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The rise of convenience stores in Thailand: what's the impact on brand owners?

The rise of convenience stores in Thailand

7-Eleven is poised to top 11,000 convenience stores in Thailand alone by the end of 2018, while retailers like Big C and Tesco have ventured into developing smaller outlets as well. It is fair to say that convenience stores are driving Thailand’s retail growth. What is behind this movement and what is the impact on Fast Moving Consumer Goods (FMCG) brand owners?

Being very involved in the FMCG scene here in Thailand, I have witnessed how chain convenience stores are the driving force behind the rise of modern trade outlets in the country.

Thai retailers have shifted their focus towards small-sized stores. The Krungsri Bank’s industry outlook of the modern trade channel (2017-2019)1, noted that there is a total of more than 15,300 convenience stores nationwide. While also having the highest growth rate of all modern trade store formats. 


This channel includes large-scale players such as 7-Eleven (10,268 outlets) and FamilyMart (1,138), but also other prominent brands like Mini Big C, Lawson 108, Tesco Express and newcomer SPAR. With these smaller convenience store operations, retailers find themselves in a better position to innovate and be creative in the services offered. 


Some of these innovations include having in-store stations with fresh coffee, bakery counters, fresh food cooking stations and even dining areas for breakfast or tea time catering to today’s fast-paced consumers who are constantly on the move. You will also find a mobile operator like True now offering a mobile phone counter in certain 7-Elevens. This also provides portfolio expansion opportunities for FMCG companies.

Deutsche Bank2 points out that among the reasons for the growing importance of convenience stores is the country’s falling average household size from 3.5 to three people. This results in lower volumes in purchases of daily necessities and foodstuff for the family.
 

Another key factor is the reduced prices of FMCG goods sold at convenience stores. From my own experience and observations here in Thailand, products at convenience stores are now priced competitively with the larger hypermarkets and are prompting consumers to rethink where they make their purchases. 


For me and I’m sure for many consumers as well, having to travel to-and-from larger store formats for discounts of only a few percent may not justify the travel time and additional transportation costs incurred. In fact, quite often there is no difference in pricing.


The other reasons for the growth of convenience stores include the local government’s zoning regulations introduced to limit expansion of large stores, as well as the increase in the number of those aged 60 and above in Thailand. Consumers are shopping more frequently, but their shopping baskets are getting smaller. 

Another main factor for the rise of convenience stores is the escalating urbanization of the population. According to the United Nations3, Thailand’s urban population has increased to 50.4 percent in 2015, up from 38.8 percent in 2006. 


The increased mobility of the younger generation who prefer to do their shopping quickly and have the convenience of these stores located near their homes and offices is also the reason behind this growth. That is why many of the new convenience stores now offer parking spaces on their premises.


Brand owners must rethink not only their package size and pricing, but also focus on in-store execution to cater for these smaller stores, which have a lower average basket size and a high amount of impulse purchases. Consequently, companies need to make their brands more exiting as well. A good example of a brand campaign to trigger these impulse purchases comes from Nestle’s KitKat: the packaging of the famous chocolate bar received a make-over for Valentine’s day, whereby two packs of KitKat side by side, together formed a heart. 

While modern trade and convenience stores are evidently on the rise, traditional trade such as the mom-and-pop stores will continue to play an important role in Thailand. These shops, which still make up about 60 percent of the FMCG market, remain resilient. 
 

Although urbanization is swiftly taking place, many Thais still live in rural areas. They have often built a relationship with shop owners. 

To sum up Thailand’s FMCG retail space; modern trade is going smaller and adding more innovative services to keep the growth going. Yet at the same time, FMCG brands cannot afford to disregard the continued importance of the traditional retailers. Another trend that impacts brand owners in Thailand is the rise of Asian brands, on which my colleague Damien Morot wrote an interesting piece.

Source:

  1. Modern Trade
  2. Deutsche Bank's Markets Research, December 2016
  3. ASEAN in Focus: The Thai Consumer Market

 

Luke Horton, Business Development for OTC and Consumer Health, DKSH

About the author

Luke Horton is General Manager, Business Development, Business Unit Consumer Goods at DKSH Thailand. He has lived and worked in Thailand for over five years and has developed a deep understanding of the Thai FMCG sector.