Shifting Focus: Embracing Customer Density Over Store Scale
In Southeast Asia’s grocery sector, supermarkets and hypermarkets have long reigned supreme. However, the emergence of small-format stores, particularly minimarkets, is challenging the status quo and prompting major grocery brands to reassess their strategies, emphasizing customer density over sheer store size.
These small-format stores, typically occupying less than 500 square meters, have gained traction in Southeast Asia’s $40 billion grocery market.
Their success stems from convenient locations, especially crucial in regions like Indonesia and Malaysia where long distances and heavy traffic make accessibility a key factor.
According to Jason Moy, Managing Director and Partner for Singapore at Boston Consulting Group (BCG), these markets thrive on top-up purchases and small transactions, making convenience and affordability paramount.
As a result, small-format grocery stores offer a compelling alternative, providing competitive prices and ease of access.
The rapid growth of small-format players is evident, with examples like Malaysia’s 99 Speedmart showcasing remarkable expansion.
In just four years, the chain doubled its store count, emphasizing a low-price strategy and operating in compact spaces with a focused assortment.
Julian Cua, Partner at BCG, highlights the transformative impact of minimarts on consumer behavior, shrinking traditional catchment areas and reshaping shopping habits.
With minimarts catering to localized needs, consumers are drawn to nearby outlets for most of their grocery needs, redefining the concept of convenience in the retail landscape.
Rethinking Strategies: Adapting to Changing Consumer Patterns
While the ascent of small-format stores doesn’t spell doom for supermarkets, it does call for a reassessment of business strategies, as consumers increasingly gravitate towards minimarts for their shopping needs.
In the Philippines, for instance, 15% of consumers exclusively patronize minimarts for groceries, signaling a notable shift in shopping behavior away from traditional supermarkets, as highlighted by Julian Cua, Partner at Boston Consulting Group (BCG).
“This indicates some cannibalization compared to their usual supermarket visits,” Cua noted, underlining the need for supermarkets to pivot their approach.
Gone are the days of relying solely on store scale and transaction-driven models. Jason Moy, Managing Director and Partner for Singapore at BCG, stressed the importance of big players shifting their focus to consumer density and identifying novel customer occasions.
Rather than expanding their physical footprint, supermarkets should leverage their network of partnerships to optimize costs and enhance efficiency within specific catchment areas.
Moy emphasized the significance of data density in this paradigm shift, urging businesses to gather comprehensive insights into consumer behavior across various touchpoints, including partner interactions and competitor engagements.
To address the challenge of saturated markets, modern grocers can explore collaborations with traditional stores, as suggested by a McKinsey report. By supporting traditional stores in digitalizing their operations, supermarkets can extend their reach while also revitalizing traditional retail channels.
Capturing Market Share: The Rise of Small-Format Stores
The ascent of small-format stores, including minimarts and convenience stores, has reshaped the grocery retail landscape across Southeast Asia, significantly impacting market share dynamics.
In Indonesia, modern trade’s share in grocery retail, spearheaded by small-format stores like Indomaret and Alfamart, surged to 73% in 2022, reaching $16.6 billion.
This marks a remarkable increase from the 47% share recorded in 2013, according to data from Euromonitor International and BCG Analysis, as highlighted by Jason Moy.
Thailand’s retail scene follows suit, with small-format giants like 7-Eleven, Lotus’s, and CJ Express dominating the market.
The sector’s share rose to 58% in 2022, amounting to $14.3 billion, up from a 47% share in 2013.
Similarly, Malaysia witnessed a significant expansion of small-format stores led by 99 Speedmart, capturing 46% of modern trade with revenues reaching $3.1 billion in 2022, a substantial leap from the 20% share reported in 2013.
In Vietnam, small-format stores’ market share surged to 25% at $1.6 billion, compared to a mere 2% in 2013.
Despite the impressive growth observed across Southeast Asia, the Philippines lags behind in small-format store penetration, with a modest 9% share amounting to $1.5 billion in 2022, albeit marking an improvement from the 5% share recorded in 2013. Leading brands like Dali and Savemore are prominent players in this emerging segment.
Transforming Retail Landscape: The Role of Small-Format Stores
The surge of small-format stores stems from the emergence of new contenders in the retail arena, reshaping the dynamics of the industry, according to Cua.
As local players enter the scene, they are redefining their value propositions and bolstering their convenience store offerings or introducing small-format concepts.
Simultaneously, traditional stores are adapting to the changing landscape by embracing digitalization to enhance efficiency and customer service.
In the Philippines, disruptors like Alfamart and Dali are shaking up the market, prompting large-format stores to enhance their presence and offerings.
Neighborhood establishments, known as sari-sari stores, are also joining the digital revolution, leveraging platforms like Facebook Messenger to connect with customers.
“We anticipate a paradigm shift where Filipinos will continue to demand convenience in how they access goods. They’ll increasingly favor proximity and accessibility, potentially replacing conventional shopping habits with more localized alternatives,” Cua remarked.
