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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

Online Grocery Retailing In India: Will Clicks Replace Bricks?

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India is the sixth largest grocery market worldwide buzzing with plethora of opportunities for the development of online grocery retailing. Gone are the days when Indian consumers were reluctant to shop online – studies have revealed that Indian consumers are overcoming biases against purchasing products without the touch and feel factor and are widely accepting online shopping. However, shopping for grocery online is at a very nascent stage and is still overcoming operational and economical hurdles. Over the years, multiple online grocery sites have shutdown, though there are a few survivors and presently the market is bustling with new entrants including e-commerce giants such as Amazon, Snapdeal, Flipkart, etc. Players are constantly implementing innovative marketing strategies, expanding operations, and experimenting with business models to find the best fit for e-grocery market.

Online grocery retailing is a tough segment to crack largely due to the perishable nature of products it offers, coupled with several operational impediments such as logistics, supply chain management, and low margins. Also, players face major challenges in training and retaining employees as well as attracting investment to grow operations.

1-Challenges

Despite the challenges, online grocery retail is witnessing rapid growth driven by increasing internet connectivity, use of smartphones, and changing lifestyles with increasing number of working women demanding convenience. Consumers pressed for time are continuously looking for less cumbersome options in their fast-paced lives and online grocery shopping is increasingly the best solution for them.

Out of the 40 online sites that initially ventured into the grocery retailing market, only a few have survived and BigBasket has emerged as the most successful e-retailer. Other survivors include ZopNow and Localbanya, while there are several new entrants such as Grofers, Jugnoo, etc. Traditional brick and mortar retailers have also realized potential of the market and have slowly started selling groceries digitally – for example, Reliance launched ‘fresh direct’ while Tata sells through ‘My247market’.

2-BigBasket

Successful e-grocers such as BigBasket, ZopNow, Nature’s Basket, and Reliance Fresh Direct, among others started formulating strategies to succeed in the e-grocery market. For instance, BigBasket started selling private label brands to improve margins while ZopNow offers cashbacks, discount coupons, and grocery deals to attract customers. Other strategies include implementing quality assurance programs and offering niche products, among others.

3-Success4-Success

EOS Perspective

E-grocers face various obstacles, hence a robust strategy is the need of the hour to survive and succeed in the market. It is imperative for any player to first understand the local nuances of the market – this includes establishing local relationships, developing local logistics, and building business according to unique scenarios in different cities. India is an extremely diverse country and a complex market to survive, hence effectiveness and efficiency of players to adapt to the market defines how any company will succeed in the industry. Factors such as target segment, operating costs, competitive landscape, and consumer preferences vary greatly across India, therefore, aligning business with domestic market and following ‘localization’ of operations is the key to success.

For long-term sustainability in the market, it is essential for players to differentiate through innovation and to improve business scalability. Innovation can be achieved in the form of targeting specific customer segment, selling niche products, or offering tailored services. Attracting investment can help players to expand and scale up their businesses.

Further, it is crucial for e-retailers to prioritize customer experience — across technology, delivery, and service platforms — as convenience is the primary factor that influences people to buy digitally.

Nevertheless, the question still remains if clicks can replace bricks. Online grocery market has potential and is expected to grow but it is unlikely that it will dominate or replace the brick and mortar stores in the near future. Online retailing definitely have the potential to grab a substantial portion of grocery sales in a long-term horizon, however, physical stores will long continue to have an edge, particularly in case of FMCG goods.

by EOS Intelligence EOS Intelligence No Comments

Succeeding in Myanmar’s Fragmented Grocery Retail Industry

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In recent years, several reports have talked about how the rapid economic growth, expanding middle class, and consumer spending have fueled growth in Myanmar’s retail industry. Although the growth potential is very lucrative, retailers should also look closely at the industry challenges that currently exist. These challenges must be carefully assessed and addressed in order to capture the growth opportunities and succeed in Myanmar.

Myanmar’s rapidly improving growth indicators and demographics have attracted the attention of several investors as well as business consulting firms globally. The country’s growing urbanization, middle class population, and rising disposable income point towards tremendous retail opportunities for players looking for new growth markets.

Slide1 - What’s Attracting Retailers to Myanmar

In the past three years, companies such as Coca-Cola, Carlsberg, PepsiCo, KFC, etc., have already entered and started their business operations in Myanmar, while several others are looking at ways to enter the nation’s lucrative retail market, and to be the part of its growth story. Many industry experts remain upbeat on the nation’s future economic growth prospects, and have projected the retail industry to grow at a strong pace in the future.

Slide2 - M&A, JV, and Investment Deals

Slide3 - Store Expansion

Slide4 - Challenges

Slide5 - Challenges 2

Slide6 - Hurdles

EOS Perspective

Rapid economic growth, urbanization, and growing purchasing power, along with consumerization of IT are bringing bigger exposure to international brands for Myanmar’s rising middle class. This is expected to boost the demand for fast moving consumer goods. In addition, the evolving buying preferences of young and aspiring middle-class population, who are looking to spend their rising incomes on bigger and better brands are set to trigger improvements in the range and quality of retail products and services.

Recent FDI reforms and the influx of foreign capital are likely to dramatically change Myanmar’s retail industry landscape in the coming years. International retailers are expected to spur industry growth by creating more jobs, improving supply chain networks and infrastructure, bringing cutting-edge technologies, processes, and management best practices. Furthermore, the increased competition between local and foreign retailers is likely to promote market efficiency, which might also result in better portfolio of grocery products and services on offer.

For foreign players, Myanmar’s retail industry still remains relatively unknown. As the market remains highly fragmented with lack of structured data on consumer preferences and market segmentation, companies need to spend time to study the market.

The best strategy for foreign retailers should be to form a joint-venture with the right local partner, who has comprehensive understanding of the market and its consumers’ buying behavior. Joint ventures remain the preferred strategy for many multinational retailers to enter Myanmar’s retail industry. With the help of trade fairs and road-shows, companies can identify and engage with potential partners. This will help them conduct due diligence, at the same time gain better understanding of the industry as well as first hand market insights. Many companies from Japan and Singapore have successfully reaped the benefits of this approach.

Proven as very challenging, retailing in rural Myanmar remains untapped. There are plenty of growth opportunities for grocery retailers as consumer and market dynamics are expected to continuously improve in the long run. By offering value added services such as bill payments, mobile recharge and top-up cards, and postal services, retailers can truly create a competitive advantage. Retailers can start investing in partnerships with wholesalers and independent retailers to grow their current network. Once the opportunities become ripe, retailers can scale up their operations by acquiring these partners, and thus expand their footprint in new geographies.

Slide7 - Opportunity

In order to succeed in Myanmar’s grocery retailing, foreign and local players will have to form strategic alliances and create a win-win relationship through exchanging technologies and global best practices with sales network and market intelligence. Furthermore, retailers must be agile, flexible, and adaptable enough to seize market opportunities in Myanmar’s fragmented retail sector. Succeeding in Myanmar’s grocery retailing requires unique solutions tailored to meet the evolving demands of various consumer segments.

by EOS Intelligence EOS Intelligence No Comments

Have Big Box Retailers Successfully Metamorphosed the Indian Retail Culture?

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With its vast aspirational population, India is among the most favored retail destinations globally. However, the country’s retail market is still shackled by old-fashioned merchants and modern retailers are struggling to draw customers. One of the biggest challenges is the ‘retail structure’ of India – the market is mature but highly fragmented with 12-15 million outlets. About 92% of retail sales is derived from the fragmented unorganized sector.

There are some major impediments that are holding back retailers from realizing their full growth potential to yield desirable profits. Modern retailers in India suffer from regulatory hurdles, supply chain disruptions, soaring real estate prices, and scarcity of skilled workforce, among others. Consequently, several big box retailers such as Carrefour and Shoppers Stop have closed or downsized operations, respectively.

Challenges


Why Modern Retailers Fail


Despite the teething challenges, several international retailers have invested in the market while many others are contemplating to capitalize on the growth and demand potential of world’s fifth largest consumer market. Big box retailers have ushered revolution across the retail sector with their assortment of store formats based on consumer convenience, offering cash on delivery option, installment payment systems, and elevated customer experience by bringing all retail brands under one roof.

Working population and youth have proven to be attractive consumer segments for retailers. Also, rural India, representing a less penetrated market, is a key opportunity segment for retailers.


Opportunity Assessment


Several retailers such as Big Bazaar, Metro Shoes, Flipkart, Lenskart, etc., have overcome sustainability hurdles by implementing innovative ideas and deeply assessing the retail market.

New Approaches

Big Bazaar


EOS Perspective

Breaking through India’s retail market is a grueling experience but several big box retailers have succeeded by implementing innovative ideas and assessing consumer behavior carefully. Retailers need a robust strategy and in-depth knowledge of consumer buying behavior to pave way and survive in the market. It is essential to understand the fundamental features and structure of the market – for instance, India is a highly heterogeneous and segmented consumer market, hence, adopting a single marketing strategy across the country might not reap profits. Income levels, tastes, preferences, languages, lifestyles and fashion, buying behaviors, etc. differ across India. Therefore, it is crucial to develop region-wise marketing plan.

Further, retailers need to stay on toes persistently to keep themselves updated with new trends and competitive intelligence. For example, the new mantra of several big box retailers is to invest in developing omni-channel presence, which helps to expand their horizon from brick and mortar stores to multichannel selling through e-commerce. Growth of e-commerce in India has got retailers contemplating their multi-channel strategies with a few brick and mortar giants – including Croma, Shoppers Stop, brands such as Nike, Puma, Catwalk, Mango, among others – investing to build an online presence. Most brick and mortar retailers in India don’t have good multichannel offerings with pure play e-commerce companies (such as Amazon and Flipkart) dominating the market. Therefore, an investment to build online presence represents a plethora of opportunities for retailers considering e-commerce share in Indian retail sector is expected to skyrocket from 2% in 2014 to 11% in 2019.

Trends and developments within the Indian retail sector and Indian consumer behavior are complex to understand and predict, a challenge accompanied by several regulatory roadblocks. However, big box stores have changed the face of Indian retail by reinventing and positioning themselves as lifestyle and entertainment hubs rather than aggregators of retail brands. They have successfully instilled in local consumers’ minds the ‘mall culture’, where shopping malls and lavish stores become a weekend destination – not only for picking up groceries but also for recreation. Big box retailers have a long way to go, but the journey has begun.

by EOS Intelligence EOS Intelligence No Comments

Brazil’s Personal Care and Cosmetics Market: Transitioning from Physical to Digital?

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Brazil’s personal care and cosmetics market is skyrocketing with growing sales driven by a fashion-conscious and beauty-obsessed population. Brazil, the cosmetics industry veteran, is the third largest consumer of beauty products worldwide and relies heavily on traditional channels for distribution. Online retailing has made inroads into the personal care market in Brazil and is on a slow but steady growth trajectory with immense potential in the future.

Brazilian consumers have long exhibited strong interest in personal care and beauty products, mostly purchased through traditional distribution channels. Over the past couple of years, these consumers have gradually also begun shopping for beauty products online, however, they are still skeptical about payment security as well as delayed delivery and quality of products.

Brazil’s Personal Care and Cosmetics Market-1

 

 

Despite the obstacles, some online retailers — such as Natura, Men’s Market, and BelezaNaWeb — have stepped up to overcome hurdles and develop robust strategies to initiate online purchase of personal care products. After realizing potential of online retailing in the personal care and cosmetics segment, investors have started pouring in money in e-commerce websites to reap benefits.

Brazil’s Personal Care and Cosmetics Market-2

 

Personal care segment can benefit from numerous growth opportunities in the e-commerce market with consumers’ rising inclination towards special offers attracting them to shop online, beauty product segment’s growing share in the emerging online shopping market, m-commerce boosting online sales, etc. E-retailers should exploit these opportunities to penetrate the market and improve sales.

Brazil’s Personal Care and Cosmetics Market-3

 

Brazil’s Personal Care and Cosmetics Market-4

EOS Perspective

While the e-commerce industry faces various obstacles, a robust online strategy along with a balanced eco-system — comprising fraud protection arrangement, better payment mechanism, developed infrastructure, as well as clear understanding of consumer behavior — is likely to improve e-commerce adoption and increase sales.

The market is slowly overcoming some of the hurdles — to combat logistics issue, government has started investing in air and shipping ports to facilitate parcel deliveries through these modes. This is likely to improve shipment timelines and consumers, as desired, can avail quick delivery of personal care products. Further, online retailers have started assessing consumer behavior and responded by improving shopping experience by re-designing websites, launching m-commerce applications for convenient mobile browsing, and implementing loyalty programs. The Brazilian government is working towards implementing stringent regulations to protect consumers against online frauds and formulating robust e-commerce policies.

Paving way into the Brazilian e-commerce market to sell personal care products has been challenging, however, with improvement initiatives slowly gaining momentum, the market is on an upswing to witness a stellar growth.

by EOS Intelligence EOS Intelligence No Comments

The Rising Importance of Private Labels for GCC Retailers

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Despite the recent progress made by several Gulf Cooperation Council (GCC) retailers in developing their private labels, the industry is still lagging behind in comparison with western markets. Although regional retailers are well aware of the private labels’ potential, they have not fully leveraged their benefits. As the competition intensifies, regional retailers need to develop optimal private label strategies that can help them further enhance profitability and consumer loyalty.

With the evolving retail landscape, consumer attitude towards private label products has changed dramatically over the years in the GCC region. According to a 2014 Nielsen survey, nearly three-fourth (71%) of the respondents in Middle East and Africa agreed that their perception towards private label products have improved in recent times. Gone are the days when private label products were just seen as cheaper alternatives of national and multinational branded products.

Today, private labels include some innovative products that have no branded equivalent. Some of the premium private label products are superior to branded products in quality. Despite the growth of market share of private label products in recent years, the GCC retail industry is still lagging behind major matured retail markets in terms of private labels presence. Retailers now realize the need for making private labels an integral part of their growth strategies that can help them boost revenues and customer loyalty in the current retail environment characterized by intense competition and consolidation.

GCC - Retail Sales

The retail industry landscape in GCC region is constantly evolving, with the modern trade replacing traditional independent retail trade. As of 2013, the total occupied modern retail sales area was 5.3 million square meters. This is projected to reach 6.6 million square meters in 2018.

Retail industry has witnessed tremendous growth over the last decade and is one of the fastest growing sectors of the region. The growing expatriate population, increased purchasing power of consumers, modern lifestyles, and increasing influx of tourism revenues are fueling growth in the region’s retail sector. According to a 2015 report from Alpen Capital, retail sales in the GCC region are expected to grow at a CAGR of 7.3% between 2013 and 2018 to reach US$ 284.5 billion. Sales in supermarkets and hypermarkets across the region are expected grow at a CAGR of 9.2% during the same period.


GCC - Supermarket Sales

Given the retail industry’s strong growth outlook, a lot of potential opportunities exist for retailers to grow and differentiate themselves with private label strategies. However, till now retailers have largely failed to capitalize on this. Private label products have started to penetrate and enjoy success only across few product categories such as home care, packaged food, beverages, and hygiene products. Not only there is still an ample room for further growth in these categories, but the market remains untapped for other product categories such as personal care and hygiene products, and food categories including frozen food.

With the increased competition and industry consolidation, retailers need to re-think their strategies that can enable continuous growth and innovation. Therefore, many retailers are increasingly using private label as a strategic weapon to differentiate themselves and outperform competitors. According to SIAL Middle East, a leading event organizer in the region, 88% of the Middle East retailers they interviewed in 2014, were investing in private label expansion. Spinneys UAE recently announced to boost the exports of private labels in Middle East and North Africa (MENA) countries due to the increasing demand and recent success enjoyed by company’s private label offerings. Similarly Tesco, LuLu, and Carrefour have also announced their plans to further develop their private label offerings in the region within both food and non-food segments.

There are significant opportunities for GCC retailers in the private label space as these products are more profitable than branded products. By cutting the middleman (distributor) out, and by avoiding higher marketing costs associated with branded products, private labels enable retailers to increase gross margins. As today’s price conscious consumers are looking for best value for their buck, private labels offer consumers a wider range, better quality, and fairly priced products, thus creating a win-win option for retailers and customers in the current retail landscape. Moreover, private labels offer retailers with more bargaining power with their suppliers. It also helps retailers to have better control over their product offerings and category management. Although the opportunity for GCC retailers in private labels is clear, retailers in the GCC region have failed to reap their full potential. This is mainly because retailers within the region face an array of challenges.

Firstly, sourcing is a significant challenge for retailers as there are very few manufacturers in the region who have the capabilities to supply a range of high quality private label products. Most of these companies have existing manufacturing contracts with multinational retailers, which prohibit them from creating private label products for regional players. Other manufacturers and suppliers in the region face acute operational issues such as quality and supply chain management deficiencies that automatically make them unfit.

Secondly, the region has a diverse range of consumers of different nationalities, income levels, and other social demographics. Understanding their diverse needs is a challenge for retailers. So far, most of the retailers have focused solely on value, and failed to gauge the exact needs and expectations of these consumers due to lack of customer intelligence and the retailers’ limited ability to customize their private label offerings as per the regional market needs. GCC retailers have also failed to assess the current gaps in their assortment, and how they can utilize their private label offerings to fill these gaps.


Given the retail industry’s robust growth outlook, in order to grow and capture a bigger market share, retailers are using organic as well as M&A strategies. Therefore, M&A activity has also picked up within the industry. In the past few years many deals have taken place that involved region’s leading retailers such as Savola Group, Damas International, LuLu Group, and Al Meera Consumer Goods Co. As the retail landscape continues to consolidate, competition among retailers in the GCC will only get fiercer.

Private label is likely to become one of the key battlegrounds for retailers looking to succeed in these markets. As a first step, retailers should integrate private label with the company’s overall business strategy. Further, in order to succeed, retailers will have to develop a better understanding of the retail market landscape as well as shopping behavior of their target consumer segments. This will help them create targeted private label strategies tailored to shopper needs with optimal private label categories, branding, packaging, and pricing strategies. By collaborating with experienced manufacturers, GCC retailers need to ensure that right products are on the right shelves at the right time and price. It is critically important for retailers to strike the right balance between price and value. Cracking this code will allow retailers to strengthen growth and customer loyalty beyond 2015.

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