S outheast Asia’s retail landscape has evolved significantly over the past two decades. Historically, this region has been dominated by traditional trade (TT) channels such as wet markets and mom-and-pop stores. Also referred to as warung in Indonesia and sari-sari in the Philippines, these small stores have been the cornerstone of grocery retail by providing basic necessities for local daily life.
However, in recent years, the region has observed a shift in its retail landscape. These findings are explored in detail in Boston Consulting Group’s (BCG) latest report, Revolution and Reinvention: The Future of Retail in Southeast Asia.
With surging middle-income growth and urbanisation, modern, organised retail outlets — sprawling hypermarkets exceeding 5,000 sq m (53,819.55 sq ft) with over 15,000 stock-keeping units (SKUs) — have become a hallmark of suburban life, selling everything from tomatoes to televisions. These large retail formats have been a game-changer for pricing and value. High sales volumes have traditionally enabled these mega-retailers to procure goods at lower prices, resulting in savings that are often passed onto consumers in the form of deals with better value.
Death of the hypermarket
Despite the once promising value proposition and market share of large format stores, hypermarkets and supermarkets are now on a decline — mirroring a trend already observed in Europe a decade ago. Several factors are contributing to this change, including the scaling of e-commerce and food delivery services, increased urban densification, and shifting consumer consumption patterns and values.
As a result of these changes, the operational model of traditional large-format stores is also under strain due to their expansive inventories and high overhead costs. This burden was made heavier by the impact of Covid-19, which shifted shopping behaviours towards online platforms and convenience-driven options within an accelerated timespan. As volumes decline, these retailers struggle to keep consumer footfall high enough to support their existing business model. Current inflationary pressures further exacerbate this situation, undermining their low-price advantage
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Convenience is king
As Southeast Asia’s retail landscape undergoes profound shifts, small-format grocery retail — stores occupying less than 500 sqm (10 times smaller than your typical hypermarket) — have emerged as an attractive model for increasingly time and cash-strapped consumers.
Despite their smaller footprints, small formats appeal to consumers through their pricing strategy. These stores often mirror, or even undercut up to 30%, the price positioning of larger modern trade players. Additionally, convenience is their main value-add as these stores can usually be found in neighbourhood locations, serving as local solutions for quick, affordable shopping.
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The sustainability of the small format model lies in its operational methods. These stores often streamline their offerings, carrying about 3,000 SKUs, which is five times less than what is found in traditional large formats. Additionally, they have a no-frills service model with minimal in-store labour, basic shelving and refrigeration, and fewer product categories, with a focus on long shelf-life products. By limiting their range and size, small format retailers can maintain relentless cost efficiency due to their reduced capital expenditure (capex) and operational expenditure (opex). Their lean approach also enables them to pass on savings to customers while maintaining sufficient margins to sustain and grow their businesses.
Today, small-format grocery retail is the fastest-growing retail format in Southeast Asia, appealing to consumers who favour smaller, more frequent purchases. With a 7% annual growth rate from 2018 to 2022, small formats outpace other retail channels like hypermarkets (which saw a 4% decline) and supermarkets (that only grew 2%) to carve out a significant and expanding model in the market.
In countries such as Malaysia, Indonesia, and Thailand, small formats have risen to become the dominant retail format, standing as significant challengers to traditional incumbents.
A prime example of this is 99 Speedmart in Malaysia. In less than a decade, this minimarket operator has defied the status quo to become Malaysia’s leading grocery retailer in 2022, outpacing established incumbents. This rise is largely credited to 99 Speedmart’s innovative value proposition — combining competitive pricing that is up to 20% cheaper than hypermarkets with a “Near & Cheap” strategy that strategically positions its roughly 2,000 outlets in residential and neighbourhood areas.
Unlike traditional players who have primarily relied on convenience and proximity, 99 Speedmart and similar emerging retailers are adopting a more aggressive, differentiated approach that emphasises not just convenience, but also value-based pricing to win over customers.
Staying relevant in a changing world
As Southeast Asia’s retail landscape continues to evolve, embracing strategic adaptation is key for retailers wanting to thrive. A clear network strategy is important; targeted footprint expansion will allow retailers to reach consumers in both urban and rural areas, ensuring that growth is achieved in a focused yet sustainable manner.
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Furthermore, the digital era demands a bold presence. Retailers must enhance their digital presence and ramp up technology investments. In a world where consumers are increasingly seeking omnipresent engagement, an integrated and engaging online platform is no longer a luxury, but a necessity. This involves not just a website or mobile app, but a comprehensive digital strategy encompassing marketing, sales, customer service, and a suite of convenient services such as instant delivery and online payment options.
Finally, current inflationary pressures and changing consumer behaviours underline the importance of a strong orientation towards value in both product offerings and portfolios. Beyond products, customers are also seeking value in the form of affordable prices, high quality offerings, and a satisfying yet convenient shopping experience. In response, retailers must craft a portfolio that meets these demands while offering cost-effective and appealing selections.
The future of retail in Southeast Asia remains dynamic, presenting both substantial opportunities and critical considerations for those aiming to build enduring businesses. As we look to the coming decade, it is evident that the disruptive forces at play will continue to intensify and influence entire operational frameworks. To remain relevant, retailers must proactively embrace change and align their business models with emerging trends to arise as competitive players in this transformative era.
Jason Moy is managing director and partner at Boston Consulting Group and Jasryn Ng is principal at Boston Consulting Group
