial Vice President and acting President of Thai Airways International

The companies troubles were quickly summed up:

The company [THAI] had not made profit for four consecutive years” – Nikkei Asian Review

How did the company manage to bounce back?

The Strategy

As 80% of the airline’s revenue came from ticket sales, the airline had to pay more attention to its main income generator to save itself from seeing more red.

Thai Airways should focus on profitable routes like Japan and premium offerings,” said Chakrit Puechpan, Executive Vice President of MFC Asset Management, which holds shares in the airline.

Well, the company was in luck.

In June 2013, Thai citizens received a visa exemption to Japan, a favorite international destination for Thais. This, together with the low fares provided by competitive online travel agencies, and the emergence of online travel reviews encouraged more Thais to travel and kickstarted the country’s tourism once again.

Social media was also a large factor that influenced more travellers to pack their bags. Given the popularity of Facebook pages like Ar-Pae.com, Pro Addict, and Chang Trixget that share travel discounts and promotions and garner millions of  followers. To reach a demographic that would be highly interested in using its services, the company established partnerships with Facebook groups and offered them exclusive promotions to lure more customers.

Roughly 23% of travellers in APAC often look for great travel deals when consuming content.

Amid the fierce competition from low cost airlines, THAI could no longer afford to sell its tickets at prices much higher than competitors.

To reach a demographic that would be highly interested in using its services, the company established partnerships with Facebook groups and offered them exclusive promotions to lure more customers.

Thai Airways promotions on promotional page, Ar-pae.com. Source: Ar-Pae.com

To compete with the influx of budget airlines, Thai Airways launched a subsidiary called Thai Smile to focus on domestic and regional destinations.

Thai Smile was voted as the top airline from Tripadvisor’s Travellers’ Choice in 2017. Source: ThaiIndia

Although the airline’s fare is still pricier than fellow budget airlines like AirAsia, VietJet, and NokScoot, many travellers still find full-service carriers like Thai Airways to be more bang for the buck given perks like a flexible business class cabin.

By 2015, the number of domestic passengers rose to 31.3 million, from which Thai Airways and Thai Smile transported 6.1 million passengers, 28.8% higher than the year before.

To expand its profit centers even more, Thai Airways launched an ecommerce site called Thai Shop to sell branded merchandise such as luggage and backpacks online. The company partnered with ecommerce enabler aCommerce to successfully capture online demand from channels popular among travellers like search engine to boost its online presence.

Thai Airways ecommerce website, Thai Shop, selling travel essentials and branded merchandise.

The Future

The airline plans to revamp its fleet of aircrafts by adding 30 more new planes over the next five years to boost its competitiveness and maximize fuel efficiency to save on operating costs. But could it be too soon?

The airline’s financial status has recently improved after years of challenges. The plan for new aircraft purchases may be too early and could result in a jump in debt,” said Siam Tiyanont, an analyst at Phillip Securities.

The company seems to be moving in the right path as Thai Airways gained a profit of $445,000 in 2016, the first time in the last three years. Slow and steady does it to financial recovery.

As more Thai people shift online to conduct their shopping – 14 million by 2021 – there is little doubt that the country will reach its projected ecommerce potential of over $11 billion.

The government’s roadmap for Thailand 4.0 is another boost for the digital habitat as investors often see bureaucracy in the region as a hinder to business.

So now the path is smooth to promote growth and money is coming in from the Chinese, how has the ecommerce landscape in Thailand changed over the last year?

1. Strong players emerge in fashion ecommerce  

After acquiring Zalora in Thailand and Vietnam last year, Central Group finally shed the old image to relaunch as LOOKSI earlier in June this year in attempts to revive the brand.

The change wasn’t only in the name, fashion labels housed by Zalora were cut by half to about 1,000 brands. The company also moved away from discounted products and began offering seasonal products instead.

But it was Thai-bred fashion startup Pomelo that created buzz after raising a $19 million Series B led by Chinese retail giant JD.com and participation from ally, Central Group.

Pomelo currently operates local ecommerce websites in Thailand and Indonesia but with new funds, the company is eyeing further expansion in Southeast Asia and even Europe. It’s also a firm believer in a multi-channel retail strategy, launching a offline store in Bangkok’s fashion hub Siam to offer click & collect

2. Global fashion and beauty brands get local

This year, more notable global brands launched local ecommerce websites to penetrate the Thai market.

Global fashion retailer Zara officially unveiled its ecommerce website and mobile application earlier this year, and integrates online and offline shopping by providing a pick-up service and return in-store for online purchases.

Thailand ecommerce landscape 2017

Thailand ECOMScape in 2017 (right) see more beauty brands launch their own ecommerce website than in 2016 (left).

Global beauty brands such as Lancome, Biotherm, and YSL have also launched local ecommerce websites in hopes of capturing the growing online segment.

3. The long-standing battle for logistics dominance continues

To talk about the rise of online shopping in the country isn’t complete without mentioning the vital and often forgotten pieces of the ecommerce value chain such as logistics.

The red ocean sector still draws new players despite the handful of names already dominating the space i.e. lalamove, Kerry Express, etc. One of the new additions includes Singapore-headquartered online food and grocery on-demand provider honestbee.

honestbee launched its logistics service called Goodship earlier this year to capture the growing demand, focusing on last-mile and same-day delivery services.

Thailand Ecommerce landscape 2017

General Manager of honestbee Thailand Bounthay Khammanivong at the Goodship launch.

Singapore-based NinjaVan also entered the Thai market in August and hopes to raise a $60 million Series C round. Who can bleed the longest?

4. JD gets its grips on Thailand

Chinese companies have certainly made some aggressive moves in Southeast Asia, and JD.com has chosen to make waves in Thailand this year.

The company announced a $500 million joint-venture with Thai conglomerate Central Group earlier this year that will be spent on ecommerce and fintech development, as well as promising the latest technologies to woo the country as its hub for Southeast Asia.

The ecommerce lovechild of the joint-venture, called JD Central, is expected to launch by April next year.

Thailand is JD’s second major investment outside of China after plans to win Indonesia hit a roadblock. The company lost the bid for leading C2C player Tokopedia to Alibaba and its own ecommerce site JD.id has yet to push top five in the country in terms of web traffic.

Thailand Ecommerce landscape 2017

Are we missing any key players or do you have an opinion on the 2017 Thailand ECOMScape? Let us know via Linkedin | Facebook | Twitter

Download the high-resolution of ECOMScape Thailand 2017 here.

The Background  

In Japan, there is a renowned chain of stores with an iconic penguin-mascot that is a must-see for tourists, serving almost 300 million customers a year. The famous merchandise stores started with humble beginnings offering a collection of discarded goods and samples from companies on the verge of bankruptcy in 1978.

With insufficient resources to hire workers, founder Takao Yasuda spent long nights restocking shelves and took note of the high number of late night shoppers who mistakenly came into his shop thinking it was still open.

Yasuda opened the first 24-hour store Don Quijote (also known as Donki) in 1989. Don Quijote, pronounced ‘dawn kee-ho-tay’, operates with the rare concept of a compressed display in which items are displayed in clusters, causing aisles to feel like mazes.

Browsers can find anything under the sun, from toilet paper, snacks, sex toys to luxury cosmetic brands and pre-loved Rolex watches.

The point of the display is hard to find, hard to take and hard to buy,” — Takao Yasuda, founder of Don Quijote Co.

Mr. Takao Yasuda, standing in front of handwritten cardboard signs and stacked displays in one of his Don Quijote stores. Source: Reuters

Strange to think that any shop owner would want their items to be hard to find but Yasuda’s compressed display is actually a brilliant strategy that led the business to grow to 350 stores in Japan and the US, with annual consolidated sales topping $7.4 billion in Japan.

Shoppers seemed to have taken to the treasure-hunt mentality making the stores a popular destination for tourists visiting Japan.

Japanese retail is built on the concept of saving time. We want our customers to spend more time at our stores,” — says Yasuda

By adopting a unique retail strategy to become a consumer magnet, what could possibly go wrong with Japan’s largest discount store?

The Challenge

Japan has always been among the world’s most loved destinations for travel and culinary experiences but in 2014, the country fell to 22nd as the most-visited destinations. Due to language barriers, foreign tourists contributed to only 3.5% of revenues, generated in major cities like Tokyo and Osaka.


Being a business that relies heavily on revenue generated by tourists who spend on average more than 40,000 yen ($365) each visit, compared with local shoppers’ 2,400 yen, Don Quijote recognized the need to spur the country’s dwindling tourism or be less dependent on it.

But around this time, the Japanese government increased consumption tax from 5% to 8%, sending Japan’s economy into freefall at an annual pace of 6.8% from April to June in 2014.

Despite the decrease of household spending at a worse-than-expected rate of 4.7%, Don Quijote’s sales rose 2.3%.  

But Yasuda knew it wasn’t enough, the company needed to find another stable revenue stream.

The Strategy

The important thing is to create a framework that attracts visitors to Japan, and that requires cooperation that goes beyond one company or industry,” — Yasuda told Reuters

Don Quijote’s strategy to pack its stores with more shoppers was incentives for more spending. The company signed deals with countless hotels and travel agencies to distribute membership cards that offered 3% cash back at Don Quijote.

The largest discount store in Japan was also reportedly behind the Japanese government’s decision to exempt tax for visitors. Starting Oct 1, all Don Quijote stores allow non-residents to shop tax-free nationwide and even pack the goods to follow airline guidelines.  

With emerging technologies and advancements in digital marketing and logistics, it seemed there was no better time to launch ecommerce.

Don Qujote’s online shopping website.

Don Quijote’s online shopping website positioned itself as the number one source for authentic, popular products from Japan straight to your home.

“When it comes to capturing inbound visitors, Don Quijote is unrivaled,” said Ryota Himeno, retail analyst at Barclays.

Although no official sales records from Don Quijote’s ecommerce site were found, an analysis at Barrons predicted that Don Quijote’s “store is immune [to the arrival of Amazon] because its price points are below the minimum break-even points for most ecommerce sites.” 

But its success, whether from online or offline stores, boils down to Don Quijote’s strong marketing tactics. Not only did the company specifically chose prime tourist locations across Japan to open its stores, the discount chain has adopted its own mascot.

The blue penguin donning a red cap is paired with its very own theme song called “Miracle Shopping” that plays on repeat in stores, bringing the Don Quijote stores to life.

Don Quijote has become woven into people’s lifestyles. For them, spending time at one of our stores has become part of their lives.”

The Japanese brand’s ability to attract flocks of young people and tourists to its stores has gained the attention of other notable retailers such as FamilyMart Uny that will transfer a 40 percent equity sake in wholly owned subsidiary Uny Co., a general merchandiser from Inazawa, Aichi Prefecture, to Don Quijote.

The Future

In addition to turning some of FamilyMart Uny’s stores into Don Quijotes, the pair are in talks about developing a service similar to Alibaba’s Alipay, which currently over 4,000 Japanese vendors are accepting, including both Don Quijote and FamilyMart.

Earlier this year, the company announced its goal to reach operating profits of $537 million by 2020 – 20% higher than the current target.

In order to achieve this, the company also opened its first store in Southeast Asia in Singapore, a country-state Yasuda actually relocated to for retirement. Why did he choose Singapore as HQ for the region?

Singapore is a very important market for us. It is also a good base for us as people speak English here and it makes it easier for us to expand globally.”

Singaporeans queueing outside Don Quijote (debuted as ‘Don Don Donki’ in Singapore) before it was officially opened on December 1. Source: Straits Times

The 1,397 sqm double-storey building is also offering in partnership with Hokkaido Marche, a themed retail and dining experience. There are also plans to launch at least 10 more stores by 2022.

This is exactly what Yasuda wants – having customers staying in the stores longer.

Yasuda looks to capture the hearts of Thais next, where about 901,400 of Thais visit Japan every year, ranked as the 6th highest foreign visitors to Japan. In fact, Thais were among the top overseas customers of ‘Donki’, after the Koreans, Chinese and Taiwanese.

If Yasuda gets his way, there will be a piece of Japan everywhere in the world.