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Inflation Opportunity or Problem for Retailers in Asia
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Inflation Opportunity or Problem for Retailers in Asia

Peter Gale, Managing Director – Retailer Services, Asia Pacific, Middle East & Africa

The strong growth in FMCG sales value in 2010 has continued into the first half of 2011, but this is increasingly being driven by inflation as volume growth has slowed down.

fmcg-dynamics

This slowdown has occurred despite the fact that the number of stores available to consumers has expanded. Modern trade stores expanded by some 13 percent in 2010, particularly in the smaller store formats, such as mini-markets and convenience stores. Convenience stores gained significantly in Thailand, Taiwan and Korea while mini-markets/small supermarkets grew strongly in Indonesia and Malaysia as shoppers embraced them as more convenient shopping destinations.  Traditional trade stores held their ground and are still a significant presence in many Asian countries, particularly in rural areas, and will remain so for the foreseeable future.

If inflation continues to remain an issue and the global economic situation deteriorates further, we are likely to see shopper behavior revert back to what it was in 2009.  This could be relatively good news for grocery retailers in developed Asian markets where consumers may cut back on out-of-home expenditures and spend more on eating at home. In these markets we actually saw the strongest volume growth of the decade for groceries in 2009.  In the developing markets, the impact is more likely to be negative as mid and lower income shoppers are forced to cut back spending on non-necessity products.

Whatever happens with the economy in the next 12 months, shoppers’ increased focus on finding a good deal is unlikely to change, as retailers continue to try and win the battle for shopper loyalty by offering them better value. Other trends to watch include:

  • The developing markets of Vietnam, Indonesia, China and India will continue to show good growth and will be the primary focus for retailer investment in new operations and store development.

  • From a channel perspective, the growth of smaller formats is likely to continue to meet shopper’s needs for convenience although any significant downturn in the economic situation is likely to put pressure on convenience stores with their focus on impulse/non-necessity categories.

  • While online sales remain low in most Asian countries, we will continue to see grocery retailers in the region investing in developing their Internet presences, both in terms of selling products and actively communicating and building relationships with their shoppers via social media.

  • Strong smart phone growth will also increase the opportunity for retailers to actively interact with a wider shopper audience, and new apps are sure to be an area of innovation over the next few years.

These trends are part of Nielsen’s latest Retail and Shopper Trends Report (Asia Pacific, 2011) which is available upon request.