The most influential Megatrends set to shape the world through 2030, identified by Euromonitor International, help businesses better anticipate market developments and lead change for their industries.
As most of Asia celebrated the arrival of the Chinese New Year with the start of the Year of the Horse, which traditionally is said to indicate a year in which people are more likely to stand fast to their principles, we look at which major trends retailers in Asia can expect during the year and beyond.
Euromonitor International forecasts retail growth in 2014 in Asia Pacific to be slightly higher than in 2013, at 4.7% in constant terms, up from 4.3%. China, which accounted for 41% of retailing sales in Asia Pacific in 2013, is forecast to generate 75% of its growth in 2014.
However, most Asian economies are seeing stronger performance. Vietnam, in particular, with 19% tops the growth chart and the ASEAN countries are also expected to perform stronger than the average with 9.7% in 2014.
Note: Size of bubble: additional sales over 2008-2013 (US$3.5 to 242.4 billion)
Local Retailers Drive Growth in China’s Modern Grocery Channels
China is forecast to generate the vast majority of the additional sales for grocery channels across Asia Pacific over the 2013-2018 period, accounting for 69% of the total, and this proportion is predicted to reach as much as 84% in the hypermarkets channel.
Although foreign retailers are likely to record a steady pace of expansion in China, with large players such as Carrefour and Wal-Mart opening 20-30 new hypermarkets annually, local retailers are expected to continue outpacing them in 2014 and beyond, with greater concentration expected in the channel.
Despite being hit by an economic slowdown and having been forced to close many outlets, the country’s largest hypermarket operator, China Resources Enterprise, is expected to continue expanding more aggressively than international companies, with around 200 additional supermarkets and hypermarkets opened in 2013 alone.
Similarly to other domestic retailers, China Resources has rapidly expanded its supermarket and hypermarket presence through lower-tier cities, instead of through increasingly mature first-tier cities.
Within the supermarkets channel, China is expected to generate 66% of the additional sales forecast in Asia Pacific during 2013-2018. Although international players have a particularly modest presence in this channel in China, more of them will attempt to increase their channel presence, with, for example, Aeon planning to open up to 30 new stores in 2014.
Within convenience stores, despite the major presence of Japan-based retailers, the top five operators in China were all local companies in 2013. The largest chain, Meyijia, added around 1,000 stores to its network in 2013, thus strengthening its leading position.
Food safety could remain a key concern for grocery retailers, and all major players should continue improving traceability to guarantee food provenance and avoid undermining their image with food safety scandals. This is expected to lead to more integrated supply chains and boost private label sales.
Convenience Stores: Key Developments in Japan and the Rest of Asia Pacific
The rapid growth in convenience store sales is forecast to play a major role in reshaping the grocery retailing environment in Asia Pacific, as this format will continue to make strong gains over traditional grocery channels.
The three largest convenience store retailers in Asia Pacific, Seven & I Holdings Co Ltd, FamilyMart Co Ltd and Lawson Inc, together added an estimated 4,700 new outlets in Asia Pacific in 2013 alone, of which over 2,000 were outside Japan.
Despite the strong expansion of convenience stores predicted in large emerging markets, notably China, Indonesia and Thailand, convenience store sales growth is set to lag behind that of other channels in actual terms, due to the channel’s greater reliance on the mature Japanese market, which generated 72% of total sales in 2013.
The channel’s high level of maturity in Japan was also reflected in having by far the highest sales per store in Asia Pacific, 86% higher than the average for the region in 2013.
Sales growth in Japan is expected to slow down from 2014 onwards, as major chains expanded strongly in 2012 and 2013 and will face saturation in finding suitable new store locations. There is scope for more consolidation, with the big four national players possibly seeking to buy small regional companies as they see modest organic growth prospects.
In 2014, China, Indonesia and Thailand are each expected to generate more than a trillion US$ in additional sales through convenience stores and will account for more than half of all new sales in that year.
The trend towards a growing assortment of private label seen in Japanese convenience store chains is likely to become more widely implemented in other Asian markets, as part of retailers’ strategies to improve their supply chain and to boost brand loyalty and profit margins.
ASEAN Markets Promising for Foreign Retailers
Franchising is likely to be used more frequently and continue to boost growth, not only in modern grocery retailing channels, but also in non-grocery channels in the largest ASEAN markets, especially in Indonesia, the Philippines and Thailand.
In less developed markets such as Vietnam, modern grocery retailer formats are gaining ground rapidly over traditional grocery format. Foreign-based convenience stores and small supermarkets such as AEON and Casino are benefiting the most, by establishing and strengthening partnerships with local franchise operators.
New market entries will also continue to fuel the expansion of convenience stores. For example, Circle K opened its first convenience store in Malaysia in November, and plans to reach 100 units by the end of 2014.
Ambitious growth targets for the Thai retailer CP All, the franchise partner for Seven & I’s 7-Eleven convenience store chain in Thailand, will be partly fuelled by its plans to enter new markets such as Cambodia, Laos and Myanmar.
The development of franchising for the expansion of international brands is also expected to be used more frequently by non-grocery retailers, especially apparel specialists, as illustrated by recent and planned new market entries. For example, H&M plans to open its first store in the Philippines in 2014, following entry into Indonesia in October 2013, with its first two stores in Jakarta.
Non-Grocery Continues to Perform Strongly
Non-grocery specialist retail channels continue to drive overall retail growth, performing more strongly than grocery channels in almost all markets.
Growth in non-grocery is driven by growing disposable incomes and the increasing affluence of Asian consumers. Most of Asian markets are enjoying positive demographic trends with growing young demographics, stable or expanding economies with good prospects for 2014 which in turn is boosting consumer confidence and translating to higher expenditure on non-grocery products.
Apparel and footwear specialist retailers are among the best performing channels as the trend of more affordable fashion is growing in Asian markets. Fast fashion labels such as Uniqlo, Zara or Giordano are attracting younger consumers with relatively affordable products, and in many cases, aspirational positioning.
Product penetration for large appliances and household items is still relatively low, which is driving demand through specialist channels and boosting growth in these channels.
Jewellery products are traditionally disproportionately popular throughout the region. In 2014, jewellery and watch specialists are expected to be by far the best performing channel overall due to strong growth in the three largest markets – China, India and Hong Kong.
Asia Pacific remains the powerhouse of global luxury retail brands, driven mainly by Japan, South Korea and China.
Internet Retailing: Marketplace Sites and M-Commerce Play a Prominent Role
Internet retailing in Asia Pacific is heavily dominated by pure-play internet retailers, notably marketplace operators, including Rakuten in various Asian markets and Tmall in China. These operators are expected to remain particularly important in driving internet retailing sales in Asia Pacific, and are strongly benefiting from the rapidly growing adoption of m-commerce among Asian consumers.
Tmall became the largest internet retailer in Asia Pacific in 2011, adding US$13.0 billion to its sales in 2013 alone to reach US$44.0 billion. It is likely to become the world’s largest internet retailer ahead of Amazon by 2015. Tmall is also likely to expand in Asian markets outside China, following the opening of an office for its sister site Taobao in Singapore in 2013.
Rakuten is focusing on expanding outside Japan, entering Malaysia in 2012, and launching a site in Singapore in December 2013. In Japan, Rakuten’s growth is strongly driven by the group’s prominence in m-commerce, which generates around 25% of its sales.
Global internet retailers, including non-Asian companies, will also increase their presence in Asia Pacific, and are particularly interested in gaining a share of the rapidly growing Chinese internet retailing market. For example, the UK-based online retailer Asos launched its site in China in November 2013, while Zalora, owned by the German internet retailer Zalando, is focusing solely on Southeast Asian markets.