Granular forecasting of modern grocery development across ASEAN
The development of modern grocery retail in emerging market countries typically begins with consumers shopping at hypermarkets before progressing to supermarkets and convenience stores (CVS) as incomes and urbanisation increase. We used quantitative techniques to better understand the growth drivers and the opportunities across both countries and store formats. The biggest surprise from our findings was that despite not having the lowest modern retail penetration in the region, Indonesia screened as having the most attractive expansion opportunity across formats. We further analysed the margin expansion opportunity and risk from e-commerce, leading us to believe the CVS format in Indonesia has the most upside. We conclude the small-size CVS format will likely see the highest growth in ASEAN with a 7% sales CAGR over 2022-32E (vs supermarkets 3% CAGR, hypermarkets 1% CAGR).聽

What were the biggest surprises from our findings?
We partnered with the 蜜豆视频 Empirical Scientific Approaches team to test the impact of income conditioned on urbanisation and its effect on modern grocery sales across various countries in APAC and to test our market forecasts.

We put particular emphasis on urbanisation in this study as the level of urbanisation in a region might interact with income, and this may influence the relationship with modern grocery sales. Simply put, the interaction effect is that higher income translating into higher modern grocery sales "depends" on the level of urbanisation in a country. We additionally believe ASEAN could be considered at an inflection point where modern grocery sales could pick up significantly, as we鈥檝e noted with more developed countries in our study. We also developed an interactive model that allows the user to flex assumptions for GDP per capita growth and urbanisation rates to see changes in modern grocery sales.聽

Here are some of our key findings:聽

  1. Indonesia's CVS industry can open stores at its current pace for the next 10 years and still only reach Thailand's current level of penetration;聽
  2. Thai consumer preferences have been shifting towards premium supermarkets;聽
  3. Vietnam overexpanded in supermarkets over the past couple years, while CVS may still be too early;聽
  4. Growth in Malaysian supermarkets could decelerate sharply beyond 2027;聽
  5. Hypermarkets are in a decline across most APAC countries.聽

Where do we see the highest modern grocery sales growth potential?
This differs by format depending on the stage of development of modern grocery in each country. Based on our analysis, the CVS format could have the highest sales growth in Vietnam and Indonesia. For supermarkets, we see potential for the highest growth in Indonesia and the Philippines. Hypermarkets appear to be in a decline for most APAC countries in our study with the exceptions being Indonesia and Vietnam, which are still early in their development as modern trade penetration rates in these countries are the lowest in ASEAN.

E-commerce: an opportunity for established grocers
One of the most common feedback from investors is the threat of e-commerce on grocery retailers. However, we are less concerned at this juncture as grocery e-commerce penetration is still very low at 2% or less for Thailand, Philippines, and Indonesia. We think this could be a bigger disrupter for hypermarkets that also sell electronics and apparel as ASEAN consumers prefer to buy fresh food in-store. We would highlight that most ASEAN grocery retailers have communicated an omnichannel strategy to expand their sales channel to online platforms.

Opportunities to expand margins for small-size formats
We generally prefer CVS operators over hypermarkets. In some countries, such as the Philippines, we think large-size formats can still be attractive, although small-size discounters are becoming more aggressive. We see margin expansion opportunities among grocery retailers competing in the small-size format amid less fragmented market competition. We think product mix can help drive higher margins, especially from ready-to-eat and beauty & personal care items. We acknowledge e-commerce as a risk but note the grocery vertical has the lowest e-commerce penetration, while grocery retailers in the region have been proactive in developing their omnichannel capabilities.