June 28, 2020

Six Digital Consumer Trends That Are Shaping the Next Normal in Southeast Asia

The previous post focuses on a report published in 2019 by Facebook in collaboration with Bain & Company, a global management consulting firm, that explores the spending behavior and preferences of Southeast Asia's online shoppers, and the opportunities and challenges brands face in reaching them. This post looks at an update to the 2019 report, which claims that "Southeast Asia remains one of the most vibrant regions for the digital economy, a place where the growth of internet users and digital consumers have seen promise. This provides a unique opportunity for every type of business, making this region the world's growth engine."

Published on June 8, 2020, the update notes: "As we move into the second half of 2020 and 'the next normal,' we review those findings and ask: What's changed and what hasn't? What might the future look like for companies? To this end, we have observed six emerging consumption themes in Southeast Asia for digital consumers — those who have made purchases online in the last 6 months":

1. Essential shopping moves online

"In Riding the Digital Wave, we observed that Southeast Asian firms have a huge opportunity to fill the online retail gap, mainly in areas of clothing, accessories and personal care, which are expected to see growth of 25% to 30% every year. In addition, we indicated that one of the largest untapped opportunities for online spend lay in groceries: a US$350 billion market in Southeast Asia whose 0.3% penetration in the region, especially when compared with China, was much lower than other categories.

"Fast forward to Q2 2020. As businesses adjust to the new normal, this shift to online purchases has accelerated, mainly for essentials. People staying at home has increased the demand for essentials in the short term, both online and offline."

What is more, "during the current environment, at least 44% of digital consumers across Southeast Asia have spent more on packaged and fresh groceries online. This trend is here to stay. Among consumers who have been buying more since April, at least 80% indicated they plan to continue buying groceries online even in the future."

2. Discovery of new apps accelerates

"Consumers are turning to digital devices to keep themselves occupied while indoors. As a result, the usage and adoption of different digital apps have accelerated and will likely continue — a trend we described in our previous Southeast Asia digital consumer report.

"Across the region, 85% of respondents said they have tried new digital apps during Q1 this year." As reflected in the chart on the left, "Not all apps are equal, however. Apps that have seen the highest increase in first-time and continued usage are social media, video streaming, and instant messaging apps, followed by ecommerce, food delivery, and digital payments platforms."

The report adds: "When divided by age groups, categories such as social media, video streaming, and instant messaging continue to lead the pack, as these apps saw nearly similar spikes in usage across all age groups. Meanwhile, among middle-aged groups (25 to 54 years old), apps that saw relatively higher usage were ecommerce, food delivery, and digital payments apps. Among youth aged 18 to 24, it was short videos, music, and gaming."

3. Value for money is key consideration

The 2019 study "observed that 22% of consumers across Southeast Asia were value hunters, who make up a minority of spending online." The covid-19 pandemic in this year's second quarter, however, has caused "a shift to value-for-money purchasing across markets as conservatism sets in. Across Southeast Asia, 57% cite 'value' among their top-three purchasing considerations. The effect differs by country, and is more pronounced in Thailand and Singapore, where ~70% cite it as a top consideration purchase."

4. Reliable brands are on the rise

The report notes that "Southeast Asia's digital consumers have always been open to trying new brands. Their purchasing habits are largely driven by inspiration and openness to digital discovery, hence the term 'Discovery Generation' in our previous report."

Moreover, "This year we looked closely at the types of brands consumers buy — and they showed a strong preference for trusted and established brands. Forty-two percent said they bought more established brands in the recent months. This preference is driven by the fact that established brands have the consumer trust and robust supply chain to ensure their products are always available and visible.

"When it comes to perfect sales execution in-store and online, availability across channels is imperative: 1 in 3 consumers have switched brands when they don’t find their preferred brands."

Importantly, "The change is starker in some categories than others. The move towards established brands is happening not just for individual items such as hand sanitizer, but is also pronounced across all broad categories. Among the Southeast Asian countries, Vietnam consumers are most inclined to buy from more established brands."


5. Health and welfare top of mind

"Across the board, the past few months have prompted increased focus on the health, safety, and environmental impacts of consumer products," the report says.

"In Southeast Asia, 73% of consumers said they were more likely to be more health conscious going forward. This is nearly twice as high as the increase in sentiment in the US, which stands at 40%. At the same time, at least half said they were now more environmentally conscious — at least twice as likely to increase as in the US."

Interestingly, "In countries like the Philippines and Vietnam, consumers prioritize health and wellness or corporate social responsibility even more highly than value-for-money."

6. 'At home' and contactless here to stay

The report maintains that up to 77% across Southeast Asia "are now preparing food at home more often, while at least 65% are watching more on-demand and broadcast TV." And "This behavior is likely here to stay as Southeast Asian consumers adopt more favorable attitudes to working from home and use remote-presence apps more often."

"Furthermore, contactless innovations and behavior have increased. Contactless payments are aggressively rising even in cash-dominant markets, while service providers and food services are innovating to offer contactless options.

"Even in cash-dominant markets in Southeast Asia, contactless payments, including mobile ones, have become a critical application. For example, in the Philippines GCash has seen a 30% increase in transaction volumes since March and has become the most downloaded finance app in Google Play Store."

For those businesses planning to capitalize on the changing digital consumer trends in the region, the report provides the following useful information:
The trends are still evolving, but companies will have to start thinking about its long-term implications. As the rise of the digital consumption accelerates throughout the region, businesses may have to drive product availability online and ensure multi-channel, online presence, especially via apps. For example, the grocery firm FairPrice On leveraged its offline store inventories to double down on its online grocery presence, while Indonesian retailer Matahari shifted emphasis to its online site and mobile app.

Further, the decline in consumer spending may pose a challenge for high-end products and bring back focus towards value-for-money items. The shift towards more established brands means having an extensive and reliable supply-chain network can have greater foothold on consumer trust. To this end, some small and medium enterprise vendors may consider finding a more established partner, as some vendors have done with Lazada.

Finally, a home-centric and health-conscious lifestyle suggests companies will need to design around home consumption and address concerns around health and safety. For a company like Grab, for instance, this meant reallocating their driver capacity to food delivery, as well as unveiling a US$40 million fund to sustain their service and delivery partners (with personal protective equipment, insurance, and subsidies for local businesses).
The new normal poses new challenges, but it also presents companies with the opportunity to help society redefine what this future would look like. It's the beginning of a journey for businesses to form new partnerships, boost resiliency, and embrace the digital future.
Changing digital trends presents an opportunity for businesses looking to capitalize on Southeast Asia's growing digital economy. The covid-19 pandemic has accelerated the adoption of the app economy in a variety of sectors including social media, video streaming, instant messaging, ecommerce, food delivery, and digital payments. While mobile phone adoption among Southeast Asian consumers will continue to grow, businesses will need to pay close attention to the six emerging consumption themes presented in this report in order to be successful.

What do you think of the report's findings?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

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