How CPG can win online in Southeast Asia

Source: Howard Lake, Wednesday, Mar 7, 2018

Southeast Asian ecommerce is entering a key developmental phase. Regional and international online players are investing heavily in building out ecosystems and fulfilment infrastructure in fast-growing markets.

With projected ecommerce growth rates similar to that of China, CPG suppliers should position themselves to build strong relationships with leading operators and develop capability through data, distribution and mobile optimisation.  

A region primed for growth

Southeast Asia’s middle class – identified in PlanetRetail RNG’s Global STEIP report as reaching 400 million in 2020 - is a leading consumer segment in both consumption and lifestyle trends. This relatively urbanised population (48%), with high internet penetration (53%) and rapid mobile adoption ( 133% vs. total population) is fuelling the region’s ecommerce boom. Younger, more affluent shoppers, are increasingly seeking food, healthcare and fashion products online.  

Support from regional governments around infrastructure and technology development is also feeding into online retail growth. Southeast Asia’s ecommerce market will double in size to USD26.8 billion in five years (CAGR 16%), making it an attractive option for both established players and new entrants.

ASEAN, the Southeast Asian trading bloc, has seen strong economic growth (GDP nominal growth of 7.9% in 2017) and is forecast to grow even more once bilateral trading agreements with large economies like China and India are in place.

The region’s grocery retail landscape is primed for more investment and development. Large international players such as Alibaba, JD.com and Amazon are beginning to connect their ecosystems across Southeast Asia and the wider Asian region. These digital platforms combined with the geographic proximity of the markets will accelerate cross-border trade opportunities. Alibaba, for example, linked its Taobao platform to Lazada’s Southeast Asian portals during Lazada’s Online Revolution festival, opening up a route into new consumer groups for CPG suppliers.

Markets like Vietnam, Malaysia and Singapore already have sizeable numbers of online shoppers and present an immediate opportunity. Thailand, Indonesia and the Philippines are also growing but lag behind because of limited online penetration beyond major metros. However, cities like Kuala Lumpur, Bangkok, Manila and Jakarta are becoming centres for innovation and distribution hubs for the broader region.

Southeast Asia’s ecommerce landscape

Alibaba-backed Lazada has become the leading ecommerce platform in six out of 10 Southeast Asian markets. JD.com and Amazon are also aggressively building their presence in these markets via partnerships, stake purchases and collaborations. Amazon, in particular, has attracted regional consumer attention given its focus on Western brands.

The digital retail picture also includes leading brick-and-mortar operators like Tesco Lotus, Dairy Farm, NTUC FairPrice, Auchan, Lotte and AEON. All are now integrating digital elements to their store networks to create O2O experiences, as well as adding more experiential and social shopping elements as highlighted in PlanetRetail RNG’s Store of the Future Winning Strategy report.

Succeeding in Southeast Asia requires a set of capabilities that can help manage operations in a diverse, fragmented and complex environment. Forging relationships with established players offers CPG brands a wealth of data on shopping habits, category sales, local preferences and online demographics. This is particularly valuable for brands interested in developing a direct-to-consumer route. 

While the opportunity is large, the unique operating environment means that suppliers must execute their businesses in a very different way than in other parts of the world. An example of a CPG brand building its regional capabilities can be seen with Unilever. It has developed a transformative partnership model with Lazada which includes:

  • An exclusive Unilever online store
  • Shared data analytics at category level
  • Social media content directed to Unilever’s products
  • Rewards for Unilever customers with free delivery and entertainment-on-demand access in Lazada’s ‘LiveUp’ loyalty programme.
  • In return, Lazada secured investment from Unilever and has gained best in-class consumer insight from a CPG brand.

Unilever’s Southeast Asia’s Ecommerce President commented: “In the past three years, our ecommerce sales [via partner’s sites] have grown nearly 50%. We expect growth of three times in the next three years.”

The strategic collaboration with Lazada will see Unilever expand online sales and loyalty via Lazada’s platforms in at least another six countries. Unilever is now reaching out to other retail partners to create a similar collaborative approach.

Unilever-owned Tresemmé’s Official store on Lazada Philippines © Lazada.pi

 

Danone is also extending its partnership with Lazada. Specific actions in this relationship include;

  • Educational workshops and sharing of category insights
  • The opening of a Danone-branded storefront on Lazada Thailand.
  • Lazada support for personalised services, exclusive content and events for core customers of Danone’s Early Life Nutrition category – new parents and moms.

These are significant early steps for CPG suppliers that are helping to show how success in this market can be achieved. Suppliers that are able to experiment and learn from initiatives – with both 3P marketplaces and omnichannel retailers in the region - will be well placed to capture share in this rapidly developing market.

RECOMMENDATIONS FOR SUPPLIERS

  • Prioritisation – establish relations with retailers and ecommerce marketplaces that can help brands build regional learning and market insight. Suppliers should bring insight and best practice to the relationship to help foster collaboration.

  • Supply chain – with an under-developed logistics infrastructure, distribution and fulfilment capability is a significant issue to address. Product distribution is being achieved successfully by suppliers through warehouse partnerships and ‘micro’ distribution centres.

  • Communication -  young urban consumers in Southeast Asia value product quality credentials and experience factors, often over price. Suppliers should make these factors part of marketing campaigns to better target new shoppers in the region.

  • Mobile optimisation – a mobile-friendly interface and social commerce initiatives will help support a seamless shopper experience. Suppliers must optimise brand content across all channels to win as mobile connectivity rises sharply and the physical store environment becomes increasingly digital.

  • Long-term planning - retailers are sustaining infrastructure investment in Southeast Asia, supporting payment systems and ever-larger ecosystems. Early-stage engagement will help brands accelerate their nationwide coverage as platforms are extended to more urban and rural locations.