Urbanisation and digital ecosystem growth are driving rapid expansion of addressable populations for brands in emerging markets. CPGs must identify the routes to these new consumers now to tap into one of the world’s biggest growth stories. By doing so, they can create sustainable growth to counteract stagnation in Western markets.
In anticipation of our annual Future Retail Disruption report, to be published in September, we are previewing some of the dramatic changes retailers and suppliers can expect as they prepare for future disruption.
Digital transformation improves emerging markets’ addressability
Emerging market consumers are valued by CPG brands for their rising incomes and enthusiasm for modern lifestyles. However, entering emerging markets to access these shoppers has always been capital-intensive and high risk. This prompted companies to more carefully manage portfolios, placing bets on smaller numbers of strategic markets.
Digital transformation can now potentially reverse this trend, opening paths for CPG brands to more markets, and to larger urban, provincial and rural consumer segments that historically would not have been addressable.
This is enabled by:
- The fast growth of smartphone penetration;
- Urbanisation and infrastructure investment making access to consumers more efficient; and
- The growth of digital platforms connecting suppliers with shoppers.
As technology continues shrinking the world, digitally addressable populations will accelerate across emerging markets, rising by 270 million in India in the five years to 2023, and by 175 million in China. Another 48 million will join the ranks across the second-tier markets of Brazil, Mexico and Russia.
To seize this opportunity, brands must identify new routes to these new consumers, or risk missing a historic window of opportunity. Year after year, millions of people will discover international brands for the first time, beginning to value them as powerful symbols of a better life. Brands have an opportunity now to lay the foundations of lifelong loyalty.
Digital B2B platforms offer the most efficient access
In seeking paths to these new consumers, CPG must recognise that a significant share of new discretionary income spend will remain outside modern retail channels. With consumers tending to stay loyal to their neighbourhood independents, these are the retail segment benefiting most directly from rising incomes.
To capture this opportunity, CPGs must address consumers on their habitual shopping journeys, establishing a presence in urban, provincial and rural locales.
Encouragingly, ecommerce players are now quickly working to include independents within their digital ecosystems. This is opening up significant new consumer touchpoints for brands in addition to established, but more cumbersome, channels of cash & carry, delivered wholesale, importers/distributors, direct neighbourhood distribution (as practiced by Coca-Cola in Africa) and direct-to-consumer initiatives (like Nestlé’s door-to-door township programme in Brazil).
In Asia, Alibaba, JD.com and Amazon are now rapidly integrating independent stores as points of discovery, purchase, payment and collection for consumers across townships, provincial towns and rural areas. They are targeting consumers who otherwise would have little or no access to international brands. In China, Alibaba has already integrated its Tmall platform with thousands of independent small-store businesses, with 10,000 such franchised locations licensed in 2017 alone.
As these pureplay digital ecosystems expand internationally, CPG brands must ensure they have a presence not only on their B2C platforms, but also in their emerging B2B ecosystems. These will eventually enable both online availability and physical shelf presence in millions of neighbourhood stores.
As upgraded digitally-integrated O2O touchpoints, these mom-and-pop stores will in future be an essential pillar of CPG growth, rather than being swept away by retail modernisation, as was the likely scenario before digital transformation.
As a channel, they will offer a route to emerging markets’ fast-growing addressable populations that brands cannot ignore if they wish to win the long-term loyalty of the world’s new consumer segments.
Occupy strategic access points to independent trade to maximise consumer reach, securing listings with relevant B2B platforms alongside the traditional wholesale routes.
Build flexible supply chains that guarantee high service levels to the on-demand platforms that organise logistics to independent stores.
Reduce pack sizes to make branded items affordable to new emerging market consumers who typically enter the addressable population spectrum at the lower income end.
Engage with local ecommerce platforms to be part of independent trade programmes and gain access to shopper insight that will inform market-specific product development.
Communicate brand benefits and values digitally to capture the impulse from fast-growing digitally addressable populations with content that is supported by basic smartphone models on limited data volume contracts.
Connect with young and rising consumers to build emotional connections as they enter the middle class and make contact with international brands for the first time, securing their long-term loyalty as their social status improves.