Dissecting emerging asia's grocery business by Sutherland Global Services

Dissecting Emerging Asia's Grocery Business May, 2014

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Key Market Opportunities 

 Large Customer Base with changing preferences  

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Traditional Retail still has large contribution

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30 % of the world’s retail growth through 2017 will come from Asia’s emerging markets. And the grocery retail market in emerging Asia is expected to be larger than that in Western Europe and North America by 2017 This is primarily possible because 44% of the world's population base will be available as customers in Asia with as high as 20% contribution coming from China. The positive GDP growth of countries like India and China will add further impetus to retail’s sectoral growth In addition, Western-style products are beginning to become more increasingly popular in markets like South Korea, China and India adding to the growth momentum Increased urbanization will also play an important role in changing consumer preferences, resulting in increased demand for western products like clothing, accessories and food delicacies

The grocery market is still highly fragmented in most Asian countries with a proportion as high as 99% in Indonesia, 66% in Thailand and 61% in South Korea coming from traditional or unorganized retail In India too, unorganised retail accounts for around 98% of the country’s grocery sales There is thus, an immense potential for the organized foreign retailers to enter the market and to not only win market share from the existing traditional retailers, but also help grow the overall pie of the grocery market business

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IGD's top 15 Global Grocery Markets Ranking in 2012 Rank

Country

China

Ranking in 2016 (F) Bn USD

Rank

Country

Bn USD

1082

China

1582

940

1118

Japan

408

India

566

India

375

Brazil

468

Brazil

329

Russia

467

Russia

314

Japan

423

France

284

France

302

Germany

271

Germany

297

243

278

Indonesia

168

Indonesia

247

Italy

165

Italy

166

Mexico

123

Mexico

154

Spain

122

Canada

133

Canada

111

Spain

131

Australia

108

Turkey

128

Total

5043

Total

Grocery retail market is defined by IGD as all food, drink and non-food products (e.g. health & beauty, pet care, clothing, DIY) sold through all the retail outlets that predominantly sell food

All modern retail formats, such as supermarkets and hypermarkets, and traditional retail formats such as open air markets and traditional food stores such as bakery are included. Cash and Carry retail is excluded

Asia Eurasia Others

6460

Source: IGD estimates, Secondary Research, Sutherland Research and Analysis ÂŠ 2014 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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Quote Unquote Joanne Denney-Finch CEO IGD

“ ... many retailers and manufacturers are already leading the way, building a strong presence in China and other emerging markets ... those who have not yet invested in these markets should start planning ahead now because the pace of growth for emerging markets will continue to outstrip that of the developed world ... ”

D.S. Rawat Secretary General ASSOCHAM - India

“ … rising incomes will be a primary driver of this growth in the [Indian] retail sector … both organised and unorganised retail are bound not only to coexist but also achieve rapid and sustained growth in the coming years“

Tutum Rahanta Executive Indonesian Retailers Association

“ expansion is crucial for the retail industry to boost sales turnover, other than renovating old branches … sales turnover from the nation’s retailers [will] grow between 10 percent and 12 percent this year … ”

Laurie McIlwee Finance Director Tesco - Turkey

“ … we are still wedded to Turkey. We think it’s a good opportunity … ”

Alan Jope Head Unilever - North Asia

“ … the new upper-middle-class opportunity is where the future is …it’s huge across categories and even more important than the luxury class of consumers … ”

Scott Price CEO Walmart Asia

“ … we're building a strong foundation for growth, being disciplined around growth, investing in retail basics and developing strong operations and compliance across the portfolio in China … we believe that China's complex environment presents unparalleled opportunity and we believe that we are making great progress on that path to high growth … ”

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Important considerations for grocery business in Asia

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Markets areas with population characterized by a large income base, coupled with low competition by local retailers is likely to contribute to quick revenue generation and early market leadership for a typical foreign grocery retailer Cost-efficiencies are very important consideration for success given that overall Asian population is poorer than their western counterparts Omni-channel strategy is important. In markets like China, Japan and India, being present via online sales portals or a mobile app is also essential Local procurement is essential in order to serve the customers what they need, when they need and in the freshest possible form they need. This is especially true in markets like China where availability of raw and fresh meat is essential Low-price perception (frequent consumer promotions or low shelf price) contributes to revenue growth and market share gains Ease in store accessibility can help win and retain customers Ability to find and lock the right real estate with reasonable rentals for a longish lease, will determine speed of expansion for a typical grocery retailer Retention of knowledgeable and competent local staff alongwith skilled managers with international exposure is essential

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Key Market players (indicative list)

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End of Presentation