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by EOS Intelligence EOS Intelligence No Comments

China Beefs up Meat Consumption Guidelines, but Chickens out of Action

Several decades ago, meat consumption was seen as luxury by the Chinese. Fast forward to today, meat (especially pork) has seeped into the diet of the everyday Chinese man to such an extent that today China consumes 28% of world’s total meat, including half of its pork. While this showcases immense income growth, the flip-side are the escalating environmental and health issues attributed to meat consumption. This has prompted China’s National Health and Family Planning Commission (NHFPC) to issue new guidelines which ask the Chinese people to reduce meat consumption from about 60-63kg/year to about 14-27kg/year by 2030. However, without any actionable initiatives from the government (be it in the form of investments or taxes), these recommendations are not likely make a strong dent in the surging meat consumption levels.

China has witnessed a steep growth rate in meat consumption, which soared from a mere 13kg/person in 1982 to about 63kg/person in 2016. If the current trends continue, it is predicted that by 2030, the average Chinese man will eat close to 93kg/person if suitable measures are not taken to halt this growth. Owing to these consumption levels, China is one of the largest contributors to livestock agriculture-created greenhouse gases. The predicted rise in meat intake in China (by 2030) is likely to add another 233million tonnes of greenhouse gases to the atmosphere on a yearly basis. Moreover, China’s growing love for meat has also contributed to an exponential rise in the number diabetes and obesity cases, with more than 100 million Chinese suffering from diabetes at present.

To combat these growing concerns, NHFPC issued new guidelines in 2016, urging the Chinese population to reduce their meat intake to 40-75 grams per day, which translates to about 14-27kg/year from the current rate of 63kg/year, thereby aiming to reduce the meat intake to less than half by 2030. Along with these recommendations, the government has also undertaken some measures to achieve the recommended consumption levels, however, a few of them seem rather shallow to lead to the desired change.

The government, along with few NGOs such as WildAid, are trying to create awareness regarding the new guidelines. International celebrities, such as Arnold Schwarzenegger and James Cameron, have featured in videos hailing this government action and urging Chinese people to adopt vegetarianism. Moreover, the government has introduced health education in school curriculum and is promoting “health as a habit” to push life expectancy from 75 years to 79 years. A part of this campaign is to promote healthy eating and eating less meat and more vegetables.

At the same time, however, the government has been cutting down subsidies for small-scale pig farmers as well as formulating stricter environmental regulations, in order to push backyard pig farmers to either expand and clean their operations or exit the market. However, instead of curbing the industry growth, this may only result in strengthening the operations of larger players and may also lead to market consolidation.

While the government’s latest recommendations seem necessary, albeit ambitious, given the level of current actions, they seem far from sufficient to realistically curb demand for meat in the growing economy. As per local experts, NHFPC’s guidelines have received limited coverage by the media, especially in livestock-heavy regions of Shandong, Liaoning, and Inner Mongolia. China has strong cultural traditions attached to meat-eating (such as the Yulin Dog Meat festival and the Double Ninth festival), which makes it difficult to initiate change in eating habits. Moreover, at the time when the government should initiate import restrictions and taxes to curb supply of meat (which may lead to price rise and in turn probably contract demand and consumption), the government has recently re-allowed beef imports from the USA, which is clearly a counter-productive move.

This is not the first time the Chinese government attempts to deal with the issue of rising meat consumption, and if the authorities follow the same approach as before, those past efforts might be a strong indicator that the new guidelines will have a very limited impact. In 2007, the government issued similar guidelines restricting meat consumption to 50-75g a day (i.e. 18-27kg/year), however, the government failed miserably in achieving these targets, as apart from publishing the guidelines, it took no real action. Unless the government moves away from this passive, and evidently failed, approach, meat consumption is likely to continue to soar.

China Beefs up Meat Consumption Guidelines, but Chickens out of Action by EOS Intelligence

 

EOS Perspective

NHFPC’s guidelines seem to be a step in the right direction, however, in the absence of a larger and more concrete government action, these recommendations do not come across as anything more than a formality undertaken by the country’s government to please global climate campaigners. While the government announced an infusion of US$450 billion into the country’s agriculture system in September 2016, its seriousness towards these guidelines will be determined by how much of this sum will be apportioned (if any) to programs encouraging vegetarianism.

Since meat (pork/beef/poultry/sheep) farming is a large industry in China, providing key dietary ingredients for the population at large, a sudden increase in taxes or a cut down of major subsidies may not be possible. However, the government can work to fuel the desired dietary changes in a phased fashion, e.g. by starting to reduce meat imports by imposing restrictions, while simultaneously working on reducing people’s dependence on meat by promoting vegetarianism as a healthier as of life.

Although these actions may seem far-fetched, few local and large players are strategizing their future plans, mindful of these recommendations and the increased health awareness as a potential outcome of these initiatives. Since pork is the most widely used type of meat, it is likely that the intake of traditional pork dishes would be impacted the most by any actions taken by the government. Keeping this is mind, WH Group (a leading pork processing company) has already started expanding its focus to western-style products such as ham and sausages. The company expects a growing demand for such American-style foods that come with much higher margins, allowing to compensate for the potential loss of sales volume of the unprocessed, traditional cuts. The company is also diversifying into other meats, including leaner beef and lamb in their product mix, in anticipation of the growing health awareness trend.

On a final note, these guidelines alone definitely do not seem enough to stir a change in the Chinese population’s eating habits but the fact of the matter is that a change is required. It may take another decade and much greater initiatives from the government’s end to reduce the local people’s meat intake, but considering the global trend towards meat consumption reduction and the growing environmental and health concerns, it is likely that sooner or later, China will get there too. Now it remains to see if the meat farming and processing companies employ a wait-and-watch approach or proactively start investing and working towards change.

by EOS Intelligence EOS Intelligence No Comments

Can Luxury Swiss Watches Stand the Test of Time?

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Swiss watches have long been synonymous with innovation, elegance, and class. These pieces have been considered the standard of sophistication and finesse, making their producers the undisputed leaders of the luxury watch market. But as the saying goes “what rises must fall”, the rock solid foundation of this popularity is going thorough turbulent times. The industry has seen a hard time in the past two years, as Swiss-made watches exports have recently declined. We are taking a look into what has led to low exports of these watches and whether the industry is ready to take any steps to see a revival in the near future.

Swiss watchmakers dominate the luxury watch segment with close to 50% of the global market share controlled by three Swiss watch manufacturers (Swatch Group, Richemont, and Rolex). As of 2016, these luxury watches were exported across all continents – Asia (53%), Europe (31%), Americas (14%), Africa (1%), and Oceania (1%). Hong Kong, USA, and China are the top three export markets.

The Swiss watch industry has been facing difficulties since 2015, when the year ending exports by value of Swiss watches stood at US$ 21.5 billion (CHF 21.5 billion), a 3.1% decline from 2014. The situation worsened in 2016, when the exports were further 9.7% lower than in 2015, falling to the lowest level since 2011. This was mainly due to a sharp decline in sales across Asia, especially Hong Kong and China, which are among the industry’s top export markets. Hong Kong is the most crucial market for Swiss watches – its share decreased from 14.4% in 2015 to 11.9% in 2016. During the span of five years between 2012 and 2016, exports to Hong Kong reduced by 46.5%. The third largest export market, China, was also affected and observed a decline of 18.7% in value exports over the five year period. The situation has not been so dramatic in the USA. Exports share held by the USA also went down between 2012 and 2016, showing a marginal decrease of 0.45%. The Swiss watch industry, over the period of five years, also saw a fall in sales volume globally, declining by almost 13% from 29.1 million units in 2012 to 25.3 million units in 2016.

The year 2017 also did not start on a positive note for the Swiss watch industry. The first quarter of the year recorded a drop of 3.1% in unit exports to 5.6 million from 5.9 million in 2016. Similar trend was observed in the change of exports value. The industry generated US$ 4.5 billion (CHF 4.5 billion) from exports during January to March in 2017, a figure showing a 3% decrease in export value from US$ 4.6 billion (CHF 4.6 billion) in 2016 and a 11.6% lower from US$ 5.1 billion (CHF 5.1 billion) in 2015 in the first quarter. Exports to Hong Kong and USA also took a plunge during the first three months of 2017 – the value of exports for Hong Kong was lower by 0.1% and 31.6% when compared to 2016 and 2015, respectively, in the USA exports were lower by 4.2% and 18.9% in contrast to 2016 and 2015, respectively. However, China gained 16.6% (over 2016) and 7.9% (over 2015) in exports value. But this small achievement does not paint a rosy picture for the luxury watch industry for 2017. With exports taking a dive globally, the downward trend is expected to continue over the coming months.

The dip in exports to Hong Kong and China is a cause of worry. Economic slowdown in Hong Kong is one of the reasons responsible for slumping sales of luxury watches here. Hong Kong also attracts a large number of Chinese travelers each year solely for shopping purposes. The country is heavily dependent on China in terms of trade and tourism, and any drastic change in China’s economic situation affecting the buying patterns of Chinese consumers can be seen across Hong Kong as well. The launch of anti-corruption campaign in China by President Xi Jinping in November 2012 has also affected the sales of luxury watches. The campaign keeps a strict check on government officials and employees of state-owned enterprises who indulge in extravagant show-off of property, luxury belongings, or other similar expensive assets. Under the new amendments made to the campaign in 2014, both the payer and payee of a bribe are to be penalized. This has made consumers wary of buying Swiss luxury watches, among other lavish goods, as a gifting item to high rank government officials. The Swiss watch market has been hit by this policy and the impact on luxury watches sales has been negative. Another reason that has led to the decrease in luxury watches exports is the strengthening of the Swiss Franc. After the Swiss National Bank removed the cap on the exchange rate to prevent the Swiss Franc from over appreciating in 2015, importing products from Switzerland in these Asian countries became more expensive which has disturbed exports.

Swiss luxury watchmakers also face tough competition from smartwatch manufacturers. In 2016, 21.1 million smartwatches were shipped as against 25.3 million Swiss watches. The volume gap between the two types of watches is expected to further reduce in the coming years. With most of the smartwatches priced in the range of US$ 400 to US$ 1,000, the high-end luxury watch market does not feel too much competitive pressure from the smartwatch industry. It is the low-cost and mid-tier segments of the luxury watches that are facing the largest threat. Luxury watchmakers are introducing their own line of smart watches to deal with this threat posed by smartwatch manufacturers.

Luxury watch market is also not free of counterfeit products. The urge to own a luxury piece without burning a hole in the pocket is a dream of many, pushing some consumers to settle down for fake items at affordable prices. With better mechanical parts and improvement in aesthetics over the years, the fake copies have improved in quality. Every year, 40 million fake pieces are produced (against 30 million original Swiss watches), as per figures published by Federation of Swiss Watch Industry. With more fakes than genuine products available in the market, the Swiss industry needs to find ways to curb the illegal sales of counterfeit products and prevent erosion of own sales.

EOS Perspective

In the current challenging environment, Swiss watchmakers are forced to rethink their business strategies. With plunging exports, the manufacturers are focusing on introducing new products enabled with newer technologies and gradually stepping into the smartwatch market to attract buyers. For instance, Swatch Group, in 2015, launched ‘pay-by-the-wrist’ watch named Swatch Bellamy. With built-in NFC technology, the watch allows the user to pay for their purchases. Another example is Mont Blanc, part of the luxury Swiss manufacturer Richemont Group, which introduced Montblanc Summit that runs on Google’s Android Wear 2 platform. The watch is equipped with features such as heart-rate monitor but still looks like a classic mechanical watch. The watch aims at offering consumers a unique experience of wearing a smartwatch which does not resemble a typical smartwatch, a factor important for many style-oriented users.

In the midst of these risks hovering above the luxury watch industry, we believe innovation, adoption of new technology, and expanding into new markets should be the top priorities for watch manufacturers in the coming years. There is some concern about how long will it take for the luxury watch industry to revive from the current turbulent situation, but this definitely does not indicate the death knell for the Swiss watch makers anytime soon.

by EOS Intelligence EOS Intelligence No Comments

Five Technology Trends to Reshape Retail in 2017

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Today, retail and technology have become inseparable, driven by the need to digitalize services to offer convenience to shoppers and elevate their shopping experience. Retailers are slowly shifting focus towards being phygital, and to digitalization of in-store experience, supported by disruptive technologies (social, mobile, cloud, and analytics) continuously transforming the face of retail sector.

Besides enticing customers and creating a unique shopping experience, digital retail integration is increasingly simplifying supply chain management, payment systems, and tracking of inventory and sales data, among others. Some retailers are using technology to get insights into hard-to-capture customer behavior data, which is then used to take effective measures to improve sales.

Clearly, technology has become an indispensable means to empower the retail sector and will continue to do it in 2017 with innovations such as Internet of Things (IoT), smart mirrors, big data analytics, chatbots, robotics, etc., sweeping every possible domain of retail.

By the end of 2017, insights captured using big data analytics will be increasingly used by retailers to devise business strategies, which is likely to help them to stay abreast of retail trends. Big data analytics are expected to play a key role in predicting sales and trends, conducting consumer sentiment/behavior analysis, forecasting demand, achieving price optimization, and devising customized promotions.

Interactive mirror, a smart mirror that helps to virtually try-on clothes, is an interesting digital retail innovation, which is likely to gain more popularity in 2017. Interactive mirrors’ application can be customized according to the needs of individual retailers. For example, companies such as Ralph Lauren (a US-based retailer) are using these mirrors to show consumers how a particular outfit will look during different times of the day by changing the lighting of the fitting room along with providing suggestions on accessories, which are displayed on the mirror, to encourage more purchase. Companies such as Lululemon (a Canadian athletic apparel retailer) are using interactive mirrors to suggest places to exercise and provide information on healthy living. These mirrors are not only a means to attract shoppers by offering unrivaled shopping experience, but can also be used to gather consumer behavior data. With the help of interactive mirrors, Rebecca Minkoff (a US-based luxury retailer of handbags, accessories, footwear, and apparel) store was able learn that a leather jacket was tried on 70 times in a week but never purchased. Most shoppers asked for different sizes using the interactive mirror, indicating that there was a fit issue.

Chatbots, another invention to continue gaining traction throughout 2017, act like a virtual concierge service, guiding customers through the shopping process, providing detailed information on product and stock level, and allowing shoppers to place an order and track it in real time. Chatbots are also a great tool for retailers to get insights on shoppers’ tastes and preferences – for instance, all first-time shoppers on Sephora’s (a French cosmetics manufacturer) chatbot are required to take a short quiz that helps the bot know about personal preferences of a user – this information is used to recommend products. The bot also provides reviews on certain products.

In 2017, IoT is likely to become an integral technology for the retail sector to build smart stores. IoT’s significance is expected to grow in retail with about 70% of retailers in the USA ready to adopt the technology in 2017, according to a survey conducted by Zebra Technologies. IoT will be the key to interconnect in-store smart devices and sensors with Internet, which will enable better data-driven business decisions and ease of operation.

For the past couple of years, big box retailers such as Staples, Walgreens, Amazon, and Gap have been using robots for warehousing and logistics operations, but 2017 is expected to witness an increasing implementation of robotics for customer facing in-store operations as well. While use of robotics for distribution center operations will still hold importance, the launch of Amazon Go stores, Amazon’s robot-powered supermarkets, Lowe’s customer-assistance robots, etc., will increase foothold of robotics in front-end tasks such as customer assistance (we wrote about Amazon’s latest efforts to digitalize the grocery market it in our publication Amazon: Prepared to Digitalize Grocery Business in the USA? in April 2017). In the coming 5-10 years, robots can be expected to become an integral part of the complete retail value chain including both front-end and back-end operations.

Five Technology Trends

EOS Perspective

In the medium term, in-store shopping is not going to fade away due to competition from online retail, but instead it is likely to witness an upgrade with retailers enthusiastically integrating technology into physical stores. The key focus of all retailers in 2017 will be to enhance personalized customer interaction, offer innovative in-store experience that rivals the convenience of online shopping, and use the gathered insights on customer shopping patterns to conduct effective predictive analysis. To achieve these objectives, retailers are likely to use technologies such as big data, IoT, and robotics, and employ interesting innovations such as chatbots and smart mirrors to offer seamless services to attract customers as well as use these innovations to capture valuable insights on consumer behavior.

Over the years, technology has tremendously contributed to the success of retail sector – starting from browsing, point-of-sale, shipping, checkout, supply chain, to payments, and so much more. This will not change in 2017, as technology will continue to digitalize retail, with top retailers prioritizing technology to improve sales.


*key sector of operation for each retailer included in the infographic

  • General merchandise: Amazon, Tesco, Macy’s, Kohl’s, and Kroger
  • Footwear: Nike
  • Fashion (apparel, fragrance, cosmetics, sunglasses, handbags, shoes, etc.): Burberry, Rebecca Minkoff, Nordstrom, Sephora, Van Heusen, H&M, and Ralph Lauren
  • Electronics: Anker
  • Online retailer: eBay, Ocado
  • Food: Godiva
  • Home Improvement/appliance: Lowe’s
by EOS Intelligence EOS Intelligence No Comments

China’s Wine Market: Will Challenges Crush the Growing Appetite for Imported Wines?

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Over the past decade, China’s wine industry has evolved significantly and is at the forefront of becoming one of the most promising emerging wine markets globally. Globalization and massive socio-economic transformations among Chinese population have revolutionized consumers’ preferences and taste, which in turn created demand for high quality foreign wines in the country. Imported wines have been pouring into China, with approximately one out of every five wine bottles opened being imported. In 2016, China imported 638 million (15% y-o-y growth) liters of wine, valued at US$ 2.4 billion (16% y-o-y growth). The Chinese wine buyers are enthusiastically purchasing a variety of labels across all price ranges, making it an important market for global wine sellers. However, the burgeoning imported wine industry in China faces a few impediments. Faced with stringent import regulations, supply chain impairments, language barrier, counterfeit products, and exorbitant tariff rates, importing wine into China is not a simple process. Nevertheless, importers and producers need to overcome these challenges to establish themselves in the flourishing imported wine business in China.

China is one of the ten largest wine consumers in the world with over 2,000 brands of wine sold in the country, out of which 1,500 were imported in 2015. Consumption of imported wine is the highest in tier I cities including Beijing, Guangzhou, Shanghai, and Shenzhen, which together account for 53% of imported wine sales volume. These cities are populated with expatriates, western-educated young professionals, and consumers, who prefer imported wines. France has consistently been the key wine exporter, accounting for a share of 40% in total wine imports (by volume) to China in 2016, followed by Australia, Spain, and Chile.

China’s Wine Market

Imported wines are quickly trickling down among the wealthy Chinese citizens in urban areas, as consumption of wine is considered a status symbol, influenced by westernization. Growth is further driven by youth population and growing middle class learning about foreign liquor brands and demanding imported wines. In addition, increased consumer spending and government’s promotion of wine as a healthy substitute to the traditional alcohol ‘baijiu’ have accelerated demand for wine in the country.

Despite the growing wine demand, the imported wine industry faces several challenges including dealing with high import tariff rates and circulation of fake wine, breaking through the language and cultural barrier in China, and facing the complex distribution system along with strict import regulations.

EOS Perspective

Chinese consumers are typically interested and enthusiastic about overseas goods which explains their yearning for imported wines. The growing demand for foreign wines is driving the import business, with over 24,000 wine importers present in China, located mostly in Shanghai, Beijing, and Guangzhou. Although obstacles continue to hover above the imported wine market, certain steps have been taken to ease the hassles and this could help alleviate challenges to some extent.

What steps have been taken to overcome challenges?

The Chinese government is actively trying to curb the counterfeiting issue in the country and has introduced an anti-fraud initiative called Protected Eco-origin Product (PEOP) which is a label placed on wine bottles that acts as a guarantee of authenticity by the government. Several technologies are being adopted, including radio frequency identification (RFID) tags, Near Field Communication (NFC) chips, QR codes, etc., to combat counterfeiting. RFID tags and NFC chips offering unique serial identifiers are incorporated into wine bottle’s capsule. Using an app, users can quickly check the authenticity of wine bottles.

The government is also focusing on infrastructural development of tier II cities, which is likely to improve distribution channel across these cities, resulting in better access to imported wines.

What does the future hold for imported wine market in China?

Over 2016-2019, the Chinese wine market is forecast to reach US$ 69.3 billion, growing at a CAGR of 15.4%, with imported wines likely to occupy a significant portion of the market. In near term, imported wines are likely to filter down to tier II cities, as consumers’ knowledge and preference for imported wines is growing amidst government’s efforts to make wine more accessible across these cities.

Further, the imported wine market is likely to undergo certain structural changes. Presently, the Chinese imported wine market is very fragmented, comprising several small importers focusing and operating locally within one city. These smaller importers might realign themselves by joining forces through mergers and acquisitions, in order to take advantage of economies of scale to be able to better compete on price.

Online distribution of wines is likely to gain more popularity, as China offers highly developed e-commerce infrastructure to sell products online. Consumers are slowly opting for online channel to purchase imported wines due to the availability of wide selection, transparency of information, and ease of comparing different brands with each other through information available online. Some producers started selling their wines through marketplaces such as Tmall and JD.com, as well as through specialized alcohol platforms such as Yesmywine, Jiuxian, and Wangjiu. Further, importers use delivery apps such as Dianping and ELeMe to sell imported wines.

The foreign wine market is expected to continue thriving in China and remain an attractive proposition for importers and producers. However, the key challenges will most likely persist in the market amidst other weaknesses including slow implementation of regulations, corruption, and weak administration.

Nevertheless, wine importers and producers foresee tremendous growth opportunity in China’s imported wine industry, and they are likely to continue making efforts to navigate through all obstacles, hoping to make the struggle worthwhile in the long term.

by EOS Intelligence EOS Intelligence No Comments

Amazon: Prepared to Digitalize Grocery Business in the USA?

For the past several years, Amazon has been battling to break into the grocery retail market. After several experiments, Amazon has now embraced technology to differentiate its offerings and improve customer experience – a bold tech-fueled strategy to establish itself in the grocery market in the USA. Its latest innovations have shaken the traditional retail store concept and brought in revolutionary ideas of checkout-aisle free convenience stores, robot-controlled outlets, and voice-enabled online shopping.

Amazon is set to soon open its technology-powered brick and mortar stores in the USA, an idea that it once shunned, due to the strong belief that it could win over customers only through online channel. These stores have the potential to offer seamless store experience.

Amazon Go – Grocery store of the future

The company unveiled check-out free, Amazon Go store that ensures hassle-free and smooth shopping experience by eliminating the need to wait in queues to bill items – which was one of the key grievances of time-pressed customers. Launched in December 2016 in Seattle, the store is still in private beta mode and accessed only by Amazon employees. The public launch date is scheduled for early 2017.

The store operates on ‘just walk out technology’ that allows shoppers with Amazon Prime accounts to tap their phones on a turnstile while entering the store, and from then onwards, the technology tracks the selected items and adds them to a virtual cart, which is billed and sent to customer’s Amazon account.

The ‘just walk out technology’ has been developed using recent innovations such as computer vision, sensor fusion, deep learning, and artificial intelligence, among others. Products have embedded tracking devices – functioning through high-tech object recognition and inventory management systems – which pair with customers’ phones to charge their Amazon accounts. The weight sensitive shelves alert Amazon regarding restocking requirements.

Amazon has not yet commented on the number of stores it intends to open.

Robot-powered supermarket – Soon to be reality

A robot-operated supermarket is no longer just a figment of imagination with Amazon working towards opening such outlets soon. The supermarket is likely to be an extended colossal version of Amazon Go stores – the idea is to build two story, about 10,000-40,000 square foot store, stocked with over 4,000 items.

Shopping experience will be facilitated with robots that will pick up items from shelves and bag them in the first floor to deliver it customers waiting downstairs. Items will be charged automatically to customer’s account, replicating the Amazon Go’s check-out and billing concept.

Customers will have option of in-store shopping or to order online and pick-up items from the store later – offering both facilities is Amazon’s strategy to attract more customers.

The stores will be able to function with as few as six staff members to a maximum of 10 workers per location during any shift, against the industry average of 90 employees required to run a supermarket. The stores will only require a manager to sign up people for the Amazon Fresh service, a worker to restock shelves, two employees stationed at drive-through windows for customers collecting their groceries, and another two employees to help robots bag groceries, which would be sent down through conveyors.

Eventually, Amazon aims to introduce robot-run stores globally.

Alexa – Powering the age of hands-free shopping

In March 2017, Amazon successfully launched yet another innovative solution, Alexa, which is an artificial intelligence-powered voice assistant that facilitates shopping on Prime Now for its members (currently, limited to the USA). It ensures seamless, hands-free, and convenient shopping experience, as the user only has to give a voice command as ‘Alexa, order from Prime Now’ and the job is done.

Alexa is extremely versatile and a multi-tasker, it can search for items, re-order or track orders, add items to cart, and give product recommendations. Besides being a powerful shopping tool, it can also read kindle books, control selected smart home products, play music from Amazon’s own services, etc.

Voice-enabled shopping service is available through Amazon devices such Echo, Fire tablet, and Fire TV, and it has been integrated with Amazon’s Shopping app for iOS platform.

EOS Perspective

Will Amazon’s innovations threaten other players in the market?

Other retailers feel the pressure to upgrade services to keep up with Amazon’s enhanced shopping experience. Kroger launched ClickList (an online grocery ordering service, where the customer needs to visit the store to pick up the items) across 500 stores and is using technology to analyze shopping habits of customers to generate relevant coupons for them.

In January 2017, Walmart launched Scan and Go app for Android users (already available for iPhone customers), to compete with Amazon. The app scans barcodes of items, customers can pay through the app, and show receipt at the gate before exiting the store. The prototype is still in testing phase and is likely to roll out by the end of 2017.

Amazon’s technology will not be easy to replicate nor will a lot of retailers have the capacity to implement technological innovation of such a massive scale, hence, Amazon is certainly likely to have an edge over its competitors when its stores open for public. Amazon’s competitors in the grocery business definitely feel threatened and have started to revamp strategies and use technology to reach more customers, however, the scale of their innovations still remains miniscule in comparison with Amazon.

Why is Amazon pushing for innovation?

After a decade of Amazon’s food retail experiments, with limited success through online channel, the company decided to launch physical stores. But cracking through the US$ 800 billion grocery market in the USA, already dominated with players such as Target, Walmart, Kroger, etc., is not so simple. Consequently, Amazon strategized to carve a niche for itself by differentiating its offerings, using technology to provide flawless, quick, and smooth shopping experience for customers. The move is expected to accelerate its penetration into the grocery business.

Amazon’s core business model is based on behavior modification, which revolves around attracting consumers to e-commerce website, and now also to physical stores, converting the customers into Prime members, and eventually driving them to spend more across categories.

All of Amazon’s new inventions, including Alexa, Amazon Go, and robot-powered outlets, will push consumers to eventually become Prime members, as holding a Prime membership is the basic requirement to be able to access these services. Prime members, besides paying an annual subscription fee, are likely to shop and spend four times more than the non-Prime members, which makes Amazon’s retail business profitable – in 2016, revenue from Amazon Prime and other subscription services such as e-books and videos stood at US$ 6.4 billion, growing by about 40% annually.

The other benefit of automation for Amazon includes minimizing labor cost, which accounts for lion’s share in a supermarket’s operating cost. Further, the robot-controlled supermarket’s design is likely to slash real-estate costs by reducing the need for aisles that typically occupy large areas of traditional supermarkets. Using robots on the first floor will also allow Amazon to stock more products in space smaller than in conventional stores. The store prototype is expected to yield profit margins above 20% against the industry average of 1.7%.

Further, Amazon envisions to open 2,000 stores in the USA over the next 10 years against the current 2,800 stores of Kroger, USA’s largest traditional supermarket chain. This indicates that, if these store openings are successful and if the profit margins are achieved as expected, Amazon could potentially be a real threat to conventional retailers over time.

Will these innovations be truly disruptive or have limited impact on grocery retail segment?

The path to building futuristic concepts and prototypes will definitely not be a cake walk for Amazon. It might face adversities such as increased chances of theft due to the store formats of Amazon Go and robot-driven supermarkets. Selling random weight items (fresh fruit and vegetables, sliced meats, etc.) can be difficult to incorporate in Amazon Go’s automatic checkout system.

Lastly, success of these stores will depend on their location and sales volume generated – opening stores in downtown areas might be difficult at the beginning because high rentals may not be covered by the sales achieved.

Certainly, the technology-driven stores are not a mass market option for Amazon today nor is the success of these prototypes guaranteed. Also, as grocery retail operates on wafer thin margins, lasting innovation is rare in this segment.

Amazon’s bold technological innovations might not be big enough to disrupt the industry yet. However, considering Amazon’s steady financials and relentless efforts towards automation, it is likely that the company could forge ways to make grocery retail more profitable and efficient in the future.

by EOS Intelligence EOS Intelligence No Comments

Thailand: Endeavoring to Become Asia’s Next Luxury Shopping Stop

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As purchasing power growth is slowing down in mature markets such as the USA and Europe, international brands and luxury retailers are seeking expansion opportunities in dynamic and rapidly developing Asian countries. Thailand is fast becoming a destination of choice for several luxury brands owing to robust demand, developed urban infrastructure, and low cost of establishing a business. Increasing number of tourists indulging in massive luxury spending as well as mushrooming high-end shopping centers are slowly coalescing to establish Thailand as a premier luxury shopping hub in South East Asia.

Luxury goods sales in Thailand are likely to reach US$ 2.2 billion by 2019 owing to improved economic conditions, retail expansion, and plethora of international brands entering the country. This growth has also spurred as Thailand offers several other benefits to luxury brands and retailers such as low rent and investment cost, and strong government support. Retail infrastructure is also witnessing a rapid growth, with expansion of several shopping malls and outlets.

Thailand - Asia’s Next Luxury Shopping Stop-1

Despite the bright growth prospects and encouraging retail development, there are several factors that are inhibiting this growth. For instance, the high luxury goods tax is a major hindrance to retail sales. Other factors such as counterfeit products, fragmented market, and political instability in the country are also adversely affecting sales.

Thailand - Asia’s Next Luxury Shopping Stop-2

EOS Perspective

Thailand faces a strong competition from other commercial centers such as Hong Kong, China, and Singapore, yet it is slowly emerging as a premier market for luxury products due to its unique ability to offer goods at more competitive prices owing to relatively lower overheads. Additionally, China and Hong Kong are the two most penetrated markets by high street brands in Asia, and are approaching saturation. Several luxury brands are halting further expansion in the two countries amid sluggish sales. Consequently, this has opened doors for Thailand which is slowly becoming a target market for retailers to expand operations.

Nevertheless, luxury retailers in Thailand face a major setback due to the 30% luxury goods tax, which discourages even affluent shoppers. Limited domestic purchasing capabilities further hinder sales, however relatively low housing costs leave a considerable disposable income in hand, which marginally helps to spur luxury spending.

Based on our analysis, certain strategies can be adopted to succeed in the Thai market – widening distribution channel by opting for online retailing, choosing the right target audience, designing an effective marketing strategy, and tapping the M-commerce boom in Thailand.

 

Thailand - Asia’s Next Luxury Shopping Stop-3

 

While Thailand still remains behind many of its peer countries in terms of luxury retail development, it is likely to become one of the leading Asian markets in medium to long term, increasingly hosting several prominent international luxury brands and registering tremendous retail sales growth.

by EOS Intelligence EOS Intelligence No Comments

Genetically Modified Crops’ Technology Struggles to Keep Promises in Brazil

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Brazil, one of the world’s leading developers of genetically modified crops (also known as GMCs, Transgenics, or Biotech Crops), stands divided over rising cultivation of GMCs. The proponents of GM technology believe that the country’s tropical and humid climate makes the crops particularly vulnerable to pests and that adoption of the GM technology is the only way to make these crops resistant to such unfavorable conditions. Others contend that GM technology has failed to produce expected results, and in turn has given rise to mutated species of pests and weed that are more resistant to agrochemicals.

1-Genetically Modified Crops


2-Economic Benefits Shrink

EOS Perspective

Brazilian farmers are known to be extremely price-sensitive when it comes to seeds and agrochemicals. This steered extensive adoption of GMCs cultivation as it promised better yield with limited need for agrochemicals. Rapid adoption of GMCs cultivation and increased yield suggest that GM technology has indeed been beneficial to the Brazilian agricultural industry in the past two decades. However, rising incidence of GMCs deterioration in the past 3-4 years elevates concerns over economic viability of such crops cultivation in the coming years.

With GM seeds being protected by patents, their prices have soared over the years. Moreover, as the technology is developed only by a handful of multinationals, GM seeds command high prices owing to the dominance of only few companies in the industry. The emergence of herbicide-resistant weed and mutated species of pests add to the total costs for farmers, thereby reducing their profit margin even further.3-Leading Biotech Companies

Declining profitability of GMCs cultivation is raising demand for non-GMCs cultivation. However, the monopolized seed industry is making it difficult for farmers to get hold of non-GM seeds. For instance, in 2010, Monsanto, one of the leading companies in Brazilian seed market, introduced an 85/15 rule, which allowed farmers to buy only 15% non-GM seeds, while the other 85% had to be GM seeds.

Cultivation of non-GMCs require additional protection from genetic contamination spreading from GMCs. Adequate measures to check contamination of non-GMCs impose considerable additional costs and efforts for farmers, further discouraging them to adopt non-GMCs cultivation.

Genetic contamination of non-GMCs is an inevitable consequence of widespread GMCs cultivation, as phenomenon of pollination or scattering of GM seeds through wind is beyond the control of farmers. Despite taking necessary precautions, there has been increasing number of reports on genetic contamination of non-GMCs in Brazil.

Since 2005, in a bid to protect their intellectual property, Monsanto started performing tests on soybeans marketed as non-GM. If these tests uncovered Roundup Ready seeds (Monsanto’s patented technology), farmers were required to pay Monsanto a sum equivalent to 3% of their soybeans’ sales. Monsanto claimed that most Brazilian farmers used smuggled seeds, as a result of which the company was being deprived of revenue and this levy was the way to recover the company loss. But in several cases, farmers were forced to pay this penalty for having their fields contaminated with GMCs, with no fault on their own. However, in 2012, Brazilian court ruling deemed Monsanto’s penalty as unjustified.

Suppressed under the dominance of biotech multinationals, Brazilian farmers are more likely to rely on new variety of GMCs in the event of failure of the existing GMC technology. To seize the opportunity, biotech giants have already made plans to introduce new products in the Brazilian market. For instance, Germany-based BASF and Bayer are planning to introduce new GM soybean seeds in Brazil in 2016.

As Brazilian farmers have become too reliant on GM technology, going back to non-GMCs cultivation is rather difficult due to the widespread genetic contamination of crops and increasing control of biotech giants over Brazilian seed market.

by EOS Intelligence EOS Intelligence No Comments

McDonald’s – Facing the Heat Globally

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With more than 36,000 outlets globally, out of which 14,000 are located in the USA alone, McDonald’s is rightly known as the fast-food giant. After decades of expansion that saw the brand conquer leading markets across the globe, McDonald’s seems to have been losing its sheen across leading markets since 2014, with the biggest challenge arising in its home market. Growing health consciousness among consumers, new diverse competition, legal hassles, and supply chain troubles have kept McDonald’s in the news for all the wrong reasons, while dropping profitability has forced this leading fast-food chain to shut down about 700 outlets globally in 2015 and further 500 in 2016. With a change in management and a proactive approach to upgrade its offerings, at least in its home market, the chain does seem to have a plan of action in place, however, it is yet to be seen if it is enough for damage control.

In an unprecedented step, McDonald’s (McD’s) shut down 700 outlets globally (350 outlets in the USA and 350 outlets in its remaining countries of operations) in 2015, and it expressed plans to shut down further 500 outlets globally in 2016. While the company maintains that this will help weed out unprofitable stores, it definitely does spell trouble for the world’s largest burger chain. The biggest concern, however, remains that the slowdown does not stem from poor performance in any one economy but an amalgamation of issues faced by the brand across the globe.

1-McDonald’s Struggles

2-McDonald’s Struggles

3-McDonald’s Struggles

As McD’s strides through one of its worst times, the company looks to tackle the dim outlook with a head-on approach. As one of the first steps, in March 2015, the company changed its management, appointing Steve Easterbook as CEO in place of Don Thompson (who served the company as CEO since July 2012. Since taking charge of the driving seat, Steve Easterbook (who was previously responsible for turning around the company’s business in the UK), has introduced several initiatives that seem to reinvent the brand offerings and reprise its lost reputation.

In the USA, the company introduced all day breakfast and introduced a new customizable menu called ‘TasteCrafted’ in nearly 700 outlets in the USA. The new menu is the company’s attempt to follow the Chipotle strategy of personalization of meals and presents consumers with the choice of three buns, three different meats, and three different styles of toppings. The company has also tried to tackle the minimum wage issue by raising wages in company-owned outlets in the USA, however, this created dissatisfaction among franchised outlets employees. However, even as a start, these measures have helped the company improve sales at home (US sales witnessed the first rise in two years in Q3 2015).

Internationally, and especially in Asia, the company is working towards stricter supply chain auditing to rebuild its brand image. In the Chinese market, the company has launched several healthier options such as apple slices, veggie cups, and multigrain muffins to attract the health-conscious consumers. McD’s is also looking at massive expansion in China, with plans to open about 250 new outlets each year over the next five years. It wants this next wave of growth to stir from the franchising model. Similarly, the company is looking at the prospects of selling a stake in its Japanese operations to a local investor, who could help the company turnaround its Japan business.

EOS Perspective

As McDonald’s woes seem to arise from a mix of dissatisfied stakeholders – consumers, partners, and employees across the globe that vary for each economy, it is not far-fetched to say that the company stands the risk of losing its leadership position across its top markets (as it already has in India). Several strategic decisions are being made by the brand to return to its past glory, however, these seem more long term in nature and therefore will have a significant gestation period before their results are visible.

While the company is largely looking to lean on franchising to spur growth and streamline operations, such as dependence on franchising can act as a double-edged sword especially in times when the company is facing tarnished reputation in several of its leading markets.

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