EYES WIDE OPEN: ATTACKING RETAIL IN ASIA

Cameron Gordon walks emerging Kiwi F&B exporters through Asia’s retail minefield.

2 017 has been a tough year for food and beverage retail throughout Asia.

Political turmoil in Malaysia, changes within the monarchy in Thailand, depressed Mainland Chinese tourism in Hong Kong and the North Korean threat in South Korea are some of factors that have led to a tightening of consumer belts and reduced profit margins for retailers.

This challenging environment means that food and beverage brands wanting to trade in retail in Asia need to be smarter than their competitors to ensure that they get in, and more importantly, that their products stay on the shelves in store.

Failure comes at a very high cost; a failed entry strategy means that paid-for shelf space could be given to other brands after three to six months of relative non-performance, with all the fees paid to retailers for the pleasure of selling in their stores going up in a puff of smoke.

Shelf space is real estate and there is a shelf per-squarecentimetre return that is monitored very closely.

Moving into the New Year, we at Incite recommend you consider the following before hitting the sales trail in Asia in 2018.

THE SQUEEZE IS ON

Depressed demand and the emerging strength of online retail are two factors that are leading to reduced profit margins for major retailers in Asia. As many of these retailers are part of large publicly-listed companies, providing adequate return on shareholder capital is paramount.

Aside from selling groceries, the other major revenue channel for supermarkets is the charging of fees to suppliers for use of shelf space and for participation in store-owned promotional initiatives. These fees, in many cases, are the only reason why retailers remain profitable.

With the squeeze in profits in 2017 we have seen a significant increase in the fees that retailers are demanding from suppliers, particularly in Singapore and Thailand.

While these fees come part and parcel when trading in retail in Asia, it is crucial for brand owners to understand which retailers (and in how many stores under each retail banner) their products should be on the shelves in. The irony is that being in too many stores can actually count against a supplier. If a supplier’s products are not moving in non-relevant stores, this can lead to a non-performance black mark against their name at review time.

It is not rocket science that the more times shelf space is turned over to new suppliers, the more fees are generated for the retailer. As many category manager’s KPIs are more related to the extraction of supplier fees, as opposed to bringing in good products that consumers will like and buy, a cautious and measured approach is required.

WHO DOES WHAT?

There are three typical supply chain models that can be used when selling via retailers throughout Asia. They are: • Direct to retail. • Trading with retailers through a consolidator, and • Selling to retail through a local distributor.

In the majority of cases the first two are the same – most retailers do not have the infrastructure in place to manage logistics, etc., so they will appoint a consolidator in each country to manage this service for them.

In our experience, the most successful approach is to appoint a capable distributor, who can manage import, warehousing and distribution functions, but most importantly, merchandising and promotional strategy design and deployment.

It is important to understand that a great product still needs help to sell itself. Merchandising and promotion are often where the first two models fall over, as consolidators are service

providers retailer’s for them. responsibility to retailers, not to sell brand the owners, brand owners and it is products not the promotion The benefits strategy of a are strong twofold. merchandising and in-store Firstly, you sell more product as it is being presented professionally and you are giving consumers an opportunity to experience your product, either through a free tasting or through providing a discount that encourages purchase. Secondly, you are showing the retailer that you are serious about your business and not just putting your goods on their valuable shelf real estate to sit there and expire.