Talking shop: Online opportunity in China, Thailand

By Andrew Don | 5 March 2013

Retailers look for early advantage in Thailand, China online markets

Retailers look for early advantage in Thailand, China online markets

Online grocery retailing in China and Thailand promises great opportunities for international supermarket groups to crack these two diverse, challenging and potentially lucrative Asian markets. Andrew Don reports.

China and Thailand will cram into just 24-36 months what it took UK grocery retailing about 45 years to achieve.

This is the view of Bill Grimsey, who was managing director of Hong Kong supermarket giant Park n Shop between 1989 and 1994. Grimsey, who is also former chief executive of Iceland Foods and Big Food Group in the UK, says it will be foreign investment that brings about this transformation.

He describes the changes in the distribution of food products in China and Thailand as an accelerated version of the evolution in the UK from small "mom and pop" shops with limited ranges though to vast superstores.

This has been possible because international players have been taking their understanding of what shoppers want and need at home to both Asian markets. Grimsey says the rapid progress of mobile and computer technology has meant "they will immediately jump to online".

Tesco confirmed to just-food it had been trialling online shopping in Bangkok in Thailand, a country in which it has more than 1,250 Tesco Lotus outlets. It plans to launch the full-blown online service this month. And in China, where it hopes to build scale in the South, North and East - it has more than 120 stores - Tesco is also preparing to add on online offer in Shanghai.

Grimsey believes if retailers can move straight to the "dark store" model and just have a few retail stores, they can cut out the huge capital investment in bricks-and-mortar retailing - which he says "must be very attractive in a developing market".

IGD research shows the Chinese grocery sector was worth GBP607bn (US$918.2bn) at the end of 2011, overtaking the US as the world's biggest food and grocery retail market. The gap between the two leaders is expected to widen further by 2015 when the IGD forecasts the Chinese market will be worth GBP918bn, compared with GBP675bn in the US.

Vicky Ray, head of Asia at the IGD, says there is significant growth opportunity in Thailand, too, where the modern grocery players are already consolidating their operations and where online retail will provide a strong platform for growth.

"The online grocery market is relatively underdeveloped in China and Thailand compared with Europe and many retailers are just testing the concept at the moment. However, there is a wealth of potential online shoppers, many of them already connected and embracing technology to communicate online," she says.

In China, pure-play domestic online retailers such as Yihaodian, in which Wal-Mart Stores has a 51% stake, and Taobao currently lead the market but some domestic retailers, such as Lianhua also run online operations alongside their bricks-and-mortar stores.

Ray adds Wal-Mart's Sam's Club has been online in China since 2010, Carrefour has been serving Beijing and Shanghai shoppers online for several years and Auchan is testing its Drive format in the market.

Casino-owned Big C launched in Thailand a year ago and last September it launched a smartphone app with more than 10,000 products that can be collected in store or delivered for free anywhere in the Bangkok metropolitan area.

But Ray says there are still challenges to overcome for online retailers in both countries from a cultural and practical point of view.

Both are largely cash societies so paying online is unfamiliar for many shoppers, while there are also significant regional differences in diet and taste that make it difficult to generalise the product range.

Ray says this means that retailers thinking of entering these online markets need to be familiar with the shoppers in the region and understand that they are likely to purchase straight from their smartphone rather than a home computer.

Logistical challenges are the biggest barrier. "A supply chain has to cover large distances to service customers outside Shanghai and Bangkok - if you can achieve that you can start to unlock the real growth potential," Ray says.

Euromonitor, in its latest category report, points out the pace of life is quickening in China, boosting demand for convenience that will make home delivery appealing. Internet retailing can bridge a gap in inland cities or underdeveloped regions because shoppers can easily buy products that are not yet available in the local retailing market, Euromonitor says.

Bryan Roberts, director of retail insights at Kantar Retail, says in Thailand people prefer to pay at the door using payment card terminals, and this is also true, to some extent, in China.

Both China and Thailand, however, have tech-savvy younger populations ready to embrace modern methods of shopping, in common with many Asian markets, he says.

Roberts notes many shoppers in both countries still prefer to buy fresh products form the street market.

Indeed, Grimsey recalls when he worked for Park n Shop that the "wet" market dominated fresh food. "People in that part of the world only believed something was fresh if they saw it alive and then killed." This was because, in the past, if meat was not freshly killed it would hang around in high humidity and 30 degrees, quickly developing life-threatening bacteria, he says.

Roberts says international players need to be realistic about what categories will fly online and what will remain in traditional channels.

"At present, in growth markets it's not really about profitability. In so-called emerging markets, it is about getting first-move advantage or, at least, being ahead of the game when it comes to when there will be an upsurge in ecommerce adoption by shoppers."

He points out that Wal-Mart and Tesco made a succession of mistakes when they first opened supermarkets in China but quickly learned by using a mixture of local management and additional research.

"Thailand will be a very interesting market for them because Bangkok is densely populated and has a huge presence of convenience in that market so the shopping trip is very fragmented," says Roberts.

"They have to be very patient and agile to profitably expand in these markets but the long-term potential is massive."

Sectors: Emerging markets, Multichannel, NPD & innovation, Retail

Companies: Tesco, IGD, Iceland Foods, Wal-Mart Stores, Carrefour, Auchan, Casino

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