Shirley Zhu, Programme Director IGD Singapore, assesses four of the major opportunities for online grocery retailing in Asia.
Nature of ecommerce in Asia is changing
Asia is the largest ecommerce region in the world and home to many ecommerce giants such as Alibaba, JD.com, Flipkart and Rakuten. Despite the fast-moving nature of the food and grocery industry, it has been slower than some other retail sectors such as fashion or books when it comes to moving online. However, this is now changing across Asia.
China is the leader in ecommerce in Asia and is set to have an online grocery market worth almost $180bn by 2020, IGD has forecast. We have also seen that three of the top 10 online grocery markets in the world are in Asia, with China at the top, Japan third, and South Korea sixth, demonstrating the strength of the Asian market.
Drivers of online grocery in Asia
There are four major things driving the growth of online grocery: demographic shifts, including urbanisation, the rise of the middle classes in China, India and Indonesia and maturation of the Millennials; mobile and internet penetration; improving logistics infrastructure; and simply more players joining the online grocery arena.
As the region rapidly approaches a tipping point, we've detected four models that will help online grocery retailing emerge in the market.
Four emerging online grocery models
1. Bricks & Clicks retailers
Bricks-and-mortar retailers are building their online presence. Eventually, every retailer will have a digital shopfront. These retailers have a huge store network that can be used for order pickup or delivery, giving them an advantage in 'the last mile'. They also have strong sourcing and category management capability, and have accumulated a large shopper base and data. For example, Alfamart in Indonesia has turned its 12,000 stores into pick-up points for online shopping.
Source: IGD Research
However, these retailers are new to the online world and quite often lack the insights of online shoppers, experience in digital marketing and need to improve on fulfilling individual orders. This presents an opportunity for manufacturers to collaborate with them.
Brands can create digital content to initiate and support retailers' online activities. A good example is Unilever Indonesia's campaign during Ramadan. Unilever launched a website that provided Ramadan inspiration to feed into retailers' online promotions. The top two retailers in Indonesia, Alfamart and Indomaret, both joined the promotion.
Source: IGD Research, Unilever, retailers
2. Pure play online grocers
These retailers often have a tech background and are great at online marketing and targeting. They try to build authority in certain categories to fulfil unique consumer needs, which drives loyalty and helps avoid price competition with the big box retailers. As they don't carry as many items, they are usually faster at picking and delivering.
On the other hand, online grocery is the most capital intensive in the ecommerce area and that puts pressure on retailers. Some pure play retailers do not have strong existing relationships with suppliers, and their product ranges are sometimes limited.
Manufacturers can design exclusive products for retailers to help them build their category authority. APB's Archipelago Brewery supplies a craft beer exclusively to RedMart in Singapore, which was featured in RedMart's mailing to its shoppers.
Source: IGD Research, RedMart
Online marketplaces are more important in Asia than anywhere else in the world, which means both manufacturers and retailers are keen to form partnerships with them. Marketplaces like Alibaba and JD.com attract lots of traffic, have large shopper bases, established payment and delivery systems and strong capability in analysing big data.
Despite the high fees for suppliers to set up and operate stores on these marketplaces, it is a must-have channel for selling online in Asia. FMCG manufacturers can help enhance the offerings on the marketplaces and as a result, increase basket size on a more frequent basis.
A good example of collaboration with manufacturers on marketplaces is Mondelez's Oreo Colorfilled, which was exclusively developed for Tmall's consumers. Shoppers can pick a template, fill in colours, adopt an Oreo theme and add a personalised message on the packaging. Customised products help brands stand out in these massive marketplaces.
Source: IGD Research, Mondelez
4. Third party service providers
Delivery and concierge shopping services are flourishing as shoppers become increasingly time pressured. Low labour costs in Asia and the high density of the population make this model of delivery economically feasible. Some retailers are working with service providers instead of building their own delivery systems from scratch.
Ninja Van provides an Uber-like delivery service and has kiosks for collection. It also partners with restaurants and shops in Singapore to use their locations for parcel collections. Utilising existing resources is common in the digital economy, and food and grocery businesses need to catch up.
Tips for selling online in Asia
So how can food and grocery manufacturers capitalise on the opportunity and utilise these online models?
- Tailor product mix to different online models
- Offer exclusive and personalised products to selected retailers
- Optimise digital presence
- Special displays on retailers' websites and in targeted emailing
Price and Promotion
- Discounting is not the only solution - be innovative
- Create digital content and campaigns and invite retailers to participate
- Consider online and offline channels holistically
- Experiment with third party service providers
For food and grocery manufacturers who want to tap into the Asian ecommerce opportunity and haven't done so, the time is now. Choosing the right partners and supplying them with the right products is one step closer to winning.