Digital transformation could be a game changer for the convenience market of Asia

by Anh H. Nguyen



An overview of convenience stores in Asia


How does one account for Asian convenience stores' sudden popularity? Like mushrooms, somehow they sprang overnight and, lo and behold, there seems to be one at every street corner. In reality, their success is no fluke. Just like the bodegas of New York and the pharmacies of Paris, the convenience stores of Asia represent a contemporary symbol of urban life, a reliable presence that both locals and travelers far from home could count on, and an indispensable part of the region's commerce. The prominence of convenience stores, aka C-stores in Asia is proof that bigger does not necessarily mean better when it comes to grocery retail: of all the brick and mortar grocery channels, they enjoy the greatest growth prospects.


The expansion of C-stores is also closely related to the economic status of their locations: you could probably judge how developed an Asian city by counting the number of convenience stores in it. The flourishing of C-stores are driven by three main factors: rising middle-class incomes, an expanding youth population, and rapid urbanization. Their small size also grants more flexibility in setting up, obtaining licenses, training staff, and operating. Strategically situated in residential hotspots, convenience stores act like mini-supermarkets, combining the professional services, clean, tidy, air-conditioned environment, and high quality of goods that usually belong to big grocery stores with the laid back nature of the traditional market. The big names that often come up are 7-Eleven, FamilyMart, GS25, Circle K, Mini Stop, and Lawson. The figures speak for themselves:


-In Southeast Asia, the total number of convenience stores was 74000 as of 2018 and rises at a steady 10% per annum.


-The grocery market of Asia is the largest in the world, projected to reach US$5.1 trillion by 2022. That is equal to both Europe's and North America's markets combined.


-The 10 leading convenience retailers of the world are all Asian-based businesses.


-Vietnam has the fastest growing convenience market in Asia according to IGD, an international grocery research group, with a 37.4% compound annual growth rate from 2017 to 2021.



Impressive as C-stores' progress seems to be, it could be better. As a matter of fact, there is still room for improvement in one critical area. In this article, we will outline two unique strengths in Asian C-store's growth strategy and one domain that leaves a lot to be desired.


1. Strength: They wisely choose food as the opening wedge to break in the market


Asians are foodies by birth. For cultural reasons, most people who live here are raised on a diet of three freshly-cooked meals per day, either by their loving families or street food stalls, ever so readily available, cheap, and delicious. Canned foods remain a foreign concept, an exclusively last resort, never truly taking hold in the menus of common people. That is not the case in the US, for example, where Campbell Soup Cans have become such iconic, wholly American staples that they got immortalized in the art of Andy Warhol.


However, the modern way of life dictates a more practical approach to dining. More and more Asian women are taking jobs outside of home, the number of migrant workers to big cities keeps climbing, people work long or erratic hours, etc., all of which turn the traditional three home-cooked meals into a luxury not many can afford. While street foods still hold a dear place in people's hearts and tummies, they could be a pain to order and eat, and not exactly held to a high standard for hygiene and food safety. And not everyone has the time or means to sit down at a proper restaurant everyday. Convenience stores fill that hole in the market with fresh, ready-to-eat & to-go meals and snacks.



The most successful convenience stores in Asia win by reconciling people's inherent needs for fulfilling meals and expediency. A paper-wrapped pork bun that could be warmed up in the microwave is still leagues better than a bag of chips in terms of freshness and nutritional values, and much easier to get than the most simple self-made meal, which often requires at least one trip to the grocery store, or more commonly, the wet market. That is why across Southeast Asia, convenience stores are relentlessly expanding their fresh food selection.

Not only does fresh food drive more sales, it also affords more leeway in pricing, allowing retailers more profit.


Family Mart, for example, chooses to focus on fresh food to differentiate itself from competitors like 7-Eleven. The strategy has paid off so far: Family Mart's ready-made munchies including fishcake soup and soft serve ice cream account for half of its total sales in Malaysia and has prompted the opening of 100 more stores in two years. A majority of C-stores further sweeten the deal by dedicating space to a food court-like area, turning the stores into fun-size restaurants. A few convenience chains even go so far as to open food-only stores, or in-store cafes for people to grab a bite, work, and hang out in, complete with Wi-fi and other amenities. The memo is clear: the more plentiful and high-quality a store's food lineup is, the more traffic it attracts. Food is the fuel, interestingly, not only for people but also convenience retail.



2. Strength: They work with e-commerce instead of against it


In the metropolitan areas of Asia, the race between convenience stores and e-commerce is pretty much neck-and-neck. Convenience stores are the fastest growing retail channel, with e-commerce closely trailing behind. Currently, convenience stores also dominate the FMCG (fast moving consumer goods) sector. When one lives in a big city with constant traffic problems, a mini-market within walking distance could be a godsend whenever one has a pressing need for a lighter, a shampoo bottle, a roll of tape, a cigarette, and one thousand and one other miscellanea that our present-day existence relies on.



E-commerce remains a force to be reckoned with, though. While e-commerce only constitutes 1% of the FMCG sector in Southeast Asia (except for Singapore), it is more versatile, for starters, being able to reach much farther and wider than physical stores. For people who do not live or work right next to a convenience store, e-commerce is in fact more convenient. The very nature of e-commerce also makes it the ideal candidate for online marketing and by-the-minute promotions. E-commerce also allows consumers a relatively larger selection of goods while the offerings at physical stores are often more limited and static.


Covid-19 flipped the script even more: the social distancing rules mandated by both the states and common sense made people hesitant to go out. Many turned to online shopping for their immediate needs, and this seemingly momentary shift has turned into a steady habit for some. In the recent report Retail in Vietnam: An accelerated shift towards omni-channel retailing", Deloitte shows two interesting insights. The first is that Covid-19 actually brought new customers to the convenience shops, perhaps as a tactic to avoid the more crowded supermarkets and longer commutes. Secondly, Deloitte believes that thanks to Covid-19, multi-channeled shopping is becoming the new trend; it also advises brick-and-mortar retailers to invest in online outputs to provide better services for customers.



And many conveniences stores are doing just that, working with e-commerce platforms and food delivery services to brings their products to consumers' doorsteps. In Vietnam, 7-Eleven has partnered with Grab Bike, for example, which came in especially handy when it delivered face masks to people during the pandemic. Circle K, 7-Eleven, Family Mart, GS25, MiniStop are foreign chains that have joined forces with Now, the country's biggest food delivery service, while Coop Food and Bach Hoa Xanh represent the local team. Family Mart is also following the same path in Thailand, Indonesia, and Malaysia.


3. Weakness: They still lag behind on digitization, with Chinese convenience stores being the only exception


Physical stores show no sign of going obsolete in Asia: 84% of trade will remain there by 2023. However, the convenience competition will only get more fierce, for the customer base grows linearly while the number of contenders grows exponentially. As such, not only are C-stores under pressure to deliver better goods and services, they also need to tailor their ranges in order to best appeal to different groups of customers. Even then, that may not guarantee a share of the market. When adapting does not suffice, adopting (new technologies) might be the best bet for convenience retailers to stand out.


China's convenience stores are doing it admirably. Thanks to a healthy foundation of e-pay infrastructure which ranks among the best in the world, the C-stores of China could track consumers data including shopping frequency and shopping preferences with minimum fuss. Those data streams are then fed directly into the company's digital clouds and analyzed for insights - the quintessential data-based decision making process.



In many other Asian countries, that kind of data-driven digitization is still a fantasy. Most Southeast Asian societies, again excluding Singapore, are far from going cashless. Only 47% people in Southeast Asia have a bank account. Some e-pay companies like Momo in Vietnam or Tokopedia in Indonesia are turning the tide by collaborating with local convenience stores, taking advantage of their omnipresence to change people's habit, but that is a slow process. However, that does not mean that a data-driven future is completely out of reach for Asian convenience stores.


Instead of relying on data gathered from e-pay services, which focus on POS information, convenience stores could go the alternative way of using computer vision analytics softwares. Most convenience stores have existing, conveniently placed cameras, which AI tools could leverage to capture people's behaviors. From there, advanced algorithms could infer comprehensive and useful customers insights. That could be hugely helpful for convenience stores, especially if they are interested in improving their business efficiency, understanding the market's trends, and optimizing customers' services. The most obvious and instantaneous benefit for convenience retailers would be the ability to curate a better product offerings, made possible by analyzing customers' buying pattern. Restocking is one of the most challenging aspects of convenience retail, and AI softwares could make the process less like guesswork & more of a science.


The conclusion


So far, 7-Eleven in Thailand is the only convenience store chain that has taken advantage of AI technology to assist with its operations, using a facial recognition software. Perhaps not coincidentally, 7-Eleven has also maintained its position as the market leader for 90 years with a staggering 70000 stores worldwide, owing no small part to its willingness to adjust and embrace new technology. For other chains, it is not too late to change their mindset and get with the times. A simple innovation might produce results that significantly tip the scales and put the brave pioneers at the top of the market. Take the first step towards a data-driven future by visiting https://www.palexy.com/

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