Decades of fast economic growth and rising urban populations have created an innovative convenience grocery industry in Asia.
The Asian grocery market has - like many areas of retail in the developing world - mushroomed over the past few years. A densely packed population and fast-evolving retail sector make the continent well suited to the grocery convenience format, so the industry is rich with good ideas.
Countries including Indonesia, Japan and South Korea have busy convenience markets and the most successful chains are largely run by domestic operators. These retailers are ever-ready with ideas for extra services to introduce - from travel agency bookings to dry cleaning, Asian convenience stores are nothing if not flexible.
As Vicky Ray, head of Asia at think tank IGD, says: “Some have done it better than others, but all the operators have much more of a propensity to innovate and be flexible in their format evolution than we have seen in more developed markets.”
Convenience stores have become a strategic priority for UK grocers as shoppers rein in non-food spending and switch to smaller top-up shopping trips throughout the week. These changing shopping habits can be seen clearly in the IGD’s figures - it expects the UK convenience market to grow about a third in the next five years, from £35.6bn in 2013 to £46bn by 2018. “There’s a huge focus on convenience in the UK,” Ray says.
There is plenty for UK retailers to learn from their Asian counterparts, but it’s worth pointing out that Asian retailers themselves aren’t necessarily more advanced than UK operators.
Himanshu Pal, director of retail insights at Kantar Retail, says: “I wouldn’t say the Asian retailers are really advanced - there are some issues around execution. But they do a better job in terms of catering to the shopping needs of people coming to their stores.”
So what does that involve? For Dairy Farm, which owns the 7-Eleven licence in Hong Kong, Singapore and mainland China, it means introducing different formats and store sizes in different locations. The approach means that the chain can operate in places where space is at a premium but where shoppers particularly appreciate a convenience offer, such as subway stations or busy street corners.
Ray says 7-Eleven, which operates throughout much of Asia, is one of the most innovative retailers in the region.”It’s world-class and the most innovative by far,” she maintains. The retailer has tried several ideas in a bid to draw in shoppers, including its Slurpees drinks - flavoured ice drinks that are similar to Slush Puppies - which can only be found at the chain.
Developing strong own-brand products that a chain becomes famous for is another strength in Asian convenience retailing - Japanese chain FamilyMart, for instance, is also known in places such as Shanghai for its bread.
Services have become a central part of the offer. 7-Eleven uses ATM-style technology to provide shoppers with access to services such as the ability to book rail and air travel tickets or pay for parking in nearby streets. In Japanese 7-Eleven stores, a courier service allows customers to send parcels across the country. “They align their offering with the things people find convenient,” Ray says.
Pal says FamilyMart is doing something similar with its ‘FamiPort’ multimedia terminal. The kiosk gives shoppers access to travel and bill-payment services, and Pal says Asian retailers are doing a better job than their UK counterparts of driving traffic to stores.
Indonesian chain Indomaret has taken a similar approach to services by providing shoppers with dry cleaning. “They are developing more of a lifestyle convenience offering,” Ray says.
One other way of tailoring an offer to customers’ lifestyles is a food-to-go service. UK retailers have dabbled in this; Waitrose perhaps leads the way so far, but British stores have mostly avoided the route.
7-Eleven in Indonesia has developed a format that combines traditional convenience with food-to-go. This is tailored to the Indonesian market and suits shopper behaviour - it is perfect for customers looking for somewhere to meet friends and grab some food.
Another convenience retailer, Lawson, which operates in Japan and China, has embraced the approach wholeheartedly. It has integrated a food offer into its checkouts, so till staff can serve hot food to hurried office workers as they pay for their other goods. “It’s done in high-density, office-worker locations and there are eight to 10 different hot foods every day,” Ray says.
But while domestic operators are leading the way in many instances, Western retailers operating in Asia are not being left behind. Tesco and Casino have both entered various markets in Asia and are stepping up to the
challenge by making sure they follow a multi-format strategy. Ray says: “We have seen Tesco innovating different formats for different markets.” She observes: “In Thailand, for instance, people shop daily, and Casino has tailored its offer to that need.” The French grocer has introduced a mini supermarket model with a bigger selection of fresh food to cater for top-up shoppers.
Another idea that is popular in Asia, but that hasn’t yet caught on for UK convenience retailers, is the use of franchising. Asian retailers use franchise licences as a way of rolling out a large, international store estate quickly, but UK retailers have so far preferred to be more in control of their own brand.
“Franchising in Asia has really kicked off,” says Pal. “But the likes of Tesco and Sainsbury’s haven’t really gone down that route. It’s a good way of doing it if the retailer is based in Europe. You’re able to get a share of revenue without having to make a capital investment.”
The model also makes new territories more accessible - a franchise partner with local knowledge can make a
previously inaccessible market more achievable.
Whether through franchises or under their own steam, fast growth is a central tenet of Asian convenience retailing.
Aeon is one retailer putting aggressive growth at the heart of its strategy. Over the past three years it has gone into Vietnam and the Philippines and has expanded in its home market, Japan. Ray says its consistent offer makes growth easier. “It has very similar products across the estate, but different store sizes and merchandising. There’s a lot more simplicity in the model and that means it can open stores quickly.”
While the UK grocery sector is one of the most advanced in the world, the ideas coming out of Asia prove there are still things to try. From flexibility of format to a stronger food-to-go offer, there are plenty of good ideas out there.
In numbers: Convenience & grocery
- £46bn Forecast value of the UK grocery convenience market in 2018.
- £35.6bn Value of the UK convenience market today.
- $1.5 trillion (£968bn) Forecast value of the Chinese grocery market in 2016, compared with $1 trillion
- $566bn (£359bn) The estimated value of the Indian grocery market in 2016, which is expected to overtake Japan as the world’s third largest grocery market.
- 65% The estimated share of the global grocery market accounted for by the US and BRIC countries
by 2016, compared with 60% in 2012.
What works where
Shop & Go, Vietnam
24-hour trading is an important part of the Asian convenience offer. Many Asian shoppers are still used to more traditional retail outlets that are open all hours, leading many convenience chains to follow suit.
Extra services for shoppers can help drive footfall and encourage more regular visits. Indomaret in Indonesia has introduced dry cleaning services.
Own-brand products are a good way of maintaining customer loyalty. 7-Eleven in Indonesia has developed
its Slurpees ice drinks - shoppers can make their own and combine different flavours. The flavours also change regularly, ensuring repeat visits.
FamilyMart bread, Shanghai
FamilyMart’s bread offer is another good example of strong own-brand products - the retailer is renowned for its bread.
Services such as travel bookings and the ability to pay utility bills are available in a selection of Asian convenience chains. Lawson in Shanghai has kiosks providing these services, and a food-to-go offer is also available. Asian convenience retailers have taken the food service approach and run with it. Shoppers are provided with a wide range of hot food options.
Asian convenience retailers are known for adapting their offer to each group of customers. 7-Eleven’s offer in Singapore is curated carefully for office workers in an urban environment.
Tesco Lotus Express, Bangkok
Western retailers have done themselves proud in the region. Retailers including Tesco and Casino have proven themselves adept at changing their store formats to suit the lifestyles of shoppers around the world.
Lessons from Asia’s convenience sector
- Be flexible in format evolution and align it to shoppers’ lifestyles. While an area full of office workers might respond well to a hot food offer, a more suburban location may be better suited to a wider range of groceries and fresh food.
- A food-to-go offer is likely to do well in most convenience stores, and Asian retailers have been quick to cotton on. While shoppers tend to respond well, it’s a service few UK convenience retailers offer and is something consumers here may find attractive.
- Introducing a service element to convenience stores is a good idea. Services such as Amazon lockers and collection network CollectPlus can drive footfall to stores as shoppers come to pick up or drop off parcels. Other ideas include introducing services such as dry cleaning, the ability to pay utility bills, or facilities to book travel tickets. All of these have proven effective in boosting footfall - and once shoppers are in a store, they are likely to spend more on other products.
- Differentiate products. Some Asian retailers are well known for individual lines that keep customers coming back - products that chime with shoppers and stand out from the competition will drive footfall.
- Franchising can enable a quick store roll-out and help retailers to expand into locations they might otherwise struggle to enter.
- Think carefully about shoppers’ lifestyles and how a convenience grocery store can fit into their day - there are likely to be services and products they will need or want that are not being offered at present.