Asia CPG brands must step up in digital

Wednesday 16th, March 2016


Consulting firm Accenture, in its report The future is now: understanding the new Asian consumer, estimated that that the consumer goods and services industry would will grow by up to $700bn globally by 2020.

Some $340bn of this, or 48.6%, was slated to come from the leading Asian markets of China, Indonesia, India, Singapore and Thailand, with China alone expected to account for around $200bn, or 58.9%, of that total.

Xerago comment: If there is one sector that can be considered a sunrise sector fairly immune to recessionary and downturn conditions, it is CPG. With the world’s population continuing to grow and household grocery staples becoming essentials, the opportunity is huge for CPG companies that get their equation right. In particular, Asia is a hotspot of opportunity as it accounts for two of the largest economies – China and India.

While China has a somewhat skewed age demographic, India has an overwhelmingly young population with over half the population below the age of 25. This is a generation that will start their own families in the next few years and will board the high consumption curve for the next 20-30 years at least.

“If CPG companies don’t take action now, they risk losing out on the new generation of consumers,” warned Fabio Vacirca, senior managing director in Accenture’s Products operating group in Asia Pacific.

Xerago comment: Fabio is right. For far too long, CPG companies have operated with traditional hierarchies and distribution structures. The width and depth of coverage that most majors such as Unilever, P&G, Nestle and others achieve in most markets also makes them less fleet-footed.

A new generation of Asian consumers who are aware and receptive to trends elsewhere in the world are now making it harder for marketers to respond. In some cases, they’re also demanding that marketers tailor products that are unique to their culture and experiences. The rise of regional taste-based variants in categories such as food or trends such as traditional wellness-based products in India are all pointers in this direction.

A key challenge for CPG companies is not to use their largely template-based product approach to Asian markets, but to adapt and tailor them based on a deeper understanding of their customers in the region.

“These companies must couple traditional models with new ones where consumer engagement is digital and one2one, social influence is perceived to be the trustworthy source and shopping is one click away,” he added.

Xerago comment: Fabio is being conservative in his assessment in asking companies to follow a traditional model plus new approaches. In fact, grocery shopping preferences in the region are changing much faster than marketers are probably ready to acknowledge. It is the near-saturation penetration of mobile devices that is driving this rapid change.

With most families now being double-income households, it is no longer dependent upon the woman to do the shopping for household goods. The lack of time and long commutes mean that consumers are more than willing to shop online for the convenience that it offers. Not just dry goods, but in many cases fresh produce and dairy produce as well. There are several online players who’re now experimenting with localised deliveries thus addressing the last-mile problem.

The importance of digital was emphasised in the report’s prediction that one quarter of the region’s $10 trillion retail market would come via this channel in 2018.

Xerago comment: Very likely, but we wouldn’t be surprised if the eventual numbers show up higher. For one, unlike in the US or Europe the notion of grocery shopping as a sort of weekly or monthly therapeutic experience is simply not existent in Asia. Consumers in the region are happiest when they perceive they’re getting value. That value could take a broad dimension that goes beyond just saving money, it includes time and effort as well.

Another peculiarity about the Asian markets is that most shopping for household provisions is done to a very different beat than in the US. Asians tend to do a majority of their monthly shopping typically at the beginning of the month, followed by top-ups when needed during the month. Hence, pack and unit sizes tend to be smaller. This is unlike the US where consumers typically stock up on larger sizes to avail special prices or offers.

It observed that the digital commerce market in Asia Pacific remained under-penetrated for CPG companies, particularly in the grocery-product category, but suggested there were “outstanding” opportunities for them to capture the next wave of growth if they could bridge existing gaps in consumers’ purchase journeys and provide a truly seamless shopping experience. Vacirca pointed out that the influence of technology was only going to increase.

Xerago comment: It is unlikely that we will ever see any of the large CPG companies ever set up an online sales and fulfilment channel. Nor does it seem necessary given the resource requirements. As long as they’re able to team up with local web-based fulfilment partners such as TMall in China or BigBasket in India, they can effectively shift the purchase patterns from the small mom-and-pop stores or neighbourhood grocers to the online space.

“By better using digital technologies, CPG companies can engage with consumers on a real-time basis, allowing the companies to provide the maximum value within the minimum time,” he said.

Xerago comment: Mondelez has been in the news recently for experimenting with a sales model where consumers who visit its website are re-routed to a nearby partner for sales fulfilment. It is hard to anticipate how successful this model will be and whether it is capable of being replicated and scaled up.

In theory, as a model of demand generation it seems to make sense. However, if the assessment is that the neighbourhood grocer is a dying breed it makes more sense to focus on online aggregators.

“This will, in turn, create opportunities for CPG companies to control the consumer buying experience of tomorrow.”Ultimately, the report suggested, brands can become “smart assistants” capable of delivering solutions proactively to consumers without waiting to be asked.

Xerago comment: Data mining and profiling customers to arrive at personalised suggestions are areas in which CPG companies could develop expertise. Also, through predictive modelling techniques they may be able to study consumer buying patterns and predict requirements. This kind of insight can then be used to wow consumers by predicting or reminding them of buying patterns.

While this may seem like an ideal solution, the hard part is in being able to access such data. If the online aggregator model takes off, it is unlikely that such companies will share customer data with CPG companies.

It does make us wonder whether the CPG company of twenty years in the future will be one that will be focussed solely on product development, manufacturing and marketing! Channel management as we know it may well cease to be a functional area. Interesting to speculate on the possibilities.

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