The ASEAN region is now the sixth-largest economy in the world, and the second largest destination for foreign direct investment. But many are still trying to capture these markets with less than expected knowledge about the many cities and regions that comprise this archipelago.
On this, Nielsen and AlphaBeta, have worked together to conduct detailed economic analysis to understand the current and future potential consumer demand for this key region, with its latest study Rethinking ASEAN (Dispelling 8 Myths About Consumer Markets).
The report identifies three primary city-tiers within ASEAN: mega-cities, with a population of over five million; large middleweight regions or cities with a population of more than one million and less than five million; and small middleweight regions or cities with a population between 500,000 to one million.
These ASEAN countries include Malaysia, Singapore, Brunei, Cambodia, Indonesia, Laos, Myanmar, the Philippines, Thailand and Vietnam.
Myth 1: The fastest consumer demand growth is happening in the mega-cities
It is often assumed that the fastest consumer demand growth is happening in the mega-cities of ASEAN. This was not the case for five of the 10 product categories examined even since 2010. In the future, it will definitely not be the case.
Across seven of the product categories examined, the fastest growth is likely to happen in either small (500,000 to one million people) or large (one to five million people) middleweight regions. These middleweight cities include Kuala Lumpur, Cebu, Surabaya Kota, Medan Kota and Da Nang.
Myth 2: Modern distribution channels only exist in the mega cities
Many companies and investors choose to focus on ASEAN’s mega-cities as they are considered more accessible due to higher penetration of modern store formats. In reality, middleweight regions also have surprisingly high penetration of modern store formats, and the move toward modern store formats is occurring at a faster rate than in the mega-cities.
Myth 3: Indonesia is the only market that really matters in ASEAN
Indonesia represents approximately 40% of the economic output of ASEAN and, in its own right, would rank as the 15th largest economy in the world today. But at regional level, Indonesia does not dominate all of the largest consumer markets.
In fact, in one third of the consumer product categories the analysis examined, the Philippines accounts for a larger share of the top 50 markets than Indonesia.
Myth 4: Consumer market growth does not vary much within countries
The traditional approach in targeting consumer markets has been to look at the country-level. This includes examining the growth in the consuming class in the country, understanding the future economic prospects of the country, and deep-diving into other issues such as consumer debt, which may impact spending.
While this country-level analysis provides a holistic view of a market landscape, it does not reveal consumer demand growth between regions within a country, which can differ substantially. The fact is, growth rates can be more than seven times larger for some regions within countries than the national average.
Take detergent consumption for example. In Thailand, country-level demand has grown at a relatively modest 1.2% per annum since 2010. However, the region with the fastest growth in the country (Chiang Mai) has grown more than seven times that rate, at 8.9% per annum.
Myth 5: ASEAN’s mega-cities represent the largest consumer markets
When most companies and investors think of ASEAN, they typically think of mega-cities such as Jakarta, Manila and Bangkok. While these mega-cities are indeed important consumer markets, they do not dominate consumer demand.
In fact, for many product categories, middleweight regions are important markets for consumer demand. Take facial moisturizer as an example. While Bangkok and Singapore are the two largest markets, less well-known markets such as Nakhon Ratchasima, Chonburi, and Rayong (all in Thailand) are also among the top 10 markets in ASEAN.
Myth 6: Income levels are a reliable gauge of likely consumer demand across product categories
Consumer goods companies often think about the relationship between income and product adoption following an “S-curve”.
In ASEAN, the shape of the product adoption curve varies significantly by product category. Some categories, such as detergent, closely resemble the typical S-curve, whereas others, like facial moisturizer, do not follow this pattern.
The fact is, the relationship between income levels and consumer demand varies massively across products. Consumer goods companies should therefore be careful to avoid adopting a “one-size-fits-all” approach to product adoption.
Myth 7: Major markets in ASEAN won’t change much by 2030
While the data and insights which highlight rapid growth in smaller regions is compelling, many consumer goods company leaders question whether it should be a catalyst for driving strategic change. In other words, are these fast-growing smaller regions too small to matter in any reasonable time scale?
The reality is, by 2030, the ASEAN market landscape will look very different. Many middleweight regions will increase their ranking amongst ASEAN’s top markets by 2030. Targeting these regions today, will ensure a seat at the table for the top markets of tomorrow. Consumer goods companies will need to place greater attention on monitoring the growth of high profile middleweight regions and decide when is the right time to invest in expanding their distribution channels.
Myth 8: Picking the right countries will lead to success in capturing future ASEAN consumer markets
In the years ahead, many sub-regions will have bigger sales growth than entire countries, which raises the question as to whether it may be pertinent to consider consumer demand at a sub-region level before looking at country-level opportunities.
Ho Chi Minh City is expected to have US$76 million more annual demand in 2030 than in 2016 – almost three times higher than the demand growth expected in Thailand, and also higher than Malaysia.