By Arnold S. Tenorio, Research Head
FORGET mega-cities, or countries for that matter, if companies want to take part in ASEAN’s consumer growth story.
This is the main message of a new report jointly produced by consumer insights firm Nielsen and strategy consulting company AlphaBeta.
Titled “Rethinking ASEAN,” the new report aims to dispel eight myths about the region’s consumer markets.
The first myth concerns Indonesia’s status “as the only market that really matters in ASEAN.”
Despite Indonesia’s outsized share of 40% of the region’s economic output, the Philippines, the report said, matters more, since it accounts for a bigger slice of the demand in ASEAN’s top 50 markets across 10 major consumer products, namely, tobacco, chocolates, detergent, soft drink, instant noodles, diapers, shampoo, facial moisturizer, beer and vitamins.
In three of the 10 product categories — detergent, soft drink and shampoo — demand coming from the Philippines tops those of the six other ASEAN countries covered by the study. Besides Indonesia, the study also covers Malaysia, Myanmar, Singapore, Thailand and Vietnam.
This leads to the second myth that the study aims to explode: Consumer market growth doesn’t vary much within countries.
According to the report, the traditional approach of looking at country-level data to discern growth patterns is less instructive than looking under the hood of a nation and into so-called sub-national, even sub-regional markets.
As an example, the report cited demand for detergent in Thailand, which at a 1.2% growth clip, masks the more phenomenal 8.9% expansion in Chiang Mai, one of that country’s regions having a population of more than 500,000.
This begs the question of how growth fares in ASEAN’s mega-cities, which are widely-believed to be home to the region’s biggest consumer markets — the third myth that the report aims to dispel.
Citing demand for facial moisturizer, the report noted that lesser-known regions in Thailand — such as Nakhon Ratchasima, Chonburi and Rayong — are giving Bangkok a run for its money. The report classifies the former three Thai regions as “middleweight,” or those with populations of between 500,000 and 5 million, as against Bangkok, a mega-city that is home to upwards of 5 million people.
In the soft drink category, in which the Philippines has the biggest share at 51% of overall ASEAN demand, middleweight regions like Cebu, Cavite and Negros Occidental are also giving Manila a run for the money.
Even in terms of growth, demand in mega-cities is trailing those in middleweight regions — dispelling a fourth myth. In the chocolates category, large middleweight regions, or those with populations of between 1 million and 5 million, are expected to register faster demand growth through 2030.
The report points to six growth drivers in middleweight regions. Apart from a growing consumer base, the five other factors are cross-border trade and logistics, the existence of economic clusters, the emergence of satellite regions, natural resource endowments and the boom in tourism.
The second of these growth drivers leads to a fifth myth: modern distribution channels only exist in mega-cities. According to the report, middleweight regions are witness to the growing presence of modern store formats at a rate faster than what was seen in mega-cities.
While the share of modern trade in total sales grew 2.1% between 2010 and 2016 in mega-cities, the growth was faster at 2.6% in large middleweight regions, the report said. Modern trade channels refer to convenience stores, hyper- and supermarkets, while traditional channels include wet markets, traditional stores (called ‘sari-sari’ in the Philippines), among others.
The sixth myth that the report aims to dispel is the supposed direct relationship between income level and consumer demand. According to Nielsen/AlphaBeta, this relationship is not straightforward in all product categories.
Whereas the traditional product adoption S-curve applies to detergents, not so for products like facial moisturizer. In the example of Indonesia, the report pointed out that 263 regions in that country are in the “take-off” phase for instant noodles, but only 87 regions for chocolates.
This leads to the seventh myth about ASEAN consumer markets: The major markets in ASEAN won’t change much in 2030. According to the report, middleweight regions will become the dominant markets come that year, displacing the mega-cities.
In chocolates, Manila, which is the top market for that product category in 2016, is being challenged by Cebu and Cavite, which ranks 15th and 11th in ASEAN overall.
So how should companies navigate in this much-differentiated consumer marketplace? According to the report, companies should be picking not countries (the eighth myth), but regions or cities whose demand are expected to outstrip those of entire countries.
“While ASEAN has been enjoying economic recognition in recent years, businesses tend to view it as a single entity and surprisingly, little is known about the many cities and regions that make up the archipelago,” said Patrick Dodd, Nielsen Growth Markets Group President.
“The diversity of its 625 million people represents a multitude of ethnicities, languages, and religion. This makes it crucial for companies to take a granular approach to understanding market opportunities in ASEAN. It’s time for companies to look beyond mega-cities to see the growth opportunity hot spots within middleweight regions,” he added.
