With booming personal incomes and a young population, Southeast Asia's already-flourishing consumer market is ripe with further potential.
A turning point for the region came in the first decade of the 2000s, when countries such as Indonesia and Vietnam more than tripled their per capita gross domestic products. According to the International Monetary Fund, eight out of 10 countries in the Association of Southeast Asian Nations had cleared the $1,000 mark in GDP per person by 2010, widely considered the first requirement in developing a consumer market.
Many retail and service chains have been trying to work their way into the region. And yet, there is a lingering tendency to see the area as one homogeneous market of 600 million people. The reality is that each country is at different stages of developing their commercial markets.
Two countries, two markets
Indonesia and Thailand both have substantial populations and rising income levels. When it comes to consumer markets, however, they are at distinctly different stages of maturity.
Indonesia's consumers are just beginning to move away from traditional markets toward chain stores and shopping malls. Eighty percent of the country's retailers fall under the "traditional trade" category. Many are family-owned shops carrying small packages of food and drinks and daily-use items such as shampoo.
But as families move up the income ladder, they are starting to explore more modern forms of retail, like small supermarkets that offer a wider range of items, including factory-processed foods. Local supermarket operator Sumber Alfaria Trijaya has rapidly expanded its Alfamart chain of small-scale stores. As of September 2013, the company had more than 8,000 outlets.
Shopping malls are also blossoming. Consumers are starting to see both luxury malls carrying European brands and more affordable ones with casual brands, giving them even greater choice outside of traditional shops.
Thailand's retail landscape is quite different. Huge shopping malls and general merchandise stores are already the norm in cities like Bangkok, and the consumer market in the country is going through a period of transition. As consumers grow accustomed to the variety of goods offered in general stores, they are starting to look for more variety in the design and functionality of products and more accessible locations for the stores themselves.
Thai consumers are starting to move away from massive hypermarkets and turning toward smaller shops like convenience stores. Major supermarket chain Tesco has more than 1,400 outlets in the country, of which 1,100 operate as 24-hour convenience stores.
Some specialized stores have met the demand for quality and design and are rapidly becoming "category killers," dominating their specific fields.
Recognizing the trends
In Indonesia, on the other hand, mass-produced goods are just starting to overtake the products offered in traditional trade. Because low- to middle-income families are leading the expansion of the consumer market, a large part of spending is for so-called fast-moving consumer goods such as processed foods and other consumables. Their demands are much simpler than those of Thai consumers. Lavish designs and multiple functionalities are favored only by the high-income consumers, with the majority of shoppers looking for simple goods with consistent product quality.
Foreign companies looking to capture the demands of Southeast Asian consumers should take into account this disparity.
Advances in distribution systems are essential to further expand modern trade in the region. Many Asean countries lack sufficient infrastructure to provide reliable and timely delivery of products to retail stores. The success of convenience stores in Japan was backed by efficient delivery-service providers that distributed freshly prepared food to stores three times a day. Similar systems will be needed for convenience stores in Southeast Asia if they are to compete with local food vendors selling meals at extremely low prices. However, even in big cities with serviced roads, such as Bangkok and Jakarta, heavy traffic congestion poses an obstacle.
Yasuyuki Otsuka is senior manager for the Consumer Business Group at Deloitte Consulting in Bangkok. Toshinari Takahashi is senior manager at Deloitte Consulting in Singapore.