Competition Amongst International Supermarkets In Emerging Markets Heats Up As Entry Strategies Diverge

Demographic trends in emerging markets are favourable for retail growth

Emerging markets (EEM) are home to nearly 90% of the world’s young population (aged under 30), and boast of macro trends that are attractive to retailers. Additionally, a rapidly rising middle class with increasing disposable income combined with rapid urbanization is further boosting retail growth. Reports by Bain & Co suggest Asia’s (AAXJ) emerging markets will alone contribute 30% of the world’s retail growth in 2017.

OECD data forecasts that the Asian middle class will rise from 28% of the global population in 2009 to 66% in 2030.

But if these factors are bullish for retail growth, why are some companies failing? In spite of attractive macro trends, emerging markets are a difficult nut for retailers to crack. Cut-throat competition, fragmented markets and need for localisation means retailers have to lay out their strategies carefully in these markets.

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Further, countries in emerging Asia have their own specific challenges. They are in various stages of development and retailers have to deal with poor infrastructure, regulatory and protectionist measures. To succeed in these emerging markets, retailers have to employ the following strategies:

  1. Localisation

Supermarkets need to focus on local tastes and adapt to regional preferences to grab real market share in emerging markets. In India (INDA) for example, unlike competitors that have expanded across the country, local supermarket operator D-Mart has focused on Western India and has achieved 56% growth, outpacing its peers. The company’s regional focus has helped it lower operating costs to fuel steady expansion and offer low prices to consumers.

  1. Omnichannel expansion

Retailers need to figure out ways to make their presence in online grocery as well. Experts forecasts 7% of grocery sales to be made online by 2020 and with Amazon entering this space with the acquisition of Whole Foods, it becomes imperative for supermarkets to sell online.

Chinese (FXI) e-commerce player Yihaodian is capitalizing on grabbing market share through online channels while 7-Eleven and WalMart are also focusing on expanding their online presence.

  1. Low shelf price and attractive promotions

Consumers in emerging markets are extremely price sensitive. Supermarkets use frequent promotions and reduce average shelf lives to grab consumers. In Vietnam (VNM), Big C sells its products at 5-10% lower than the printed price and offers promotional discounts. It is the market leader in Vietnam.

Additionally, experts have noticed the following emerging trends in these markets that retailers should take care of when laying their strategies:

  • Traditional mom and pop stores continue to dominate, although modern format supermarkets are gaining market share

Even though penetration of hypermarkets is rising, mom and pop stores occupy a large market share in emerging markets. This is primarily due to lack of infrastructure related supply chain and logistics, and low car ownership compared to developed countries.

  • International retailers lead expansion in emerging markets through joint ventures and franchisees

International retailers gain access to emerging markets through joint ventures, partnerships with local players or franchisees. This helps them gain access to local expertise as well as deal with regulatory hurdles with respect to direct investments.

  • Tier 2 cities provide higher growth opportunity

Large retailers are tapping growth in tier 2 cities where rentals are lower, and average disposable incomes are at par with larger cities. This provides them with an opportunity to expand their networks beyond highly saturated top tier cities and achieve higher returns at lower costs. In China, Carrefour is focusing on tier 2 cities to expand its store count after initial hiccups put it behind competitors.

  • Purchasing habits are evolving

A large and growing middle class population is leading to a shift in consumer patterns in emerging markets. Emerging markets boast of a rapidly evolving young population with rising disposable income. These consumers are more adaptive to technology.

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