The pandemic-fueled rise in grocery retail spending will likely persist even after the pandemic abates. Contributing factors include the transition to hybrid- and remote-work arrangements and the increase in dining at home. As grocery demand grows, however, consumers are seeking more value, quality, and convenience. Their spending behavior is also blurring the distinction between ordering prepared food for dining at home (restaurant takeout) and buying groceries for home cooking.
ASEAN consumption continues to grow
Within the next decade, the Association of Southeast Asian Nations (ASEAN) is projected to become the fourth-largest economy in the world, powered by an expected population of more than 700 million by 2030. The World Economic Forum estimates that domestic consumption, which fuels roughly 60 percent of ASEAN’s GDP today, will double to $4 trillion by 2030.1 While citizens of tier-one cities are expected to account for the majority of consumption, spending outside of major cities will make up close to $1.7 trillion from 2020 to 2030 (Exhibit 1).
Vietnam is a particularly interesting example. Consumption has been largely concentrated in the nation’s two major economic hubs, Hanoi and Ho Chi Minh City, which accounted for 37 percent of all Vietnamese households with income of more than $22,000 a year (in 2011 purchasing-power parity). However, our analysis reveals that the number of middle-class households in smaller cities (and even rural areas) is rising at a CAGR of 8 percent, outpacing Hanoi and Ho Chi Minh City, which are at 5 percent. Moreover, the Mekong River and Red River Deltas, which are densely populated but not fully urbanized, are becoming significant consumption pools, attracting the attention of modern retailers (Exhibit 2). These trends will cause the share of middle-class households in Hanoi and Ho Chi Minh City to fall to 31 percent in 2030. (For more on our analysis, see sidebar, “About the research.”)
Consumer demand in ASEAN is underpinned by three themes
As in other regions, the pandemic has had a pronounced—and potentially lasting—impact on consumer behaviors and preferences. Retailers seeking to keep pace should focus on three themes (Exhibit 3).
Amid a period of economic volatility and inflationary prices, consumers are looking for ways to stretch their dollars. For example, they are actively comparing product prices: in Indonesia and Vietnam, around 60 percent of consumers said they would do more in 2022 to save money while shopping. Consumers are also seeking out the best promotions, even if it means making separate purchases across stores and splitting purchases between offline and online channels. Last, shoppers are switching to less-expensive alternatives, such as private-label brands, with Indonesian consumers (44 percent net intent)2 and Vietnamese consumers (13 percent net intent) leading the charge. This trend was especially prevalent in grocery food items deemed staples (such as rice and cooking spices) and nonfood necessities (for example, bathroom tissue).
Another byproduct of the pandemic is that consumers have increased their focus on improving their physical wellness. They are devoting greater attention to healthy eating and nutrition, resulting in more balanced diets and reduced consumption of highly processed food products. This shift is demonstrated by the overwhelming net intent among Indonesian and Vietnamese respondents to purchase healthier products (61 percent and 78 percent, respectively).
Despite the overall shift toward maximizing value on essentials, consumers are also spending on high-quality products and paying more to purchase goods that are perceived to be healthier—particularly fresh produce. This behavior is found in mature markets such as Singapore, as well as in developing markets such as Indonesia (44 percent net intent) and Vietnam (49 percent net intent). Rural consumers increased their direct purchases from local farms and producers thanks to the perception of heightened freshness and quality.
While ASEAN trails other mature Asian markets, such as South Korea, in online spending, adoption has accelerated during the COVID-19 pandemic. Sixty-five percent of Indonesian consumers and 69 percent of Vietnamese consumers have increased their online purchases with scheduled deliveries during the pandemic. Moreover, they expect to continue buying through online channels in the near future. Similarly, purchases made online with self-collection at stores or other pickup locations also have risen, with around 60 percent of Indonesian and Vietnamese consumers indicating an increase in click-and-collect purchases.
While online purchasing behaviors are likely to persist among urban and suburban consumers in Indonesia and Vietnam, rural consumers are likely to switch back to offline traditional retail as the pandemic stabilizes. This could result from a shortage of suitable delivery slots, as well as from consumers’ concerns about overall quality and freshness due to inadequate cold-chain infrastructure in online offerings.
While online purchasing behaviors are likely to persist among urban and suburban consumers in Indonesia and Vietnam, rural consumers are likely to switch back to offline traditional retail as the pandemic stabilizes.
In the shopping mindset of ASEAN consumers, three primary factors contribute to the move to online channels:
- Better prices. Demand is fueled by e-commerce players, who offer deep promotions at high frequency to attract and retain consumers.
- Personal safety. During the early stages of the pandemic, consumers made safety a top priority and adapted their behavior accordingly. As ASEAN consumers look to the future, public safety may be a lesser concern, though it is still expected to remain a key driver of online purchasing behavior in parts of the region.
- Convenience. Consumers have embraced the option to shop anytime, anywhere and to have their purchases delivered straight to their doorsteps. This proposition is further extended by expectations of fast, free delivery, which is often subsidized by e-commerce players as yet another means of customer acquisition and retention.
Tomorrow’s ASEAN consumer: More sophisticated and more discerning
Rising incomes will give ASEAN consumers more discretionary income: through 2023, consumer spending is projected to grow by nearly 5 percent a year across the region (Exhibit 4). In the process, consumers will become increasingly discerning and develop more sophisticated needs.
The following themes, which reflect current consumer preferences in mature global markets, will underpin future trends in ASEAN:
- Heightened awareness for supporting local businesses and communities. During the pandemic, consumers increased the demand for locally sourced, fresh produce and demonstrated greater awareness and support of local microbrands in packaged food products (for example, locally produced or formulated snacks).
Rising incomes will give ASEAN consumers more discretionary income. In the process, consumers will become increasingly discerning and develop more sophisticated needs.
- Increased attention to environmental sustainability. Consumers are seeking to buy products that are manufactured or produced in environmentally friendly ways. One indication of this is the increased awareness and acceptance of alternative proteins, which are perceived as better for the environment (though not necessarily healthier). The attention to environmental sustainability also extends to other facets and touchpoints along the consumer shopping journey, such as biodegradable product packaging and sustainably sourced or grown produce.
- Growing demand for transparency in production, particularly with premium fresh produce. Consumers are increasingly well-informed and knowledgeable; they demand not only validation of label information (for example, a clear indication of the certifying body for label claims) but also heightened transparency in sourcing (such as the country of origin) and in formulation and production (for instance, the composition of ingredients).
The evolving ASEAN consumer base means that retailers must adapt their value propositions. The region remains one of the fastest-growing and most exciting markets in the world for modern grocery retail operators, but the competitive landscape is changing fast.