Asia to dominate the global grocery market
China is to become the world's largest grocery market in value terms in the next 5 years. The country's total market size will reach $1,800 billion, larger than Asia's next four largest grocery markets (India, Japan, Indonesia and South Korea) combined.
"China will not only retain its position as Asia's largest grocery market by 2023, but it will also overtake the US to become the world's largest. The market is expected to have a CAGR of 5.5%, on par with Sri Lanka and Thailand, but slower than markets such as India, Vietnam, Indonesia and the Philippines, where the economy is growing faster.
Less than half of grocery sales in China currently go through traditional trade and as the market continues to mature, we expect traditional trade to continue losing share to modern trade. As the total market size expands, traditional trade will still grow, but at a much slower pace over the next five years (forecast CAGR of 0.8%), compared with the growth rate of modern trade (forecast CAGR of 8.5%)," explained Nick Miles, Head of Asia-Pacific at IGD.
Set for convenience
Researchers believe that the development of modern trade in China over the next few years will be largely driven by ongoing store expansion, as well as strong performances from the online and convenience channels.
"Convenience will be the fastest-growing physical store channel, driven by Alibaba and JD.com transforming traditional mom-and-pop stores, retailers opening smaller format stores and both local and overseas players expanding their networks through partnerships. Online and offline integration will drive online growth. As the fastest-growing channel, we forecast online to contribute up to 11% of sales in 2023," added Mr. Miles.
Hypermarkets to lose ground
Meanwhile, IGD forecasts that hypermarkets will see their share of China's total grocery retail market reduce from 22% in 2018 to 18% in 2023, while the market share of supermarkets will remain steady, close to 20%.
IGD research has also found that China's leading grocery retailers will grow at varying rates to 2023. E-commerce giants such as JD.com and Alibaba are set to see significant growth from both online and offline channels and become the second- and third-largest grocery retailers in China respectively. Meanwhile, retailers with nationwide networks such as Sun Art, Yonghui, Walmart, CRV and Carrefour will benefit from the ongoing expansion, partnerships with e-commerce and tech companies, improved efficiencies and investment in small formats. Regional players such as NGS and Wumart will continue to focus on profitability.
Huge opportunity
"There's also a huge $245.5 billion growth opportunity in convenience and online in the next five years, which can be captured by understanding trends and retailer strategies and allocating resources accordingly. But we would also urge suppliers not to neglect traditional trade, which will still account for about one-third of FMCG sales in 2023," concluded Nick Miles.
South Korea adds new services in retail
Retailers are embracing the opportunity to send the food directly to the consumer as the demographic shifts are reshaping the market. A quarter of the households in Korea are one-person households and the percentage will grow to 35% by 2035. This situation has reshaped the retail market in the last years and still adds some novelties in terms of services in food delivery.
"The demand for the delivery of fresh food is continually on the rise. Coupang, a major e-commerce company, is capturing the demand by introducing new services such as Rocket Service (delivery of orders in 24 hours) and Dawn Delivery (order by midnight, delivery by 6 am the next morning).
Services like these are transforming the landscape in South Korea," according to the latest IGD Asia report.
South Korea is the most advanced online grocery market in Asia. IGD's forecast model predicts the country’s online grocery market will make up 14.2% of its grocery sales by 2023, up from 8.3% today. One in three South Korean shoppers have purchased groceries online and the competition is increasing at a fast pace.
Lately, large grocery retailers have increased their investments in logistics to keep pace with online rivals and meet changing shopper needs.
"Homeplus: offers same-day food delivery through its partnership with AUCTION, an e-commerce platform. It also launched two fulfillment centers in Gyeonggi Province this week to meet delivery demands;
SSG.com: the online service of South Korea’s retail conglomerate, Shinsegae, formed in March 2019 by consolidating its multiple e-commerce sites into one. It also processes Emart orders and launched Dawn Delivery in 2019. SSG.com currently has two logistics centers. A third one will be opened this year;
Lotte: has a signature delivery service called same-day night-time delivery service. If a customer places an order before 8 pm, the goods will be delivered before midnight on the same day. It is also expanding its logistics centers to meet the increasing demand," said the report.
USMEF tries to capitalize on the convenience market
Searching for new channels of distribution to increase the sales of US red meat, US Meat Export Federation (USMEF) is targeting convenience stores as a rapidly growing venue for red meat exports.
And is not only Asia that stirs interest for the American meat exporters. Markets such as Mexico and South America are developing pretty fast too, in this segment, according to USMEF and Euromonitor.
In Mexico, demand has increased for convenience foods and prepared meals due to population shifts toward urban centers and more women entering the workforce.
According to Euromonitor, per capita spending on convenience store food items rose 24% between 2013 and 2018, to $8.90, and is expected to expand another 12% over the next five years. Euromonitor also reported that the packaged food market in Mexico is expected to reach $53.5 billion by 2022. High-growth categories in this forecast include processed meat and seafood snacks and “ready” meals – pre-packaged sandwiches, entrees and side items.
Oxxo is the largest convenience store chain in Mexico with more than 17,000 locations throughout the country, and USMEF is working behind the scenes with companies that supply Oxxo stores. For example, USMEF has conducted educational seminars and trainings to the processing companies that supply hams and sausages for sandwiches sold by Oxxo, as well as by Mexico’s 7-Eleven convenience stores. The trainings emphasize the quality and consistency of U.S. pork and beef and introduce distributors to new product options.
“One of the hottest trends in convenience stores across Mexico is the emergence of uniform sandwiches and meal items,” said Gerardo Rodriguez, USMEF marketing director in Mexico, Central America and the Dominican Republic. “Until recently, if you bought a sandwich at a convenience store here, you really had no idea what you were going to get. That is no exaggeration. But the consistency of US ham, for example, has made sandwiches more reliable. That may not sound like a big thing in the US but in Mexico it has made a huge difference that the consumer definitely notices. For them, consistency is the key. It doesn’t matter when or where you buy the product, it must be exactly the same.”
Along with promoting the consistency and quality of US products currently offered in Mexico’s stores, USMEF is also working to develop new products. Rodriguez said USMEF is focusing on consumers who use convenience stores as a foodservice option for lunch. There are very few options for healthy items, he noted, so developing salads that include a side item of U.S. pork or beef will fill a large void in the convenience sector.
Beef liver as convenience food
Also, the South American market looks really promising to USMEF representatives in the area. Once concentrated only in urban areas, convenience stores are becoming more and more popular in South America, especially in Colombia and Peru. South American convenience store chains have been reluctant to offer ready-to-eat meals, but Jessica Julca, USMEF representative in South America, said the Mexican chain Oxxo is expanding rapidly in the region, creating a potential for future partnerships.
Meanwhile, USMEF has been working on strategies for other players in the convenience store sector.
“In Peru, we approached Tambo, which has 300 convenience stores, to introduce a ‘Power Breakfast’ campaign that includes a US beef liver sandwich or liver empanada,” explained Julca. “We were planning a big launch of that campaign during the second quarter of this year, but the company that owns the chain went through some changes. So we are now in a holding pattern, but still hoping to promote US beef liver items as a convenience food soon.”
UK food-to-go sector expected to grow by 26%
The UK food-to-go market is forecast to be worth £23.4bn by 2024, up from £18.5bn in 2019, growing by 26.4%. According to new research from IGD UK, the channel is set to experience double the growth of the wider food and grocery retail market – 12.5% – over the next five years.
Rhian Thomas, Head of Shopper and Food-to-Go Insight at IGD said: "Food-to-go remains a key growth opportunity for businesses and one that appears particularly attractive given the structural and growth challenges being faced by UK supermarkets and hypermarkets right now.
Consumer expectations around convenience and forecourt food-to-go are rising fast, creating an opportunity for businesses to invest and upgrade, or else risk getting left behind. The good news here is that there's lots of growth to go for, and in many locations there remains an opportunity to do more to meet these evolving shopper needs. Those businesses who focus more on emulating competitors rather than investing in how they can innovate will meet the big challenges."
Researchers are predicting that food-to-go specialists, such as Greggs, Subway, Pret, Eat and Leon are to see sales increasing from £5.0bn in 2019 to £6.3bn in 2024. The market share will move from 27% in 2019 to 26.9% in 2024 and food-to-go specialists will experience a CAGR of 4.6% between 2019 and 2024.
On the other hand, for quick-service restaurants (QSRs), such as McDonald's, Burger King, KFC and Five Guys sales will increase from £5.8bn in 2019 to £7.2bn in 2024; market share will move from 31.5% in 2019 to 30.9% in 2024; and the sector will experience a CAGR of 4.5% between 2019 and 2024.
On QSRs, Rhian Thomas said: "The QSR channel has remained strong despite an increase in the choice of food-to-go options and a greater focus on healthier eating, which is not an area that QSRs are traditionally known for. But while not all players in this area have experienced fast growth, the combination of improved in-store environments and technology, along with targeting the online meal delivery channel have all been factors that are driving driven growth. McDonald's is a good example of this, but they are far from the only innovators in this space, not least as plant-based options are increasingly introduced onto menus."
New generation, new preferences
The key driver for the expansion predicted for the grocery/convenience sectors is that a new wave of young people are joining the consumers club and their lifestyle is substantially different for what we have witnessed before.
As an example, in 2020, the median age in some Asian countries it is going to be 25 in the Philippines, 29 in Indonesia and in Malaysia. By 2030, Asia's Gen Z population will reach nearly 1 billion adding a certain growth for e-commerce in the region and globally, perhaps. A study by ITA-Italian Trade Agency office in Shanghai, will give an exclusive sneak peek of the e-commerce future growth tendencies.
The research projected a steady upward trend in each sector: Beauty & Personal Care will experience the fastest online sales growth by 2023 (with an increase of + 48%) followed by Food (+13%). Companies will invest more in wrapping, cartoning, automatic taping machines and robotics, according to the study.
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