In the 1990’s across Southeast Asia, the question was being asked – how can the general trade of assorted provision and mom and pop stores, survive the arrival of hypermarkets and expanding urbanization? Surely, they were doomed, and it was only a matter of time before extinction, many argued. Afterall, that had been the pattern in Western Europe, hadn’t it?
Fast forward thirty years and not only has traditional trade survived, but in most countries, it remains by far the largest FMCG channel. It has proven extremely resilient to the widening footprint of hyper and super-markets, the ubiquitous convenience store format, and more latterly the appearance of online shopping channels (e-Commerce, m-Commerce, social commerce).
Today, the World’s economic growth prospects remain in a state of flux, affecting brand growth and impacting shopper behavior. However, it cannot be escaped that emerging countries such as Indonesia, Vietnam, Philippines and others, are increasingly influencing the global picture. Their economies are amongst the largest and boast an incredibly young demographic profile. Understanding the channel dynamics in these markets, especially the importance of traditional trade, is essential for any brand with serious aspirations for long-term growth.
The Market Landscape
Step outside the colossal urban centers in Southeast Asia – Bangkok in Thailand, Jakarta Metropolitan Area in Indonesia, Metro Manila in Philippines, and the diversity of population becomes apparent, spread across numerous tiers of cities, towns and villages. The retail landscape suddenly becomes fragmented and challenging, certainly from the point of view of route-to-market, supply chain and service methods. Front and center are the General or Traditional Trade, an umbrella title spanning air-conditioned provision stores, small independent grocery or mini markets, corner stores, kiosks, market and sari-sari stalls, roadside vendors and more.
Why does Traditional Trade matter?
Firstly, the statistics.
The rural population of Southeast Asia is c.335 million, or an estimated 50% of the 681 million regional total. Now, consider that traditional trade outlets span not only rural, but semi-urban and urban areas as well. With many households shopping daily, the sheer number of shopping occasions across a year, in provinces far and wide, is phenomenal. Hundreds of millions of transactions daily. Transforming those shopping trips into purchases of your brand, across such a fragmented retail landscape, is no easy task.
Traditional trade commands a highly significant share of total FMCG sales – from 35% share in Thailand, 50% in Philippines, 80% in Vietnam and Indonesia, to 90%+ in Cambodia and
Laos. Spending power may be below that of their urban counterparts, but rural households clearly should not be ignored. Indeed, we are witnessing the expansion of middle classes, characterized by a large buyer pool and rising living conditions.
A day in the life of…
A day in the life of many inhabitants of Southeast Asia includes a trip to the neighborhood store or local market for essential food and other household needs. It may even be multiple times a day, and to more than one outlet. Or alternatively, a phone call and motorcycle delivery to the house.
Local shops, kiosks, stalls, and markets are the most convenient destinations for many, just a short distance from home. Spending per trip is modest, and pack sizes are typically small, since purchases need to be carried home on foot, or by motorcycle. In addition, many households have minimal capacity when it comes to storing groceries or refrigerated products.
In towns and villages across Southeast Asia numerous markets, mostly outdoor, operate daily or on specific days of the week. All roads appear to lead to the market on those days. Good luck trying to find a parking space! Even where modern convenience stores have sprung up, several stalls and kiosks have opportunistically established themselves on the pavement outside. Foot fall is constant throughout the day, contributing to a rich and vibrant retail tapestry.
What is our market coverage?
Successful brand growth is dependent on understanding the channel dynamics in traditional trade. How many outlets or points-of-buying are there in the universe for the product category? What is the channel structure (outlet segmentation) of the universe? How many outlets are currently covered with our products and brands? Is there potential to increase our coverage?
Where are we winning and losing?
Competitive edge can be gained by having a detailed understanding of the landscape. How big is the market for our category in terms of volume and value? How important is each channel to our category? In which channels are we winning or losing in terms of market share and channel execution? Which are the important channels to focus on?
Can we improve our distribution system?
An effective route-to-market and supply chain provides important support to our business. Do we have line of sight and control over our distribution partners, especially where and how they sell our products? Do we have a fix on where the cost pressures are within our value chain?
Where do we improve customer service?
It is important to serve channels and customers well. Do we understand their needs? Do we have an effective and profitable service plan for each channel and customer?
Are we winning at the point-of-purchase?
Product range, price, position, merchandising, promotion, investment and customer contact all contribute to winning. How competitive are we at the point-of-purchase? What are our sources of competitive advantage and how can we build on these?
How do customers shop our products?
Households typically shop at multiple stores, quite different to a primary weekly shop at a supermarket in urbanized areas. The average rural household has 5+ family members, quite often spanning three generations, thus influencing the range of products required. This stands in contrast to the urban household profile, where greater numbers of one-person and two-person dwellings exist.
Understanding shopper behavior is key. Do we know who is buying our products and how they are shopping? What are their needs, buying behavior, motives?
Do we understand our consumer?
Consumer trends, lifestyles and environments are important. What are the key consumption occasions for our products? What are the consumer needs and drives? Are we targeting the right consumer segments? Which segments are growing?
How do we maintain and build brand health?
Are our brands in good health in terms of their identity and their consumer experience? Do consumers understand our positioning and our value proposition? How effective is our media and communication strategy? Are we building sufficient equity and momentum for our brands?
Market penetration
Product availability is a central tenet when it comes to how brands grow – think distribution to that last mile, or kilometer. If your brand is not available for selection, another will be chosen. Penetration really is king when it comes to growing sales or market share and it is typically what separates brand leaders from the rest.
For international brands operating in countries like Indonesia, Philippines, Thailand and Vietnam, the competition from local brands is fierce. In fact, agile local brands often have higher growth rates, driven by extremely competitive pricing, product upgrades and superior availability. They are also more likely to accommodate the smaller purchase volumes of traditional trade store owners, than do the international brands.
Headroom
It is well documented that brands suffer a high degree of churn, typically losing 40-60% of buyers from one year to the next. Lost buyers must be replaced by acquiring significant numbers of new buyers, otherwise market share will decline. Not an easy task when you consider, for example, Thailand has more than 900 ‘districts’, each of which has hundreds upon hundreds of traditional trade outlets to service.
In short, even brand leaders have significant headroom. Some of the biggest brands you can think of in snack foods, beverages, and personal care, may still only reach 40-50% of households in a year.
If a brand wishes to reach as many customers as possible, understanding the complex structure of traditional trade across SE Asia is crucial. Adding more one-time buyers of your brand is the quickest way to grow. It really is a numbers game. There are so many ‘light’ or occasional buyers visiting these stores every day across the region.
The outlook
Most commentators talk about emerging markets being the growth engine globally. It therefore follows that in the next year, more of your brand’s growth is potentially going to come from a successful traditional trade strategy. E-Commerce may be growing in most countries, but contribution to total sales is dwarfed by traditional trade, by a factor of twenty in most markets.
Traditional trade continues to prove its resilience in the face of evolving retail trends and household economic woes. The personal connection between store owners and the neighborhood community is a strong one. And let’s not think of the channel in backward terms, either. Increasingly, technology is becoming a part of operations for ordering and delivery, and cashless transactions using QR codes are more commonplace
Any omnichannel strategy should embrace traditional trade, with its unique set of challenges. It deserves special consideration due to its sheer size, contribution and longevity. Perhaps in some ways it also underlines the enduring importance of the four marketing P’s – product, price, place and promotion. Finding the right stores for your brand, with a relevant pack size and attractive price point, has never been more important.
How Frontline Research Group can help you
If you feel your brand’s ambitions in Traditional Trade would benefit from sound data and analytics, driven by rigorous research methods, please reach out to Frontline Research Group.
We are developing economy and general trade specialists and have over three decades of experience working in these markets.
We can provide the analysis, insights and direction for better decision making, competitive advantage, cost savings and increased efficiency.
To find out how we can assist you contact Gareth Ellis, Regional Manager: Southeast Asia at Frontline Research Group email: gareth.ellis@frontlineafrica.com
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