While COVID-19 will cause a significant economic impact with potential GDP contractions in 2020 and likely spilling over to 2021, the long-term fundamentals of the ten Association of Southeast Asian Nations (ASEAN) member states are on the cusp of a tremendous leap forward in socio-economic progress. Over the next decade, the region will be the world’s fourth largest economy, with a $4 trillion USD consumer market. While each of the ten member states will evolve differently, all of them will offer abundant opportunities for growth. ~ Bain & Company
The Future of Consumption in Fast-Growth Consumer Markets, a project in collaboration with Bain & Company, focuses on the emerging markets that comprise more than 40% of the world’s population. After studying China in 2017, India in 2018, for 2019-2020 it turned its attention to ASEAN.
For now, the ASEAN region is in the throes of the health, humanitarian and economic crisis resulting from the COVID-19 pandemic. A majority of ASEAN CEOs surveyed by Bain in April predict that COVID-related restrictions will last through Q3 and Q4 2020, with economic recovery in mid-2021.
The pandemic has caused noticeable changes in consumer behavior. Some of those changes bring short-term volatility while others will alter consumer relationships and spending patterns in the longer term. Overall, eight consumption themes will emerge across ASEAN, in the post-pandemic world, with slight nuances in each country:
Consumer spending will double, driven by ASEAN’s middle-class boom. While the looming recession triggered by COVID-19 will dampen consumer sentiment and reduce overall spending within the year, this behavior will self-correct as economies move into recovery. The Asian Development Bank (ADB) estimates Southeast Asian annual GDP growth to fall to 1% in 2020 and rebound to 5% in 2021. However, by 2030, 70% of ASEAN population will be middle-class. The middle-class boom will more than double consumption in the region.
Boundaries of premium and value shopping will blur. Consumption behavior has changed significantly as many communities quarantine across ASEAN. Disaster-preparedness categories and daily essentials spiked, while luxury and non-essential spending experienced a dip with a possible slow recovery. Goods focused on convenience and well-being are likely to see high demand persist even post-recovery.
Over the next decade, many of ASEAN’s new consumer class will buy their first luxury product and be willing to pay a premium for convenience, well-being and personalization. At the same time, they will seek more value for money, more than 60% of high-income consumers surveyed by Bain in 2019 rating price as a top purchase criterion.
Digital ubiquity will become the norm. The pandemic is accelerating the digital future, with many consumers making their first digital purchases and existing consumers spending more time online. Across the region, total streaming time over mobile phones grew 60% from 20 January to 11 April this year. In Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, consumers clock an average 4.2 hours of mobile screen time daily, or 1.2 times the global average, with the younger generations spending up to 5 hours, according to a report from Hootsuite. The abundance of information and choice will accentuate consumer repertoire behavior. Bain consumer research finds that roughly 65% will switch brands if their favorites were not available.
Technology will tear down socio-economic walls. The COVID-19 pandemic will accelerate the digital transformation process as governments and businesses strive to provide connectivity and everyday essentials to vulnerable communities. As rural and low-income communities gain access and exposure to similar information as their urban and higher-income counterparts, digital will begin to homogenize consumer behavior. It will remove barriers for small businesses to flourish, enable delivery of basic services such as healthcare and education and provide access to products with better price, quality and assortment. Bain research finds that poor populations will be more financially included, leapfrogging directly to e-wallets at up to three times the current adoption rate by 2030.
Local and regional competitive winds will prevail. Fully 80% of Indonesia’s consumers prefer local brands to global brands, especially in food categories. The trend will continue, even in times of crisis, as communities look to #SupportLocal. During COVID-19, local food and beverage conglomerates are also at an advantage, as consumers tend to prefer large, trusted brands—they look for lower prices, availability and security, and prefer brands that offer farm to factory visibility. In a continuing trend, Korean, Japanese and Chinese brands are gaining popularity over western brands. These brands are capturing significant market share—from 57% in the Philippines to 74% in Indonesia in 2019—in categories such as beauty, fashion and smartphones, according to Euromonitor.
Shoppers will move beyond omni-channel to expect omni-presence. The pandemic is likely to expedite the shift, especially in categories and consumer groups that were previously more resistant to e-commerce. COVID-19 has led older consumers to make their first online grocery purchases, and many enjoy the convenience of home delivery. This is the first step toward a change in channel preferences. Overall, e-commerce is likely to grow at double-digit rates, accounting for roughly 13% of retail by 2030, close to US penetration today, according to research from both Bain and Forrester. While social distancing has taken a toll on offline channels, convenience stores and traditional trade will remain relevant, evolving to offer services beyond retail such as digital financial services or last-mile delivery for e-commerce. For now, though, some small retailers who work on credit and rely on foot traffic will run out of cash and are unlikely to recover if they do not receive support.
Convenience will be the new currency. Two out of three urban consumers in ASEAN rank convenience as one of their top three criteria for purchases, according to a Bain survey. Also, two out of three consumers are willing to give up data privacy for convenience. These findings suggest that there is huge opportunity for “super-apps” and FinTech to streamline across such verticals as shopping and food delivery.
Sustainability will be non-negotiable. While 80% of ASEAN consumers in one Bain offline consumer study said they value sustainability and have made changes to their lifestyle to be more eco-friendly, the pandemic could trigger a short-term reversal of sustainability trends. Cash-strapped governments and businesses across ASEAN are likely to put sustainability goals on the backburner as they focus on jumpstarting the economy. Yet there may be tailwinds that are longer lasting. For example, telework is showing organizations that they can reduce travel, allowing employees greater flexibility and reducing air pollution for a healthier ASEAN in 2030.
ASEAN is poised to become a dramatic consumption opportunity, driven by four mega-forces: strong demographic trends; rising income levels; geopolitical shifts increasing foreign investment; and digital advances opening new consumer markets. Achieving this vision requires dedicated collaboration across stakeholders, through innovative and inclusive business models supported by a favorable policy environment. The private sector will be required to prioritize consumer relationships and sustainability. For its part, the public sector will need to create trade and investor-friendly reforms, invest in socio-economic inclusion through talent development and upgrading infrastructure for a connected and sustainable future. These public-private partnerships are critical to unlock the full potential of ASEAN and to safeguard the region’s future as one of the three fastest-growing consumer markets in the world.