© IGD 2012 Special Analysis, Series 1 - August 2012.

© IGD 2012

Special Analysis, Series 1 - August 2012

© IGD 2012

In Focus: The Asia grocery market

• Welcome to the first in a new series of regional updates focusing on Asia.

• In this series, we will be providing data and insight on a fast growing region made up of vastly different local markets.

• Results from the world’s major retailers in Asia, illustrate that this remains a key area of growth and IGD investigates how this is informing strategies.

• In this first update, we investigate how two of the region’s most exciting markets, Thailand and Vietnam, are developing.

• We hope you find this useful and don’t hesitate to email the team your thoughts and feedback to shape the series moving forward.

Source: IGD Research

Welcome

Vicky RayHead of Asia

Follow us on Twitter @RetailAnalysis

[email protected]

Need something else?

Email askIGD.com

Call +44 (0) 1923 851954

© IGD 2012

Content

© IGD 2012

Economic growth is slowing

10%10%

6%

4%

7%8%

6%

8%7%

9%

7%7%

-1%

5%

4% 4%

0%

6%

8%

7%6%

2%

4% 4%4%

6% 6%

China India Indonesia Japan Malaysia Philippines South Korea Thailand Vietnam

201020112012f

Source: IGD datacentre, IMF

% G

DP

grow

th

With the exception of the Philippines, Thailand and Japan economic growth across Asian markets has eased. However 2012 growth forecasts remain well ahead of Europe and the US. Although Asian exports to Europe

have weakened, robust domestic demand in a number of Asian markets has helped to offset this. Growth in China is forecast to remain relatively strong, bolstered by investment and consumption. India’s growth could become

an issue if high interest rates and uncertainty around policy are not tackled soon.

The trading climate

© IGD 2012

Inflation is easing across the region

Source: World Bank, country National Statistics offices

We have seen rising inflation across the region in recent years, dampening consumer confidence and impacting shopper behaviour. However, the outlook in most countries is positive as inflation has eased in

the first half of 2012. It does however remain a concern in India, Vietnam and Indonesia.

The trading climate

3%

12%

5%

-1%

3% 2%4% 3%

9%5%

9%

5%

0%

4%3%

5%4%

19%

2%

10%

5%

-1%

2% 2%

3% 3% 5%

China India Indonesia Japan Korea, Rep. Malaysia Philippines Thailand Vietnam

FY2010

FY2011

Jul-12

© IGD 2012

Top 5 retailers’ value share in 2011

Source: IGD Datacentre. Data is for the combined share of the Top 5 retailers in Grocery channels.

• Most Asian retail markets remain high fragmented

• China, India, Indonesia, Philippines and Vietnam are the least consolidated markets providing growing retailers with long-term opportunities for growth

• The retail markets in South Korea, Thailand and Malaysia are more mature but there is still scope for growth

• Japan is the most consolidated and the only market where the top 5 retailers share more than a third of the market

• There remains plenty of scope for expansion and it is also likely that consolidation will continue across the region

The trading climate

© IGD 2012

Top Grocery Retailers in Asia

Source: IGD Datacentre (dataset at 25/08/2012). IGD Turnover excludes VAT but includes sales of petrol by grocery retailers

(1) Asia = China, Hong Kong, India, Indonesia, Japan, Malaysia, Macau, Philippines, Singapore, South Korea, Taiwan, Thailand, Vietnam(2) Sales from all grocery formats incl. cash & carry. Excludes wholesaling, foodservice, health and beauty formats and non-food

activities

Who’s winning?

Rank Retailer 2011 Grocery sales US$ million Operating countries (in order of sales)

1 Seven & I Holdings 76,164 Japan, Thailand, Taiwan, South Korea, Malaysia, Philippines, Indonesia

2 AEON 32,138 Japan, China, Malaysia, Thailand, Hong Kong

3 Wal-Mart Stores 18,204 China, Japan

4 Tesco plc 17,682 South Korea, Thailand, China, Malaysia, India

5 Carrefour Group 11,645 China, Taiwan, Indonesia, Malaysia, Singapore

6 Auchan Group 10,130 China, Taiwan

7 Shinsegae Group 9,887 South Korea, China

8 China Resources Enterprise 8,652 China, Hong Kong

9 Dairy Farm 6,739 Hong Kong, Singapore, Taiwan, Indonesia, Malaysia, India, Vietnam, Macau

10 Lotte Shopping 6,669 South Korea, China, Vietnam, Indonesia

11 Casino Group 3,470 Thailand, Vietnam

12 AS Watson 2,782 Hong Kong, China, Macau

13 Wu Mart 2,544 China

14 SPAR International 1,212 China, Japan, India

15 Dia 363 China

© IGD 2012

China5.0%

Japan1.6%

Asia-2.3%

China-3.6%

Asia0.4%

Thailand2.5%

China0.6%

South Korea-1.1% Malaysia

-1.7%

Top three retailers: Last Quarterly ResultsLike-for-like (LFL) sales

Source: IGD Research, Retailers (Up to 21/08/12)

Results for the top three global retailers have been mixed across Asia:• Walmart has delivered the most consistent performance, with LFL growth in both China and Japan.• Carrefour’s Asian LFL growth was negative in Q2, pulled down by performance in China. LFL growth was reported in Carrefour’s Indonesian and Taiwanese businesses. • For Tesco, LFL performance in Q1 improved versus Q4 in all Asian markets except China; its Thai business has recovered well following a difficult period affecting by flooding; it’s South Korean business has been impacted by legislation affecting store opening hours; Malaysia has improved from -3.4% LFL in Q4.

Q2 (May-July)

Who’s winning?

Q2 (Jan-March)

Q1 (March-May)

© IGD 2012

Strategic priorities of international retailers

Source: IGD Research, Retailers

Slow expansion in China and focus on improving profitability and moving to everyday low pricing. Continue to build on improvements to Seiyu stores in Japan.

Focus on improving performance and developing the online proposition in key markets including China and Indonesia.

Leverage the skill and scale of the Group through development and delivery of a multi-format and multi-channel proposition; some consolidation in China.

Continue to integrate Carrefour acquisition and develop its ‘ Big C Extra’ format in Thailand. Maintain strong growth in Vietnam as the only foreign player.

Continue strong growth in China, leveraging the partnership with RT Mart. Enter the Indian market through a joint venture with Landmark Group.

Extend reach across the region through recent market entry in Cambodia and Philippines.

Retailer priorities?

Expansion focused in the convenience sector, while improving performance of its larger format stores in Japan and China. Continued focus on innovation in products and formats.

Ambitious multi-format expansion plans in China; targeting the convenience market in less developed markets like Indonesia and Philippines.

© IGD 2012

Smart shopping has increased the emphasis on price and promotions

Thailand’s Tesco-Lotus launched its successful ‘No. 1

for Price’ campaign earlier this year

Suppliers give away free gifts in Big C, a common practice in

Vietnam


Key consumer trends

Asian consumers are feeling the pressure on household incomes, driven by inflation in food and fuel prices. Savvy shopping is prevalent, with consumers shopping around more for the best prices and promotions, becoming less

loyal to retailers and brands. Retailers are responding through more aggressive price and promotional strategies. Price communication is bolder e.g. Tesco-Lotus ‘No. 1 for Price’ campaign. Retailers are also focused on delivering value to customers through bigger packs and private label. Although inflation is easing, price will remain high on

the agenda and we can expect to see more price cutting initiatives across all major retailers.

Tesco-Lotus highlights ‘Better Value’ though its ‘Clubpack’ in Thailand

‘Buy 2 get 1 free’ in Carrefour China as the retailer up weights

price communication in-store

© IGD 2012

Focus on food safety and health

Central Food in Thailand highlights its ‘Natural’ meat ranges

In Vietnam, Big C has its own Butchery and Raw Food Processing Centre to make certain all

meat products meet international standards


Key consumer trends

Across Asia food safety and health are both high priority issues for customers and retailers. Contamination in the supply chain, especially in China, and in key categories like baby milk, fresh pork and fish has raised awareness

among shoppers. Guaranteeing food safety needs to be high on the agenda of both retailers and suppliers through more rigorous supply chain processes. Retailers are investing more in this area to improve food quality

and communicate this to customers. In most of the Asian markets, healthy food means food that is fresh and free from chemicals and pesticides. In more developed Asian countries such as South Korea, there is an increasing

demand for low calorie and low fat alternatives.

Walmart China’s ‘Vegetable Pesticide Inspection’ aims to reassure shoppers on

fresh food quality and safety

© IGD 2012

Premiumisation


Key consumer trends

Rapid growth of the middle classes across a number of Asian countries – China and Thailand in particular – has given rise to a demand for more premium products. Upmarket customers are looking for differentiation,

uniqueness and are increasingly prepared to spend a little more for a premium product. Imported foods and chilled ready meals or ‘food for now’ are fast growing categories with opportunities for product development.

7-Eleven is expanding its range of chilled foods and ready to eat

meals in Thailand

Norwegian Atlantic Salmon is sold in Tesco-Lotus Thailand with the message ‘eat seafood live longer’

Premium private label ranges – Tesco Lotus have launched ‘Finest’

and Big C has launched ‘Delight’

Central Retail in Thailand makes a feature of imported European

wines

© IGD 2012

Thailand at a glanceMarket Watch: Thailand

• Thailand has suffered severe political instability and flooding in recent years, both of which have had a tremendous impact on people and businesses.

• The country serves as a regional production hub and both imports and exports were down as a result of the heavy impact of the floods. Nevertheless Thailand remains a key export market to the west.

• There remains a large disparity in income levels and development between Bangkok and ‘upcountry’ Thailand.

• However, in less affluent parts of Thailand, traditional retailers continue to use modern hypermarkets & cash and carry stores as their suppliers – wholesale packs remain an important feature of the market.

• GDP growth was flat last year after a strong performance of 8% in 2010. Growth is expected to return to 6% by the end of this year (Bank of Thailand & IMF).

• Inflation dropped to 3% in July 2012 but remains a concern for consumers, despite being lower than other southeast Asian countries.


© IGD 2012

Thailand: IGD Grocery Retail Market Shares

Source: IGD Datacentre

Retailer 2010 2011 2012e

Tesco Lotus 10.7% 11.5% 11.9%

Seven & I Holdings 7.6% 8.2% 8.4%

Casino 5.9% 7.1% 7.2%

Central Retail Corporation 1.7% 1.9% 1.9%

FamilyMart Co 0.4% 0.5% 0.5%

Central Retail

Corporation1.9% Tesco Lotus

11.5%

Seven & I Holdings

8.2%

Casino7.1%

FamilyMart Co

0.5%

Others72.7%

Grocery Retail Market Shares 2011

Market Watch: Thailand

• Despite Casino’s acquisition of Carrefour, Tesco-Lotus continue to lead the market in grocery market share

© IGD 2012

Expanding the offer through ‘Extra’ stores


Examples of Tesco-Lotus’s first Extra in Thailand – Rama IV, above, and Big C’s first Extra, below. These two stores trade head to head in Bangkok.


• Leading retailers Tesco-Lotus and Casino’s Big C have begun to convert some hypermarkets to ‘Extra’ format stores

© IGD 2012

The growth of convenience


Selection of hot and cold drinks at Tesco-

Lotus Express

Providing for top-up missions with fresh

meat and vegetables remains key

Affordable ready-to-eat solutions intended to compete with street

vendors


Tesco Express has Tesco Express has brought brought ‘cafe culture’ ‘cafe culture’ in storein store

7-Eleven trailing European style in-store bakery

7-11 has enhanced its offer though hot food and bakery counters

© IGD 2012

Trading in Thailand: 5 things you need to know



© IGD 2012

Vietnam at a glanceMarket Watch: Vietnam

• Vietnam is one of the world’s five remaining one-party communist states.• The Communist Party are expected to keep a fairly firm grip for the

foreseeable future, ensuring a largely stable political environment.• Vietnam has benefited from a program of internal restructuring, a

transition from the agricultural base toward manufacturing and services, and a hard working, youthful population.

• State control and intervention in commercial activities, especially for foreign businesses, continues to present a challenge.

• Construction permits and access to electricity are pertinent issues.• For retailers the key risk is the government’s ‘economic needs test’ which

they are required to pass for all new store approvals. Local operators can be favoured in this process.

• Economic growth has slowed after tightening in 2011, although GDP growth is still forecast to be 5.9% in 2012.

• Inflationary pressure, which was running close to 20% in 2011, is easing and FX reserves have improved, but still are strained.

• As wages rise in China, traditionally Asia’s main manufacturing hub, more businesses are choosing to invest in Vietnam.


© IGD 2012

Vietnam: IGD Grocery Retail Market Shares

Source: IGD Datacentre

Retailer 2010 2011 2012e

Saigon Co.op 1.8% 2.0% 2.1%

Casino Group 1.1% 1.3% 1.4%

FiviMart 0.5% 0.6% 0.6%

G7 Mart 0.3% 0.3% 0.4%

Lotte Shopping 0.2% 0.2% 0.3%

Dairy Farm 0.1% 0.1% 0.1%

Dairy Farm0.1%

Saigon Co.op2.0%

Lotte Shopping

0.2%

Casino Group1.3%

FiviMart0.6%

G7 Mart0.3%

Others95.6%

Grocery Retail Market Shares 2011

Market Watch: Vietnam

© IGD 2012

Traditional retailing in Vietnam


Although modern trade is growing in importance, traditional trade still dominates (approx. 85% of the grocery market).

Most Vietnamese families shop at least once daily in traditional markets close to home, where fresh food in particular is bought and prepared for each meal - homes have limited storage space and not all have a refrigerator.

Sachets are common as a way of managing household budgets as well as giving shoppers the opportunity to try new products on the market as personal care is still a relatively new growth category.

Housewives will often have great loyalty to rice vendors who then deliver the product to home.

Processing and trading cooperatives such as Vissan Meat are seeing strong growth, particularly since recent food safety issues as shoppers seek reassurance over product quality and sourcing.


© IGD 2012

Feature on Big C in Vietnam


Banner

Total sales 2011

(USDm)

FormatNumber of stores

2011

Sales area

(sqm)

Average sales area

(sqm)

Big C 371 Hypermarkets & convenience 23 120,750 5,250Casino Group entered Vietnam in 2001 and now operates

over 20 Big C Supercentre hypermarkets, with the majority located around the country’s two biggest cities; Hanoi in the north and Ho Chi Minh City in the south. Store sizes vary between 4,000 sqm and 10,000 sqm with each carrying an assortment of up to 50,000 products, over 90% of which are sourced from Vietnam.

Guaranteeing low prices is a key element of Big C’s strategy. It runs a variety of discount and promotional campaigns as well as aiming to ensure price stabilisation for key product categories.

Big C also creates a point of difference against the rest of the market through the focus it places on food safety and quality control within its fresh supply chain. It has invested significantly in building links with local producers, creating food processing hubs and training staff across the business.


© IGD 2012

‘Low prices for every family’Clear focus on low prices

Big C’s slogan in Vietnam is ‘low prices for every family’. In addition to regular discounts on a variety of everyday products, bi-weekly promotional campaigns, supported by printed brochures and media advertising, offering reductions of between of up to 50% are an essential part of reinforcing the association with low prices. This focus on price is clear to see in-store, with a wide range of highly visible point-of-sale units and eye-catching signage across all departments.

© IGD 2012

Providing alternatives to brandsClear focus on low prices

Private label brands offer the opportunity to provide customers with a wider choice of price options and Big C is continually developing in this area in food and non-food. It currently has two locally produced private label brands.

‘WOW – Attractive Price’: distinctively packaged value brand offering the most competitive price in the market for a variety of products.

‘Big C’: standard private label with a wide range of high quality grocery products which are 15% to 30% cheaper than leading brands.

© IGD 2012

Creating points of differenceDeveloping innovative in-store concepts

Traditional outlets still dominate the grocery retail market in Vietnam and Big C has adapted its store to include various ‘market style’ concepts such as live fish displays and a self-service rice unit. However, it also attempts to create points of difference against traditional markets by ensuring product information is clear displayed as well as emphasising the importance of hygiene and cleanliness in-store. Many Vietnamese consumers are becoming increasingly wary about food safety and Big C is keen to display its credentials in this area.

© IGD 2012

Best in class sales conceptsDeveloping innovative in-store concepts

Innovation is a core value of the Big C Supercentre model and it is has launched a number of specialist sales concepts in its stores. One of the most notable is the B-bread counter which can be seen above. This operates alongside the store’s main bakery counter, offering a premium range of traditional European bakery products which are prepared in-store. Its distinctive branding, striking fixtures and high quality assortment all help to set it apart from the rest of the store and reinforce the choice which Big C offers.

© IGD 2012

Developing skills across the business

Big C’s commitment to the fresh supply chain goes beyond infrastructure and providing training for staff at all levels of the business is also a vital part of this. In addition to training staff in hygiene and the preparation of fresh food at its processing and export facilities, Big C also provides management and store operations training at its national training centre which opened in 2008. The majority of training is done ‘in-house’ by senior Big C managers whilst the business also has an association with a number of institutions which provide vocational courses in a range of areas.

Investing in the fresh supply chain

Source: Big C

© IGD 2012

For more information about the region...

33 See our latest store visits across Asia markets:Visit the IGD Retailer Hubpage on Retail Analysis

22 Obtain answers to your business’ most important CEE related questions

Speak to IGD about our Customised service

11 Get statistics on Asia retail operations by banner and country:

Visit the IGD Datacentre on Retail AnalysisView the Top 30 CEE grocery retailers on Retail Analysis

44 Get in-depth insights on the retailer’s international expansion strategies: Visit the IGD Retailer Hubpage on Retail Analysis

© IGD 2012 Special Analysis, Series 1 - August 2012.

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Transcript of © IGD 2012 Special Analysis, Series 1 - August 2012.