SOUTHEAST ASIA - From 2015-2020 retail sales across the whole of Asia will grow faster than any other region in the world. According to the World Bank, Asian retail values (US$ equivalent) will grow by 8.5% which, in volume terms, is around 4.6%.
This compares to Western European US dollar value growth of just 0.6% and volumes of 0.8per cent. The worldwide average dollar retail value will increase by 5.6% and volumes increase by 3%.
Asia is already the world’s largest regional retail market, with sales of almost US$7 trillion in 2014. By 2018, Asian retail sales are expected to be more than US$10 trillion - almost double the retail sales value of the entire North American market.
While much of this growth will be in India and China, there is a degree of risk attached. Decelerating growth and major stock market losses in China, and mixed signals from the Indian government about whether or not to permit foreign investment in retail will affect the regional projections.
As a result, many of the large international retailers are now switching their investment growth strategies away from India and China to South East Asian markets – yes, like the MNC Brand Owners, retailers also have their ‘China + One Policy”.
Especially attractive are Indonesia and Vietnam, because of Indonesia’s strong population growth and rising incomes, and Vietnam’s more liberal government policies of opening up more to foreign retail investments.
Oddly, contrary to Asia’s growth prospects, European retailers, appear to be refocusing on the domestic markets in their home countries and are rethinking their overseas markets entirely: Carrefour, Metro and Tesco are all looking to recapture revenues in their home markets and since 2008 have been divesting or reducing operations in emerging Southeast Asia.
This has left the space open for the larger Asian retail groups from South Korea (Lotte) and Japan (Aeon) to expand in Southeast Asia, again mainly in Indonesia and Vietnam.
Indeed, retailers have taken on the role of Urban Development: The Japanese retailer AEON opened the Binh Duong Canary Mall in late 2014: 15km from Ho Chi Minh City, it is a massive four storey 70.000m2 complex that includes the biggest AEON supermarket in the country, cosmetic stores, fashion stores, furniture stores, restaurants, cinemas, children’s play areas, etc. including 40 stores selling Japanese brands, and 18 stores with their first presence in Vietnam, including Daiso, with fixed-price quality Japanese products selling for VND 40,000 (US$1.83/¥228).
It is a complete air-conditioned city centre where there was none – 15 years ago Binh Duong was rice paddies; now it is a huge industrial zone of new factories and new urban housing for more than a million workers.
The Vietnamese consumer goods sector posted the highest growth rate in Asia, according to a report released in January by Nielsen. It grew by 23%, while the figures of India and China are 18.8% and 13% respectively.
The total sales value of non-food products (in US dollar terms) are expected to rise by an average of 13.7% per year over the next five years to reach US$44.5 billion, up from an estimated US$22.9 billion in 2013.
Retail sales of packaged food will also increase rapidly—from an estimated US$43.6 billion in 2013 to US$78.9 billion in 2018—although their share of household discretionary spending will decline from an estimated 43.1% in 2014 to 41% in 2018.
Indonesia is still dominated by traditional rather than modern retail, and that is changing very slowly. Traditional retailers in the informal sector, (small independent stores, open air markets, street vendors etc), account for an estimated 77% of the total retail sales value and the US$13.6 billion reported by the modern retail sector represents just 30% of the overall retail market.
In the grocery sector, the five largest retailers have a combined market share of just 3.8%. Although this is a small market share, when viewed in the context of the total population size of more than 300 million, Modern Retail does have a bright future.
Modern Retail sales in Indonesia are predicted to rise from an estimated US$330 billion in 2014 to US$639 billion in 2018. In local-currency terms, growth in retail sales will average 12.1% a year in 2014-18, but rapid inflation means that average annual volume growth will be much lower, at only 4.9%.
The full article is available in the August 2015 issue of Packaging Business Insight Asia. Click here to subscribe.