We look at how top international retailers are reconsidering their strategies in Asia and where growth is coming from in the region.

While the pace of growth may have slowed, there’s much more to come and the region is home to China, the world’s largest food and grocery market.  International retailers can’t afford to miss the opportunities, but the rising cost of labour, higher fuel prices and increased competition from local retailers are some of the factors causing them to re-examine their strategies in Asia.

Economic change impacts consumer trends

As growth slows in many Asian markets, it is important to remember that GDP forecasts still remain well ahead of Europe and the US. Inflation is easing, although still remains a significant issue in a number of Asian markets, notably India, Vietnam and Indonesia. Rising inflation across the region in recent years has dampened consumer confidence and impacted shopping behaviour. Shoppers have become increasingly price savvy and retailers are responding with investment at the shelf edge, through stronger communication about price and with more innovative types of promotion.

Alongside consumer shrewdness, we are also seeing a trend towards 'premiumisation', driven by the growing middle class population in a number of Asian markets. Higher income shoppers are seeking unique and interesting products, which they are increasingly willing to spend a bit more for. With this comes more opportunities for imported and premium ranges and retailers are already beginning to respond accordingly, by both developing store formats and the product ranges available.

Asian markets remain highly fragmented

The Asian grocery markets are characterised by an abundance of local players as well as the traditional retailers. From a total sales perspective, Asian retailing continues to be dominated by Japanese operators Seven and I Holdings and Aeon. Other major players include the Chinese retailers China Resource Enterprises and Wumart, who are both seeing some of the strongest growth in the region with annual sales increasing by 22% and 21% respectively in 2011.

Seven & I Holdings and Dairy Farm remain the only two truly pan-Asian grocery retailers, both operating in eight countries.

Top international retailers reconsider Asian strategy

The global economic downturn has of course played its part in retailer performance and Walmart, Carrefour and Tesco all appear to be reassessing their expansion strategies, most notably in China,

Walmart seems well on the way to turning the previously ailing Seiyu business around in Japan. Despite expanding into many more smaller cities in China than both Carrefour and Tesco, Walmart’s like-for-like (LFL) performance of 5% in Q2 2012 suggests the US retailer is holding up rather better than both its European rivals. While it has slowed the pace of opening new stores in China this year, Walmart’s announcement that it will open another 100 stores demonstrates its commitment to the Chinese market. 

Walmart has, however, admitted to a lack of quality control in its development of store formats, and is expected to invest in improving the customer experience and store layout in both existing and new stores in China.

By contrast, Carrefour has cast its net widely in Asia, and, since selling its business in Thailand to Casino in 2010, is now looking to offload its two Singaporean outlets. We can expect Carrefour to focus on the fastest growing Asian markets - China, India and Indonesia.

Tesco has recently shown mixed performance in the region. The UK retailer has announced store closures and consolidation into three core regions of China, while its South Korean and Malaysian businesses have been impacted by government ambitions to protect local retailers. Tesco-Lotus in Thailand has fared better and the retailer will drive further growth through expansion of its multi-format strategy as well as online.

Supermarkets are king

So where is growth in the region coming from? Although there is clearly significant growth still to come from hypermarkets, supermarket expansion has been dynamic. In a region where frequent, sometimes daily, shopping is the cultural norm and where freshness is high on the shopper’s agenda, the supermarket format is surely a winner?

If we look at China for example, performance of smaller formats has been mixed. Walmart trialled a discount format in southern China 'Smart Choice', but closed these three stores in February 2012, after struggling to find a profitable model to roll out. Carrefour also previously struggled with Dia, a smaller discount format, with stores trading across Shanghai and Beijing; guaranteeing availability and tailoring product ranges to shopper demand were two of the biggest challenges.

But in contrast we are seeing Chinese retailers, most notably China Resource Enterprises, Wumart, Yonghui and Lianhua growing rapidly in the supermarket channel, opening up to 100 stores per year in some cases. It will be interesting to see how international retailer strategies evolve, particularly Tesco, which has already had success with its 'Talad' supermarket format in Thailand as well as more compact hypermarkets in South Korea and Thailand.

Growth of online

Asia is presents a significant opportunity for online retail. It is home to 45% of the world's internet users and clearly leading global retailers will not wait for their Asian store networks to develop and mature before  moving into the online channels.

Walmart's purchase of a 51% share of one of China's leading online grocery retailers, Yihaodian, has clearly given the US retailer a head start. However, two French retailers already have an online service in China, with Carrefour providing home delivery in Shanghai and Beijing through its online grocery site and Auchan piloting its 'drive' concept, where shoppers can order online and collect at the store.

Elsewhere in the region, Tesco has made good progress pioneering the award winning 'virtual store' in South Korea where it has been selling online for some time - it will look to rollout its successful online proposition in Shanghai and Bangkok next year.

We look on with interest to see if the international retailers can maximise Asia's online opportunity in the face of tough competition from leading Asian online specialists including Alibaba in China and Rakuten in Japan.

The future of Asian retail

International consumer goods retailers are re-examining and adapting their strategies in Asia and there is much work to be done to truly capture and maintain a strong foothold in these highly fragmented markets.

Opportunities abound both in physical bricks-and-mortar stores and the online channel and we can be sure that the race to win in the Asian market has many twists and turns yet to come.