PTT Oil and Retail Business Public Company Limited – Industry Overview

Retailing in Thailand, Cambodia, the

Philippines, Myanmar, Laos and
Singapore

A report compiled by Euromonitor International for

PTT Oil and Retail Business Public Company

Limited

July 2020

www.euromonitor.com

©2020 Euromonitor International Ltd. All rights reserved. The use of Euromonitor’s name and the disclosure or sharing of any
data and analysis in this Industry Overview report requires Euromonitor’s written consent through the issue of Euromonitor’s
Letter of Authorisation as per the terms and conditions of the Agreement between PTT Oil and Retail Business Public Company
Limited and Euromonitor International.

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PTT Oil and Retail Business Public Company Limited – Industry Overview

DISCLAIMER

The information that appears in this Industry Overview has been prepared by Euromonitor
International Limited and reflects estimates of market conditions based on publicly available
sources and trade opinion surveys, and is prepared primarily as a market research tool.
References to Euromonitor International Limited should not be considered as the opinion of
Euromonitor International Limited as to the value of any security or the advisability of
investing in the Company. PTT Oil and Retail Business Public Company Limited (the
“Company”) believes that the sources of information contained in this Industry Overview are
appropriate sources for such information and have taken reasonable care in reproducing such
information. The Company has no reason to believe that such information is false or
misleading or that any material fact has been omitted that would render such information false
or misleading. The information prepared by Euromonitor International Limited and set out in
this Industry Overview has not been independently verified by the Company, the Initial
Purchasers, the Thai Underwriters nor any of our or their affiliates and neither they nor
Euromonitor International Limited give any representations as to its accuracy and the
information should not be relied upon in making, or refraining from making, any investment
decision.

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PTT Oil and Retail Business Public Company Limited – Industry Overview

LIST OF CONTENTS
DISCLAIMER .......................................................................................................................................... 2
LIST OF CONTENTS.............................................................................................................................. 3
1. RESEARCH BACKGROUND .......................................................................................................... 7
1.1 Research Objective .................................................................................................................................. 7
1.2 Sources of Industry Information ................................................................................................................ 7
1.3 Research Methodologies .......................................................................................................................... 7
1.4 Forecasting Bases and Assumptions ........................................................................................................ 7
1.5 DefinitionS and Coverage ......................................................................................................................... 8
1.6 About Euromonitor .................................................................................................................................... 9
2. THAILAND .....................................................................................................................................11
2.1 Macroeconomic environment in thailand................................................................................................. 11
Table 1 Thailand GDP Figures (2014 – 2019)................................................................................ 11
Table 2 Population of Thailand (2014 – 2019) ............................................................................... 12
Table 3 Thailand Disposable Income Per Capita – Urban Residents (2014 – 2019)...................... 13
Table 4 Thailand Consumer Expenditure (2014 – 2019) ................................................................ 13
Table 5 Thailand Consumer Expenditure (2020F – 2025F) ........................................................... 14
Table 6 Thailand Average Inflation Rate (2014 – 2019) ................................................................. 14
Table 7 Thailand Foreign Direct Investment (FDI) Inflows (2013 – 2018) ...................................... 14
2.2 The retailing industry in thailand ............................................................................................................. 15
2.2.1 Market Overview ................................................................................................................... 15
Table 8 Thailand Total Retail Sales (2014 – 2019) ........................................................................ 16
2.2.2 Legislative and Regulatory Policies ...................................................................................... 16
2.2.3 Drivers and Constraints ........................................................................................................ 16
2.2.4 Market Outlook...................................................................................................................... 17
Table 9 Thailand Total Retail Sales (2020F – 2025F) .................................................................... 17
2.3 The convenience stores in thailand ........................................................................................................ 18
2.3.1 Market Overview ................................................................................................................... 18
Table 10 Thailand Convenience Store Figures (2014 – 2019) ......................................................... 19
2.3.2 Drivers and Constraints ........................................................................................................ 19
Table 11 Thailand Convenience Stores Figures (2020F – 2025F) ................................................... 21
2.3.3 Market Outlook...................................................................................................................... 21
2.3.4 Competitive Environment ...................................................................................................... 23
2.4 The forecourt retailers in thailand ........................................................................................................... 23
2.4.1 Market Overview ................................................................................................................... 23
Table 13 Thailand Forecourt Retailers Figures (2014 – 2019) ......................................................... 24
2.4.2 Drivers and Constraints ........................................................................................................ 25
2.4.3 Market Outlook...................................................................................................................... 25
Table 14 Thailand Forecourt Retailers Figures (2020F – 2025F) ..................................................... 26
2.4.4 Competitive Environment ...................................................................................................... 27
Table 15 Thailand Market Rankings and Shares of Forecourt Retailers in 2019 ............................. 27
2.5 Quick-service restaurants (QSR) inside forecourt in thailand ................................................................. 27
2.5.1 Market Overview ................................................................................................................... 27
Table 16 Thailand Quick-Service Restaurants (QSR) Inside Forecourt Figures (2014 – 2019) ....... 28
2.5.2 Drivers and Constraints ........................................................................................................ 28
2.5.3 Market Outlook...................................................................................................................... 30
Table 17 Thailand Quick-Service Restaurants (QSR) Inside Forecourt Figures (2020F – 2025F)... 30
2.5.4 Competitive Environment ...................................................................................................... 31
Table 18 Thailand Market Share Rankings of Quick-Service Restaurants (QSR) Inside Forecourt in
2019 .................................................................................................................................. 32
2.6 Café inside forecourt in thailand ............................................................................................................. 32

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PTT Oil and Retail Business Public Company Limited – Industry Overview

2.6.1 Market Overview ................................................................................................................... 32

Table 19 Thailand Café Inside Forecourt Figures (2014 – 2019) ..................................................... 33
2.6.2 Legislative and Regulatory Policies ...................................................................................... 33
2.6.3 Drivers and Constraints ........................................................................................................ 33
2.6.4 Market Outlook...................................................................................................................... 34
Table 20 Thailand Café Inside Forecourt Figures (2020F – 2025F) ................................................. 34
2.6.5 Competitive Environment ...................................................................................................... 35
Table 21 Thailand Market Rankings of Cafés Inside Forecourt in 2019 ........................................... 35
2.7 Café outside forecourt in thailand ........................................................................................................... 35
2.7.1 Market Overview ................................................................................................................... 35
Table 22 Thailand Café Outside Forecourt Figures (2014 – 2019) .................................................. 38
2.7.2 Legislative and Regulatory Policies ...................................................................................... 38
2.7.3 Drivers and Constraints ........................................................................................................ 39
2.7.4 Market Outlook...................................................................................................................... 40
Table 23 Thailand Café Outside Forecourt Figures (2020F – 2025F) .............................................. 40
2.7.5 Competitive Environment ...................................................................................................... 41
Table 24 Thailand Market Rankings of Cafés Outside Forecourt in 2019 ........................................ 42
Table 25 Thailand Market Rankings of Cafés (Including both Café Inside and Outside Forecourt) . 42
3. CAMBODIA ....................................................................................................................................43
3.1 Macroeconomic environment in cambodia.............................................................................................. 43
Table 26 Cambodia GDP Figures (2014 – 2019) ............................................................................. 43
Table 27 Population of Cambodia (2014 – 2019) ............................................................................. 44
Table 28 Cambodia Disposable Income Per Capita – Urban Residents (2014 – 2019) ................... 44
Table 29 Cambodia Consumer Expenditure in Cambodia (2014 – 2019) ........................................ 45
Table 30 Cambodia Consumer Expenditure in Cambodia (2020F – 2025F) .................................... 45
Table 31 Average Inflation Rate in Cambodia (2014 – 2019)........................................................... 47
Table 32 Foreign Direct Investment Inflows of Cambodia (2013 – 2018) ......................................... 47
3.2 The retailing industry in Cambodia ......................................................................................................... 48
3.2.1 Market Overview ................................................................................................................... 48
Table 33 Cambodia Total Retail Sales Figures (2014-2019)........................................................... 49
3.2.2 Legislative and Regulatory Policies ...................................................................................... 49
3.2.3 Drivers and Constraints ........................................................................................................ 51
3.2.4 Market Outlook...................................................................................................................... 52
Table 34 Cambodia Total Retail Sales Figures (2020F-2025F) ...................................................... 52
3.3 The convenience stores in Cambodia ..................................................................................................... 54
3.3.1 Market Overview ................................................................................................................... 54
Table 35 Cambodia Total Convenience Stores Figures (2014-2019)............................................... 54
3.3.2 Drivers and Constraints ........................................................................................................ 55
3.3.3 Market Outlook...................................................................................................................... 56
Table 36 Cambodia Convenience Stores Figures (2020F-2025F) ................................................... 56
3.3.4 Competitive Environment ...................................................................................................... 57
Table 37 Cambodia Market Rankings and Shares of Convenience Stores in 2019 ......................... 57
3.4 The forecourt retailers in Cambodia ........................................................................................................ 57
3.4.1 Market Overview ................................................................................................................... 57
Table 38 Cambodia Forecourt Retailers Figures (2014-2019) ......................................................... 58
3.4.2 Drivers and Constraints ........................................................................................................ 59
3.4.3 Market Outlook...................................................................................................................... 60
Table 39 Cambodia Total Forecourt Retailers Figures (2020F-2025F) ............................................ 60
3.4.4 Competitive Environment ...................................................................................................... 61
Table 40 Cambodia Market Rankings and Shares of Forecourt Retailers in 2019 ........................... 61
3.5 Quick-service restaurants (QSR) inside forecourt in Cambodia .............................................................. 62
3.5.1 Market Overview ................................................................................................................... 62
Table 41 Cambodia Quick-Service Restaurants Inside Forecourt Figures (2014 – 2019)................ 63
3.5.2 Drivers and Constraints ........................................................................................................ 63
3.5.3 Market Outlook...................................................................................................................... 64
Table 42 Cambodia Quick-Service Restaurants Inside Forecourt Figures (2020F – 2025F) ........... 64

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PTT Oil and Retail Business Public Company Limited – Industry Overview

3.5.4 Competitive Environment ...................................................................................................... 65

Table 43 Cambodia Market Rankings and Shares of Quick-Service Restaurants Inside Forecourt in
2019 .................................................................................................................................. 65
3.6 Café inside forecourt in Cambodia .......................................................................................................... 66
3.6.1 Market Overview ................................................................................................................... 66
Table 44 Cambodia Cafés Inside Forecourt Figures (2014-2019) ................................................... 66
3.6.2 Legislative and Regulatory Policies ...................................................................................... 67
3.6.3 Drivers and Constraints ........................................................................................................ 67
3.6.4 Market Outlook...................................................................................................................... 67
Table 45 Cambodia Cafés Inside Forecourt Figures (2020F - 2025F) ............................................. 68
3.6.5 Competitive Environment ...................................................................................................... 68
Table 46 Cambodia Market Rankings and Shares of Cafés Inside Forecourt in 2019 ..................... 68
3.7 Café outside forecourt in Cambodia ....................................................................................................... 69
3.7.1 Market Overview ................................................................................................................... 69
Table 47 Cambodia Cafés Outside Forecourt Figures (2014-2019) ................................................. 70
3.7.2 Legislative and Regulatory Policies ...................................................................................... 70
3.7.3 Drivers and Constraints ........................................................................................................ 70
3.7.4 Market Outlook...................................................................................................................... 72
Table 48 Cambodia Cafés Outisde Forecourt Figures (2020F-2025F) ............................................ 72
3.7.5 Competitive Environment ...................................................................................................... 73
Table 49 Cambodia Market Rankings and Shares of Cafés Outside Forecourt in 2019 .................. 73
4. THE PHILIPPINES .........................................................................................................................75
4.1 Macroeconomic environment in the philippines ...................................................................................... 75
4.2 The retailing industry in Philippines ........................................................................................................ 78
4.2.1 Market Overview ................................................................................................................... 78
4.2.2 Legislative and Regulatory Policies ...................................................................................... 81
4.2.3 Drivers and Constraints ........................................................................................................ 81
4.2.4 Market Outlook...................................................................................................................... 82
4.3 Convenience stores in the Philippines .................................................................................................... 84
4.3.1 Market Overview ................................................................................................................... 84
4.3.2 Drivers and Constraints ........................................................................................................ 86
4.3.3 Market Outlook...................................................................................................................... 87
4.3.4 Competitive Environment ...................................................................................................... 88
4.4 Forecourt retailers in the Philippines ....................................................................................................... 89
4.4.1 Market Overview ................................................................................................................... 89
4.4.2 Drivers and Constraints ........................................................................................................ 90
4.4.3 Market Outlook...................................................................................................................... 91
4.4.4 Competitive Environment ...................................................................................................... 92
4.5 Quick-service restaurants (QSR) inside forecourt in THE Philippines .................................................... 93
4.5.1 Market Overview ................................................................................................................... 93
4.5.2 Drivers and Constraints ........................................................................................................ 93
4.5.3 Market Outlook...................................................................................................................... 94
4.6 Café inside forecourt in Philippines ......................................................................................................... 95
4.6.1 Market Overview ................................................................................................................... 95
4.6.2 Legislative and Regulatory Policies ...................................................................................... 96
4.6.3 Drivers and Constraints ........................................................................................................ 96
4.6.4 Market Outlook...................................................................................................................... 97
4.6.5 Competitive Environment ...................................................................................................... 98
4.7 Café outside forecourt in Philippines....................................................................................................... 98
4.7.1 Market Overview ................................................................................................................... 98
4.7.2 Legislative and Regulatory Policies ...................................................................................... 99
4.7.3 Drivers and Constraints ........................................................................................................ 99

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PTT Oil and Retail Business Public Company Limited – Industry Overview

4.7.4 Market Outlook.................................................................................................................... 100

4.7.5 Competitive Environment .................................................................................................... 101
5. MYANMAR ...................................................................................................................................102
5.1 Macroeconomic environment in myanmar ............................................................................................ 102
Table 74 Myanmar GDP Figures (2014 – 2019)............................................................................. 102
Table 75 Population of Myanmar (2014 – 2019) ............................................................................ 103
Table 76 Myanmar Disposable Income Per Capita – Urban Residents (2014 – 2019) .................. 103
Table 77 Consumer Expenditure in Myanmar (2014 – 2019) ......................................................... 104
Table 78 Consumer Expenditure in Myanmar (2020F – 2025F) .................................................... 104
Table 79 Average Inflation Rate in Myanmar (2014 – 2019) .......................................................... 104
Table 80 Foreign Direct Investment Inflows of Myanmar (2013 – 2018) ........................................ 105
5.2 The retailing industry in Myanmar ......................................................................................................... 105
5.2.1 Market Overview ................................................................................................................. 105
Table 81 Myanmar Total Retail Sales (2014-2019) ....................................................................... 107
5.2.2 Legislative and Regulatory Policies .................................................................................... 107
5.2.3 Drivers and Constraints ...................................................................................................... 108
5.2.4 Market Outlook.................................................................................................................... 110
Table 82 Myanmar Total Retail Sales (2020F-2025F).................................................................... 110
5.2.5 Competitive Environment .................................................................................................... 111
Table 83 Myanmar Market Rankings and Shares of Retailers in 2019 ........................................... 112
6. LAOS ............................................................................................................................................113
6.1 macroeconomic environment in laos..................................................................................................... 113
Table 84 Laos GDP Figures (2014 - 2019) .................................................................................... 113
Table 85 Population of Laos (2014 – 2019) ................................................................................... 114
Table 86 Laos Disposable Income Per Capita – Urban Residents (2014 – 2019) ......................... 114
Table 87 Consumer Expenditure in Laos (2014 – 2019) ................................................................ 115
Table 88 Consumer Expenditure in Laos (2020F – 2025F)............................................................ 115
Table 89 Average Inflation Rate in Laos (2014 – 2019) ................................................................. 115
Table 90 Foreign Direct Investment Inflows of Laos (2013 – 2018) ............................................... 116
6.2 The retailing industry in Laos ................................................................................................................ 116
6.2.1 Market Overview ................................................................................................................. 116
Table 91 Laos Total Retail Sales (2014-2019) .............................................................................. 117
6.2.2 Legislative and Regulatory Policies .................................................................................... 118
6.2.3 Drivers and Constraints ...................................................................................................... 118
6.2.4 Market Outlook.................................................................................................................... 120
Table 92 Laos Total Retail Sales (2020F-2025F) .......................................................................... 120
7. SINGAPORE ................................................................................................................................122
7.1 Macroeconomic environment in singapore ........................................................................................... 122
Table 93 Singapore GDP Figures (2014 – 2019) ........................................................................... 122
Table 94 Population of Singapore (2014 – 2019) ........................................................................... 123
Table 95 Disposable Income Per Capita – Urban Residents in Singapore (2014 – 2019) ............. 123
Table 96 Consumer Expenditure in Singapore (2014 – 2019) ....................................................... 124
Table 97 Consumer Expenditure in Singapore (2020F – 2025F) ................................................... 124
Table 98 Average Inflation Rate of Singapore (2014 – 2019) ........................................................ 124
Table 99 Foreign Direct Investment Inflows of Singapore (2013 – 2018) ....................................... 125
7.2 The retailing industry in Singapore ....................................................................................................... 125
7.2.1 Market Overview ................................................................................................................. 125
Table 100 Singapore Total Retail Sales (2014-2019)...................................................................... 127
7.2.2 Legislative and Regulatory Policies .................................................................................... 127
7.2.3 Drivers and Constraints ...................................................................................................... 128
7.2.4 Market Outlook.................................................................................................................... 130
Table 101 Singapore Total Retail Sales (2020F-2025F) ................................................................. 130
7.2.5 Competitive Environment .................................................................................................... 132
Table 102 Singapore Market Rankings and Shares of Retailers in 2019 ......................................... 132

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PTT Oil and Retail Business Public Company Limited – Industry Overview

1. RESEARCH BACKGROUND

1.1 RESEARCH OBJECTIVE

PTT Oil and Retail Business Public Company Limited (the ‘Client’) is planning for an IPO listing on the Stock
Exchange of Thailand (SET) (the ‘Stock Exchange’) and requires an independent assessment of the petroleum
and forecourt retailing industry in the form of an Industry Overview report.

1.2 SOURCES OF INDUSTRY INFORMATION

This ‘Industry Overview’ section contains information prepared by Euromonitor International for the purposes
of the prospectus. The report was last updated in May 2020 based on data available at the time of publishing.

1.3 RESEARCH METHODOLOGIES

In compiling and preparing the Euromonitor Report, Euromonitor International used the following
methodologies to collect multiple sources, validate the data and information collected and cross-check each
respondent’s information and views against those of others:

• Secondary research, which involved reviewing published sources, including national statistics and
official sources such as publications, specialist trade press and associations, company reports (including
audited financial statements where available), independent research reports, and data based on
Euromonitor International’s own research database.
• Primary research involved interviews with a sample of leading industry participants and experts for the
latest data and insights into future trends, supplemented by verification and cross-checking of data and
research estimates for consistency.
• Projected data was obtained from a historical data analysis plotted against macroeconomic data with
reference to specific industry-related drivers.
• Review and cross-checks of all sources and independent analysis to build final estimates including the
size, shape, drivers and future trends of the retailing, convenience stores, forecourt retailers, café (inside
and outside forecourt) and quick-service restaurants - fast food (inside forecourt) industries in Thailand,
the Philippines, Cambodia, Myanmar, Laos and Singapore and prepare the final report.

1.4 FORECASTING BASES AND ASSUMPTIONS

Euromonitor International based the Euromonitor Report on the following assumptions:
• The report was based on information available during the research conducted from 27 th April, 2020 –
22nd May, 2020, incorporating industry perceptions of the potential impact the COVID-19 pandemic
may have on the demand for and supply of the retailing, convenience stores, forecourt retailers, café
(inside and outside forecourt) and quick-service restaurants - fast food (inside forecourt) industries in
Thailand, the Philippines, Cambodia, Myanmar, Laos and Singapore;
• The socio-economic environment is expected to be impacted by the COVID-19 pandemic, the degree of
which will vary over the forecast period of 2020-2025 across the six markets covered: Thailand, the
Philippines, Cambodia, Myanmar, Laos and Singapore;
• Historical key macroeconomic and sociodemographic drivers such as change in lifestyles, increasing
number of urban middle class are expected to contribute to the development of retailing, convenience
stores, forecourt retailers, café (inside and outside forecourt) and quick-service restaurants - fast food
(inside forecourt) industries. While the aforementioned key market drivers are the same for the forecast
period, these drivers are currently adversely affected by the COVID-19 pandemic;
• The disruption caused by COVID-19 is fast-changing and continues to evolve therefore forecasts and
analysis conducted during the time of the research may differ from actual market conditions;

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PTT Oil and Retail Business Public Company Limited – Industry Overview

• Euromonitor is updating its market reports and industry databases including Passport more frequently
as a result of COVID-19 and these data which are used as inputs or forecasts for this analysis may have
subsequently changed since the time of completion of this industry overview research. During the time
of the research Euromonitor used Passport’s Economies and Consumers 2020 Edition, Retailing 2020
Edition and Consumer Foodservice 2020 Edition;
• Euromonitor’s macroeconomic data and market value of the retailing, convenience stores, forecourt
retailers, café (inside and outside forecourt) and quick-service restaurants - fast food (inside forecourt)
are in nominal terms (2014-2025);
• The units of local currency per USD used for macroeconomic data and market value of the retailing,
convenience stores, forecourt retailers, café (inside and outside forecourt) and quick-service restaurants
- fast food (inside forecourt) are fixed year exchange rate as described in the following table:

Country Units of local currency per USD

(fixed year exchange rate, 2019)
Thailand 31.052
Cambodia 4,052.079
Philippines 51.843
Laos 8,689.686
Myanmar 1529.424
Singapore 1.364

The research results may be influenced by the accuracy of these assumptions and the choice of these parameters.
The market research was completed in May 2020 and all statistics in the Euromonitor Report are based on
information available at the time of reporting. Euromonitor’s forecast data is derived from an analysis of the
historical development of the market, the economic environment and underlying market drivers, and it is cross-
checked against established industry data and trade interviews with industry experts.

1.5 DEFINITIONS AND COVERAGE

Geographic Coverage

 Core countries:
 Thailand
 Cambodia
 The Philippines

 Non-core countries:
 Myanmar
 Laos
 Singapore

Industry / Category Definitions

 Retailing: Total retail sales value (aggregate of traditional and modern retail channels or the
aggregation of store-based retailing and non-store-based retailing). Retailing excludes the informal
retail sector.
 Convenience stores: Chained grocery retail outlets selling a wide range of groceries and fitting several
of the following characteristics:
 Extended operating hours in effect.
 Located in residential neighbourhoods.
 Handling two or more of the following product categories: audio-visual goods (for sale or
rent), foodservice (prepared takeaway, made-to-order and hot foods), newspapers or
magazines, cut flowers or potted plants, greetings cards and automotive accessories. Sales data
excludes foodservice sales.
 Example brands include 7-Eleven and SPAR.

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PTT Oil and Retail Business Public Company Limited – Industry Overview

 Note: The number of branches required to be termed chained varies from country to country
but is usually 10 or more. If a multinational is operating in the country, then this is included,
even if there are fewer than 10 outlets under the brand.
 Forecourt retailers: Grocery retail outlets selling a wide range of groceries from a petrol/gas station
forecourt and fitting several of the following characteristics:
 Extended operating hours in effect.
 Handling two or more of the following product categories: audio-visual goods (for sale or
rent), foodservice (prepared takeaway, made-to-order and hot foods), newspapers or
magazines, cut flowers or potted plants, greetings cards and automotive accessories. Sales data
excludes petrol/gas and foodservice sales.
 Example brands include BP Connect and Shell Select.
 Forecourt retailers is an aggregation of chained forecourt and independent forecourt retailers.
 Café: Outlets classified as cafés will have a wide selection of both food and drinks. The focus is
primarily on non-alcoholic beverages; however, a wide variety of food is offered and in some
establishments, this could account for a large portion of value. Cafés offer table service and
consumers tend to eat-in.
 Café also includes specialist coffee and tea shops which correspond to “coffee-themed”
outlets, focusing primarily on serving coffee as the main item on the menu, with a large variety
of different coffee types and coffee-related products. Such drinks are sold on their own or with
pastries, biscuits, cakes and sandwiches for consumption either on or off the premises.
However, these outlets are currently developing a wider range of food items, such as salads
and other light snacks. They usually offer takeaway and present a modern environment and
designer décor. The concept includes both coffee-to-go chains and independent coffee houses.
Can include outlets which sell coffee beans, such as Lavazza.
 Quick-service restaurants - limited-service restaurants: Outlets classified under this offer limited
menus that are prepared quickly. Customers order, pay and pick up their order from a counter. Outlets
tend to specialize in one or two main entrees such as hamburgers, pizza, ice cream, or chicken, but
they usually also provide salads, drinks, dessert etc. Food preparation is generally simple and involves
one or two steps, allowing for kitchen staff generally consisting of younger, unskilled workers.
 Other key characteristics include:
o A standardised and restricted menu;
o Food for immediate consumption;
o Tight individual portion control on all ingredients and on the finished product;
o Individual packaging of each item;
o Counter service;
o A seating area, or close access to a shared seating area, such as in a shopping centre food
court;
o For chained fast food, chained and franchised operations which operate under a uniform fascia
and corporate identity;
o Take-out is generally present, as is drive-through in some markets.

Period Coverage

Market review for this report has been carried out for the period covering 2014-2025, unless otherwise stated.
Specifically, the 2014-2019 period will be termed the historical or review period and 2020-2025 will be deemed
the forecast period for this entire report.

1.6 ABOUT EUROMONITOR

Established in 1972, Euromonitor International is the world leader in strategic research for both consumer and
industrial markets. Comprehensive international coverage and leading-edge innovation make our products
essential resources for companies large and small, national and global. With offices around the world and
analysts in 80 countries, the company is a leading provider of global market intelligence. Our products and
services are held in high regard by the international business community and we have 5,000 active clients,
including 90% of the Fortune 500 companies.

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PTT Oil and Retail Business Public Company Limited – Industry Overview

2. THAILAND
2.1 MACROECONOMIC ENVIRONMENT IN THAILAND
A strong economy expected to grow further

Thailand was the second largest economy in the Southeast Asian region in 2019; it was also the eighth-largest
economy in Asia with total GDP of THB 16,879.0 billion (USD 543.6 billion). Economic activity is
concentrated in the capital, with Bangkok’s port serving as the commercial centre of Thailand for imports and
exports. It is also the centre of retail activity, attracting a vast number of tourists yearly. Approximately a third
of all banks in Thailand, collectively holding over three-fourths of the deposits within the country, are located in
its capital. In addition, the majority of car manufacturing and petrochemical activities take place at the industrial
estates and parks close to Bangkok such as Bang Poo, Bang Kra Dee, Lat Krabang and the Bang Chan Industrial
Estate. Thus, it is anticipated that the nominal GDP remains to be significantly contributed by Bangkok and the
metropolitan area over the forecast period.

After a drop in GDP in 2014 due to political unrest between 2013 and 2014, GDP growth picked up again in
2015 and registered a healthy 5.0% CAGR during the period of 2014-2019. The key pillars of economic growth
were the manufacturing (focusing on automobiles, electronics and hard discs), and retail and wholesale sectors.
The first accounted for 25.3% of the country’s GDP and the latter was the second largest contributor to GDP,
accounting for 16.5% of its total in 2019. The growing disposable income positively impacted retail sales.
Middle- to higher-income consumers remained the key target for most retailers focused on novel higher-end
products. This benefited internet retailing, specialist stores, and innovative channel formats. An interesting case
is the convenience store chain, 7-Eleven, which has started to include in-store dine-in experiences. For example,
the 7-Eleven branch on Henri Dunant Road comprises three floors. The first floor is a 24-hour convenience
store, while there are dining tables, chairs and restrooms on the second and third floors for customers. The
opening hours of the second and third floors are 6.00 a.m. to 10.00 p.m.. Other specialist stores opening in
Thailand include Segafredo Zanetti and The Coffee Club, a specialist coffee chain.

In November 2019, the Bank of Thailand reduced the policy interest rate from 1.5% to 1.3% in an effort to boost
the economy. Thailand experienced rising disposable income, strong consumer expenditure, and increasing GDP
per capita, which reported a healthy 5.0% CAGR over the review period of 2014 to 2019. Overall, GDP growth
during the review period was boosted by the government’s infrastructure investment – including rail and road
infrastructure projects especially in rural areas – and increased consumer expenditure and healthy exports.
Tourism was also a growth pillar of the economy and, despite the downturn in 2013 and 2014, the industry
quickly picked up in the following years. The Tourism Ministry revealed that Thailand had a record of 39.8
million tourists in 2019, which was up 4.2% from 2018. Foreign tourist receipts directly account for about
11.5% of Thailand's GDP. In 2019, the average spending per tourist was THB 48,580.3 (USD 1,564.5) per
person. Overall, the tourism industry generated THB 1,933.4 billion (USD 62.3 billion) of foreign tourist
receipts in 2019. Tourism remains one of the key economic drivers in Thailand, and its continuous growth leads
to tourism-related job and business opportunities for the Thais, which will eventually support consumer
confidence.

Table 1 Thailand GDP Figures (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 – 2019
Thailand Overall
THB,
13,230.3 13,743.5 14,592.6 15,486.6 16,365.6 16,879.0 5.0%
Nominal billion
GDP USD,
426.1 442.6 469.9 498.7 527.0 543.6 5.0%
billion
Nominal
GDP % 2.4 3.9 6.2 6.1 5.7 3.1 NA
growth
THB 203,153.3 209,092.5 221,329.5 233,976.5 246,417.6 253,595.2 4.5%
GDP per
capita
USD 6,542.4 6,733.6 7,127.7 7,535.0 7,935.6 8,166.8 4.5%
Source: Office of The National Economic and Social Development Board, National Statistical Office Thailand

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A fast-ageing population

Thailand’s population is ageing quickly and will be the first developing country by 2030 to become an aged
society. The percentage of people who are more than 60 years old accounted for 16.7% of its total population in
2019. The Bangkok Metropolitan Area reported that 18.0% of its citizens were aged more than 60 years old in
2018, higher than the national average. In contrast, the poorer northeastern regions, where fertility rates tend to
be higher, which is in line with lower education levels, registered lower than average percentages of 15.4% in
2018.

The government is taking a number of measures to improve the current infrastructure in order to meet the needs
of an elderly population. Such measures include a tax break for firms hiring them; specifically, companies hiring
people aged 60 or older will be allowed to take a double tax deduction on wages paid to elderly employees who
earn up to THB 15,000 (USD 483.1) per month. In addition, the government allocated THB 287 billion (USD
9.2 billion) in 2016 for pension-related schemes, and the amount is expected to rise to THB 1,208 billion (USD
38.9 billion) by 2033.

Table 2 Population of Thailand (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
Total
000 65,124.7 65,729.1 65,931.6 66,188.5 66,414.0 66,558.9 0.4%
population
Urban
000 32,127.9 32,773.5 33,414.6 34,049.7 34,676.3 35,292.2 1.9%
population
Population
aged 60 and 000 9,110.8 9,455.8 9,802.1 10,225.3 10,666.8 11,136.1 4.1%
above
Population
aged 60 and
above, as 000 14.0% 14.4% 14.9% 15.4% 16.1% 16.7% NA
percentage of
total population
Source: National Statistical Office Thailand, Department of Provincial Administration, Euromonitor Passport - Economies and Consumers
2020 Edition

Government measures to boost disposable income prove fruitful

Urban consumers in Thailand enjoyed increased income during the review period of 2014 to 2019, with
disposable income per capita for urban consumers recording a CAGR of 2.7%. Social class C1 grew the fastest
amongst all of the social classes, supporting a growing urban middle class. Social classes D and E, however, are
expected to remain the most prevalent.

The government has undertaken several measures to help the lower social classes, including introducing a social
welfare and cash card, and providing greater access to basic commodities and services. In April 2016, the
Ministry of Finance proposed a series of income amendments such as an increase in deductible expenses, more
sizeable personal, spousal and children allowances, and changes to thresholds for tax filing obligations, amongst
others. In addition, minimum wages in Thailand increased to a maximum of THB 330 per day in 2019. All of
these measures are expected to narrow the income gap, increase disposable income and favour consumer
spending. Income growth is further supported by the country’s economic growth as the population, in general,
become more educated and have access to more and better job opportunities.

GDP per capita in Thailand will continue its growth into the future with robust economic growth. As education
levels rise, the urban population will be able to greatly increase their incomes with better-paying job
opportunities. Disposable income per capita for the urban residents of Thailand is expected to record stronger a
CAGR of 3.8%, as of May 2020, in the forecast period of 2020 to 2025.

1
Social Class data refer to the number of individuals whose incomes fall within a specified range of the average gross income of all
individuals aged 15+ in that country or region. Social Class A: +200%; Social Class B: between 150% and 200%; Social Class C: between
100% and 150%; Social Class D: between 50% and 100% and Social Class E: less than 50% of the average gross income.

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Table 3 Thailand Disposable Income Per Capita – Urban Residents (2014 – 2019)
CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
Disposable THB 137,733.5 138,397.8 143,098.3 148,025.5 152,922.3 157,728.3 2.7%
income per
capita – urban
residents USD 4,435.6 4,457.0 4,608.3 4,767.0 4,924.7 5,079.5 2.7%

Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Consumer expenditure enhanced by retail infrastructure and consumer confidence

Consumer expenditure registered a healthy CAGR of 5.6% over the review period of 2014 to 2019. This was
partly supported by augmented borrowing leading to higher household debt levels. Consumer spending was
bolstered by increased consumer confidence, the government’s tax deduction campaign to drive consumer
spending and an expansion of the already established retail trade in big cities, and a flourishing economy.

An appreciated Thai baht and affordable pricing for local necessities, as compared to neighbouring countries
such as Malaysia and Myanmar, contributed to strong growth at a 4.0% CAGR in consumer expenditure on food
and non-alcoholic beverages from 2014-2019. Expenditure on food and non-alcoholic beverages was also
facilitated by the expansion and popularity of convenience stores responding to consumers’ need for ease of
access. A wide range of restaurants are open 24/7, spanning a wide variety of cuisines and budgets, in big cities
and especially in Bangkok. The incident further benefited consumer expenditure on food. As of 2019,
consumers’ spending on food and non-alcoholic drinks was the highest amongst all product and service
categories, accounting for 23.2% of all consumer expenditure. Meanwhile, consumers’ spending on hotels and
catering came in the second rank, accounting for 18.4%, followed by consumers’ spending on transport for
13.1% and miscellaneous goods and services for 12.3%.

Consumer expenditure is expected to reach THB 13,378,190.9 million (USD 430,831.9 million) in 2025, as of 1
June 2020, as consumer disposable incomes increase. Consumer expenditure on food and non-alcoholic
beverages likewise will strengthen and is expected to grow at a CAGR of 5.5% through the forecast period of
2020-2025 to reach THB 3,174,055.9 million (USD 102,217.4 million) in 2025, driven mainly by increasing
disposable incomes leading to greater demand for higher-quality daily necessities.

Table 4 Thailand Consumer Expenditure (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
Consumer
expenditure
% 58.4 58.8 57.9 57.9 58.3 60.1 N/A
as a % of
GDP
THB
7,732,506.7 8,081,448.2 8,447,809.9 8,967,074.4 9,538,742.1 10,150,012.9 5.6%
Consumer million
expenditure USD
249,018.0 260,255.3 272,053.6 288,776.1 307,186.1 326,871.5 5.6%
million
Consumer THB
expenditure 1,937,241.6 1,987,389.3 2,064,820.7 2,088,282.0 2,218,145.2 2,352,058.0 4.0%
million
on food and
non-alcoholic USD
62,387.0 64,002.0 66,495.6 67,251.1 71,433.2 75,745.8 4.0%
beverages million
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

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Table 5 Thailand Consumer Expenditure (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F -
2025F
Consumer
expenditure
% 63.1 63.8 64.2 64.6 64.8 65.0 N/A
as a % of
GDP
THB
10,058,437.4 10,775,055.5 11,429,066.7 12,072,486.1 12,723,591.9 13,378,190.9 5.9%
Consumer million
expenditure USD
323,922.4 347,000.4 368,062.2 388,782.9 409,751.1 430,831.9 5.9%
million
Consumer THB
expenditure 2,426,583.0 2,644,695.9 2,784,061.7 2,892,228.2 3,020,707.0 3,174,055.9 5.5%
million
on food and
non- USD
alcoholic 78,145.8 85,169.9 89,658.0 93,141.4 97,279.0 102,217.4 5.5%
million
beverages
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Low inflation thanks to low CPI and a strong Thai baht

Inflation stood at particularly low levels over the review period, thanks to affordable pricing for necessities
compared to neighbouring countries. In addition, a strong Thai baht further helped to keep inflation rates down.
Since 2016, the Thai baht has surged more than 19% against the dollar. The Bank of Thailand maintained its
policy interest rates at a record of 1.75% from December 2018 to July 2019, and lowered it in August 2019 to
1.50% and in November 2019 to 1.25%. The low rates have encouraged consumer and corporate lending.
Inflation is expected to increase in the future due to greater economic growth and higher wages. However, it is
expected to remain at low levels and within the target range projected by the Bank of Thailand.

Table 6 Thailand Average Inflation Rate (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 - 2019
Average inflation
% 1.9 -0.9 0.2 0.7 1.1 0.7 N/A
rate
Source: Bank of Thailand, Ministry of Commerce

Foreign Direct Investment (FDI) inflows not a major economic driver

FDI inflows represented 2.1% of the country’s GDP in 2018. This percentage is quite low compared to other
countries in the region and shows that FDI is not a major economic driver for Thailand. For example, FDI in
Singapore and Cambodia amounted to 19.1% and 12.5% of total GDP, respectively, in 2017. FDI registered a
CAGR of -6.6% in Thailand over the period of 2013-2018 owing to large divestments by multinational
companies and sluggish cross-border merger and acquisition sales. Political unrest in 2013-2014 and corruption
practices further discouraged foreign investors.

On the other hand, Thailand is in the top 5 of Southeast Asian countries in the World Bank’s Ease of Doing
Business 2019 Report. The country has made big improvements in terms of greater investment freedom for
businesses as well as facilitation of the process to start up a company from 27.5 days previously to only 4.5 days.
FDI was encouraged by a low tax burden and strong government investment to upgrade the already developed
road infrastructure focusing on rural areas. The government also announced a plan to invest in the information
and technology sectors. The latter includes the 2017-2021 Digital Government Plan, which aims to improve e-
governance as well as to increase digital activities in the public and private sectors.

Table 7 Thailand Foreign Direct Investment (FDI) Inflows (2013 – 2018)

CAGR
Unit 2013 2014 2015 2016 2017 2018 2013-
2018
THB
Foreign direct 475,889.0 156,228.3 192,653.2 64,067.2 219,861.0 339,034.7 -6.6%
million
investment
inflows USD
15,325.6 5,031.2 6,204.2 2,063.2 7,080.4 10,918.3 -6.6%
million
Source: Euromonitor - Passport Economies and Consumers 2020 Edition, as of 1 June 2020

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2.2 THE RETAILING INDUSTRY IN THAILAND

2.2.1 Market Overview
Store-based retailing still the key retail channel

The retailing industry in Thailand can be examined in terms of store-based retailing and non-store-based
retailing. Store-based retailing is the main channel of sales, with a market share of 92.4% of total retail sales in
2019, valued at THB 3,468,018.3 million (USD 111,252.1 million).

Store-based retailing includes grocery retailers, non-grocery specialists, and mixed retailers. Store-based grocery
retailers accounted for 58.4% of total store-based retail sales in 2019, and include convenience stores,
discounters, forecourt retailers, hypermarkets, supermarkets, food/drink/tobacco specialists, independent small
grocers, and other formats of grocery retail. Store-based non-grocery specialists accounted for 36.2% of total
store-based retail sales in 2019; offers include apparel and footwear, electronics and appliances, health and
beauty products, home and garden items, leisure and personal goods, among many other categories of non-
grocery goods. Mixed retailers come in formats of department stores, mass merchandisers, variety stores, and
warehouse clubs, accounting for only 5.5% of total store-based retail sales in 2019 but recording a CAGR of
5.8% between 2014 and 2019.

Non-store-based retailing includes direct sales, home shopping, internet retailing and vending. E-commerce and
direct selling are the most common format of non-store retail, recording sales of THB 160,329.1 million (USD
5,143.3 million) and THB 98,212.8 million (USD 3,150.6 million), respectively, in 2019.

Internet retailing grew significantly, driven by mobile internet retailing

Among the various retailing channels, internet retailing grew the most, from THB 38,108.6 million in 2014 to
THB 160,329.1 million in 2019. Investments to improve technological infrastructure in Thailand under the
government’s Thailand 4.0 policy will further increase internet penetration. Major improvements in online
payment services and last-mile delivery logistics have contributed to the growth in internet retailing. In 2014,
internet retailing constituted 25.2% of total non-store-based retail sales; by 2019, it accounted for 56.5% of total
non-store-based retail sales.

Mobile internet retailing is one of the growing e-commerce channels, driven by increasing mobile phone
penetration in Thailand. The percentage of mobile phone users grew from 73.3% in 2013 to 88.2% in 2017 and
to 89.6% in 2018. In 2018, there were 73.9% of people with access to the internet via mobile phones (3G).
Mobile e-commerce grew from just THB 3,834.7 million (USD 123.0 million) in 2014 to THB 79,766.6 million
(USD 2,558.9 million) in 2019, registering a CAGR of 83.5% between 2014 and 2019.

Retail landscape remains competitive and fragmented in Thailand

There are a number of key players in the retail landscape, but no particular player dominates the retail scene in
Thailand.

Looking at store-based retailing, 7-Eleven, Tesco Lotus (Tesco Lotus Extra and Tesco Lotus Express), Big C,
and Central Department Store are the top 5 brands. CP All PCL, which operates 7-Eleven stores in Thailand, has
11,889 outlets in 2019 and holds 10.4% of total store-based retail sales in 2019. While other brands in the top 5
are all well-known, no single brand holds more than 10% of the market share by store-based retail sales. The
bulk of the market share by store-based retail sales is held by multiple brands too small to be listed.

For non-store-based retailing, Amway, a direct sales company with an established multi-level network of sellers,
is the top market shareholder. This is followed by Mistine, a cosmetics brand. Lazada, the leading player for
online retailing within Thailand, was ranked third among non-store retailing companies in 2019.

Even with the strong branding of some of the global or local brands, the retail landscape remains fragmented. As
the retailing environment evolves to accommodate newer retail formats such as internet retailing, competition
will continue to intensify with more players entering the market.

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Retail market performance is historically stable

The retailing industry in Thailand recorded stable performance between 2014 and 2019 with a CAGR of 3.3% in
retail sales value, consistent with GDP per capita growth at a CAGR of 4.5% over the same period. The retail
market grew from THB 3,193,362.0 million (USD 102,839.2 million) in 2014 to THB 3,751,976.1 million (USD
120,828.8 million) in 2019. In line with the forecast GDP growth, Thailand's retailing industry is expected to
maintain its growth potential.

Table 8 Thailand Total Retail Sales (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014 -
2019

Total THB million 3,193,362.0 3,289,437.5 3,367,252.0 3,487,269.7 3,598,736.2 3,751,976.1 3.3%
Retail
Sales USD
102,839.2 105,933.2 108,439.1 112,304.2 115,893.9 120,828.8 3.3%
million
Source: Euromonitor Passport - Retailing 2020 Edition

2.2.2 Legislative and Regulatory Policies

Foreign investment policy allows 100% foreign ownership

While the Foreign Business Act (B.E. 2542) lists out key industries where foreign businesses are not permitted
to enter, there are regulations pertaining to foreign direct investment in the retailing and wholesale business that
allow up to 100% foreign ownership upon obtaining the relevant permissions from the Foreign Business
Registrar.

This is favourable to large retailing corporations with more than THB 100 million (USD 3.2 million) worth of
registered and paid-up capital to enter and compete in the Thai market. However, no big foreign player has
applied for full ownership thus far, as expertise and knowledge of local operations is critical. This presents an
opportunity for local players to form partnerships with international companies.

Small store formats introduced in compliance with land use regulations

Land use in Thailand is regulated under the Building Contract Act (BCA), with restrictions placed on the sizes
of buildings used for retailing or wholesale purposes. Large retail stores (of more than 1,000 square meters) must
be located at least 15 kilometres from the commercial centres of the provinces in Thailand. This restricts the
expansion of hypermarkets and seeks to help protect small traditional retail stores operated by independent
owners. In compliance with the government regulations, modern retail companies have introduced more small
store formats, such as convenience stores and forecourt retailers with store space of less than 300 square meters.

New laws governing retail and wholesale businesses

To regulate retail and wholesale businesses, a modified Retail and Wholesale Business Act was proposed by the
National Legislative Assembly (NLA) for cabinet approval in early 2017. The new law establishes clear criteria
and requirements for expansion and controls the locations of operation. It also proposes a corporate tax payment
scheme based on the number of branches and income generated. Once the draft has been passed into law, it is
expected to control the expansion of major store-based grocery retailers such as hypermarkets and supermarkets
to protect local small businesses.

2.2.3 Drivers and Constraints

Government promotes domestic tourism and consumption to spur economic growth

GDP growth has a direct impact on retail spending by consumers and tourists. Thailand’s GDP grew by 3.1% in
2019, the slowest since 2014. The economy was adversely affected by a contraction of exports due to the strong
baht and the ongoing trade war between the US and China. Exports of goods and services fell by 2.6% in 2019
compared to the previous year. To spur domestic consumption, the Thai government launched various

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campaigns to encourage domestic tourism. In one of the campaigns, second-tier city travelling expenditure was
allowed to be included as a deductible expense in personal income tax declarations.

Smartphone penetration drives on-the-go purchases

In 2019, there were an estimated 40 million internet users in Thailand, with the majority of internet users in the
country estimated to access the internet via smartphones rather than other devices. According to the results of
the 2018 Household Survey on the use of Information and Communication Technology published by the
National Statistical Office of Thailand, 73.9% of internet users connect to the internet via 3G due to the
increasing usage of smartphones. Smartphones have increasingly become the main channel of internet access in
Thailand, and consumers are spending more time on their smartphones to shop on-the-go. Major retailers are
leveraging this consumer behaviour trend to build mobile apps to capture sales, and to increase their efforts in
mobile marketing.

Changes in demographics drive changes in retail formats

A fast-growing middle class population with strong spending power in Thailand drives demand for higher-
quality goods. At the same time, the social structure has changed, especially in cities where household sizes have
become smaller, as has the lifestyle of Thais. As the lifestyles of Thais in urban areas are busy and hectic, more
purchases are made on-the-go. With laws regulating locations of hypermarkets or other large retail stores, that
limit the opening of more outlets, the market has seen growth in small retail formats such as convenience stores
to meet the daily needs of consumers and smartphone usage will impact the growth in internet retailing.

2.2.4 Market Outlook

Retailing market continues to grow

On 22 March 2020, the Bangkok governor announced a COVID-19 lockdown which forced department stores,
shopping malls and non-essential retail outlets in Bangkok and its vicinity to close. In April, some local
governors also enforced the lockdown in other large cities including Phuket, Songkhla, Satun, Pattani and
Chiang Rai. Apart from the lockdown, the government also announced a state of emergency and enforced a
nationwide curfew until the end of June. Although increased sales for grocery retailers have been observed,
retail sales of non-grocery products have decreased as retail outlets are closed and consumers focus more on
purchasing essential items. Furthermore, retailers also experienced sales loss from having less tourists during
this period as the lockdown contributed to a decline in overall tourism as well. Retail sales is expected to
improve after the Centre for Covid-19 Situation Administration (CCSA) announced a partial release of the
lockdown in May and department stores started to reopen from 17 May. Overall, retail sales is expected to
decrease by 1.0% in 2020. Additionally, it is expected that employment and consumer income will take time to
recover in the second half of 2020 and should improve from 2021 onwards. Thus, retail sales is forecast to pick
up by 8.3% in 2021 and 7.1% in 2022 as consumer confidence and purchasing power returns. The retailing
industry of Thailand is expected to extend its growth from 2022-2025 by about 6-7% per year. Further economic
growth is anticipated in Thailand over the forecast period. Total retail sales is projected to record a CAGR of
6.7% over the forecast period, growing from THB million 3,713,134.1 (USD 119,577.9 million) in 2020 to THB
5,126,602.5 million (USD 165,097.3 million) in 2025.

Table 9 Thailand Total Retail Sales (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F
2020F - 2025F
THB
Total 3,713,134.1 4,021,324.2 4,306,838.2 4,582,475.9 4,848,410.1 5,126,602.5 6.7%
million
Retail
Sales USD
119,577.9 129,502.9 138,697.6 147,574.3 156,138.4 165,097.3 6.7%
million
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

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Retail will evolve to complete the consumer experience

Consumers now have ever more choices from the retailing industry – from the range of products or services, to
the brands, to the formats of purchase – resulting in a slowing of same-store sales growth. Retailers must now
put in more effort to remain competitive and relevant in the market. Central Group, for example, invested THB
350 million (USD 11.3 million) to rejuvenate its department stores with new décor and store layouts to keep
consumers in for longer periods of time in an attempt to increase sales. Novelty concepts, such as bringing in
new brands and adding new products and services, are essential to add value to the consumer experience. Family
Mart’s Holiday Inn Silom Store, opened in February 2017, houses a Segafredo Zanetti café and a Bread Today
bakery, and offers products beyond packaged goods, including fresh fruit, cooked meals and more. Grocerants
were also launched in premium supermarkets, where consumers can select the ingredients in the supermarket
and have these prepared by a chef in-house. Consumers will increasingly be able to enjoy a complete experience
in retail stores.

Thailand 4.0 pushes retail sector towards digitalization

Investment in the development of digital infrastructure to build a smart city continues to grow. As digital
technologies are increasingly being applied in daily life, the Thai government leads the move towards Thailand
4.0, a value-based economic model proposed by the government which focuses on leveraging innovation and
technology to drive the country’s economy. The proliferation of smartphone usage in Thailand leads to quicker
adoption of mobile technologies as compared to other technologies. The retailing industry in Thailand is no
exception, seen in the rapid growth of internet retailing. Currently, the growth of internet retailing is driven
mainly by sales of non-grocery products for which the customer is less sensitive about the delivery lead time,
such as apparel or household items, led by players like Lazada of Alibaba Group.

Major store-based retailers such as Big C, Tesco Lotus, and Tops, have also made their foray into internet
grocery retailing by developing their own mobile apps for consumers to place orders for grocery products in
advance.

Central Food Retail Group, for example, offers a click-and-collect option for over 10,000 products and this is
rapidly gaining popularity among consumers. With improvements in logistics infrastructure as well as secure
online payment methods under the Thailand 4.0 policy, online retail of grocery products is also expected to
grow.

2.3 THE CONVENIENCE STORES IN THAILAND

2.3.1 Market Overview
Convenience stores offering more to stay competitive

Traditionally, convenience stores sold goods for daily consumption. With intense competition, convenience
stores have expanded their offerings beyond products to provide a full range of services. Many convenience
stores now offer services such as bill payment and mobile phone value top-up and in-store automated machines
such as ATMs. Convenience stores are also introducing in-house brands or bringing in new brands with
innovative campaigns to keep customers returning.

As internet retailing grows rapidly in Thailand, convenience stores are expected to be well positioned to connect
online retailing with the offline world. Round-the-clock operating hours make convenience stores a perfect
collection point for consumers who make online purchases.

A consumer shift towards more convenient retail formats

Small retail formats are among the fastest growing in the modern retail landscape. The Thai Retailers
Association reported a total of 15,883 small format chained retail stores in 2017. These stores are located in
easily accessible locations and have become a part of the daily life of Thai people. Consumers have changed
their purchase behaviours, choosing to make small purchases more frequently, as and when supplies deplete.
Such small retail stores meet the needs of the consumers with their diverse product range and convenient

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locations. The prices at convenience stores are slightly higher than those at bigger stores like supermarkets, but
they are still affordable for the general consumers.

Retailers, too, have an increased preference for expanding via small format retail stores. Opening small stores is
quicker and is not subject to many of the land use regulations. The number of convenience stores increased by
4.6% from 2018 to 2019, while the expansion of hypermarkets has slowed down with the number of
hypermarket outlets plateauing at around 350 outlets. Large-store formats like hypermarkets have slowed down
due to the land-use regulations and decreased availability of large plots of land. In addition, smaller stores have
become more popular due to changes in consumer behaviours driven by smaller family sizes and demand for
convenience.

Outlet expansion outpaces sales growth

There were 14,651 convenience store outlets in 2019, and the sales of convenience stores accounted for 19.5%
of total retail sales of grocery retailers. Between 2014 and 2019, the value sales of convenience stores grew at a
CAGR of 4.5% from THB 315.5 billion (USD 10.2 billion) in 2014 to THB 394.6 billion (USD 12.7 billion) in
2019. Correspondingly, the number of outlets grew from 10,781 in 2014 to 14,651 in 2019 at a CAGR of 6.3%,
while the selling space grew from 1,462,000 square meters in 2014 to 1,978,000 square meters in 2019, at a
CAGR of 6.2%. As the growth in the number of outlets and amount of selling space outpaced the growth in
convenience store sales, sales per outlet and sales in THB per square meters registered negative CAGRs.

Table 10 Thailand Convenience Store Figures (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
THB
316,518.5 338,041.8 348,183.0 368,082.4 382,360.5 394,589.5 4.5%
Convenience million
stores sales USD
10,193.2 10,886.3 11,212.9 11,853.7 12,313.6 12,707.4 4.5%
million
Number of
- 10,781 11,496 12,245 13,226 14,008 14,651 6.3%
outlets
square
Selling
meter, 1,461.9 1,551.4 1,656.1 1,773.6 1,885.1 1,977.6 6.2%
space
‘000

THB 29,358,918.5 29,405,167.0 28,434,708.0 27,830,213.2 27,295,866.6 26,932,598.5 -1.7%

Sales per
outlet
USD 945,475.9 946,965.3 915,712.6 896,245.4 879,037.3 867,338.6 -1.7%

Sales per THB 216,511.7 217,894.7 210,242.7 207,534.1 202,833.0 199,529.5 -1.6%
selling space
(square USD 6,972.6 7,017.1 6,770.7 6,683.4 6,532.0 6,425.7 -1.6%
meter)
Convenience
stores’ sales
contribution % 17.2% 17.9% 18.3% 18.7% 19.2% 19.5% N/A
to grocery
retailers
Source: Euromonitor Passport - Retailing 2020 Edition

2.3.2 Drivers and Constraints

Urbanization encourages convenience store expansion

The urban population of Thailand stood at 53.0% of the total population in 2019, which is lower when compared
with some of the nearby countries such as Malaysia with a 77.3% urban population and Indonesia with 56.5%.
Modern retail is still underpenetrated, at around 200 branches per one million population, and there remains
room for branch expansion to reach more consumers, especially through small retail formats like convenience
stores and mini supermarkets, as the population becomes increasingly urbanised. The proportion of urban
population has been showing growth from approximately 49.3% in 2014 to 53.0% in 2019, and the number of
urban population is expected to reach 38,694,300 in 2025.

Convenience stores’ penetration is relatively higher in urban areas such as Bangkok and Greater Bangkok, as
real estate expands vertically. More people are living in apartments and high-rise buildings, so small retail

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PTT Oil and Retail Business Public Company Limited – Industry Overview

format, such as convenience stores, is expected to become the most appropriate form of retail in these crowded
and land-scarce locations due to the lifestyles of the urban population and the greater affluence of consumers. In
less developed regions such as the northeastern Thailand, consumers are more price-sensitive and are also more
familiar with traditional retail formats, choosing to visit traditional grocery retail stores over modern retail
stores.
Rising middle class seek convenience

The middle class population in Thailand is growing rapidly. With rising affluence, Thai consumers have become
more brand conscious and less price-oriented. As a result, Thais are gravitating towards visiting modern
convenience stores for their daily grocery needs because of the convenience provided in terms of travelling time,
product and service offerings.

Influx of investment strengthens market positions of key players

Due to the high competition in the retail landscape in Thailand, major players in Thailand see the need to expand
rapidly to strengthen their market positions. To increase market penetration quickly, companies are investing in
physical retail stores. Small retail outlets are seen as a quicker way to increase presence in the market. With the
influx of investment in the convenience store sector from key players, the number of convenience store outlets is
forecast to see growth of 4.1% from 2020-2025. This, as well as other factors, such as changes in consumer
lifestyle behaviours and government regulations, encourages the growth of smaller retail formats.

Lack of proper land use planning

Regulations on land use planning were not enforced until recently; it is thus common to see many brands of
convenience stores clustered together in high-traffic areas, competing for same customers. This invariably leads
to low profit margins for the store owner. Prime locations are taken up by key players, which make it difficult
for competing brands to operate successfully and profitably in the same space.

Higher costs affect competitiveness in less developed regions

The cost of operation of a modern retail outlet such as a convenience store is higher than that of a traditional
trade outlet such as traditional mom and pop stores. Additional costs include management fees payable to global
brand owners, marketing expenditure, as well as higher rental costs since convenience stores are often located in
prime locations. In exchange, consumers often pay more for the same product purchased from a convenience
store as compared to the same purchased from other channels such as hypermarkets or supermarkets. Even
though the price premium of convenience stores is not high in Thailand, this can still affect the convenience
store penetration rate in less developed regions of Thailand, where the consumer is more price-sensitive as
compared to the urban Thai consumer.

Rising labour cost is a key concern in expansion

As key retail companies expand the number of convenience stores, the rising labour costs have become a
bottleneck. The Thai population has grown in affluence and are becoming more educated, so they seek
knowledge-based and skill-based jobs which offer higher salaries. Convenience stores are typically operated 24
hours day, and it has become more difficult to hire employees for the night shift. The shortage in manpower has
become a key consideration in planning new outlets.

Convenience store sales grow in importance to grocery retailers

As the COVID-19 lockdown has forced consumers to work from home and restricted tourism, the situation has
impacted the traffic inside convenience stores located within the CBD and areas popular with tourists, especially
in Bangkok and other big cities. As such, convenience stores sales is projected to grow at a slower pace at 2.1%
in 2020 and expected to pick up as the Centre for Covid-19 Situation Administration (CCSA) announced the
partially release of lockdown in May and consumers started to go back to work. Additionally, it is expected that
the number of inbound tourisms will start to gradually pick up from 2021 onwards, which will benefit
convenience stores outlets located in touristic area. Thus, the convenience stores sales is forecast to increase by
7.3% in 2021 and 6.0% in 2022 as consumers continue to prioritize their spending on food and household
products. Over the forecast period of 2020 to 2025, convenience stores sales is projected with a CAGR of 6.4%.
The increase in number of outlets will support the increase in sales from 2020-2025, and sales per outlet will
continue to increase in the forecast period. By the end of the forecast period, total convenience store sales,

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PTT Oil and Retail Business Public Company Limited – Industry Overview

valued at THB 549,698.4 million (USD 17.7 billion), and it is expected to contribute approximately 21.1% of
total sales of grocery retailers in 2025.

Table 11 Thailand Convenience Stores Figures (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F-
2025F
THB
403,006.9 432,267.7 458,203.7 485,542.0 515,419.9 549,698.4 6.4%
Convenience million
stores sales USD
12,978.5 13,920.8 14,756.0 15,636.4 16,598.6 17,702.5 6.4%
million
Number of
- 14,936 15,561 16,196 16,841 17,496 18,160 4.0%
outlets
square
Selling
meter, 2,019.1 2,108.0 2,198.6 2,291.0 2,384.9 2,480.3 4.2%
space
‘000

Sales per THB 26,982,250.1 27,778,912.4 28,291,165.4 28,830,946.0 29,459,297.1 30,269,736.0 2.3%
outlet
USD 868,937.6 894,593.3 911,090.0 928,473.1 948,708.5 974,807.9 2.3%
Sales per THB 199,594.4 205,063.3 208,405.7 211,938.6 216,119.4 221,627.5 2.1%
selling space
(square USD 6,427.7 6,603.9 6,711.5 6,825.3 6,959.9 7,137.3 2.1%
meter)
Convenience
stores’ sales
contribution % 19.2% 19.7% 20.0% 20.3% 20.7% 21.1% NA
to grocery
retailers
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

2.3.3 Market Outlook

Retailers become more careful in planning outlet expansion

Historically, key retailers focused on strengthening market presence by opening more outlets. The modern retail
market is forecasted to continue its growth. Between 2014 and 2019, the CAGR of convenience store sales
stands at 4.5% but same-store sales growth sees a trend of slowing down.

In the forecast period, retail companies are anticipated to move towards optimizing sales per outlet and will be
more careful in planning the opening of new branches, taking into greater consideration factors such as location
and planning new outlets with different retail formats.

New business models will arise

To cope with increasing competition, retailers are looking to create brand loyalty by providing consumers a
complete and value-added customer experience. Modern grocery retailers engage with customers by providing
dine-in experiences with ingredients sold within the outlet. Convenience stores have fast become an alternative
to restaurants and cafés for consumers to enjoy a meal with an expanded range of hot food and beverages.

The number of convenience store outlets operating in the country grew by 35.9% from 2014-2019. Even with
this high expansion, there remain growth opportunities with new business models. Retailers are creating
mutually beneficial partnerships, such as with service stations to operate convenience stores within service
stations. Drivers, especially those travelling long distances, may stop at service stations to refill petrol as well as
take a break, often purchasing food and drinks as well. There are more than 25,000 service stations operating
across the country, with more than 2,000 of these hosting a convenience store. Convenience store operators may
look in this direction to capture more sales in under-served locations.

Opportunities for new players to enter the market

Despite the intense competition, the convenience store sector remains lucrative as consumer demand grows.
Players in non-retail industries may see an opportunity to expand their business and enter the grocery retail
market by operating small retail formats such as convenience stores in high-traffic areas, which require less
investment than opening a hypermarket.

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PTT Oil and Retail Business Public Company Limited – Industry Overview

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PTT Oil and Retail Business Public Company Limited – Industry Overview

2.3.4 Competitive Environment

7-Eleven adopts strategy of aggressive expansion

While there are many convenience store outlets in Thailand, there are only a handful of major brands. Smaller
convenience store chains face increasing competitive pressure due to the aggressive expansion of leading brands
like 7-Eleven. 7-Eleven, operated by CP All, remains the leading convenience stores player, capturing the
majority of market shares. Player 2 also comes in second in terms of number of outlets, with 1,384 outlets as of
2019. Player 3 maintained its position as the third biggest player in terms of market share. Player 4 grew the
number of outlets from 275 outlets in 2016 to 516 outlets in 2019; this represents the company’s focus on small
retail formats.

In the period between 2014 and 2019, 7-Eleven adopted a successful strategy of aggressive expansion. The
company has also planned store expansions, renovations, and new project investments to maintain its foothold as
the top player. In 2019, 7-Eleven continues to launch new store concepts. Apart from the stores which are
located near office buildings and condominiums, it is planning to open two-storey duplex stores, and large-size
stores with parking lots. It also opened stores in high-end department stores, like Gaysorn Village in Bangkok.

Player 2’s outlets are the largest, with an average selling space of 180 square meters. The retail format of Player
2 is a combination of the formats of supermarkets and convenience stores, known as a “Super-Convenience-
Store”, which explains the relatively bigger size. They come as stand-alone outlets, or are located within
community malls and service stations. Player 4’s outlets are 160 square meters on average, 7-Eleven’s outlets
are 125 square meters on average, and Player 3’s outlets the smallest at 120 square meters.

Table 12 Thailand Market Share Ranking of Convenience Stores in 2019

Ranking Convenience Store Brand % Market Share by Revenue Listing Status

1 7-Eleven 79.8 Public

2 Player 2 6.9 Private

3 Player 3 4.7 Private

4 Player 4 1.7 Public

5 Player 5 1.5 Public

Source: Euromonitor Passport - Retailing 2020 Edition

2.4 THE FORECOURT RETAILERS IN THAILAND

2.4.1 Market Overview
Service stations partner with convenience stores

Service stations usually do not have expertise in the management of grocery retail outlets. To complete the
customer experience and capture retail market share, service station companies are partnering with convenience
store brands to manage the forecourt retail space.

OR, accounting for 40.5% of the market share in terms of sales volume of gasoline and diesel in 2019, is the
largest oil retailer in Thailand as of 2019 and has forecourt retail outlets under the 7-Eleven and Jiffy brands.
This is a mutually-beneficial partnership, as 7-Eleven expanded its branches in OR’s service stations to achieve
complete national coverage. Esso is phasing out its own retail brand, Tiger Mart, and replacing it with Tesco
Lotus Express, Lawsons, Family Mart, or S Mart. Its key forecourt retailer partner is Tesco Lotus Express; in
2019, there were about 638 Esso service stations, and around 273 Tesco Lotus Express forecourt retail outlets in
the service stations.

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PTT Oil and Retail Business Public Company Limited – Industry Overview

Service stations building business networks beyond oil

Service stations started as a rest stop for drivers as they refill petrol but are increasingly adding a wide range of
other services. The most common is tie-ups with convenience store brands to open forecourt retail outlets to
meet the needs of consumers. Service station companies are now seeing the need to build a network of oil and
non-oil businesses. In 2016, Bangchak signed an exclusive partnership with SPAR, a joint venture between
Bangchak Retail and SPAR International from the Netherlands. Bangchak aims to operate 300 SPAR outlets at
its service stations by the end of 2020 to support demand from drivers and residents of communities in
proximity.

Services included depends on size and location of service station

Forecourt retailers may be classified by size. There are large format service stations located along major
roadways – the target segment is often making long rest stops on long drives, thus the forecourt retail space
would include a comprehensive range of services, including smaller-sized supermarkets, quick-service
restaurants, and cafés. For the standard-sized service station, it would include at least a convenience store
stocked with ready-to-eat food and drink items. Finally, there are also small-sized service stations located along
secondary roads – the forecourt retail space would offer basic products or services, since there are usually bigger
outlets located in close proximity or along main roads.

Forecourt retailers sales has potential to grow more

Between 2014 and 2019, forecourt retailers sales recorded a CAGR of 7.2%, growing from THB 45,458.7
million (USD 1,464.0 million) in 2014 to THB 64,462.7 million (USD 2,076.0 million) in 2019. Sales per outlet
growth was at a lower rate than the growth of number of outlets and selling space, implying a need for operators
to strategize outlet openings. Overall, forecourt retailers sales contribute at 3.2% to grocery retailers in 2019.

Table 13 Thailand Forecourt Retailers Figures (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
THB
Forecourt 45,458.7 46,822.5 49,631.8 54,330.8 60,128.2 64,462.7 7.2%
million
retailers
USD
sales 1,464.0 1,507.9 1,598.3 1,749.7 1,936.4 2,076.0 7.2%
million
Number of
- 2,217 2,282 2,442 2,657 2,756 2,936 5.8%
outlets
square
Selling
meter, 200.0 213.5 227.1 237.8 245.3 261.6 5.5%
space
‘000
THB 20,504,600.8 20,518,185.8 20,324,242.4 20,448,174.6 21,817,198.8 21,955,946.9 1.4%
Sales per
outlet
USD 660,331.1 660,768.6 654,522.8 658,513.9 702,602.0 707,070.3 1.4%

Sales per
selling THB 227,293.5 219,309.1 218,546.0 228,472.7 245,121.1 246,445.2 1.6%
space
(square
USD 7,319.8 7,062.6 7,038.1 7,357.7 7,893.9 7,936.5 1.6%
meter)
Forecourt
retailers
sales
% 2.5% 2.5% 2.6% 2.8% 3.0% 3.2% N/A
contribution
to grocery
retailers
Source: Euromonitor Passport - Retailing 2020 Edition

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PTT Oil and Retail Business Public Company Limited – Industry Overview

2.4.2 Drivers and Constraints

Consumers demand convenience

Service stations and forecourt retail outlets are conveniently located, often ‘on the way’. Consumer lifestyles are
getting busier and consumers want convenience in both products and location for purchase. Forecourt retail
outlets are therefore the perfect channel for grocery retailers to reach out to busy consumers who might want to
grab a quick dinner or coffee as they refill the petrol of their cars or make a rest stop.

Technology changes the way consumers buy from forecourt retailers

Technology has changed the forecourt retail experience. In Thailand, Shell offers its customers mobile
functionality within the forecourt experience by allowing them to order food and beverages via an app for
delivery to their cars. Shell customers can also make use of PASSPay, a mobile app to pay for fuel without
having to step out of their cars. Forecourt retailers can also leverage their location to offer more convenience to
local customers by acting as a click-and-collect point, where consumers order goods or food items in advance
and pick them up at forecourt retail outlets.

Customized store layouts and localized offerings drive sales

There are a large number of service stations nationwide. Depending on the anticipated needs of the target
customers, the forecourt retail store outlets can be customized. Where consumers are expected to stay for a long
time, forecourt retail outlets should ensure there is enough seating space. Forecourt retail outlets can also
customize the product range based on the anticipated demand. For example, forecourt retail outlets located along
roads leading to beach towns can stock items such as sunblock or flip-flops, while forecourt retail outlets located
along roads leading to major airports or seaports can stock souvenir items.

In Thailand, the key player OR has also revamped its service stations with the concept of “Living Community”.
With this concept in mind, OR aims to make each ptt station a community centre of sorts, by engaging key
stakeholders and increasing interaction among the company, partners, and members of the community to create
new products and services. This is expected to encourage consumers to spend more time at forecourt retail
outlets and hence, drive sales of the forecourt retail outlets.

2.4.3 Market Outlook

Forecourt retailers contribute a small share of total sales for grocery retailers

In April 2020, the enforcement of the COVID-19 lockdown and curfew by the Thai Government, forced many
people to work from home and commute less. Due to this, less traffic is observed inside service stations and
fewer passers-by are visiting forecourt retailers. Although the lockdown and curfew have slowed the growth of
forecourt retail sales in 2020, service stations located on the main road are less impacted as they are closer to the
residential community. Forecourt retail sales is thus, expected to grow by 1.2% in 2020. In the second half of
2020, it is anticipated that the lifting of the lockdown coupled with low number of reported cases and low oil
prices should encourage consumers to do more in-country travelling and short trips to destress from spending a
long period of time at home, especially during the public holidays in August, October and December. Increase in
domestic travel is expected to continue through 2021-2022. Consequently, increase in road traffic will benefit
forecourt retailers’ sales, causing sales growth to healthily pick up by 8.7% in 2021 and 6.5% in 2022. The sales
growth is forecast at a CAGR of 6.9% from 2020-2025, and reach THB 91,124.3 million (USD 2,934.6 million)
in 2025. During the forecast period, the number of outlets is expected to increase at a slower pace than in the
review period, at a CAGR of 3.2%. Forecourt retail sales continue to contribute 3.5% to the total sales of grocery
retailers in 2025, as other formats of grocery retail such as convenience stores are growing at a faster pace.

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PTT Oil and Retail Business Public Company Limited – Industry Overview

Table 14 Thailand Forecourt Retailers Figures (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F-
2025F
THB
Forecourt 65,212.8 70,886.3 75,493.9 80,401.0 85,624.2 91,124.3 6.9%
million
retailers
sales USD
2,100.1 2,282.8 2,431.2 2,589.2 2,757.4 2,934.6 6.9%
million
Number of
- 3,001 3,086 3,181 3,286 3,401 3,521 3.2%
outlets
000
Selling
square 267.8 275.9 285.0 295.0 305.9 317.2 3.4%
space
meter

Sales per THB 21,730,351.1 22,970,283.9 23,732,758.6 24,467,744.7 25,176,193.3 25,880,225.6 3.6%
outlet
USD 699,805.2 739,736.1 764,290.8 787,960.3 810,775.3 833,447.9 3.6%
Sales per
THB 243,469.7 256,943.2 264,902.7 272,581.1 279,931.7 287,283.6 3.4%
selling space
(square
USD 7,840.7 8,274.6 8,530.9 8,778.2 9,014.9 9,251.7 3.4%
meter)
Forecourt
retailers
sales
% 3.1% 3.2% 3.3% 3.4% 3.4% 3.5% N/A
contribution
to grocery
retailers
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Innovations in technology

With the advance of mobile technologies, forecourt retailers can make use of mobile marketing to attract
consumers to specific outlets. Offers and promotions may also be personalised to the individual customer based
on their profile and anticipated needs.

Automated machines and robots will also be used to replace human labour to provide standardized services such
as order fulfilment and delivery while minimizing errors. Automation and self-service technologies will remove
the bottleneck of labour shortage, which allows forecourt retailers to expand their operations and run round-the-
clock operations smoothly.

Leverage on location to complement online business

Many forecourt retail outlets are operated by key grocery retail brands, which have also started to build their
online presence. The physical forecourt retail outlets complement the online stores to expose the brand to the
market more through different channels. This can be a way to help grocery retailer brands to increase brand
awareness and brand recognition in the market, which can have impacts on the brands building their market
share.

Forecourt retail outlets are viewed to be limited to getting sales only from consumers who visit the service
station or forecourt retail outlet. However, there is opportunity for forecourt retailers to leverage their locations
along major roads, and their round-the-clock operating hours, to cooperate with online retailers which have no
brick-and-mortar presence. Forecourt retail outlets can provide ancillary services and become a point of
collection for consumers who have made purchases online – this can be a new source of revenue stream – and
capture additional sales.

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PTT Oil and Retail Business Public Company Limited – Industry Overview

2.4.4 Competitive Environment

7-Eleven leads due to partnership with ptt stations

In 2019, 7-Eleven captured 72.1% of the total market share by sales revenue for forecourt retailers and had
opened 1,721 forecourt outlets across Thailand. The strong presence of 7-Eleven could be attributed to its
partnership with OR, with more than 2,158 stations across Thailand in 2019. OR had acquired the rights to the 7-
Eleven franchise from CP All, and this agreement expires in 2023. The other forecourt retailers brands currently
each hold a much smaller market share.

Table 15 Thailand Market Rankings and Shares of Forecourt Retailers in 2019

Ranking Forecourt Retailers Brand % Market Share by Revenue Listing Status

1 7-Eleven 72.1 Public

2 Player 2 7.3 Private

3 Jiffy 5.7 Private

4 Player 4 3.5 Private

5 Player 5 2.4 Public

Source: Euromonitor Passport - Retailing 2020 Edition

2.5 QUICK-SERVICE RESTAURANTS (QSR) INSIDE FORECOURT IN

THAILAND
2.5.1 Market Overview
US brands traditionally dominant

Quick-service restaurants inside forecourts are traditionally mostly US brands such as McDonald’s, KFC, Pizza
Hut, A&W, Texas Chicken, and Subway. These quick-service restaurants have offered a quick and affordable
hot meal to consumers making rest stops at service stations. However, as forecourt retailers have grown and
diversified, service stations are increasingly partnering up with other quick-service food providers such as cafés,
bakeries, and convenience stores, to offer consumers more choices. At the same time, major quick-service
restaurant brands such as McDonald’s and KFC, which have been established in Thailand for some time, are
now looking to expand geographically outside of traditional locations such as the drive-through format. For
example, Dunkin’ Donuts has recently opened the first drive-through outlet in Thailand at Porto Go, a rest stop
in Bang Pa-In district. The outlet location is on a strategic route to Northern Thailand and Porto Go is a famous
resting spot for drivers and travellers.

Service stations expand non-oil business with Quick-Service Restaurants (QSR)

The oil retail industry is heavily regulated and extremely competitive, and retailers have seen a general
downward trend on margins. To maintain profitability, oil retail companies are looking towards forming
strategic partnerships with quick-service restaurant companies to combine as many brands and services under
one roof.

McDonald’s is one of the top crowd-pulling quick-service restaurant brands, so it is often top on the list of
outlets to open in forecourt spaces by oil retail companies. At the same time, quick-service restaurant brands are
also looking to leverage the locations of service stations to expand their network. In 2016, McDonald’s planned
for 25 new stores, half of which will be Drive-Thru outlets. These outlets are suitable to be located at service
stations, since it is in line with the “grab-and-go” nature of services at service stations. In 2019, McDonald’s had
more than 70 Drive-Thru outlets.

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PTT Oil and Retail Business Public Company Limited – Industry Overview

In April 2017, OR worked with The Commerce Ministry of Thailand to open a low-priced Thai food quick-
service restaurant in a ptt station located in Suphanburi province. It was the first step of a plan to open
restaurants at ptt stations across Thailand.
Menus cater to local consumer tastes

Many quick-service restaurants originating from the US are developing new menus to meet local preferences.
For example, KFC Thailand introduced rice dishes to meet the preferences of Thai consumers. Similarly, other
quick-service restaurant brands have introduced new menu items with local flavours such as Tom Yum.

Convenience stores have also introduced new food items in line with changing consumer preferences. As
consumers shift towards healthy eating, convenience stores start to offer healthy and freshly-prepared food
items. For example, Family Mart introduced a range of Japanese-style healthy sandwiches with premium fresh
vegetables and freshly cooked meat. It also introduced a breakfast menu for children and healthy meals for those
who plan their meals carefully.

Consumers spending more per transaction

In 2014, quick-service restaurants inside forecourt recorded THB 3,356.3 million (USD 108.1 million) in sales.
Quick-service restaurants sales inside forecourt increased at a CAGR of 17.7% from 2014-2019 to THB 7,574.5
million (USD 243.9 million) by the end of the review period. In the same period, the number of transactions
grew at a CAGR of 11.6% from 21.4 million to 37.1 million. The sales per transaction increased from THB
156.7 (USD 5.0) in 2014 to THB 204.3 (USD 6.6) in 2019 due to increased prices and greater demand from
consumers.

Table 16 Thailand Quick-Service Restaurants (QSR) Inside Forecourt Figures (2014 – 2019)
CAGR
Unit 2014 2015 2016 2017 2018 2019
2014- 2019
THB
3,356.3 3,659.7 4,013.4 4,615.4 5,836.5 7,574.5 17.7%
Quick-service million
restaurants sales USD
108.1 117.9 129.2 148.6 188.0 243.9 17.7%
million
Number of
‘000 21,414 22,891 24,540 27,281 32,658 37,067 11.6%
transactions

Quick-service THB 156.7 159.9 163.5 169.2 178.7 204.3 5.4%

restaurants sales
per transaction USD 5.0 5.1 5.3 5.4 5.8 6.6 5.4%

Source: Euromonitor estimates from trade interviews and desk research

2.5.2 Drivers and Constraints

Changing consumer lifestyles demand shorter service times

The modern consumer runs short on time and does not want to wait. When making purchases, the consumer
demands that the product must be easy to access, and the service must be quick. Quick-service restaurants have
efficiency operations that allow for meals to be delivered within minutes of ordering. Cashless payment
technologies allow for payment to be made in a matter of seconds. The growth of quick-service restaurants will
continue to be driven by consumer demand for grab-and-go services.

The consumers’ lifestyles in Thailand, especially in Bangkok and other major cities, are changing. Consumers
are busy with their work schedules and have less time to cook at home. Hence, food delivery is a perfect solution
for them. Consumers are using smartphones to order food through mobile applications such as GrabFood, LINE
MAN and GET FOOD, and using delivery services has become increasingly common. There is an opportunity
for quick-service restaurants inside forecourts to offer delivery services from their convenient locations.

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PTT Oil and Retail Business Public Company Limited – Industry Overview

Branch expansion by players

Players in the market are now expanding their network by opening more outlets across the country, to further
penetrate the market. Each outlet serves as a touch point for the consumer. The more outlets the brand has, the
higher the chance to reach potential customers.

A diverse range of outlet formats is also used for reaching different segments of customers. Apart from outlets
located within shopping malls, quick-service restaurants also operate as stand-alone stores, or as drive-through
outlets at service stations. More mini-outlets are also being opened at major transportation hubs to lighten the
service loads on large branches nearby.

Meanwhile, leading service station operators in Thailand also seek out partnerships with well-known quick-
service restaurant brands to set up stores in their service station outlets. This is to drive customer traffic into their
stations as well as to create another stream of revenue by renting out part of the service station’s area. At the
same time, consumers increasingly prefer to drop by service stations in comparison to shopping malls due to the
shorter time spent on dining with no hassle in finding parking space.

Expansion of non-oil businesses by oil retailers

Oil retailers are seeking to boost margins and profits by establishing or expanding the non-oil business, since the
oil business is subject to frequent price fluctuations and strict regulation. In 2017, Shell announced plans
to achieve a 1:1 ratio between its oil and non-oil businesses by 2025; to achieve this, Shell is embarking on
partnerships with convenience store brands, quick-service restaurant brands, café brands, and other retail brands.
Such business activities will drive the growth of quick-service restaurants inside forecourt. Another example is
Esso which aims to establish partnerships with around 50 major retailing and consumer foodservice brands such
as Starbucks, Grand Coffee Boy, Rabika Coffee and KFC.

Improvements in customer experience

In addition to menu innovations, the customer's dine-in experience is also an important component of a food
service business. Comfortable and spacious seating and brightly-lit dining space offer a comfortable
environment to the customer. Quick-service restaurants often have facilities and services that street food vendors
or other formats of food retail outlets do not offer, such as free Wi-Fi, air-conditioned dining areas, power-
charging points, mobile payment solutions, or even rest rooms for stand-alone outlets as well as those in the
service stations. These value-added services attract customers to patronize quick-service restaurants.

Competition from convenience stores inside forecourt

Quick-service restaurants face competition from convenience stores inside forecourt. Increasingly, to meet with
consumer demand, convenience stores are upgrading their ready-to-eat offerings to be comparable in terms of
quality with freshly prepared food from restaurants, but at a much more affordable price. For example, major
food manufacturer Anchor Food Professionals has worked with 7-Eleven to create meals for the 7-Eleven in-
house brand of ready-to-eat meals. Convenience stores inside forecourt are also spacious and often have seats for
customers to dine-in, directly competing with quick-service restaurants in the same space.

Demand for higher-quality food

One of the common perceptions by the consumer is that quick-service restaurants offer food that is not of high
quality or are pre-prepared, and hence not fresh. Consumers also perceive quick-service food meals to be less
nutritious than the typical Thai meal. Most retail spaces such as shopping malls have food courts, which have
higher food safety standards than street vendors. Players in quick-service restaurants need to work towards
changing the consumer mindset, by presenting to the consumer the nutrition of their meals. Quick-service
restaurant operators could also convey that food is prepared freshly by making the food preparation part of the
service delivery process, as Subway does. Quick-service restaurant brands must continually raise the quality of
their offerings and educate consumers.

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Healthy eating trends may dampen quick-service food demand

The growth of quick-service restaurants could potentially be challenged by the growing number of local
restaurants, which consumers see as a healthier option. Quick-service food is generally perceived to be
unhealthy either due to the ingredients or the preparation process. In order to allow food to be served quickly,
the food is often pre-prepared and there have been increasing concerns about preservatives and additives in
quick-service food. One of the cooking methods often employed in the preparation of quick-service food is
deep-frying. It is perceived as bad for health when food is prepared in such methods and consumed frequently.
Many quick-service food brands have since introduced healthier food selections onto their menus, such as salads
or fruit cups, but the association of quick-service food with unhealthy food remains.

2.5.3 Market Outlook

Stable growth registered by Quick-Service Restaurants (QSR)

Due to the COVID-19 pandemic which leads to less traffic inside the service station, the sales of quick-service
restaurants inside forecourt is expected to decrease by 4.3% in 2020. As the lockdown impacted the economy
and consumers’ disposable income, consumers are likely to tighten their budget and prioritize their spending on
essential items, especially food related products. Quick-service restaurants brands are actively leveraging
various price promotion to attract consumers to regain sales during and after lockdown period. From Q3 2020,
the sales of quick-service restaurants inside forecourt is expected to gradually pick up due to the relaxing of
restrictions which leads to an increase in the number of passers-by in service stations. Moreover, quick-service
restaurants inside forecourt is a growing segment in Thailand. Leading service station brands and quick-service
restaurants players are likely to resume their business expansion after the situation eases in 2021 and 2022. Thus,
annual sales is expected to increase strongly by 12.3% in 2021 and 10.8% in 2022. Overall, the CAGR of quick-
service restaurants inside forecourt sales is forecast at 8.9% during the forecast period.

Quick-service restaurant brands continue to improve their product offerings for the consumer and oil retailers
market the forecourt space as a community hub. In 2025, the sales value of quick-service restaurants inside
forecourt is forecasted to grow to THB 11,122.1 million (USD 358.2 million). The number of transactions is
expected to register CAGR of 6.2% from 2020-2025. Sales per transaction will increase at a CAGR of 2.6%, in
line with the expected increase in price points and inflation. At the same time, consumers can afford to spend
more per meal as their disposable incomes are higher. Hence, consumers tend to choose higher-value food
options which will support the increase in sales per transaction.

Table 17 Thailand Quick-Service Restaurants (QSR) Inside Forecourt Figures (2020F – 2025F)
CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F
2020F- 2025F
THB
7,248.6 8,140.4 9,018.6 9,817.1 10,496.6 11,122.1 8.9%
Quick-service million
restaurants sales USD
233.4 262.2 290.4 316.2 338.0 358.2 8.9%
million
Number of
‘000 34,949 37,745 40,387 42,810 44,951 47,198 6.2%
transactions

Quick-service THB 207.4 215.7 223.3 229.3 233.5 235.6 2.6%

restaurants sales
per transaction USD 6.7 6.9 7.2 7.4 7.5 7.6 2.6%

Source: Euromonitor estimates from trade interviews and desk research as of May 2020

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Opportunities to further expand in forecourt retail space

There are opportunities for well-known, global quick-service restaurants to enter the forecourt retailers market in
Thailand. KFC operates around 729 outlets across Thailand in 2019 and is the largest quick-service restaurant
brand in the chicken category. However, there are around 65 outlets located in the forecourt retail space of
service stations. Similar to many Southeast Asian countries, penetration of the forecourt retail space in Thailand
is currently low. There is potential for players to partner with service station brands to open more outlets and
expand.

In the region, there has been activity pointing to the trend of more quick-service restaurants opening within
service stations. In May 2018, QSR Stores, the franchise owner of KFC and Pizza Hut in Singapore and
Malaysia, signed an agreement with Petronas Dagangan to open 50 KFC Drive-Thru outlets at Petronas service
stations by 2021. In Singapore, the first quick-service restaurant inside forecourt is a 24-hour McDonald's Drive-
Thru within a Shell service station, opened in mid-2017.

Technology for more self-service

Many quick-service restaurants in Thailand are open 24 hours a day and it may be difficult to find employees to
cover the round-the-clock operations, especially with the number of quick-service restaurants in the country. To
reduce reliance on manpower, self-service technologies are increasingly being applied. Customers can now place
their orders at self-service kiosks, make payment, and collect orders without speaking with any staff. For
example, McDonald’s is currently trying to include digital services in the process. The company is aiming to
install self-ordering kiosks in various outlets. At the same time McDonald’s plans to develop a digital payment
platform to cover various methods such as PromptPay, QR code and e-wallet. Currently, most of the transactions
are still paid in cash. However, improvements in payment technologies will continue to drive the market towards
cashless payment methods which are quicker and more secured.

With the advancement of mobile technologies, quick-service restaurants can also elevate the consumer
experience by launching mobile apps for the consumer to place their orders or perform a variety of services,
since more than 50% of the Thai urban population owns a smartphone. Food delivery services requested through
mobile apps are also increasingly popular. For McDonald’s Thailand, its home delivery service accounted for
about 15% of overall sales in 2017, and this is expected to increase to about 20% by 2020.

2.5.4 Competitive Environment

Thailand’s Quick-Service Restaurants (QSR) Inside Forecourt market is consolidated, with the
leading player accounting for a share over 30%

The quick-service restaurants inside forecourt business in Thailand is estimated to be worth over THB 7,500
million (USD 240 million) in 2019. The market was led by Player 1 in 2019 which captured more than a quarter
of the overall market share in terms of sales. Its branding attracts customers to patronize its outlets inside
forecourts. The Thai market reveals tremendous opportunities for growth and further expansion of new stores.

Although not ranked within the top 5 yet, Texas Chicken, or Church's Chicken as it is known in North America,
is one of the largest quick-service chicken restaurant brands in the world. The brand identified Asia as a key
market in its global expansion plans of doubling the number of outlets globally to 1,000 by 2021. The company
has been aggressively opening new outlets. In 2015, Texas Chicken partnered with OR to open the first Texas
Chicken outlet in Thailand. Texas Chicken continues to open more outlets in shopping malls as well as within
service stations.

Player 3 expected to see further expansion with ThaiBev

In 2017, Thai Beverage Public Company Limited, or ThaiBev, acquired 252 stores of Player 3 in Thailand and
all outlets in the pipeline from Yum Restaurant International (Thailand) for an estimated THB 11.3 billion (USD
0.3 billion). These 252 stores account for approximately 35% of all Player 3’s outlets in Thailand. Currently,
there are around 729 KFC outlets in Thailand, including the 224 outlets owned by Central Group, and 128
outlets owned by Restaurants Development Company Limited (RD)’s. All outlets are operated as franchisees
under Yum! Brands Inc, the US-based brand owner.

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Yum Restaurant International (Thailand) will focus on the management of the Player 3 brand, such as marketing
and development of menus in Thailand. With support from ThaiBev’s strong financial capability, the acquisition
is expected to help Player 3 to reach the goal of operating 800 stores in Thailand by 2020.

Table 18 Thailand Market Share Rankings of Quick-Service Restaurants (QSR) Inside Forecourt in 2019

Ranking QSR Brand % Market Share by Revenue Listing Status

1 Player 1 31.0 Public

2 Player 2 26.4 Private

3 Player 3 25.4 Private

4 Player 4 3.2 Private

5 Player 5 1.4 Public

Source: Euromonitor estimates from trade interviews and desk research

2.6 CAFÉ INSIDE FORECOURT IN THAILAND

2.6.1 Market Overview
Imposition of sugar tax partially supports growth of freshly-brewed coffee in cafés

Consumers’ consciousness about sugar and calorie intake has given rise to drinks such as bottled water and
juice. The imposition of the sugar excise tax in September 2017 by the government raised the final unit price on
some of the packaged soft drinks with 6 grams and above sugar content per 100ml. The sugar excise tax rate
starts from THB 0.3 to THB 5.0 per litre, depending on the amount of sugar contained in the packaged soft
drinks. The Excise Department’s plan is to increase the sugar excise tax rate every 2 years. This will further
cause the shift in consumption to a healthy choice of drinks including freshly-brewed coffee. This freshly-
brewed coffee is expected to see further growth underpinned by accessible price points and outlet locations.
Furthermore, coffee is perceived to be healthier than energy drinks within the energy-boosting beverage
segment.

Improvements in coffee quality in forecourts

As the lifestyle of the consumer in Thailand becomes increasingly sophisticated, they now demand more choices
beyond instant coffee and Kafae Boran (traditional Thai-style coffee). Starbucks and the entry of international
coffee brands have offered consumers both variety and quality in the coffee selection. Cafés are offering classic
coffee and tea by using local or special ingredients to create their own recipes. In 2019, specialist coffee and tea
shops reached sales value growth of 8.4% from 2018.

Seeing the opportunity provided by service stations as a sales channel, cafés including specialist coffee shop
brands have ventured into the forecourt retail space to offer customers premium and freshly prepared coffee. To
remain competitive and match consumer demand, café brands owned by service stations have also improved
their product offerings. As a result, the overall standard of coffee sold within forecourt retail spaces has gone up.

Forecourt retail space as one of the new sales channels

Major chained coffee shops have plans to continue to invest in new outlets and expand to new locations; at the
same time, service stations are looking to expand their revenues from non-oil businesses. This has given rise to
increasing partnerships between service stations and café brands, as café brands identified that the retail space
inside forecourt is relatively unpenetrated. In 2019, there were more than 29,000 service stations across Thailand
– this presents an immense opportunity for café retailers to leverage the geographic network in their expansion
plan. The target markets for cafés inside forecourt are mainly travellers, tourists and commuters.

Service stations expand non-oil business with cafés

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Service stations have seen the potential of forecourt retailers and are investing to develop their non-oil revenue
streams, to reduce the impacts on business performance from fluctuations in energy and fuel prices. PTG, for
instance, announced plans to expand its service stations from 2,000 in 2019 to 2,200 in 2020 with planned
investment of THB 4.5-5.0 billion, which includes THB 500 million planned for non-oil business. It will focus
on expansion in locations that can facilitate non-oil services to customers.

Café Amazon has been in the market for over 15 years and represents an important part of OR’s non-oil
business, expanding in line with service stations under the “ptt station” brand. In 2018, ESSO announced plans
to collaborate with Starbucks to open new outlets in its service stations. PTG, which owns the PunThai Coffee
brand, acquired a stake in Coffee World as part of its non-oil business expansion.

As of the end of 2019, Bangchak has 1,201 service stations. There are more than 500 Inthanin and Inthanin
Garden premium café outlets across the country. Currently, Inthanin Café brings in around 70% of Bangchak’s
non-oil retail revenue. In January 2018, Bangchak signed an agreement to give the master franchise license for
Inthanin Coffee shops in Cambodia and Laos to RCG Retail Co., Ltd. (Cambodia).

Other oil service station companies are also expanding their in-house café brands. Shell developed the deli café
brand with a Breathing Space to Recharge concept, envisioning it to become an international brand in Shell
service stations around the world - Shell Thailand. In 2019, Caltex announced the collaboration with Primo Food
and Beverage Co, the master franchise of Gloria Jean's Coffees in Thailand, to open EXPRESSO BY Gloria
Jean’s cafés in Caltex service stations. The first Expresso by Gloria Jean's Coffees café was launched at a Caltex
station in Pathum Thani in April 2019.

Phenomenal growth of café inside forecourt

Retailers have only recently realised the opportunity of retail inside forecourt. Not wanting to lose out on the
market opportunity, new players have entered the market while existing players are aggressively opening new
outlets and expanding their cafés inside forecourt to seize market share. The number of cafés inside forecourt
stands at more than 3,500 in 2019.

Between 2014 and 2019, sales of café inside forecourt grew at a CAGR of 21.9%. The sales have grown about
2.7 times, from THB 4,796.0 million (USD 154.5 million) in 2014 to THB 12,886.8 million (USD 415.0
million) in 2019. Correspondingly, the number of coffee cups sold grew at a CAGR of 19.3% to reach 269
million in 2019.

Table 19 Thailand Café Inside Forecourt Figures (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014- 2019
THB
4,796.0 6,152.0 7,754.0 9,606.3 11,276.2 12,886.8 21.9%
million
Café sales
USD
154.5 198.1 249.7 309.4 363.1 415.0 21.9%
million
Number of
- 2,078 2,517 2,789 2,957 3,142 3,532 11.2%
outlets
Number of
coffee cups million 112 140 172 209 236 269 19.3%
sold
Source: Euromonitor estimates from trade interviews and desk research

2.6.2 Legislative and Regulatory Policies

Holding company of state-owned enterprises to be established

In 2017, a bill was passed by the National Legislative Assembly (NLA) to establish a holding company to own
and manage state-owned enterprises. With this law, Thailand will expect to see major reforms in the
management and governance of state-owned enterprises.

2.6.3 Drivers and Constraints

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Demand for higher-quality coffee but also convenience

Thai consumers are increasingly demanding high-quality coffee but as desired by any modern consumer, access
to coffee must be made easy and convenient. D’Oro, a local coffee chain in Thailand, implemented a drive-
through facility at one of its outlets; sales made at the drive-through accounted for 50% of the outlet’s total
revenues in 2017. The demand for convenience and grab-and-go services will drive the growth of café outlets in
forecourt retail spaces.

Expansion of non-oil businesses

As oil prices fluctuate, incorporating non-oil business, such as retail or food services, into service stations will
boost profit margins. Service station operators such as Shell are increasingly looking to expand their non-oil
business and further investment in forecourt retail outlets is expected. The business strategies of service stations
will drive the development of cafés inside forecourt.

Convenience store café brands strengthening

The fast expansion of convenience stores and their café brands has brought pressures on specialist café brands
inside forecourt. Brands such as 7-Eleven’s All Café and Family Mart’s Café Arigato are well-established in the
forecourt retail space and enjoy high brand presence and awareness in the market. Increasingly, these brands are
known to provide good value in terms of the quality of the coffee and the pricing.
While international brands have the advantage of high brand recognition and have already established their core
customer base, the convenience store players are everywhere and enjoy good reach to consumers.

Intense competition in the market

Despite the café inside forecourt sector being relatively underpenetrated currently, competition is fierce. New
brands and new players are entering the market constantly, while existing brands are on an aggressive expansion
strategy to seize or retain market share. The number of dealer-owned, dealer-operated cafés inside forecourt are
increasing as some café brands, such as Rabika Coffee and Café MuanChon require a relatively lower start-up
fee. There are currently around 90 Rabika Coffee outlets inside various service stations. Café MuanChon is a
brand under CP All that is also aggressively increasing its presence in the forecourt retail space using the
franchising model.

2.6.4 Market Outlook

Strong growth in café inside forecourt continues

Growth in the forecast period will slow down slightly from the growth rates recorded in the review period, but
the outlook remains positive, despite a decrease in sales during the COVID-19 lockdown. Consumers who
typically purchase coffee at café inside forecourt needs to work from home during this period and thus will stay
at home more. As such, consumers are not commuting and may choose to make their own coffee at home. Sales
of cafés inside forecourt is expected to decrease by 6.3% in 2020. Café inside forecourt sales recovery is
expected to be driven by more car usage as consumers start to go back to work and the potential increase in
domestics tourism in the second half of 2020. Thus, café inside forecourt sales is expected to grow strongly by
13.2% in 2021 and 11.4% in 2022. Overall, sales of café inside forecourt is forecasted to register a CAGR of
10.6% from 2020-2025, to reach THB 19,991.0 million (USD 643.8 million) in 2025. Players in the industry are
expected to expand the number of outlets by partnering with major service station brands. By 2025, the industry
expects to see 4,463 outlets of cafés inside forecourt while the number of service stations is expected to go up to
30,000 in Thailand.

Table 20 Thailand Café Inside Forecourt Figures (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F
2020F- 2025F
THB
12,075.5 13,669.6 15,223.6 16,811.6 18,408.8 19,991.0 10.6%
million
Café sales
USD
388.9 440.2 490.3 541.4 592.8 643.8 10.6%
million

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Number of
- 3,567 3,735 3,907 4,087 4,270 4,463 4.6%
outlets
Number of
coffee cups million 252 288 321 354 388 421 10.8%
sold
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Forecourt café brands now rival famous brands found outside of service stations

Forecourt café brands are increasingly becoming a profitable revenue stream of non-oil business for service
stations. To stay competitive, major players in the market are aggressively expanding the number of retail outlets
and cafés within its service stations. Players are also looking to elevate the consumer experience with improved
decoration and seating, offering consumers fully-developed food and beverage menus that rival even those of
global café chains or specialist coffee shops. Cafés inside the forecourt retail space are now attracting not only
the service station’s visitors but also the brands’ customers in general.

2.6.5 Competitive Environment

Café Amazon seeks to cement its leading position

Café Amazon is the clear leader in the café inside forecourt category. In 2019, Café Amazon recorded a total of
THB 15,829.9 million (USD 509.8 million) in sales, of which about 68.5% or THB 10,843.9 million (USD
349.2 million) came from Café Amazon inside forecourt and 31.5% or THB 4,986.0 million (USD 160.6
million) was from outside forecourt outlet sales.

With these figures, Café Amazon stands far ahead of other domestic café brands in terms of sales within
Thailand. Café Amazon is also one of the top chained brands among café brands outside forecourt, registering a
sales value just second to Player 2 as of 2019.

Table 21 Thailand Market Rankings of Cafés Inside Forecourt in 2019

% Market Share by % Market Share by % Market Share by
Ranking Café Brand Listing Status
Revenue Number of Cups Sold Number of Outlets
1 Café Amazon 84.1 67.0 52.7 Private

2 Player 2 2.1 2.0 6.3 Private

3 Player 3 1.3 1.1 2.6 Private

4 Player 4 1.1 1.2 2.1 Private

5 Player 5 1.0 0.9 2.1 Private

Source: Euromonitor estimates from trade interviews and desk research

2.7 CAFÉ OUTSIDE FORECOURT IN THAILAND

2.7.1 Market Overview
Coffee culture embedded in everyday life of Thais

Starting with Kafae Boran, literally “traditional Thai coffee” or coffee brewed in traditional style, and instant
coffee, the Thai market has come a long way in the growth of the coffee culture. Thailand's coffee culture has
grown significantly across the country in recent years and has become entwined in the various layers of Thai
society and everyday life. The coffee culture in Thailand extends beyond drinking a cup of coffee, as the drink
itself is at times somewhat irrelevant – rather, the role of the drink as a social lubricant is more critical.

Bubble tea, another popular drink in Thailand, was introduced to the market more than ten years ago. Previously
popular among children and students, the chewy tapioca balls or “pearls” also provide some texture and inject
some fun in consuming the drink – it was sold mainly by local chains. It is now making a comeback with
demand from a new generation of consumers, who demand premium bubble tea made with better-quality

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ingredients, priced from THB 100 (USD 3.2) onwards. Ochaya, from Taiwan, is one of the most popular brands
with a reported revenue of THB 190.9 million (USD 6.1 million) in 2018.

As competition in the café and beverage market is increasing, cafés and bars are considering how to stand out
from the abundance of competitors in the market with a unique selling point. Cafés and bars are crafting their
own drink recipes, becoming more innovative in offering their own interpretations of classic coffees and teas
using local ingredients and secret family recipes.

For many Thais living in urban areas, the act of getting such beverages has become somewhat habitual. Thai
office workers catch up with their colleagues while ordering their takeaway drinks on the way back to the office
after lunch. Students work away on school assignments in cafés for hours over a drink and snacks. Freelancers
and entrepreneurs soak in modern cafés or global coffee chain outlets with free Wi-Fi, performing various types
of work at their open “offices”.

Huge out-of-home coffee market

The lifestyle of the urban population in Thailand has changed and with decreasing household sizes, more and
more Thais are choosing to eat out instead of cooking at home. As with the consumption of meals outside of
home, the consumption of beverages out of home has also increased.

Various retail formats for freshly prepared coffee in Thailand

Outside of the forecourt retailers environment, freshly prepared coffee is sold in many retail formats across the
nation.

In Thailand, freshly prepared coffee is sold through a variety of retail formats, the most common of which are
the street side local drink stalls as well as eateries. Coffee may also be purchased from drinks kiosks found at
BTS stations or convenience stores. For an elevated experience, consumers may also patronize cafés or specialist
coffee shops for their daily cup.

Cafés or specialist coffee shops can be loosely categorized as chained or independent. In 2019, there were 553
chained cafés and 2,584 independent cafés. In contrast, there are 4,892 chained specialist coffee shops and 754
independent specialist coffee shops. Starbucks, one of the first global players to enter the Thai market, is one of
the leading operators of chained specialist coffee shops in Thailand but the company has fallen behind Café
Amazon. In 2019, Café Amazon registered THB 15,829.9 million (USD 509.8 million) in sales revenue from its
Thai operations, while Starbucks recorded THB 8,512.0 million (USD 274.1 million). In terms of the number of
outlets, Café Amazon is also the leader with 2,912 outlets in 2019, of which 1,862 are located within service
stations under the “ptt station” brand. Café Amazon sold approximately 264 million cups of coffee in 2019 from
the outlets both inside and outside forecourts.

Among chained brands, the ratio of company-owned, company-operated outlets to dealer-owned, dealer-
operated outlets is typically 7:3. Café Amazon, the second largest café brand in terms of revenue. The company
has 1,050 outlets outside forecourt in 2019. However, approximately 80% of Café Amazon outlets are dealer-
owned, dealer-operated.

Grocery retailers introducing own coffee brands

With the growing demand for coffee in Thailand, many major grocery retailers are looking to have a slice of the
local coffee market. New café brands are being launched by these retailers to target a range of consumer
segments.

CP All, the operator of the 7-Eleven brand of convenience stores, operates Arabitia Café which sells coffee and
ready-to-eat meals and even offers a delivery service for busy consumers. Jungle Café is another brand from CP
All, targeting the middle class population and operating on a franchise model. CP Foods, which sells the 5 Star
brand of frozen food and ready-to-eat meals, launched the “Star Coffee” cafés. The cafés target consumers in
rural areas with products at an affordable price, starting from THB 30. Star Coffee outlets can be found in the
northern, northeastern and southern regions of Thailand.

The operator of Tops Supermarket, Central Food Retail, has introduced the “Coffee by Tops” brand. This is in
addition to its existing premium café brand “Segafredo”. Coffee by Tops is available at Tops Supermarkets with

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dine-in areas and it targets shoppers who visit Tops supermarkets. The price of a beverage at Coffee by Tops
starts from THB 35.

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Café market an attractive sector in Thailand

Asia is the world’s fastest growing markets for coffee. Even though Thailand’s market size for coffee is not
among the top in Asia, café outside forecourt sales has grown at a CAGR of 9.2% from 17,575.6 THB million
(USD 566.0 million) in 2014 to THB 27,260.1 million (USD 877.9 million) in 2019.

There are also more cafés in Thailand, as coffee chains expand with more outlets, and more independent retailers
open their own outlets. In 2019, there are more than 5,000 café outlets outside forecourt in Thailand,
concentrated in urban areas such as Bangkok. This market remains attractive with huge potential for further
growth, since coffee drinking and visiting cafés is becoming an integral part of urban lifestyle in Thailand.
Specifically, for coffee, the Thai market has grown in its appetite as the number of coffee cups sold between
2014 and 2019 increased tremendously to 727 million cups with a CAGR of 8.8%.

Table 22 Thailand Café Outside Forecourt Figures (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014- 2019
THB
17,575.6 19,439.3 21,400.2 23,018.8 25,944.7 27,260.1 9.2%
million
Café sales
USD
566.0 626.0 689.2 741.3 835.5 877.9 9.2%
million
Number of
- 4,231 4,140 4,333 4,714 5,169 5,251 4.4%
outlets
Number of
coffee cups million 478 526 573 625 686 727 8.8%
sold
Source: Euromonitor estimates from trade interviews and desk research

2.7.2 Legislative and Regulatory Policies

Tariff quota system for imports raises costs

Coffee beans are categorised as agricultural products. Under the laws of the government, there is an annual
quota of 5.25 tonnes of coffee beans imported into Thailand, at a tariff rate of 5% for imports from ASEAN
markets and 30% for importation under the WTO trade agreement. For import quantity outside of this quota, the
Thai customs set tariffs as high as 90%. To gain access to beans of good quality from overseas farmers, coffee
manufacturers have to bear the higher costs or pass them on to the consumer, driving prices up.

The consumption of coffee beans in Thailand stands at more than 95,000 tonnes of coffee beans annually and is
expected to cross the 100,000 tonnes mark in the near future. At average production rates of 25,000 tonnes per
annum for the past few years, manufacturers import more than 60,000 tonnes of coffee beans a year. The import
quota and high tariffs have brought the cost of beans up, cutting into the margins of coffee manufacturers, and
driving consumer prices up.

Price regulation of supply leads to low demand for local beans

To protect the income of local farmers, the Thai government requires coffee manufacturers to buy coffee beans
from local farmers at guaranteed prices. The majority of coffee bean farmers are in Southern Thailand, and the
remainder are scattered in the northeastern region and Northern region. Some of these coffee bean farmers lack
the knowledge to choose high-quality varieties and the plantation knowledge to improve the quality of the crops.
With growing demand for coffee beans and the huge restrictions on importing coffee beans, these coffee farms
are also not obliged to improve on the quality of their beans to stay competitive.

For coffee manufacturers, this means that they are paying a price for coffee beans that are not of a quality that
matches its price. This has significant impacts on procurement by local coffee manufacturers and the pricing of
the end-product sold to the Thai consumer, as local coffee manufacturers may look towards higher-priced but
higher-quality beans imported from overseas.

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2.7.3 Drivers and Constraints

Increased interest in coffee and demand for premium coffee

20 years ago, the Thai consumer largely had access to 2 types of coffee: traditional Thai coffee “Kafae Boran”,
and instant coffee. The ubiquitous Starbucks played a role in kick-starting the Thai consumer’s interest in freshly
prepared coffee, and the market has now been exposed to variety. Now, coffee drinking in Thailand is a social
phenomenon that extends beyond drinking coffee, as it has become an indication of an individual’s lifestyle and
purchasing power.

Beyond Kafae Boran (traditional Thai style coffee,) the Thai consumer is now more knowledgeable about
coffee. The Thai market is very dynamic, with a growing middle class population with increased purchasing
power open to new trends in the industry and a taste for differentiated premium coffee. In line with the growing
sophistication of the consumer, there has also been increased demand for speciality coffee, such as single-origin
coffee, organic coffee, and free-trade coffee, among others. For example, Cafédirect, a British premium organic
coffee brand, sees a huge opportunity to grow its business and seeks to double its business in Thailand over the
next 5 years. More cafés and specialist coffee shops, both chained and independent, are springing up throughout
Thailand to leverage the market interest.

Branding a key factor in choice

The Thai consumer is becoming more brand-conscious as they perceive a brand is indicative of the product’s
quality. The consumer in Thailand is now more willing to pay a premium for well-known or global brands with
high brand value and choose brands with a positioning that is aligned with their image and lifestyles.
Consumers, for example, are willing to pay a premium for coffees labelled as Free Trade to support
sustainability and ethical trading.

Within the coffee-consuming segment, the consumption of branded coffee has seen the highest growth. Besides
the quality of the product, branding could be a key differentiating factor in the consumer’s choice.

Urban lifestyles drive out-of-home coffee market

The lifestyles of the urban population in Thailand have changed and, with decreasing household sizes, more and
more Thais are choosing to eat out instead of cooking at home. As with the consumption of meals outside of
home, the consumption of beverages out of home has also increased.

Thai people living in urban areas are also spending more time outside home due to their busy lifestyles, hence
increasing out-of-home coffee consumption. Consumers in Thailand visit a café at least about 6 times a month
on average, while in Bangkok, the figure goes up to 8 times per month.

Competitive Market

For a newly growing market, the Thai market is considered vibrant with more than 6,000 outlets of cafés and
specialist coffee and tea shops. Among café and specialist coffee and tea shops, 69.1% of sales is from
international and local chained brands. International brands include Starbucks, Segafredo Zanetti, Coffee Bean
and Tea Leaf, while home-grown brands include Café Amazon, Coffee World, and Black Canyon Coffee.

Many of these players are seeking to expand the number of outlets aggressively to capture greater market share
by sales revenue. Bangchak Retail is targeting to open more outlets locally and also expanding overseas. In early
2018, Doi Chaang announced plans of increasing the number of outlets by 5 times to reach 300 outlets by 2022.
PTG Energy PLC, which owns the PunThai Coffee café brand, also acquired a stake in Coffee World as part of
its non-oil business expansion plans. In May 2019, Coffee Concepts (JV between Main’s and F&N Retail
Connection) announced that it has acquired the rights to operate Starbucks in Thailand. The company aims to
increase the number of Starbucks Thailand outlets, to gain share within the market.

Pricing is competitive among cafés catering to the same target segment of consumers. For example, Café
Amazon is positioned for the mass market and the pricing must support the brand to make it accessible to most
of the Thai population - Café Amazon records relatively low average selling prices among the different café
brands. True Coffee targets the same segment of consumers, and even though its prices are higher than Café

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Amazon’s, the prices of both brands are competitive with each other’s. In line with the quality of the coffee,
pricing must be competitive due to the large number of players and constant entrance of new independent
retailers. Existing players are embarking on an expansion strategy, either by opening new outlets or introducing
new brands to expand their range of products to target different consumer segments. For new players, the highly
competitive market reduces the attractiveness of the market.

Reliance on import of coffee beans

Due to a lack of knowledge on growing coffee beans, farmers in Thailand produce and supply only
approximately 25,000 tonnes of coffee beans each year. Most of the volume is consumed domestically. With the
growing demand for coffee locally, it has forced manufacturers and retailers to rely on imports from overseas.
Thailand imports more than 60,000 tonnes of coffee beans a year. However, with high tariffs imposed on coffee
beans, manufacturers must either bear the high costs, cutting into their margins, or pass it to the consumer with
increases in prices, reducing their competitiveness in the market.

2.7.4 Market Outlook

Market maintains strong growth rates

Sales of cafés outside for forecourt retailers are expected to pick up after the decrease of 10.1% in 2020 as
consumers are working and staying at home during the COVID-19 lockdown, they are expected to make their
own coffee at home. To cover the sales loss resulting from less in-store customers during the lockdown
period, many cafés focused more on takeaways and delivery orders through online platforms such as
GrabFood, LINE MAN and GET. Although the lockdown has been partially released since May 2020, there
are groups of consumers who are still working at home resulting in coffee consumption in cafés and coffee
shops to require more time to recover. It is expected that if the government continues to maintain the low
number of COVID-19 infections, consumers will be confident to spend more time outside of their home
and companies will allow their employees to return to work at their offices by the end of 2020.
Furthermore, as Thai consumers enjoy spending time with family and friends at cafés, consumers will
gradually shift back from drinking coffee at home to purchasing coffee from cafés and coffee shops. As
such, the sales of café outside forecourt is projected to increase significantly from 2021 onwards as
consumer confident regains and social distancing measures ease, reflecting in a strong sales growth by
10.0% in 2021 and 8.7% in 2022. Café outside forecourt sales is forecast to register a CAGR of 9.1% from
2020-2025. By 2025, the value of café sales is forecasted to reach THB 37,855.0 million (USD 1,219.1 million).

Players in the market continue to open more outlets, especially in less developed regions. The number of outlets
is expected to increase at a CAGR of 5.6% from 2020-2025, to reach over 7,000 outlets in 2025. The number of
coffee cups sold in Thailand maintains a moderate growth rate at a CAGR of 5.8% over the forecast period.
More than 800 million cups of coffee are expected to be sold in the year 2025.

Table 23 Thailand Café Outside Forecourt Figures (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F
2020F- 2025F
THB
24,508.0 26,958.7 29,293.7 31,868.6 34,780.8 37,855.0 9.1%
million
Café sales
USD
789.3 868.2 943.4 1,026.3 1,120.1 1,219.1 9.1%
million
Number of
- 5,356 5,658 5,974 6,307 6,658 7,022 5.6%
outlets
Number of
coffee cups million 654 692 732 775 819 866 5.8%
sold
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

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Cafés becoming a destination

Coffee as the core product will no longer be the only factor in the consumer’s choice in the café to patronize. To
stand out from the competition, café operators must now offer much more. Free Wi-Fi and ample seating are a
must. Many new independent cafés have themed or stylish décor and offer a comprehensive menu beyond
coffee. There are animal cafés focused on interaction with resident pets, such as cat cafés, dog cafés and even
owl cafés, as well as hobby cafés such as cafés with dedicated spaces for “art-jamming”, where the customer
enjoys a cup of coffee while painting.

In Bangkok, the café scene is vibrant and there are new cafés popping up frequently, attracting swarms of the
young generation as well as tourists to visit these cafés. Café enthusiasts travel to Bangkok specially to patronize
the different cafés over the course of their stay and share their experiences on social media. Cafés are fast
becoming a destination themselves.

Convenience-driven technology drives sales beyond the physical outlet

The Thai consumer increasingly values convenience and is open to anything that save precious time in their
hectic lifestyles. Applications using convenience-driven technology have become the staple of city living in
Thailand and almost every Thai consumer living in a major city owns a smartphone.

One segment that has seen tremendous growth is food delivery services. Apps such as Foodpanda, LineMan, and
GrabFood allow Thai consumers to order meals, make online payment securely and easily, and have their meals
delivered right to their doorstep. Cafés are jumping on the bandwagon and listing their offerings on such apps, as
it allows them to reach out to a wider market.

Consumers who were previously not aware of a café and would otherwise not have visited the physical outlet
can try products from a café listed on such apps. Independent cafés are no longer limited to in-store sales and
could ride on the popularity of such apps further and receive marketing exposure, as they are listed alongside
well-known global brands.

2.7.5 Competitive Environment

Player 1 the market leader with premium prices

Player 1, by virtue of its early entrance, holds the largest market share by sales revenue for outside forecourt.
The market leader is one of the most well-known café brands in the world and is well established in Thailand,
located in shopping malls, airports, and office buildings. In response to the increasing competition and new
entrants, Player 1 seeks to upgrade its offerings beyond the cup of coffee. It has started to offer premium
speciality coffee such as cold-brew coffee or single-origin premium coffee and to expand its range of product
offerings to include non-coffee beverages.

Within the last 5 years, the market has seen high competition among players offering coffee priced between
THB 40 and THB 50. Café brands previously found in service stations and convenience stores are expanding by
opening more stand-alone outlets. For example, Café Amazon, owned by OR, started as a café brand attached to
ptt stations, but has since opened 1,050 branches outside of the forecourt retailers environment. On the whole,
Café Amazon’s market share has been showing increase as it has been aggressively expanding its operations,
accounting for a 39.4% café market share in 2019 in terms of revenue. It has recently become Thailand’s top
café in terms of sales, number of outlets and number of coffee cups sold in 2019 for café inside forecourt and
outside forecourt combined. For café outside forecourt, Café Amazon is the leader in number of coffee cups sold
and in number of outlets in 2019. Globally, Café Amazon is amongst the top 15 specialist coffee and tea shop
brands in terms of revenue and top 6 in terms of outlet number as of 2019, based on Euromonitor estimates from
trade interviews and desk research.

Among the top 5 brands for cafés (including both cafés inside and outside forecourt), the majority of the players
including Café Amazon provide coffee at a price range within approximately THB 50-90. Meanwhile, Player 2
competes within a higher price range compared to other leading players, with prices of coffee typically ranging
from THB 100 to THB 165.

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Table 24 Thailand Market Rankings of Cafés Outside Forecourt in 2019

% Market Share by
% Market Share by % Market Share by
Ranking Café Brand Number of Coffee Cups Listing Status
Revenue Number of Outlets
Sold
1 Player 1 31.1 10.6 7.0 Private

2 Café Amazon 18.3 11.4 20.0 Private

3 Player 3 3.2 1.4 5.1 Private

4 Player 4 2.3 1.0 2.4 Private

5 Player 5 1.7 0.7 2.5 Private

Source: Euromonitor estimates from trade interviews and desk research

Table 25 Thailand Market Rankings of Cafés (Including both Café Inside and Outside Forecourt)
% Market Share by
% Market Share by % Market Share by
Ranking Café Brand Number of Coffee Cups Listing Status
Revenue Number of Outlets
Sold
1 Café Amazon 39.4 26.4 33.2 Private

2 Player 2 21.2 7.8 4.2 Private

3 Player 3 2.6 1.4 4.1 Private

4 Player 4 1.6 1.2 6.6 Private

5 Player 5 1.6 0.7 1.4 Private

Source: Euromonitor estimates from trade interviews and desk research

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3. CAMBODIA

3.1 MACROECONOMIC ENVIRONMENT IN CAMBODIA

Manufacturing and construction contribute to robust GDP growth

Cambodia has been the top garment-making hub over the past two decades and is one of the fastest growing
economies in the world. The country's growth was significantly impacted by the global financial crisis given its
dependence on the world economy. However, the country's GDP recovered and showed strong growth in the
review period.

Cambodia’s nominal GDP reported a CAGR of 10.0% over the review period of 2014-2019 owing to the
manufacturing – mainly garments and textiles – and construction sectors. The country’s relatively affordable
labour force combined with rising wages for Chinese workers have resulted in production moving from China to
Cambodia, the majority of which is exported to Europe and the United States. In addition, the construction
sector benefitted from a number of infrastructure, retail and real estate projects in urban centres financed by the
government and foreign investment. In 2019, the Cambodian economy grew 9.3% in nominal GDP terms,
continuing a trend of stable growth during the review period. Growth was mainly driven by robust construction
activities, strong domestic credit growth and domestic demand.

Agriculture still employs the vast majority of the workforce and has seen improvements in irrigation and rural
infrastructure, which have raised productivity. However, due to the strong trend towards urbanisation, a high
percentage of the workforce has moved to the more profitable construction and service sectors in big cities.
Meanwhile, tourism has also reported robust growth due to investment in the international airport and an
increasing number of direct flights from China, which represented the highest percentage of tourists to
Cambodia in 2019. Tourists primarily come from Asia but there have been some arrivals from the West, mainly
from Europe.

GDP per capita posted a CAGR of 8.3% over the review period of 2014-2019. Beginning in 2016, Cambodia
was reclassified as a lower-middle-income country, a step up from its previous low-income status, which is
reflective of the strong reduction in poverty rates. However, a high percentage of the population remains
vulnerable. Low literacy rates of around 80%, compared with over 90% literacy rates in other Southeast Asian
countries such as Singapore, Malaysia, Vietnam, and Thailand, and unskilled labour represent key constraints to
the nation’s competitiveness at an international level.

Table 26 Cambodia GDP Figures (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014 -
2019
KHR,
billion 67,436.7 73,422.9 81,241.8 89,655.9 99,350.9 108,631.8 10.0%
Nominal
GDP USD,
million 16,642.5 18,119.8 20,049.4 22,125.9 24,518.5 26,808.9 10.0%

Nominal
GDP % 9.7 8.9 10.6 10.4 10.8 9.3 N/A
growth
KHR 4,414,987.4 4,730,427.7 5,152,873.7 5,600,203.3 6,113,976.7 6,589,135.4 8.3%
GDP per
capita
USD 1,089.6 1,167.4 1,271.7 1,382.1 1,508.8 1,626.1 8.3%
Source: Euromonitor - Passport Economies and Consumers 2020 Edition, as of 1 June 2020

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A young population moving to the urban centres

The population of Cambodia is young, with those aged 17 years old or younger accounting for 36.4% of the total
population in 2019. Population growth during the review period stood at a CAGR of 1.5%, with the growing
population age group of 45-79 years old. This signals a decline in the fertility rate, coupled with better living
conditions and health standards. Economic growth is in tandem with the expanding working-age population and
the unemployment rate remained low at 1.0% in 2019.
Although the majority of the population live in rural areas, economic development in urban centres has attracted
a growing number of the young population looking for better job prospects in the service and construction
sectors. This movement has created an emerging urban population with higher disposable income and spending
power. However, economic development has come at the cost of rising income inequality levels amongst urban
residents and a vast majority of the rural population on the edge of poverty.

Table 27 Population of Cambodia (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 - 2019
Total
000 15,274.5 15,521.4 15,766.3 16,009.4 16,249.8 16,486.5 1.5%
population
Urban
000 3,329.7 3,443.9 3,560.3 3,679.0 3,800.5 3,924.6 3.3%
Population
Source: Euromonitor - Passport Economies and Consumers 2020 Edition, as of 1 June 2020

Disposable income growth supports residential and commercial development

Disposable income amongst urban residents climbed up to KHR 5,703,843.8 (USD 1,407.6) in 2019 and
registered a CAGR of 2.6% from 2014-2019, in line with strong residential and commercial development in the
urban centres. Given the recent expansion in construction, urban areas beyond Phnom Penh and Siem Reap have
emerged with improved infrastructure, road accessibility, and facilities that accelerate the urbanisation process.
These developments will eventually shift the makeup and allocation of the rural and urban populations.

The average income levels of the rural and urban populations differ greatly. In 2019, the disposable income in
urban areas was 2.5 times higher than that of rural areas. Disposable incomes are expected to continue to rise in
the forecast period, though the disposable income growth rates of the urban population may show signs of
slowing, while the disposable incomes of the rural population is expected to register faster growth.

There has been some focus on improving rural infrastructure and the living conditions of the rural population
with government and foreign aid being supplied to the poorest Cambodians. Going forward, the government laid
out a three-year plan (beginning in 2018) intended to maintain economic growth and reduce poverty by 1-2%
annually. The development projects are spread across the economic, social affairs, infrastructure development,
and service sectors.

While wages in manufacturing – mainly textiles – remain low in order to attract foreign investment, economic
development has brought an increase in minimum wages in line with inflation. Specifically, the minimum
monthly wage of workers in the textile and footwear industries in Cambodia rose to USD 182 in 2019, an
increase from the previous monthly wage of USD 170 in 2018.

Table 28 Cambodia Disposable Income Per Capita – Urban Residents (2014 – 2019)
CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
Disposable KHR 5,018,580.8 5,293,505.5 5,209,555.7 5,343,039.0 5,493,363.1 5,703,843.8 2.6%
income per
capita –
urban USD 1,238.5 1,306.4 1,285.7 1,318.6 1,355.7 1,407.6 2.6%
residents
Source: Euromonitor - Passport Economies and Consumers 2020 Edition, as of 1 June 2020

Economic growth and foreign deposits support a growing urban population

Strong economic growth, an increase in disposable incomes, and rising foreign currency deposits stimulated
consumer spending, which reported a CAGR of 7.9% over the review period of 2014-2019. Growth in consumer

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expenditure was almost double that of the disposable income of urban residents, which justified increased
consumer borrowing from foreign lenders as well as inflation levels.

Cambodia’s young population has generated a new middle class willing to spend more on international brands.
Consumerism has overtaken traditional spending patterns, translating into strong demand for consumer goods.
Increased consumer expenditure has been further fuelled by strong retail growth, including the opening of new
malls in big cities. It is not only the middle class that was helped by rising disposable income, Cambodia’s
lower-income population also benefited from increased wages as well as remittances sent by younger workers in
cities.

Cambodians continued to spend the majority of their income on food and non-alcoholic beverages during the
review period. Increased demand for international brands and big-ticket items together with increased utility
costs negatively affected consumer spending on food and non-alcoholic beverages. On the other hand, the
broader range of packaged foods and increased presence of restaurants and cafés in urban centres contributed to
a healthy 6.6% CAGR in consumer expenditure on food and non-alcoholic beverages during the review period
of 2014 to 2019. As of 2019, consumer spending on food and non-alcoholic beverages was the highest amongst
all product and service categories, accounting for 41.4% of all consumer expenditure. Meanwhile, consumer
spending on housing was ranked second at 18.0%, followed by consumer spending on transport at 11.5%.
Expenditure patterns, however, differed greatly between urban and rural consumers, with the latter emphasising
spending on necessities.

The increase in consumer expenditure is expected to continue to grow, driven by increasing GDP per capita
levels as the country sees increasing trade liberalization and inflows of foreign direct investment. At the same
time, consumer expenditure on food and non-alcoholic beverages is likely to increase as the lifestyles of the
average Cambodian consumer improve and they start to spend more on basic aspects of their lives.

Table 29 Cambodia Consumer Expenditure in Cambodia (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
%
Consumer
% 81.5 81.3 80.7 78.1 75.2 74.0 N/A
expenditure
of GDP
KHR,
54,993,721.0 59,713,615.1 65,582,898.6 69,979,404.3 74,723,983.6 80,366,098.4 7.9%
Consumer million
expenditure USD,
13,571.7 14,736.5 16,185.0 17,270.0 18,440.9 19,833.3 7.9%
million
Consumer
expenditure KHR,
24,201,493.9 26,037,175.6 28,476,876.0 30,211,490.6 31,059,185.5 33,280,130.0 6.6%
on food and million
non-
alcoholic
beverages USD,
5,972.6 6,425.6 7,027.7 7,455.8 7,665.0 8,213.1 6.6%
(KHR million
million)
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Table 30 Cambodia Consumer Expenditure in Cambodia (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F -
2025F
%
Consumer
% 72.5 71.0 69.7 68.7 67.7 66.8 N/A
expenditure
of GDP
KHR,
78,890,331.3 83,594,389.8 90,273,836.8 97,666,449.7 105,664,443.3 114,373,981.9 7.7%
Consumer million
expenditure USD,
19,469.1 20,630.0 22,278.4 24,102.8 26,076.6 28,226.0 7.7%
million
Consumer
expenditure KHR,
32,994,863.7 35,136,387.4 37,796,577.3 40,667,880.5 43,864,565.6 47,424,722.2 7.5%
on food million
and non-
alcoholic USD,
8,142.7 8,671.2 9,327.7 10,036.3 10,825.2 11,703.8 7.5%
beverages million

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(KHR
million)
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

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Higher prices of food and energy and a dollar-based economy

Inflation fluctuated between 1.2% and 3.9% over the review period, and it has been falling gradually since 2017.
The higher prices of food and energy were key contributors to rising inflation levels. A high degree of US dollar
influence has driven inflation, as Cambodia is the region’s most dollar-bound economy and more vulnerable to
dollar fluctuations. In order to promote the local currency, the government forced companies to hold 10% of
their loan portfolios in Cambodian riels. Inflation remained subdued at 2.2% in 2019, due to lower fuel prices
and a small increase in food prices.

Table 31 Average Inflation Rate in Cambodia (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014- 2019

Average inflation rate % 3.9 1.2 3.0 2.9 2.5 2.2 N/A

Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

FDI in the textile and apparel sectors is key contributor to economic growth

FDI was a key driver of the country’s economic growth, contributing 12.7% to GDP in 2018 and showing a
healthy 10.8% CAGR between 2013 and 2018. China, Japan, the Republic of Korea and the ASEAN nations
were the main sources of foreign investment, with China responsible for the highest share. The textile and
apparel sectors absorbed the majority of FDI, thanks to the country’s young and affordable labour force in
conjunction with a liberal economy open to investment.

The textile and apparel industries, however, are reaching maturity, while neighbouring countries such as
Myanmar offer more competitive wages. As a result, FDI in textiles and apparel is expected to see slower
growth or declines in the forecast period. In response to this, the government aims to diversify Cambodia’s
manufacturing sector and place greater focus on industries which produce high-value products. In 2019, the
finance sector received the majority of FDIs into Cambodia. Meanwhile, there was a large FDI inflow from
Chinese investors into the real estate and construction sectors in Cambodia.

Over the review period, the government made strong efforts to encourage FDI. Examples of such measures
include a series of labour laws enacted to create strict labour standards and provide investment incentives such
as the exemption, in whole or in part, of customs duties and taxes. In addition, investment facilitation services
have been created, including Special Economic Zones (SEZs) intended to provide a one-stop service for
investors including everything from registration of investment projects to routine export-import approvals.

The above measures are expected to improve Cambodia’s ranking in terms of the global investment index. At
the moment, Cambodia ranks 162nd out of 180 countries in Transparency International’s Corruption Perceptions
Index 2019, falling short in terms of rule of law and ease of doing business. Last but not least, in order to
decrease the percentage of untrained workers, the government requires foreign investors to provide adequate
training to the local labour force.

Table 32 Foreign Direct Investment Inflows of Cambodia (2013 – 2018)

CAGR
Unit 2013 2014 2015 2016 2017 2018 2013-
2018
Foreign KHR,
8,330,281.7 7,483,494.6 7,401,201.9 10,035,678.1 11,277,946.3 12,549,466.7 10.8%
direct million
investment USD,
million 2,055.8 1,846.8 1,826.5 2,476.7 2,783.2 3,097.0 10.8%
inflows
Source: Euromonitor - Passport Economies and Consumers 2020 Edition, as of 1 June 2020

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3.2 THE RETAILING INDUSTRY IN CAMBODIA

3.2.1 Market Overview
Retailing in Cambodia registers rapid growth

The retail trade in Cambodia evolved rapidly in the review period, driven by both an increase in disposable
incomes and the development of the retailing scene. Cambodia provides a conducive environment for foreign
investors by having low limits on the foreign investments, especially with regard to import/export and
distribution. This in turn stimulates the entrance of new products and brands and creates a more vibrant retailing
market. Besides the traditional retail stores, such as stores and booths at the conventional markets, modern retail
channels have blossomed following the rapid urbanisation of Cambodia. This is reflected in the growing number
of convenience stores, supermarkets and shopping malls in the cities and larger towns. In 2019, there were
around 20 shopping malls opened in the country, which include high-end shopping malls, ordinary shopping
centres and community malls.

The growth of the modern retail channels also attracted new international entrants, such as MaxValu Express, a
Japanese retail store chain and Circle K, a Canadian convenience store chain. Japan’s Aeon Mall is also
operating in Phnom Penh, and the company has received official approval in December 2019 to open its third
department store in the country. Thai cash-and-carry chain Makro opened its first store in Phnom Penh in 2017,
and opened a supermarket in Siem Reap in 2019.

Foreign investors drawn to the Cambodia market offering strong domestic demand

The increase in disposable incomes of Cambodian consumers as a result of the country’s strong economic
growth has been a key driver for Cambodia’s retailing industry, making it one of the most active markets in
Southeast Asia. In the review period, the retailing industry in Cambodia saw an influx of global brands,
supported by the middle class consumers’ growing appetite for branded goods and the emergence of new
shopping malls in the cities. In recent years, the industry has attracted more foreign investors from China, Japan,
the US, South Korea, and other countries, including businesses that import to Cambodia and overseas retailers.
The growing market is expected to attract more investors from neighbouring countries like Malaysia and
Thailand in the near future.

Informal retailing dominates retailing industry

The dominant retail channel in Cambodia is the traditional retail channel, which includes traditional formats like
wet markets, chab huoy (home-based stores), informal shops and corner stores. Chab huoy source their supplies
from large wet markets in Phnom Penh.

Consumers of all income groups buy goods from informal retailing, due to its widespread presence and low
prices. The major product categories sold through informal retailing include food, beauty and personal care,
home care, consumer health, personal accessories, and apparel and footwear. However, there is a growing
presence of modern retail channels, such as supermarkets and luxury malls, in the large cities. The distribution
chain in Cambodia typically starts from production facilities (e.g. factories) to shipping intermediaries, to local
distributors, then to wholesalers, and, finally, to the retailers.

Due to relatively underdeveloped transport infrastructure, most consumers shop locally. In rural areas,
consumers generally shop with local retailers due to the lack of access to modern retail channels. In contrast,
urban consumers have access to a wide range of traditional, modern and informal retailers. Although consumers
are still more used to shopping with informal retailers and traditional retailers, there is a growing shift towards
modern retailers as incomes rise and consumer lifestyles change, with more consumers visiting malls as a leisure
activity.

Shopping seasons are one of the key characteristics of the retailing industry. There are a number of important
shopping seasons during the year, such as the international New Year in January, the Lunar New Year in
January/ February, the Khmer New Year in April, Pchum Ben (“Ancestors’ Festival”) in September and Bom
Om Touk (“Water Festival”) in November. The timing of these festivals often corresponds with a rise in food
purchases, while new clothes tend to be popular purchases during the international New Year and the Chinese

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New Year period. The Khmer New Year is a time of gifting to family members, with gifts ranging from
affordable food products to apparel and consumer appliances.

Total retail sales nearly doubled in review period

The retailing industry in Cambodia recorded strong growth between 2014 and 2019 with a CAGR of 9.4% in
retail value sales. Total retail sales in 2019 reached KHR 32,234.7 billion (USD 7,955.1 million), which is more
than 1.6 times the size of the retail market in 2014, a reflection of the industry’s strong performance in the
review period. Similarly, total retail space has grown in tandem with growing retail expenditure. According to
real estate services company CBRE, the retail supply has grown to a leasable area of around 300,000 square
meters in 2019. The growth of the retailing industry is consistent with the rapid economic development of
Cambodia and its emerging middle class.

Table 33 Cambodia Total Retail Sales Figures (2014-2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
KHR
Total 20,547,196.9 22,553,712.9 25,074,510.3 27,411,869.8 29,706,630.0 32,234,735.9 9.4%
million
Retail
Sales USD
5,070.8 5,566.0 6,188.1 6,764.9 7,331.2 7,955.1 9.4%
million
Source: Euromonitor Passport – Retailing 2020 Edition

3.2.2 Legislative and Regulatory Policies

Cambodia’s investor-focused policies

Cambodia has a generally favourable investment environment. With its low-cost labour force, Cambodia attracts
multinationals and foreign investors. The overall investment policy in Cambodia is fairly liberal. Foreign entities
are allowed to establish branch offices, representative offices, liability companies and joint ventures. Unlike
some of the Southeast Asian economies, Cambodia does not require foreign investors to have a local joint
venture partner in order to set up companies in Cambodia.

To attract foreign investment to Cambodia, the government operates a “qualified investment project” tax
exemption scheme for up to nine months and offers some exemptions on import duties. Cambodia has one of the
lowest corporate tax rates in the region, with a corporate tax rate of 20%.

Currently, Cambodia has more than 30 Special Economic Zones (SEZs), i.e. areas that have been specially
designated by the government in which business and trade regulations differ from those that apply to the rest of
the country. Cambodia’s Special Economic Zones provide businesses with various fiscal incentives, including
income tax, customs, and VAT benefits, in order to enhance competitiveness and attract investment to
Cambodia. According to a report by the Council for the Development of Cambodia, as of late 2013, Cambodia’s
Special Economic Zones had attracted USD 1.65 billion in total investment from 172 investment projects, most
of which were initiated by China, South Korea and Japan.

Trade agreements reduce trade barriers between Cambodia and its trading partners

As a Least Developed Country (LDC), Cambodia benefits from the most favourable regime available under the
EU’s Generalised Scheme of Preferences (GSP), namely the Everything But Arms (EBA) scheme. The EBA
scheme gives Cambodia duty free access to the EU for exports of all products, except arms and ammunition.
The EU is ranked as the second biggest trade partner of Cambodia. However, there is a possibility of the
suspension of trade preferences under the EBA scheme by the EU due to Cambodia’s human and labour rights
issue.

Cambodia is a member of ASEAN and the World Trade Organization (WTO). In 2006, Cambodia signed a
Bilateral Trade and Investment Framework Agreement (TIFA) with the US. Cambodia has entered into a
number of trade agreements which are intended to remove different tariff lines and expected to promote foreign
trade. These include the ASEAN-Korea, ASEAN-China Trade, ASEAN-Japan, and ASEAN-Australia-New
Zealand trade agreements.

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New laws on e-commerce and consumer protection

In November 2019, the government approved the new Consumer Protection Law and E-Commerce Law to
protect consumers from unfair trading activities and to govern e-commerce activities. It is expected that the new
law will facilitate more control and regulation of informal selling activities by the government.

3.2.3 Drivers and Constraints

Young population and a growing middle class drive domestic demand

Cambodia has a young population, and many young urban consumers are interested in fashion and beauty trends
and new technologies, with smartphones and social media networks being extremely popular for this
demographic. Social media has fostered a more image-conscious culture among consumers, while the
proliferation of smartphones and the internet has given consumers ready access to latest fashion trends. These
factors promote increased spending on apparel, personal care products, and technology products, benefiting the
retailing industry.

In addition to its young demographic profile, Cambodia also has a growing number of middle-income
consumers. This group of consumers aspire to purchase branded products and high-quality products to reflect
their social status. Middle class consumers in Cambodia are also more willing to spend on premium products
and brands, as purchasing power increases as a result of rising incomes.

Cambodia’s strong economic growth boosts foreign investment in retailing

Cambodia’s economy witnessed strong growth in the review period. This has not only boosted disposable
incomes and domestic demand but has also driven investment in the retailing industry. Foreign retailers and
brand owners are increasingly attracted by the potential growth of the Cambodian market. The middle class is
still relatively small, but this also means there is a lot of potential for growth with a large untapped market.
Similarly, the share of urban population has risen gradually, in line with the economic development of
Cambodia. This offers a large attractive market for foreign investors.

Cambodia’s manufacturing sector also plays an important role in creating employment and providing income for
the local people. With the announcement to raise the minimum wage from USD 170 per month in 2018 to USD
182 per month in 2019, Cambodian consumers are expected to have higher purchasing power. Moreover, the
lifestyles of the Cambodian consumer are changing, as they try new products more often, and engage more in
social and leisure activities such as spending their free time with friends at cafés and restaurants or shopping at
department stores.

New shopping malls continue to spring up in the cities

During the review period, there was a growing trend of consumers visiting shopping malls for shopping and
leisure. Many new shopping malls have sprung up in the cities, such as the USD 205 million Aeon Mall, which
has 186 tenants taking up 68,000 square meters of retail space that opened in Phnom Penh in 2014. The mall
houses well-known global brands such as Clarks and Levi’s as apparel and footwear specialist retailers and
luxury brands such as Valentino. Aeon opened its second shopping mall in Phnom Penh in 2018, which includes
a large format Aeon grocery retail outlet, and plans to have up to five such malls in Cambodia. Currently, large
shopping malls are still concentrated in major cities such as Phnom Penh, and many other shopping malls have
opened in Phnom Penh in 2019, including the second branch of Aeon Mall, The Park, Noro Mall, Prince Plaza
Mall, Eden Garden, and Olympia Plaza Mall.

Foreign retailers erode the market share of domestic retailers

The entry of foreign retailers, especially well-known international brands, has increased competition in a market
that is already fragmented and crowded. Foreign brands are popular among urban consumers who tend to be
more brand-conscious. As a result, competition in the retailing industry has intensified and local retailers find it
particularly challenging to operate as it is difficult for them to build their brands. Some have lost market share to
international brands which attract younger consumers and more sophisticated urban consumers.

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Limited transport infrastructure hinders movement of goods and expansion of retailers

As a developing economy, Cambodia’s transport infrastructure remains underdeveloped. For example, roads
leading to the rural areas remain mostly unpaved and lack traffic lights. During the rainy season, the condition of
the roads in both urban and rural areas may deteriorate considerably. In terms of rail transport, Cambodia has
only two main railway lines, the 264km Southern Line from Phnom Penh to Sihanoukville, and the 336km
Northern Line from Phnom Penh to Poipet, near the Cambodian-Thai border. Both lines are reported to be in
very poor condition. This makes it difficult for many retailers to reach out to consumers, particularly as much of
the country is covered by jungle and rural road infrastructure is poor. Moreover, there is a shortage of logistics
facilities and services which could support movement of goods across the country.

There have been significant efforts to develop the transport infrastructure, such as road improvement projects
and the construction of Phnom Penh-Sihanoukville Expressway, the first expressway in Cambodia which is
planned to be completed by 2023. The opening of the expressway is expected to enhance the efficiency of
logistics and transportation between the two major cities, and will ease the transportation of goods to encourage
more retailers to open stores in other cities of Cambodia outside the capital.

Online shopping takeup is slow due to lack of trust in online payments

Although online and mobile shopping has been growing, payment apps are struggling to gain mainstream
adoption. This is linked to a lack of legislative regulation, concerns about the security of online transactions, the
absence of a standardised address system and a relatively low level of interest from both consumers and retailers
in utilising mobile payment apps. A number of payment apps are available in Cambodia, including those of
leading telecommunications players such as Smart’s SmartLuy, but they have not gained sufficient trust among
consumers, while retailers have not put in place the necessary IT infrastructure in order to accept online
payments.

3.2.4 Market Outlook

Retailing industry expected to maintain strong growth

The COVID-19 lockdown in April 2020 was enforced for a week in Cambodia which is a shorter period
compared to other countries in Asia. Although the lockdown had a small impact on the overall retailing industry,
it is expected to hinder industry growth as most non-essential retail outlets were closed during this time. In 2020,
retail sales is projected to increase by 3.1% which is lower than the typical annual growth rate of around 7-8%.
In the second half of 2020, consumers are expected to continue to tighten their spending and prioritize on
purchasing household and food related items as their income is likely to be affected by COVID-19. Alongside
the expectation that disposable income will recover from 2021 onwards, inbound tourism will start to return and
should contribute positively to retail sales. As such, retail sales is forecast to grow strongly by 10.0% in 2021
and 8.2% in 2022. Total retail sales is projected to record a CAGR of 8.1% from 2020 to 2025, reaching a
market size of KHR 48,924,516.2 million (USD 12,073.9 million) in 2025.

Overall, retailing industry in Cambodia is benefitting from the anticipated positive performance of the economy
and rising disposable incomes. With rising income, many consumers will expand their purchases to include non-
essential items, and some will trade up to more premium products and retailing channels in pursuit of better
quality and brand reputation. Cambodia also has the demographic advantage of a young population which will
have a growing focus on appearance, fashion and consumerism, and this is expected to spur greater consumer
expenditure on retailing. In addition, investment in retailing, particularly shopping malls, will continue to
register strong growth, supported by the country’s positive economic outlook and favourable investment
environment.

Table 34 Cambodia Total Retail Sales Figures (2020F-2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F-
2025F
KHR
Total 33,219,584.0 36,541,542.4 39,537,948.9 42,557,738.9 45,664,453.8 48,924,516.2 8.1%
million
Retail
Sales USD
8,198.2 9,018.0 9,757.4 10,502.7 11,269.4 12,073.9 8.1%
million

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Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Opportunities for investors to offer logistics solutions to retailers and distributors

The retailing industry in Cambodia is limited by the underdeveloped logistics and distribution network. It is
anticipated that distributors and retailers will continue to face barriers in their expansion efforts. In addition,
most of the local logistics companies are small in scale and there is a lack of skilled staff with relevant
international experience. This limits the ability of local companies to offer higher value-added services such as
track-and-trace and inventory management. Therefore, there are opportunities for investors in the logistics and
distribution space to develop logistics solutions for retailers keen to enter the Cambodian market or expand their
existing market shares.

Informal retailing will continue to dominate, with government making efforts to crack down on
counterfeit goods

The dominance of informal retailing in Cambodia’s retailing industry is likely to remain a challenge for the
retailing industry, as consumers will continue to be attracted by their convenient locations and low prices. The
informal retailing sector competes with specialist retailers and modern retailers for all income groups. Moreover,
it is quite difficult to curb the circulation of counterfeit goods through informal retailing due to a lack of
regulation for the sector.

Nonetheless, the government is proving increasingly proactive in its fight against the sale of counterfeit and
smuggled products. In October 2017, the authorities destroyed over 80 tonnes of counterfeit consumer health
and beauty and personal care products, while 68 tonnes of beauty and personal care counterfeits were seized
from warehouses in May 2017. Furthermore, in August 2018, anti-economic crime police seized counterfeit
bags, shoes and belts in five markets in Phnom Penh following a complaint from a distributor which has the
exclusive rights to distribute the branded items. In addition, consumers are becoming more discerning with
regard to counterfeit goods, with a growing focus on quality of products. Hence, many mid-income to high-
income consumers are trading up from informal retailing to modern retailing.

New shopping centres planned for the forecast period

The emergence of new shopping malls is expected to continue in the forecast period and will continue to be
concentrated in the larger cities like Phnom Penh and Siem Reap. As urban consumers become more exposed to
modern lifestyles and consumption behaviours, the interest in modern retail channels is expected to increase,
with more consumers seeing them not just as a place to shop, but also a place for dining out and spending time
with families and friends. The penetration of modern retail channels is still relatively low in Cambodia and there
will be opportunities for investors to build new concept businesses such as shopping centres, supermarkets,
discount stores, malls and minimarts.

The development of shopping mall space is particularly active in Phnom Penh. Nearly a dozen new malls, most
of which developed by international mall developers, were scheduled to open in Phnom Penh by the end of 2018
to double the capital’s total clustered retail space. These include the Aeon Mall 2 by Japanese shopping mall
developer Aeon Mall Co., Ltd, with 70,500 square meters of retail space; the Phnom Penh MegaMall by
Malaysian retailer Lion Group, with 70,200 square meters of retail space, and Chip Mong 271 Mega Mall by
Chip Mong Retail, a subsidiary of Cambodian conglomerate Chip Mong Group. In October 2018, Aeon Mall
Co., Ltd announced the location of its third mall in Cambodia to be in the heart of ING CITY, about 8
kilometres away from Phnom Penh. The mall is expected to open in 2023. There is also a rise in “community
malls” in the form of smaller and personable open-air venues.

Apart from Phnom Penh, shopping malls also have presence in Siem Reap and Battambang. In Siem Reap, there
are some small malls such as Lucky Mall and Angkor Trade Center and some shopping complexes such as the
Heritage Walk (40,000 square meters) which contains about 100 shops including restaurants, coffee shops and a
cinema. In Battambang, there is a four-storey shopping mall called Borey Thmey Mall.

Online shopping is expected to become more popular

With the rapid development of online shopping, retailers have developed extensive multi-channel and omni-
channel retailing strategies to engage consumers and to capture sales. Cambodia has seen a steady increase in

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smartphone ownership and internet penetration, which provides increased access to online shopping. The young
Cambodian consumers are expected to continue embracing online shopping, and it will be important for retailers
to boost their online presence and upgrade their trading systems to support an omni-channel sales strategy.
Major players are also expected to develop higher-quality and more user-friendly websites, as well as mobile-
responsive websites or mobile apps, to increase purchases from consumers.

3.3 THE CONVENIENCE STORES IN CAMBODIA

3.3.1 Market Overview
Convenience stores expand in urban areas

The number of convenience stores has grown significantly in Cambodia in the past decade, which corresponds to
the development of Cambodia’s large cities, including the growing presence of modern retail channels. A decade
ago, the presence of convenience stores was limited to forecourts, and these stores sold a small selection of
foods to drivers. Today, convenience stores have expanded their network, reaching various neighbourhoods in
the cities and serving a much wider segment of consumers. They sell a wide range of food for daily
consumption. Some convenience stores have expanded their offerings beyond food products. For example, they
offer services such as bill payment and mobile phone value top-up, and amenities such as vending machines and
ATMs. This is in turn boosting the popularity of convenience stores, as the additional services draw consumers
to the stores. However, on the whole, convenience stores are still a relatively new format in Cambodia and its
presence is largely limited to the cities, whereas in the rural areas, informal kiosks and stalls serve the daily
needs of consumers.

Consumers see conveinence stores as a place to relax

The main customer segments for convenience stores in Cambodia are students and young families. These
consumers not only see convenience stores as a shopping venue for getting daily essentials but also tend to stay
longer in the stores to relax. Consumers typically spend more time in convenience stores as compared with
traditional stores, as the air-conditioned convenience stores provide respite from the hot weather in Cambodia.
Convenience stores are increasing their retail space and offering seats within the stores to attract consumers to
spend more time and money on purchases in-store

Convenience store sales register strong growth in the review period

In Cambodia, convenience store sales accounts for 1.0% of total retail sales of grocery retailers in 2019.
Between 2014 and 2019, the value sales of convenience stores grew at a CAGR of 46.9% from KHR 31,376.3
million (USD 7.7 million) in 2014 to KHR 214,774.7 million (USD 53.0 million) in 2019. Concurrently, the
proportion of convenience store sales to total retail value has increased from 0.4% in 2018 to 0.7% in 2019.
Convenience store sales surged in 2019, due to the expansion of international chains in Cambodia. At the same
time, the total selling space grew to 11,865.0 square meters in 2019, at a CAGR of 25.8%. Sales per outlet
registered a positive CAGR of 19.4% from 2014-2019.

Table 35 Cambodia Total Convenience Stores Figures (2014-2019)

CAGR
2014 2015 2016 2017 2018 2019 2014-
2019
KHR
31,376.3 44,201.4 56,319.8 74,733.2 120,041.8 214,774.7 46.9%
Convenience million
stores sales USD
7.7 10.9 13.9 18.4 29.6 53.0 46.9%
million
Number of
- 40 49 53 59 78 113 23.1%
outlets
Selling Square
3,760.0 4,655.0 5,194.0 5,900.0 8,034.0 11,865.0 25.8%
space meter
KHR
Sales per 784.4 902.1 1,062.6 1,266.7 1,539.0 1,900.7 19.4%
million
outlet
USD 193,581.6 222,618.9 262,245.0 312,596.1 379,804.3 469,058.2 19.4%
Sales per
KHR 8,344,766.9 9,495,466.3 10,843,241.1 12,666,640.6 14,941,716.8 18,101,534.1 16.8%
selling space

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CAGR
2014 2015 2016 2017 2018 2019 2014-
2019
(square
USD 2,059.4 2,343.4 2,676.0 3,126.0 3,687.4 4,467.2 16.8%
meter)
Convenience
stores’ sales
contribution % 0.2% 0.3% 0.3% 0.4% 0.6% 1.0% N/A
to grocery
retailers
Source: Euromonitor estimates from trade interviews and desk research

3.3.2 Drivers and Constraints

Urbanisation drives demand for convenience

Cambodia has a relatively small urban population, with Phnom Penh being the only major urban area in the
country. However, Cambodia also has the fastest growing urban population. Cambodia’s urban population grew
at a CAGR of 3.3% from 3,329,700 people in 2014 to 3,924,600 people in 2019. The migration of people into
cities and the growth of urban areas have spurred demand for convenience, especially among professionals and
office workers who live a busy lifestyle and welcome the accessibility of convenience stores. The greater
affluence of urban consumers also supported the growth of convenience stores, as these consumers are less
price-sensitive and place more emphasis on quality and convenience factors. Moreover, consumers are also
getting more exposure to modern retail formats in the urban areas, such as supermarkets and minimarts, which
leads to growing acceptance of convenience stores for daily shopping. This is resulting in convenience stores
becoming increasingly visible in urban areas such as Phnom Penh.

Rising middle class look beyond price in their choice of shopping venues and goods

Cambodia’s economic growth and its young population have created a new generation of aspirational middle
class consumers who want to enjoy a higher standard of living. According to a study commissioned by the
British Chamber of Commerce, the European Chamber of Commerce and the UK government’s department for
international trade, income levels are rising across all socioeconomic classes, with an estimated 10% of
Cambodian households having incomes of more than USD 800 a month. These consumers are looking beyond
price as the key factor in making a purchase, considering other factors like the shopping environment, the quality
of products, and the freshness of food products. As a result, middle class consumers are increasingly shopping at
modern convenience stores for their daily grocery needs because of the convenience provided and their product
offerings.

International convenience store chains expand in Cambodia

Cambodia’s economy is strong and attracts more investment, including those from some of the world’s leading
brands. Canadian convenience store chain Circle K opened its first outlet in Phnom Penh’s Tuol Kork district in
February 2018. The store will be operated by Circle K’s Cambodian partner TH CSV. In its first year of
operation in Cambodia, Circle K opened over 20 outlets. In the next decade, the company plans to open 300
more stores nationwide. According to data from the Ministry of Commerce, in 2017, 100 international brands
were franchised to partners in Cambodia. In 2017, Japanese supermarket group Aeon announced plans to open
30 grocery stores in Cambodia to cater to the country’s growing middle class. According to the Nikkei Asia
Review, some of the stores will be located in city centres and will resemble convenience stores, with about 150
square meters of floor space.

Competition from both modern supermarkets and traditional retailers

Convenience stores face strong competition in Cambodia. On the one hand, it competes with other modern retail
channels, such as supermarkets which offer a wider range of products and larger retail space. On the other hand,
it faces competition from traditional retail channels with their widespread presence throughout Cambodia, such
as makeshift kiosks by the side of the road. These kiosks stock almost every basic household necessity a
household would require, which range from condiments to conditioners, groceries to gas. Moreover, consumers
can visit these kiosks’ residents during late hours or public holidays when no other stores are open for business.
Most of the kiosks charge low prices for their goods, as their owners save on rental costs. Therefore, despite the

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proliferation of modern mini-markets and convenience stores with extended opening hours across Cambodian
cities, the traditional kiosks remain popular among local residents.

3.3.3 Market Outlook

Convenience store sales will continue to grow

The effects from the COVID-19 pandemic slowed the growth rate during the forecast period, convenience stores
sales is forecast to grow by 2.7% in 2020. Despite traditional grocery retailers being more prominent in
Cambodia, more consumers started considering making purchases at modern grocery retailers upon the COVID-
19 pandemic started as they believe that this is a safer means of making food-related product purchases. It is
expected that the increasing popularity in modern grocery retailers will continue through 2021 and 2022 as
consumers are prioritizing food safety. Thus, convenience stores sales is projected to grow further by 24.7% in
2021 and 19.7% in 2022. From 2020-2025, the CAGR of convenience stores sales is projected at 15.6% to reach
a market size of KHR 454,845.6 million (USD 112.2 million) in 2025. By the end of the forecast period, total
convenience store sales is expected to account for 1.5% of total sales of grocery retailers.

Table 36 Cambodia Convenience Stores Figures (2020F-2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F-
2025F
KHR
220,526.6 274,954.6 329,151.0 375,865.1 422,155.3 454,845.6 15.6%
Convenience million
stores sales USD
54.4 67.9 81.2 92.8 104.2 112.2 15.6%
million
Number of
- 115 130 142 149 156 159 6.7%
outlets
Selling Square
12,102.3 14,034.1 15,606.8 16,857.3 17,988.2 18,874.7 9.3%
space meter
KHR
Sales per 1,913.3 2,114.8 2,318.0 2,516.2 2,710.7 2,854.3 8.3%
million
outlet
USD 472,176.7 521,909.7 572,042.0 620,969.7 668,955.1 704,408.7 8.3%
Sales per KHR 18,221,878.6 19,591,832.4 21,090,275.6 22,296,924.9 23,468,404.0 24,098,194.1 5.7%
selling space
(square
meter) USD 4,496.9 4,835.0 5,204.8 5,502.6 5,791.7 5,947.1 5.7%
Convenience
stores’ sales
contribution % 1.0% 1.2% 1.3% 1.4% 1.5% 1.5% N/A
to grocery
retailers
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Convenience stores will be driven by population and economic growth

The convenience store sector will continue to grow as Cambodia continues to experience economic growth. The
continued increase in population will provide a wider base of potential customers to retailers. Middle class
consumers, who are the main customers, are willing to pay more for the convenience and comfortable
environment of modern retail formats, such as Wi-Fi access, air conditioning, and a broad selection of both
domestic and imported brands. The growing number of middle class consumers will be the key driver of
convenience stores in the future.

Convenience stores offer a wide range of products and servies

Convenience stores appear more innovative than traditional retailers, as they continuously adapt their products
and services to meet the changing needs of young, middle class consumers. For example, some convenience
stores provide internet access and seats for customers to relax in the stores. Food products are packed neatly and
clearly labelled with expiry date, country of origin and ingredients, and organic products are also gradually
introduced in some outlets. This inspires more trust in consumers who are increasingly more concerned about
the safety and freshness of products. Convenience stores are usually perceived to have a clean, modern look,
which makes customers trust the quality of the products more.

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Convenience stores face strong competition from other grocery retailers

One of the main challenges for convenience store operators is the high level of competition with grocery
retailing. The convenience store format has to compete with other modern retailing formats, such as forecourt
retailers, big supermarkets and malls. In addition, it also competes with traditional markets and stalls which tend
to offer more affordable prices.

However, there are still immense opportunities for the growth of convenience stores in urban areas, where
consumers have higher incomes and are willing to pay more for convenience. Many middle class consumers are
changing their way of shopping by visiting the convenient stores close to their house for convenience, and such a
shift is expected to continue in the forecast period.

3.3.4 Competitive Environment

Convenience store segment expects to see more foreign players

The convenience store segment is fragmented, with the top the top 5 players accounting for 29.6% of the market
share. The leading convenience store chain, Player 1 has around 20 outlets and Player 2 with about 24 outlets in
2019.

The convenience store segment is expected to attract more foreign investment, thanks to Cambodia’s large
untapped market and positive outlook. Circle K, which entered the Cambodian market in 2018, has plans to
invest to set up 300 stores across the country over the next decade.

Foreign convenience store brands are expected to be more common in Cambodia in future years. CP ALL,
which owns the 7-Eleven convenience stores chain, is taking steps to open more convenience stores in
Cambodia, Laos, and Myanmar, as part of its global expansion plan. Jiffy plans to open more convenience stores
in Cambodia in collaboration with PTTCL. As a result, the segment is expected to become more fragmented in
the forecast period.

Table 37 Cambodia Market Rankings and Shares of Convenience Stores in 2019

Ranking Convenience Store Brand % Market Shares by Revenue Listing Status

1 Player 1 12.0 Private

2 Player 2 7.2 Private

3 Player 3 6.1 Private

4 Player 4 3.7 Private

5 Player 5 0.7 Private

Source: Euromonitor estimates from trade interviews and desk research

3.4 THE FORECOURT RETAILERS IN CAMBODIA

3.4.1 Market Overview
Forecourt retailers attract consumers with their convenient locations

Forecourt retailers have been present in Cambodia for many years. The number of forecourt retailers continued
to increase in the review period. Currently, there are retailers at most of the forecourts in Cambodia. Customers
who visit the forecourt to fill petrol can easily shop or relax in the forecourt retail space, because forecourt
retailers provide ready-to-eat food, coffee and drinks, and seats for customers. It also attract passers-by who
have no initial purchase intentions to visit, as forecourts are usually located on the main street and the corners
where foot traffic is high.

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Forecourt retailers are bigger than convenience stores in Cambodia in terms of value sales as of 2019. Forecourt
retailers usually attract more customers than convenience stores, because of their locations in main streets.
Moreover, it has the added advantage of having a large space for customers to park. Due to their large space,
many forecourts around Cambodia have been expanding their business by adding cafés and quick-service
restaurants inside forecourt.

Service stations seek to grow revenues through non-oil retail business

Operators of service stations are increasingly expanding into non-oil business, which is also happening in other
Southeast Asian countries like Thailand and the Philippines. Led by major international players such as OR,
service stations are increasingly adding a wide range of services, such as the sale of food and drinks through
forecourt retailers and cafés. The most common business model features tie-ups with convenience store
operators to open forecourt retail outlets, so that drivers not only stop to refill petrol, but can also purchase food
and drinks.
In 2016, OR announced an investment budget of THB 24 billion for the period of 2016-2020. Of the total
budget, THB 4 billion will be dedicated to ASEAN growth, including the expansion of its non-oil retail
businesses.

Forecourt retailers’ size varies by locations

Forecourt retailers in Cambodia vary in size depending on their locations. Forecourt retailers located on main
roads tend to be larger and attract more customers, as they provide more products, parking space, and space for
customers to shop and relax, typically consisting of both retail and foodservice outlets. Smaller forecourt
retailers are usually located on the secondary roads where there is less traffic.

Forecourt retailers register strong growth through outlet expansion

Forecourt retailers sales registered a CAGR of 19.3% between 2014 and 2019, growing from KHR 112,896.4
million (USD 27.9 million) in 2014 to KHR 272,629.2 million (USD 67.3 million) in 2019. The number of
outlets also registered significant growth with a CAGR of 27.7% in the same period. Forecourt retail sales
accounts for 1.3% of the total sales of grocery retailers in 2019.

Table 38 Cambodia Forecourt Retailers Figures (2014-2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
KHR
Forecourt 112,896.4 138,371.7 168,473.4 198,872.9 213,243.6 272,629.2 19.3%
million
retailers
sales USD
27.9 34.1 41.6 49.1 52.6 67.3 19.3%
million
Number of
- 64 88 102 115 165 217 27.7%
outlets
Selling Square
3,456.0 5,280.0 6,426.0 7,475.0 7,670.0 8,514.0 19.8%
space meter
KHR
Sales per 1,764.0 1,572.4 1,651.7 1,729.3 1,289.2 1,256.4 -6.6%
Million
outlet
USD 435,333.6 388,049.0 407,617.8 426,775.9 318,146.5 310,052.1 -6.6%
Sales per
selling KHR 32,666,776.7 26,206,755.3 26,217,454.7 26,605,069.7 27,802,297.8 32,021,278.7 -0.4%
space
(square USD 8,061.7 6,467.5 6,470.1 6,565.8 6,861.2 7,902.4 -0.4%
meter)
Forecourt
retailers
sales
% 0.8% 0.9% 1.0% 1.1% 1.1% 1.3% N/A
contribution
to grocery
retailers
Source: Euromonitor estimates from trade interviews and desk research

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3.4.2 Drivers and Constraints

Middle class consumers are the main driver of forecourt retailers

The expansion of the middle class in the major cities such as Phnom Penh is one of the main drivers for
forecourt retailers. The business owners are able to attract many customers to forecourt retailers despite the
higher price, as middle class consumers are less price-sensitive and are willing to pay higher prices for the
convenience.

Consumers choose forecourt retailers for better-quality products and convenience

Due to the expansion of forecourt retailers in the review period, awareness of the forecourt retailing format has
grown. There is also greater focus on the quality of products among urban consumers, as consumers become
more sophisticated. The products sold at forecourt retailers are often more expensive than those at traditional
retailers, but they are perceived to have a better quality because they are well packed and food products are
stored properly. Shopping at forecourt retailers is also more straightforward due to fixed prices and consumers
do not need to spend time haggling over prices.

Forecourt retailers provide additional services to attract customers

To attract more customers, some forecourt retailers such as Star Mart and Bonjour Mart have added in-house
cafés such as Coffee Plus and Bonjour Café, respectively, to their outlets to attract more customers. ptt stations
have also started to add more cafés as well as quick-service restaurants inside forecourt, such as Pure Grill Pork,
Café Amazon and Black Canyon Coffee.

Demand for convenience drives forecourt retailers

Demand for convenience has been a driver for forecourt retailers. Forecourt retail outlets are usually located in
public spaces where there are a lot of people passing by. They not only attract consumers who stop by to fill the
gasoline, but also those on the street who are looking to do a quick shop.

Strong competition with convenience stores which offer similar products and services

Competition remains one of the key constraints for the growth of forecourt retailers. The grocery retailing
industry is highly competitive, with a variety of retail formats which cater to different consumer needs. For
example, supermarkets serve consumers who are looking to buy a wide range of food and household goods;
while convenience stores cater to consumers who need to do quick shopping or top up their food supplies.
Forecourt retailers mainly compete with convenience stores, as both formats offer a similar but limited range of
products and services and appeal to consumers on the convenience factor.

Locations play an important factor in the popularity of forecourt retailers

Location is an important factor for forecourt retailers. In order to secure premium locations, forecourt retailers
usually have to pay higher rents, resulting in high operating costs. Retailers which are located in less popular
locations or have smaller retail space will not be able to attract as many customers as those located at convenient
locations and having large store space. For new entrants, the difficulty in finding good location could be a
barrier to entry.
Store size a key constraint for forecourt retailers

Forecourt retailers are limited by the size of their stores, and do not stock as many products as supermarkets.
Customers who shop at forecourt retailers typically buy a few items. If they want to buy many products, such as
their weekly grocery shopping, they would still prefer to shop at the supermarket as it offers a wider range of
products. As a result, it is relatively difficult for a forecourt retailer to scale up individual stores, and their model
of expansion is usually based on store network expansion.

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3.4.3 Market Outlook

Forecourt retailers are expected to register slower growth

In addition to having more competition from other retailing formats, the effects from the COVID-19 pandemic
also affected the growth rate over the forecast period. To prevent the spread of the virus, one week lockdown
was enforced during the week of Cambodian’s new year (Khmer New Year) to restrict people from travelling to
their hometown in different provinces. As such, there was less traffic inside the service station and hindered
forecourt retailers sales. As such, Forecourt retail sales is forecast to grow by 3.8% in 2020. Increasing
popularity in modern grocery retailers is expected to continue through 2021 and 2022 as consumers are
prioritizing food safety, especially consumers in the urban area which are the key consumers for this segment.
Additionally, the Cambodian tourism industry is expected to pick up from 2021 onwards, increasing the number
of domestic tourisms which will benefit forecourt retailers sales. In 2021-2022, forecourt retailers sales is
projected to grow further by 15.2% and 13.8% respectively. Forecourt retail sales are forecast to grow at a
CAGR of 12.1% from 2020-2025. From 2020-2025, the number of forecourt retail outlets will grow at a CAGR
of 10.6% while selling space will increase at a CAGR of 9.3%, indicating that retailers will focus more on
opening larger outlet. Forecourt retailers sales is projected to grow at a faster rate than the growth of number of
outlets as investment is required to open new outlets and there are a limited number of locations for new outlets.
By the end of the forecast period, forecourt retailers will account for 1.6% of grocery retail sales. The growth of
forecourt retailers is expected to be underpinned by strong economic growth, the increasing number of middle-
class consumers and infrastructure development.

Table 39 Cambodia Total Forecourt Retailers Figures (2020F-2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F-
2025F
KHR
282,977.9 325,914.4 370,822.6 419,015.4 459,979.3 501,293.8 12.1%
Forecourt million
retailers sales USD
69.8 80.4 91.5 103.4 113.5 123.7 12.1%
million
Number of
- 228 266 300 330 356 377 10.6%
outlets

Square
Selling space 8,939.7 10,446.0 10,902.5 12,228.0 13,318.5 13,925.4 9.3%
meter
KHR
Sales per 1,241.9 1,224.0 1,234.3 1,268.5 1,292.3 1,328.6 1.4%
million
outlet
USD 306,496.5 302,055.6 304,600.2 313,042.6 318,911.9 327,889.0 1.4%
Sales per
selling space KHR 31,654,070.5 31,199,820.4 34,012,619.4 34,266,856.9 34,536,847.0 35,998,634.9 2.6%
(square
meter) USD 7,811.8 7,699.7 8,393.9 8,456.6 8,523.2 8,884.0 2.6%
Forecourt
retailers sales
contribution to % 1.3% 1.4% 1.5% 1.5% 1.6% 1.6% NA
grocery
retailers
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Forecourt retailers growth driven by expanding population and rising income

Forecourt retailers is expected to register positive growth in the forecast period. Cambodia’s population and the
number of middle class consumers are increasing every year along with the strong economic growth. This means
the target market for forecourt retailers will continue to grow in the forecast period, and more consumers are
expected to shop at forecourt retailers. In addition, the expansion of urban cities will provide more space for
forecourt retailers’ expansion, as well as drive greater consumer demand, as urban consumers living a busy
lifestyle will be attracted to forecourt retailers for their convenient locations and ease of shopping.

On the supply side, the transformation of service stations from pure oil business to a wider portfolio of
businesses including retail offerings will provide opportunities for the growth of forecourt retail outlets.
Conglomerates like OR are planning to increase the number of service stations in Cambodia, as well as open
more retail outlets in its service stations through collaboration with convenience store and café operators. As a

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result, it is anticipated that forecourt retailers will become a more common presence across Cambodia and they
will entice drivers to make more purchases.
Product variety and additional services could be the innovation focus of forecourt retailers

Forecourt retailers which have a relatively large size, provide a wider variety of products (many choices of
snack, ready-to-eat food, cake, and coffee), or offer seating for consumers to relax will attract more customers.
Thus, forecourt retailers should consider adding more products to their shops and renovating the store layout to
provide a more comfortable shopping environment which will attract more customers. Internet access is another
attraction for customers, especially young people.

Forecourt retailers compete with convenience stores and traditional retailers

A likely challenge for forecourt retailers is increased competition. Forecourt retailers compete with other retail
formats such as convenience stores and supermarkets. With the anticipated entrance of more foreign
convenience store chains, convenience stores are expected to become more common in Cambodia, and compete
with forecourt retailers on similar strengths, i.e. convenience and modern store design. In terms of competition
with supermarkets, forecourt retailers do not sell as many products as supermarkets. Most consumers prefer to
shop at supermarkets for larger shopping orders.
Despite the challenge, forecourt retailers still have the opportunity to grow in the future by targeting consumers
who visit forecourts to fill the gasoline, travellers and students who want a relaxing place to shop.

3.4.4 Competitive Environment

Forecourt retailers dominated by large players

The top five players accounted for approximately 48.6% of the total market share. There are other smaller
service stations in Cambodia and those retailers that bought franchises from the leading players, but they would
not be able to compete with these leading players, as the latter operate through major service station operators
and have a much larger number of stores.

Jiffy from Thailand collaborated with PTTCL, operating 49 Jiffy Marts in PTTCL service stations as of 2019.
PTTCL has announced plans to increase the number of service stations across Cambodia, as well as open more
retail outlets in its service stations, which will include forecourt retailers, cafés and restaurants.

As Cambodia continues to develop its economy, vehicle ownership is expected to rise, leading to an increase in
the number of service stations and forecourt retailers. Furthermore, the infrastructure in Cambodia is becoming
more developed. The plan to open the Phnom Penh-Sihanoukville Expressway in 2023, the first expressway in
Cambodia, is expected to benefit the sales of service stations and forecourt retailers. There are opportunities for
new entrants to take up retail space at the new service stations. The barriers to entry are not very high, as the
costs of setting up a forecourt retail outlet is relatively low given the smaller store size compared to
supermarkets. Therefore, the industry is expected to become more fragmented in the forecast period.

Table 40 Cambodia Market Rankings and Shares of Forecourt Retailers in 2019

Ranking Forecourt Retailers Brand % Market Shares by Revenue Listing Status

1 Player 1 15.2 Private

2 Player 2 14.4 Private

3 Player 3 9.0 Private

4 Jiffy 7.1 Private

5 Player 5 3.0 Private

Source: Euromonitor estimates from trade interviews and desk research

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3.5 QUICK-SERVICE RESTAURANTS (QSR) INSIDE FORECOURT IN

CAMBODIA
3.5.1 Market Overview
International brands are the main players in Quick-Service Restaurants (QSR)

Quick-service restaurants started to grow in Cambodia in the last decade. Most of them are franchises of
international quick-service chains. Pizza Company, a Thai brand, has been in the Cambodian market since 2005.
KFC and Swensen arrived in Cambodia in 2008, followed by Dairy Queen, Burger King, Domino’s Pizza,
Krispy Kreme, Carl’s Jr and Cold Stone Creamery. The number of quick-service restaurants has grown, both
inside and outside forecourt, although the number of quick-service restaurants outside forecourt is greater than
that of inside forecourt. Quick-service restaurants face more competition in recent years, with the entrance of
regional brands such as Lotteria, Pepper Lunch, Yoshinoya, and Bonchon. At the same time, the number of
visitors to quick-service restaurants has also increased year-on-year, due to rising incomes and the growing
popularity of quick-service food.

Increasing number of Quick-Service Restaurants (QSR) inside forecourt

The number of quick-service restaurants inside forecourt has been increasing. This is in part driven by a growing
number of service stations as a result of Cambodia’s expanding road networks. Burger King, Tour Les Jours,
Pure Grill Pork, Mike Burger House, and Lucky Burger are among the most active players in expanding their
inside forecourt outlets. These players are more likely to expand their branches inside forecourt, as they already
have a relatively large number of outlets and will be looking for new locations to expand to. It is also expected
that some other well-known quick-service restaurants such as McDonald’s and Carl's Jr. would enter the
Cambodian market in the near future.

Quck-Service Restaurants (QSR) inside forecourt tend to be smaller than those outside
forcourt

Although most of the quick-service restaurants are franchises of international brands, it is common for
Cambodia-based quick-service restaurants to localise the menu, such as adding rice, ramen and tofu to the menu.
This has been observed in both quick-service restaurants located inside forecourts and those outside forecourts.

The main difference between the two types of quick-service restaurants is their size. Quick-service restaurants
located inside forecourts tend to be smaller than the ones outside forecourts. The size of the forecourt where a
quick-service restaurant is located is also a factor in determining the size of the quick-service restaurants.

Locations are important for both types of quick-service restaurants. The restaurants which are located in
premium locations such as main streets where there is a lot of traffic, or those located in shopping centres, will
be able to attract more customers than those located in less popular locations.

Quick-Service Restaurants (QSR) inside forecourt register strong growth in sales and
transaction volume

Quick-service restaurants inside forecourt sales grew at a CAGR of 16.4% during the review period to reach
KHR 51,572.9 million (USD 12.7 million) in 2019. The number of transactions grew at a slightly slower CAGR
of 14.3%. This indicates that quick-service restaurants inside forecourt is driven by both an increase in
transaction volumes, as well as larger per transaction values. These can be attributed to more outlets being
opened as service stations expanded into the non-oil business, more consumers visiting quick-service restaurants
inside forecourt, and higher spending amount per transaction as a result of rising incomes.

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Table 41 Cambodia Quick-Service Restaurants Inside Forecourt Figures (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 - 2019
Quick- KHR
24,142.2 28,785.8 32,422.4 36,357.4 42,622.3 51,572.9 16.4%
service million
restaurants USD
sales 6.0 7.1 8.0 9.0 10.5 12.7 16.4%
million
Number of
- 801,381 964,061 1,070,440 1,196,766 1,370,297 1,562,138 14.3%
transactions
Source: Euromonitor estimates from trade interviews and desk research

3.5.2 Drivers and Constraints

Increasing exposure to Western cultures and rising incomes drive Quick-Service Restaurants
(QSR)

With the rise in internet access and the increasing presence of modern retailing, consumers have had many more
opportunities than in the past to become exposed to Western cultures, including Western cuisines. As a result,
there are a growing number of middle class consumers who are keen to try out Western food, such as quick-
service food.

Dining out in quick-service restaurants is also seen as a lifestyle choice, as consumers can spend time with
friends or simply relax in the clean and modern environment of quick-service restaurants. As a result, quick-
service restaurants gained popularity among middle class consumers in the review period. This trend has
benefited quick-service restaurants inside forecourt, as consumers are quick to warm to new restaurants inside
forecourt, since they already have strong interest in Western quick-service food.

Quick-Service Restaurants (QSR) inside forecourt offer convenience to drivers and travellers

Quick-service restaurants inside forecourt offer convenience to customers who stop by to fill gasoline. Quick-
service food is quick to prepare and can be packed easily for takeaway. For consumers who travel and need to
pack some food to eat along the way, quick-service food offers a convenient and affordable option.

Compared to the restaurants located on high streets or in shopping centres, quick-service restaurants in
forecourts offer the added convenience of a large parking space. Moreover, forecourts are usually located at the
corner. Hence, it is easy for customers to stop by and get food.

Quick-Service Restaurants (QSR) inside forecourt compete with players outside forecourt on
menu and price

Competition is one of the key constraints for quick-service restaurants inside forecourt, because there is not
much brand loyalty for quick-service food. Consumers are easily attracted by new brands as they get to try out
new cuisines. Therefore, quick-service restaurants have to continually offer promotions and keep their menus
fresh to attract customers. If a quick-service restaurant does not update its menu or offer new items, it could
easily lose customers to competitors.
Advertising and promotions are important, because they help to spread words about new restaurants and new
menus, while promotions help to draw customers who would go to whichever restaurants offer discounts. While
it is common for quick-service restaurants to offer promotions, it would have an impact on profit margins.

Ability to hire and retain skilled staff is important to maintain high quality service

Hiring sufficiently skilled and efficient staff is critical for providing a high level of customer service and quality
of the food. As the workforce in Cambodia is largely unskilled, this may pose a key challenge for quick-service
restaurant operators. For example, if employees are too slow in preparing or packing food for customers, the
customers may prefer to visit a restaurant with quicker service in future. The availability of skilled kitchen staff
ensures food is prepared to reflect the original flavours of the brand. Even by providing training to their
employees, the turnover of staff is relatively high in the industry, as with the wider consumer foodservice
industry, making it a challenge for quick-service restaurants to maintain a consistently high level of service.

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3.5.3 Market Outlook

Quick-Service Restaurants (QSR) inside forecourt picks up pace of growth

Even though the COVID-19 pandemic has hindered the growth of quick-service restaurants inside forecourt in
2020, the sales of quick-service restaurants inside forecourt is expected to increase by 0.3% in 2020. Although
online food delivery in Cambodia is less common compared to other countries such as Thailand, and it is
relatively limited within the urban area, more consumers are trying food delivery either through online ordering
or phone calls. The incident of COVID-19 has encouraged quick-service restaurant players to be more active in
offering takeaway and delivery services. More importantly, it has helped quick-service restaurants players to
increase sales opportunity in the new channel. Furthermore, some consumers perceive that some leading quick-
service restaurants that are well-known and hold a modern brand image, prepare food with a higher safety
standard. This is an important purchasing factor due to the concern over the spreading of the virus. It is expected
that consumers will continue to prioritize food safety and spending on essentials i.e. food products beyond 2021.
Sales of quick-service restaurants inside forecourt is projected to significantly increase by 25.0% in 2021 and
23.2% in 2022. The overall sales growth from 2020-2025 is forecast at a CAGR of 24.7%.

The growth of quick-service restaurants inside forecourt is anticipated to be faster in the forecast period
compared to the review period. This is because the trend of service stations expanding into non-oil business,
such as collaborating with consumer foodservice outlets, is expected to continue, giving the number of quick-
service outlets inside forecourt a significant boost in the forecast period. Sales will be further bolstered by rising
incomes, demand for convenience and growing acceptance of quick-service food. In terms of the number of
transactions, these are expected to grow at a CAGR of 13.0% in the forecast period. In 2025, quick-service
restaurants inside forecourt will record close to 2.8 million transactions, bringing in KHR 156,244.8 million
(USD 38.6 million) worth of sales.

Table 42 Cambodia Quick-Service Restaurants Inside Forecourt Figures (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F-
2025F
Quick- KHR
51,746.7 64,683.4 79,719.6 99,011.8 123,908.6 156,244.8 24.7%
service million
restaurants USD
sales 12.8 16.0 19.7 24.4 30.6 38.6 24.7%
million
Number of
- 1,506,069 1,710,894 1,936,732 2,188,507 2,468,636 2,777,215 13.0%
transactions
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Quick-service food culture will continue to grow in Cambodia

It is expected that quick-service restaurants will continue to increase in Cambodia as there will be more
customers who enjoy eating quick-service food, driven by an emerging middle class and a youthful urban
population hungry for a taste of Western cultures. Moreover, the industry is expected to become more diverse
with more international brands such as those from Japan and Thailand coming to Cambodia in the near future, to
take advantage of a growing market. At the same time, service stations are seeking to expand into non-oil
business by opening retail outlets in service stations. Quick-service restaurants are expected to seize these
opportunities by collaborating with service station operators to open more outlets inside forecourt.

Menu innovation is key for Quick-Service Resturants (QSR)

In terms of innovation outlook, menu innovation is important for quick-service restaurants. New menus and
dishes keep customers excited about a brand. Quick-service restaurants inside forecourt should also consider
adapting to local consumers’ palate, for example, by adding Asian ingredients and offering Asian cuisines,
because Western food is still new for most Cambodian consumers, and local cuisines will help to bring
consumers who are used to traditional dishes to the restaurants.

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Lack of brand loyalty and growing number of outlets increase competition

The main challenge for quick-service players inside forecourt is intense competition. Service station operators
are expected to collaborate with a wide range of consumer foodservice operators, such as quick-service
restaurants and Asian food chains, to offer consumers a more varied selection of cuisines. This competition will
intensify as service station operators expand their service stations and introduce more food outlets.

At the same time, consumers have little brand loyalty when it comes to quick-service food, and many just want
to try out new dishes and new flavours or whichever is offering promotions. Therefore, quick-service players
inside forecourt have to constantly innovate to engage and build brand loyalty among drivers who stop by the
service stations.

3.5.4 Competitive Environment

Relatively small number of Quick-Service Restaurants (QSR) inside forecourt

As quick-service restaurant brands have only entered Cambodia in recent years, the number of players continues
to grow every year. However, most of them have not yet entered the inside forecourt segment. As a result, the
number of players in the space of quick-service restaurants inside forecourt is relatively small. Currently, the top
five players account for 88.9% of the market share for the segment.

Player 1 opened its first quick-service restaurant in Cambodia in 2013 and quickly gained market shares in both
inside and outside forecourt. Within the quick-service restaurants inside forecourt segment, Player 1 tops the
charts with a 26.9% of the total market share in 2019. In Thailand, Player 1 partnered with various service
stations, including those of OR, Shell, Bangchak, and Caltex, as part of its expansion strategy. The quick-service
restaurants chain is expected to adopt a similar strategy for Cambodia.

More quick-service restaurants brands are expected to enter the inside forecourt segment in the forecast period,
as service station operators seek consumer foodservice players to partner with and offer non-oil services at the
service stations.

Table 43 Cambodia Market Rankings and Shares of Quick-Service Restaurants Inside Forecourt in 2019
Ranking QSR Brand % Market Shares by Revenue Listing Status

1 Player 1 26.9 Private

2 Player 2 24.8 Private

3 Player 3 20.5 Private

4 Player 4 14.5 Private

5 Player 5 2.1 Private

Source: Euromonitor estimates from trade interviews and desk research

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3.6 CAFÉ INSIDE FORECOURT IN CAMBODIA

3.6.1 Market Overview
Development of coffee culture in Cambodia

The development of a coffee culture in Cambodia and the entrance of foreign café brands have led to an increase
in the number of cafés inside forecourt over the years. Although growth is more prominent in cafés outside
forecourt due to their extensive presence, cafés inside forecourt have also seen a growing trend. For café inside
forecourt, there are a variety of business models. Some cafés cooperate with the service stations and some are
owned by the service station itself.

In the past, coffee shops are usually associated with old people who enjoy coffee at traditional cafés located at
the owner’s shophouse. Nowadays, many young consumers, especially college students and young working
adults, have picked up the habit of drinking coffee, although they are more likely to be seen at modern cafés.
Some of these consumers visit cafés inside forecourt because it is convenient for them to park at the large
parking space. Travellers who pass by or customers of the service station can easily get a coffee at the café
inside forecourt. Cafés selling bubble tea, such as Chatime, have also appeared inside forecourts, as they are
popular among younger consumers.

Cafés become a popular place for young consumers to work and socialise

The growth of cafés inside forecourts is partly due to the popularity of the business model, as business owners
tend to follow each other once they notice a business model works. Consumers have also picked up on the trend
of spending time in modern cafés. A few years ago, when the internet was not widely accessed by many people,
consumers, especially college students would go to a café so that they could use the internet there, while
enjoying a cup of coffee. Nowadays, a café has become a place where people meet up and relax. Students and
white-collar workers can bring their work to a café and make use of the internet there. Some people meet their
friends to socialise or even have business meetings at a café. The number of cafés at forecourts has increase.
Café Amazon has increased the number of outlets inside forecourt from 55 in 2018 to 73 in 2019. Caltex and
Total service stations also own some cafés, such as Café Plus, Da Coffee, Café Bonjour and Florence cafés.

Cafés inside forecourt experience phenomenal growth

Between 2014 and 2019, sales of café inside forecourt grew at a CAGR of 95.6%, from KHR 5,330.3 million
(USD 1.3 million) in 2014 to KHR 152,795.0 million (USD 37.7 million) in 2019. Similarly, the number of
coffee cups sold increased from 668,799 cups in 2014 to reach 16.8 million cups in 2019, or equivalent to a
CAGR of 90.6% over the same review period.

One of the reasons for the phenomenal growth is because the segment started from a very small base, as cafés
inside forecourt were a rare presence. By 2019, the number of outlets has tripled from that in 2014 to reach 227
outlets. As new brands enter the market, there is more variety in store styles, as the brands aim to target specific
groups like students and businessmen. Moreover, there has been rapid growth in the number of coffee cups sold
per outlet, which indicates that cafés inside forecourt have become more popular with consumers, and it is
becoming increasingly common for drivers to stop by cafés inside forecourt to get coffee when they refuel or
take a rest break.

Table 44 Cambodia Cafés Inside Forecourt Figures (2014-2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
KHR
Café sales 5,330.3 13,282.3 30,722.1 102,433.9 127,329.2 152,795.0 95.6%
million
USD
1.3 3.3 7.6 25.3 31.4 37.7 95.6%
million
Number of
- 63 77 95 162 192 227 29.3%
outlets
Number of
coffee cups - 668,799 1,491,112 3,276,517 10,572,195 13,036,012 16,819,641 90.6%
sold
Source: Euromonitor estimates from trade interviews and desk research

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3.6.2 Legislative and Regulatory Policies

Cafés industry is not tightly regulated

The laws and regulations which apply to cafés outside forecourt are also applicable to cafés inside forecourt. The
government does not have strict regulations for cafés inside forecourt, other than the requirement for registered
companies to pay tax. Specifically, companies which are properly registered businesses have to pay 35% in
import duties and 10% VAT when they import raw materials and equipment for the cafés. Those that have not
registered may avoid paying tax and some of them would operate as informal businesses, such as advertising
their products via Facebook so they do not need to pay any tax.

3.6.3 Drivers and Constraints

Convenience is a key selling point for cafés inside forecourts

Cafés inside forecourt attract consumers who value convenience. Most forecourts are located on main roads, so
it is easy for people to notice or to buy a coffee there. Moreover, most forecourts have large parking space in
which is easy for customers to park, especially drivers who just want to get a drink or coffee for takeaway.
People who stop at the service station to fill the gasoline are attracted to the cafés when they see a café or a new
restaurant there. As an example, OR has increased the number of cafés inside forecourt significantly and this has
turned out to be a success. Currently, most forecourts have a mart which includes a café or just a café alone,
because the convenience factor appeals to consumers.

Strong competition from other consumer foodservice establishments

There are many cafés both inside and outside forecourt. Competition is very strong, as cafés inside forecourt are
not the only place where consumers can get coffee. It is also common for consumers to get coffee from
convenience stores and quick-service restaurants. Therefore, in order for a café to compete with other consumer
foodservice outlets inside forecourt, it must differentiate itself from the other players, for example, in terms of
quality of coffee, in-store decoration or the quality of service.

The popularity of cafés inside forecourt is constrained by location of the forecourt

The location of the forecourt may boost the popularity of a café inside forecourt. Forecourts are usually located
in public spaces where there are many people passing by. They not only attract consumers who stop by to fill the
gasoline, but also those on the street who are looking to get a coffee quickly. Conversely, forecourts located in
less popular locations may be a constraint for growth for cafés located inside these forecourts, as the customers
of the cafés inside these forecourts will be limited to drivers stopping to fill petrol.

3.6.4 Market Outlook

Cafés inside forecourt continue to register strong growth

Growth of cafés inside forecourt will slow down from the growth recorded in the review period, but growth will
remain healthy over the forecast period. The COVID-19 lockdown is expected to have small impact on the
overall café industry, as the period of the lockdown lasted for only one week. Additionally, consumers who
typically purchase coffee at café inside forecourt are used to takeaway coffee. Café inside forecourt sales is
forecast to grow by 2.6% in 2020 and increase strongly by 9.1% in 2021 and 9.0% in 2022 as the situation
stabilizes and more passers-by and tourists are expected to return. Café inside forecourt sales is expected to
register a CAGR of 8.9% over the forecast period to reach KHR 240,084.4 million (USD 59.2 million) in 2025.
From 2021, players in the industry are anticipated to actively resume business expansion activities by partnering
with major service station operators. By 2025, the industry expects to see 318 cafés inside forecourt, which
represents a CAGR of 6.0% from 2020 to 2025.

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Table 45 Cambodia Cafés Inside Forecourt Figures (2020F - 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F
2020F- 2025F
KHR
156,777.3 170,973.3 186,343.1 202,944.1 220,822.6 240,084.4 8.9%
million
Café sales
USD
38.7 42.2 46.0 50.1 54.5 59.2 8.9%
million
Number of
- 238 253 268 284 301 318 6.0%
outlets
Number of
coffee cups - 16,919,616 19,965,147 23,159,570 26,401,910 29,570,139 32,527,153 14.0%
sold
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Positive outlook for cafés inside forecourt

Café inside forecourt is expected to register positive growth in the forecast period, thanks to the continued
growth of the coffee culture in Cambodia. The number of café visitors is expected to increase, with rising
incomes and increased adoption of a modern lifestyle. Cafés inside forecourt are convenient for both drivers who
stop by to fill petrol and passers-by who just want to get a cup of coffee. Some consumers would choose cafés
inside forecourt over cafés outside forecourt, because the latter can appear crowded sometimes.

Modern concepts, products and designs are key to attracting the target customers of cafés

Middle class Cambodian consumers are attracted by modern concepts, products and designs, because they enjoy
higher quality products, and view their choice of products and services as a reflection of their sophisticated
tastes. These consumers are also quite discerning when it comes to the taste of coffee, as they have gained
exposure to various consumer foodservice outlets. It is important for cafés inside forecourt to focus on creating
an environment that reflects a modern design, while maintaining a high level of customer service and great taste
of coffee in order to attract customers.

3.6.5 Competitive Environment

Café inside forecourt industry led by Café Amazon

Currently, Café Amazon is the leading player of the café inside forecourt segment, accounting for 48.3% of the
market share. Café Amazon achieves the dominant market position by offering high-quality beverages at very
reasonable prices, which are lower than those of some specialist café brands. Nonetheless, the industry of cafés
inside forecourt is considered fragmented with multiple local and foreign players.

New entrants will continue to enter the café inside forecourt market due to the potential for further expansion.
Café Amazon’s good sales performance will also inspire others to adopt a similar business model. In addition,
many minimarts inside forecourt already sell coffee as part of their service offerings, so there is a likelihood that
these players may expand their coffee offerings into full-fledged cafés.

Table 46 Cambodia Market Rankings and Shares of Cafés Inside Forecourt in 2019
% Market Shares by Total
Ranking Café Brand % Market Shares by Revenue Listing Status
Number of Cups Sold
1 Café Amazon 48.3 51.0 Private

2 Player 2 3.3 0.9 Private

3 Player 3 2.5 0.8 Private

4 Player 4 2.4 0.3 Private

5 Player 5 1.7 0.5 Private

Source: Euromonitor estimates from trade interviews and desk research

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3.7 CAFÉ OUTSIDE FORECOURT IN CAMBODIA

3.7.1 Market Overview
Growth of coffee culture in Cambodia propels modern cafés to popularity

The concept of modern cafés is relatively new to Cambodia. Up until recent times, it was the traditional coffee
shops that were popular with consumers, particularly the older consumers. Most of the traditional coffee shops
are family-owned cafés operating from the owners’ shophouses. In terms of product offerings, traditional coffee
shops usually sell local coffee. In addition, they also provide breakfast and lunch. Hence, these establishments
are viewed not just as a coffee shop, but also a place for dining out and a gathering place for the community.
Some of the coffee shops even screen movies to attract customers.

Besides the traditional coffee shops and cart cafés on the streets, there are now many modern independent
specialist cafés run by locals, as well as international brands, targeting mainly the younger consumers. Since the
2010s, Cambodia’s coffee scene has witnessed an influx of international brands such as the UK’s Costa Coffee
and US giant Starbucks.

As the coffee culture flourishes in Cambodia, more and more people pick up the habit of drinking coffee.
Cambodian consumers are also becoming more knowledgeable about coffee and have developed a sophisticated
taste for high-quality coffee. When modern concept coffee types (e.g. espresso, cappuccino and latte) were
introduced in Cambodia, foreigners were the main target groups. Now, middle class consumers aged below 35
are the main customers of these specialist cafés. For these consumers, visiting cafés is more than just the coffee,
it is also a lifestyle, by which they socialise with friends over coffee and enjoy the ambience of the cafés.
Students are also becoming one of the key customer segments for cafés, as they visit cafés for a tasty cup of
coffee, a good Wi-Fi connection, and an air-conditioned place to meet friends or study. Some café owners have
gone the extra mile to make their outlets more student-friendly by offering a collection of books which
customers can read while having a cup of coffee.

One of the areas that differentiate Cambodian consumers from foreigners is that local consumers generally do
not like strong coffee very much. Cambodian consumers are just getting to know different coffee blends, such as
cappuccino or latte. However, consumers are open-minded and keen to try a variety of flavours, which have
helped to boost the sales of foreign coffee blends.

Bubble tea is also a popular beverage, which is usually sold at the small cafés. Bubble tea tends to attract mostly
young consumers, whereas coffee is popular among all age groups of customers. Chatime, a chained retailer
selling bubble tea, is a leading player for bubble tea. Due to the popularity of bubble tea, a flurry of international
players have entered the Cambodian market, including other Taiwanese bubble tea chains, Dakasi and Koi Café,
which compete head-on with Chatime.

Modern cafés compete on taste, as well as customer service and ambience

Cafés have been growing in Cambodia due to rising incomes and a growing middle class. Consumers are more
willing to spend on discretionary products, such as coffee. Also, an increasing number of outlets have supported
the penetration to an increasing number of consumers. Drinking coffee is also seen as a middle class lifestyle
choice, with modern cafés offering consumers the space to relax and socialise with friends. Although
competition has intensified in the industry with the entrance of many brands, the market still has a lot of
potential for growth as the base of consumers for cafés is still expanding, thanks to Cambodia’s youthful and
growing population. Moreover, new entrants have increased the variety of product offerings in the market,
catering to consumers with different palates and preferences, and have also made cafés more accessible to a
wider group of consumers.

The key selling points of modern cafés are not only about the taste of the coffee. Customer service and, the
decoration and ambience of the cafés are also important decision factors. Consumers are generally attracted to
cafés offering a clean and modern environment. Middle income and high-income consumers tend to prefer
international brands such as Starbucks, as international brands have a good reputation and are often associated
with a level of high social status and prestige.

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Traditional coffee shops and modern cafés co-exist in Cambodia’s café scene

There are two main types of cafés in Cambodia: the traditional coffee shops (including small family-owned
carts) and modern cafés. In general, traditional coffee shops offer cheap coffee, but they are less competitive
when it comes to hygiene level, amenities (e.g. internet access) and interior decoration. For around USD 1.5,
customers can have a potent mix of brewed coffee and sweetened condensed milk over ice. Many of the
traditional coffee shops serve espresso-based beverages and food items. On the other hand, the prices of coffee
are usually more expensive in modern cafés taking into account their premium locations and higher operating
costs; however, modern cafés compete with traditional coffee shops on trendy interior decoration, a large variety
of Western coffee and a setting for consumers to relax and socialise. Many consumers, especially students and
professionals, visit cafés to do their work; hence they would prefer a modern environment complete with
amenities like internet availability and air conditioning. In addition to coffee, modern cafés also offer a variety
of beverages and snacks, such as tea, fruit juice, bread, cakes, and some Western food such as salad or spaghetti.
The menus vary from one café to another.

In terms of price tiers, traditional coffee shops and street stalls typically sell coffee at around or below USD 1.5
per cup. Mid-priced cafés price their coffee from around USD 1.5 to USD 2.5 per cup. A cup of coffee in the
high-end cafés is priced from around USD 3 or higher.

Cafés outside forecourt record strong growth

Cafés outside forecourt experienced rapid growth in the review period, due to the growing coffee culture in
Cambodia and consumer’ desire to experience Western cultures and lifestyles. Between 2014 and 2019, cafés
outside forecourt sales grew at a CAGR of 40.3% to reach KHR 428,055.4 million (USD 105.6 million) in 2019.
The number of café outlets outside forecourt saw a CAGR of 29.9%, to 611 outlets in 2019. This can be
attributed to the expansion of chained cafés as well as the emergence of independent cafés in the large cities.
The number of coffee cups sold has grown at a faster pace than the growth in outlets, which suggests that cafés
are experiencing organic growth by attracting more customers, while outlet expansion also contributed to sales
growth.

Table 47 Cambodia Cafés Outside Forecourt Figures (2014-2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
KHR
78,828.6 133,622.9 193,205.8 360,201.9 398,191.1 428,055.4 40.3%
Café million
sales USD
19.5 33.0 47.7 88.9 98.3 105.6 40.3%
million
Number
- 165 248 319 485 550 611 29.9%
of outlets
Number
of coffee - 9,976,856 16,239,824 23,613,878 42,352,035 53,353,253 67,759,092 46.7%
cups sold
Source: Euromonitor estimates from trade interviews and desk research

3.7.2 Legislative and Regulatory Policies

There are no specific regulations for cafés outside forecourts

There is no specific regulatory regime governing cafés/specialist coffee shops outside forecourt. The regulations
that apply to cafés/specialist coffee shops inside forecourt are also applicable to cafés outside forecourt.

3.7.3 Drivers and Constraints

Cambodia’s economic growth boosts the middle class population and demand for coffee

As the customer group for modern cafés outside forecourt is mainly made up of middle and high income
consumers, the growth of cafés outside forecourt is mainly driven by the increasing popularity of modern cafés
in the cities, which is linked to the growth of the middle class in Cambodia. The Cambodian economy has seen
year-on-year GDP growth consistently above 7% from 2014-2019. This has propelled many consumers into the

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middle and high income brackets. The increase of the middle-income population has resulted in their ability to
enjoy higher standards of living, such as buying discretionary goods and taking up a modern lifestyle, which
includes visiting modern cafés.

Consumers visit cafés to socialise and experience the Western lifestyle

The coffee culture developed rapidly in Cambodia in the review period, thanks to an increasingly sophisticated
consumer base. For many consumers, drinking coffee is both a habit and an experience, as shown by those who
visit cafés to work or hang out with friends. Cafés are seeing remarkable growth in the number of younger local
consumers, compared to the early days when most customers were expats. People still see modern cafés as a
place to hang out and use the internet, but increasingly they are also visiting for a whole new experience, such as
having a good cup of coffee and a sense of community.

Local brands incorporate Cambodian heritage in their menu and store design

While international brands such as Costa and Starbucks are most widely known among consumers of cafés
outside forecourt, independent specialist cafés and cafés specialising in regional coffee are also growing in
Cambodia, injecting variety into the industry and catering to more sophisticated consumers. Urban consumers
are starting to appreciate quality, freshness, and the art of coffee making. Their knowledge of coffee has also
grown and consumers are no longer just visiting Western chained cafés, such as Starbucks and Costa. Instead,
they are showing an active interest in local and regional coffee culture. This has manifested itself in the
country’s first Cambodian owned and operated speciality coffee chain, Brown Coffee and Bakery. Coffee Bean
has invested in interior decoration to attract both young and working-age consumers, while ICOF Café focuses
on offering creative and new beverage flavours to differentiate the brand from competitors. A visit to one of
their branches has become a status symbol for many Cambodians, who eagerly post pictures of their drink on
social media.

Strong competition makes it difficult for players to retain customers

Competition is strong in the industry, with international brands and independent cafés fighting for the attention
of urban consumers, and competing with traditional coffee shops and coffee carts at the same time. It may be
difficult for existing players to keep their customers, as consumers may be experimenting with new cafés and
new flavours. This means cafés need to have a unique positioning and competitive strengths in order to compete
with the continuous influx of new entrants.

It is important for the businesses to provide excellent customer service, high-quality products with good taste, as
well as a good atmosphere to their customers. Strong branding and good customer relations will also help cafés
to build a loyal customer base. Some cafés fail quickly because they failed to do market research or feasibility
studies to target the right customers with the products they offer.

High operating costs squeeze operators’ margins

High operating costs for cafés outside forecourts are a constraint for industry players. As most modern cafés are
located in city centres or shopping malls, rental costs tend to be much higher than those for traditional coffee
shops. Meanwhile, players must invest in both human resources and machinery, such as experienced branch
managers and baristas, and high-quality coffee machines, in order to attract and satisfy an increasingly
sophisticated consumer base.

Unstable political situation is a potential deterrent for foreign investors

The changing political situation in Cambodia is a constraint for cafés outside forecourts. According to
international organisation Human Rights Watch, the civil and political rights environment in Cambodia
markedly deteriorated in 2017 as the government arrested the leader of Cambodia’s political opposition,
dissolved the main opposition party and banned over 100 members from political activity. Concerns about
political risks may deter foreign investors from opening new cafés in Cambodia.

In addition, the practice of corruption is still widespread, which raises the cost of business. Corruption poses
significant financial, operational, and reputational risks to businesses. Foreign investors may choose to invest in
other countries to avoid being caught in compromising situations that may be against the company’s values and
business ethics.

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3.7.4 Market Outlook

Market maintains strong growth rates

Café outside forecourt sales is forecast to increase by 0.4% in 2020. During the lockdown period, consumers
shifted from purchasing coffee at café outside forecourt to making coffee at home. It is observed that consumers
are gradually returning to café outside forecourt after the lockdown was lifted but continued to practice social
distancing at the same time. It is expected that consumer confidence and purchasing power will return from 2021
onwards and will contribute to café outside forecourt sales to grow by 8.9% in 2021 and 7.1% in 2022,
registering a CAGR of 7.4% from 2020-2025 as the coffee culture continues to penetrate Cambodian society.
The value of café sales outside forecourt is forecasted to reach KHR 613,865.4 million (USD 151.5 million) in
2025. Outlet expansion will be a key contributor to growth and is expected to increase from 617 outlets in 2020
to 794 outlets in 2025, or equivalent to a CAGR of 5.2% over the forecast period.

Table 48 Cambodia Cafés Outisde Forecourt Figures (2020F-2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F-
2025F
Café KHR
429,583.5 467,707.2 500,788.9 536,194.9 573,824.7 613,865.4 7.4%
sales million
USD
106.0 115.4 123.6 132.3 141.6 151.5 7.4%
million
Number
- 617 673 720 756 778 794 5.2%
of outlets
Number
of coffee - 66,667,627 83,334,534 103,334,822 127,101,831 155,064,234 187,627,723 23.0%
cups sold
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Rising income and demand for high quality coffee will drive café outside forecourt

Café outside forecourt will continue to register strong growth in the forecast period, because there is high
demand for high-quality coffee. The number of people who enjoy drinking coffee has been increasing every
year, and this trend is expected to continue. It will be supported by rising income and growing awareness of the
coffee culture. Café outside forecourt has been growing much faster than café inside forecourt because the
former outlets usually have a larger space and more seats for customers, and have more widespread presence as
their locations are not restricted by that of the forecourts.

Café operators must adapt to changing consumer preferences and international trends

The Cambodian economy is expected to maintain high growth rates, which will support the expansion of the
middle class population. This group of consumers are willing to try new tastes and the modern environment,
with their new-found spending power. They also have a preference for brands that make them feel connected to
Western cultures and international trends. Thus, it is important for cafés outside forecourt to consider these
factors, especially their menus and branding, in order to attract consumers that are constantly looking for
something new.

Future challenges include strong competition and political risks, while Cambodia’s young
population provides opportunities for a diverse café scene

Competition in the industry is expected to grow stronger in the forecast period. For café operators, there is a risk
of not being able to maintain the originality in their coffee or to keep with new trends in the industry, due to the
constant influx of new entrants and evolving consumer preferences. Profit margins may be squeezed, as
operators have to keep prices competitive and yet still offer promotions to attract customers.

Another likely challenge is the relatively unstable political situation in Cambodia. The national election on 29
July 2018 passed peacefully and there have been no recent public protests or demonstrations. However, political
rallies and disputes are still possible and have the potential to trigger violence, which would have an impact on
the business environment for cafés outside forecourts.

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Cambodia’s young population and its growing middle class offer opportunities for cafés to expand their network
and cater to an increasingly more discerning market. While international brands can adopt the strategy of outlet
expansion due to their abundant financial resources, independent local cafés will do better to focus on creating a
unique brand and style, such as blending a modern style with traces of Cambodia’s own heritage. This may be
manifested in the form of including local ingredients, such as palm sugar and Kampot pepper, in the product
offering, and incorporating Cambodian elements in the store design.

3.7.5 Competitive Environment

Café industry is thriving with new entrants

The market for cafés outside forecourts is relatively fragmented and evolving. The market is fiercely
competitive, with new entrants continuously entering the market and existing players opening new outlets. Thai
café operators such as Café Amazon, True Coffee and Coffee Today have entered the Cambodian market in the
past five years. Other international new entrants include Coffee Club from Singapore, Segafredo from Italy and
J’Adore le Café from France.

Currently, there are leading chained players of both international and local origins, like Café Amazon, Brown
Café, Starbucks, Tube Café, KOI and Pink Bubble Tea, as well as small independent cafés run by local
entrepreneurs. The top five players, which are all chained cafés, accounted for 54.8% of market share in 2019,
leaving room for a large number of smaller players. Chained players have the advantage of having well-known
brands, economies of scale from a large store network, and more resources to invest in advertising and store
upgrades. On the other hand, independent players play on the strength of offering unique tastes and experiences.

Players have developed their own strategies and their own focus to attract and retain more customers. Tube Café
focused on providing services as fast as possible. Brown’s expansion strategy includes the creation of different
separate store concepts such as Brown Express, which is a smaller outlet concept with a focus on takeaway
coffee, and Brown Classic concept, which offers a traditional, spacious and welcoming environment. On the
other hand, Café Amazon focused on outlet expansion and competing on prices to attract young consumers. Café
Amazon focused on outlet expansion and attracting young consumers, by providing a wide array of products
catering to young customers. As of 2019, Café Amazon has approximately 134 outlets in Cambodia, of which 61
outlets are located outside service stations. The total number of cups sold in 2019 was approximately 8 million
cups outside forecourts. Café Amazon’s flagship outlet has co-working space, meeting rooms and a library in the
store apart from its main offerings.

It is anticipated that there will be more entrants to the market from either local or international brands, because
drinking coffee in Cambodia has become a culture and there will be more customers in the future. Moreover,
consumers enjoy having a variety of flavours and styles to choose from. Local brands and international brands
have different target groups, which means the café industry will remain fragmented.

Table 49 Cambodia Market Rankings and Shares of Cafés Outside Forecourt in 2019
% Market Shares by % Market Shares by Total
Ranking Café Brand Listing Status
Revenue Number of Cups Sold
1 Café Amazon 16.3 12.0 Private

2 Player 2 13.9 7.1 Private

3 Player 3 10.2 7.9 Private

4 Player 4 8.6 1.8 Private

5 Player 5 5.9 1.3 Private

Source: Euromonitor estimates from trade interviews and desk research

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4. THE PHILIPPINES
4.1 MACROECONOMIC ENVIRONMENT IN THE PHILIPPINES
A fast-growing economy focused on services and exports

GDP and GDP per capita in the Philippines recorded robust 8.1% and 6.6% CAGRs, respectively, over the
review period of 2014-2019. The key contributors to the country’s GDP were the services and manufacturing
sectors accounting for 61.4% and 18.3% of GDP, respectively, in 2019. The key drivers of the economy include
private consumption supported by robust remittances, strong performance in the services sector including the
Business Process Outsourcing (BPO) industry, as well as public and private investments in infrastructure
projects. According to the World Bank, the Philippines ranked fourth globally in 2019 for the amount of
remittance inflows, due to its large emigrant population of Overseas Filipino Workers (OFW).

During the review period, the government invested heavily in infrastructure and is expected to continue doing so
in the future, under the government’s "Build, Build, Build" infrastructure development programme, launched in
November 2016. As of 2019, 46 projects are under implementation and 75 projects in the pipeline with a
projected total investment amount of PHP 2.4 trillion and these are planned to finish by 2022.

The services sector reported continuous growth due to its large Business Process Outsourcing (BPO) industry
that attracts foreign investment and contributes to the creation of jobs. Exports were favoured by a weak local
currency and recovery in global demand. The semiconductors and electronics sectors accounted for the majority
of exports mainly to Japan, the United States, and China. Electronic products, including semiconductors,
accounted for close to two-fifths of the country’s exports in 2018.

Table 50 The Philippines GDP Figures (2014 – 2019)

CAGR
Units 2014 2015 2016 2017 2018 2019 2014 -
2019
PHP
13,206.8 13,944.2 15,132.4 16,556.7 18,265.2 19,516.4 8.1%
Nominal billion
GDP USD
254,746.6 268,969.0 291,888.6 319,361.4 352,317.4 376,452.3 8.1%
million
Nominal
GDP % 9.6 5.6 8.5 9.4 10.3 6.9 N/A
growth
PHP 131,394.1 136,555.9 145,975.6 157,423.2 171,260.7 180,512.7 6.6%
GDP per
capita
USD 2,534.5 2,634.0 2,815.7 3,036.5 3,303.4 3,481.9 6.6%
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

A young population undergoing strong urbanisation

Over the review period, the country reported a slowdown in population growth due to declining fertility rates.
However, fertility rates remained high at 2.5 children per woman in 2019 as one of the highest rates worldwide.
In comparison, fertility rates of other Southeast Asian countries stood mostly below the replacement fertility rate
of 2.1 children per woman, with Singapore at 1.2, Thailand at 1.5 and Vietnam at 2.1. Consequentially, the
country has one of the youngest populations in the region with a median age of about 26 years in 2019,
compared with Singapore’s at about 43 years, and Vietnam’s at 32 years. The relatively young workforce will
further boost economic growth of the country, moving forward.

The population is highly mobile. According to a new study of the Philippine Statistics Authority (PSA), almost
half of Filipinos have migrated away from their place of birth at least once in their lives. The country continues
to undergo urbanisation and it is estimated that by 2030 the urban population will overtake the rural population.
The creation of a middle class with higher disposable income in urban centres is supporting retail expenditure.
Meanwhile, a large proportion of the population – an average of 9% in 2017 – migrated abroad, making the
Philippines the second largest labour-exporting country in the world after Mexico, with the majority of these
workers being female.

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Table 51 Population of the Philippines (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 – 2019
Total
000 100,513.1 102,113.2 103,663.8 105,172.9 106,651.4 108,116.6 1.5%
population
Urban
000 48,963.2 50,513.9 52,029.6 53,510.9 54,963.1 56,395.3 2.9%
population
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Growth of disposable income supported by young urban residents

The disposable income of urban residents grew by a healthy 5.8% CAGR during the review period of 2014-
2019. Income growth was fuelled by a growing economy, strong remittance inflows from abroad and an increase
in wages. Specifically, in 2017, the government signed the Tax Reform for Acceleration and Inclusion (TRAIN)
Act, which reduced the personal income tax rates of paid employees, resulting in a net increase in salaries . The
resulting higher disposable incomes increased the purchasing power of the average Filipino consumer, and
positive effects were felt by most foodservice players. As the TRAIN Act also comes with additional taxes, and
due to other macroeconomic factors, inflation rose towards the end of 2018, pushing inflation to an all-time
high. This had several outcomes: for instance, consumers became wary about spending, especially on basic
goods. However, spending on dining out was less affected, according to trade sources. Dining out is one of the
last expenses Filipinos forego, as it is considered a way to unwind and bond with friends and family, an
important part of the Filipino culture.

Despite strong income inequality, there is a growing middle class with increasing disposable income living in
the big cities. Social class C, an income bracket corresponding to the middle class, registered the strongest
growth during the review period. Filipinos aged 30-34 enjoyed the highest gross income. Total gross income
was most concentrated in the 15-29 age group, which is in line with a young population. Social class E,
however, will remain the most prevalent in the country. This translates into high poverty levels that are,
however, decreasing.

Income distribution between the urban and rural areas remains highly unequal. The rise in disposable income per
capita of urban residents in the Philippines is expected to speed up further in the future as the size of the middle
class population expands, with much of the new-found wealth concentrated in top cities such as Metropolitan
Manila and Metropolitan Cebu.

Table 52 Disposable Income Per Capita – Urban Residents in the Philippines (2014 – 2019)
CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 - 2019
Disposable
income per PHP 116,481.3 121,231.7 127,888.6 135,704.0 146,529.2 154,248.7 5.8%
capita –
urban USD 2,246.8 2,338.4 2,466.8 2,617.6 2,826.4 2,975.3 5.8%
residents
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Consumer confidence and salary growth encourage consumer expenditure

A growing urban middle class composed of young individuals is expected to support consumer market
expansion. Consumer expenditure represented 68.9% of GDP in 2019 and witnessed a healthy 8.7% CAGR over
the review period of 2014-2019. It was enhanced by increased consumer confidence due to greater political
stability and salary growth.

Consumer expenditure on food and non-alcoholic beverages saw an 8.6% CAGR from 2014-2019 as Filipinos
spent more than half of their expenditure on essentials. Food expenditure was further supported by an expanding
retail infrastructure of cafés and restaurants in big cities such as Metro Manila and Metro Cebu. As of 2019,
consumers’ spending on food and non-alcoholic beverages was the highest amongst all categories, accounting
for 42.2% of all consumer expenditure.

While local shops and wet markets remain popular, demand for convenience stores and small-format
supermarkets are growing in urban centres as time-constrained consumers seek out convenience. Hectic
lifestyles are forcing consumers to eat out more often. In addition, big cities saw an emergence of game cafés

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and food parks offering a wide variety of foods from independent vendors, as well as food courts in malls with a
more creative selection of food stations.

Consumer expenditure is expected to pick up further to register a CAGR of 9.3% from 2020-2025, as of May
2020, due to the increasing population and rising disposable income levels. Consumer expenditure on food and
non-alcoholic beverages will likewise see faster growth at a CAGR of 9.3%. It should be noted, though, that
while disposable incomes and discretionary spending are expected to increase across all social classes, the
spending patterns vary significantly: consumers in the lower social classes will continue to spend mostly on
necessities and this will fuel demand for food and non-alcoholic beverages, while consumers in the top income
groups such as social class A will enjoy the largest rise in capacity to spend, but will channel more of such
spending towards a wide range of products and services such as luxury goods, new cars, and travel.

Table 53 Consumer Expenditure in the Philippines (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014 -
2019
Consumer
expenditure % 67.1 68.1 67.6 68.0 68.3 68.9 N/A
to GDP
PHP
8,868,363.8 9,490,487.2 10,227,604.9 11,256,192.9 12,466,588.9 13,450,719.8 8.7%
Consumer million
expenditure USD
171,061.9 183,062.1 197,280.3 217,120.8 240,468.1 259,451.0 8.7%
million
Consumer PHP
3,745,720.1 3,997,816.0 4,310,620.7 4,735,692.7 5,302,772.0 5,669,569.5 8.6%
expenditure million
on food and
non-alcoholic USD
72,251.2 77,113.9 83,147.6 91,346.8 102,285.2 109,360.4 8.6%
beverages million
Source: Euromonitor - Passport Economies and Consumers 2020 Edition, as of 1 June 2020

Table 54 Consumer Expenditure in the Philippines (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F -
2025F
Consumer
expenditure % 71.7 71.1 71.1 71.1 71.3 71.4 N/A
to GDP
PHP
14,267,668.7 15,577,114.7 16,980,473.4 18,552,582.9 20,350,691.6 22,291,532.0 9.3%
Consumer million
expenditure USD
275,209.2 300,467.1 327,536.5 357,860.9 392,544.6 429,981.5 9.3%
million
Consumer PHP
6,101,799.7 6,667,160.4 7,249,666.3 7,912,360.7 8,677,668.1 9,498,977.5 9.3%
expenditure million
on food and
non-alcoholic USD
117,697.7 128,602.9 139,838.9 152,621.6 167,383.6 183,225.8 9.3%
beverages million
Source: Euromonitor - Passport Economies and Consumers 2020 Edition, as of 1 June 2020

Inflationary pressure eases in 2019

The country depends on imports to cover its energy needs, which leaves it vulnerable to the recovering global oil
prices. In addition, the Philippines’ weak agricultural industry makes it the biggest importer of rice as well as
other basic food categories. An increase in the global CPI of these items had a negative effect on inflation.
Specifically, year-on-year, the prices of food and non-alcoholic beverages increased by 8.5% towards the end of
2017, which was the highest food inflation since 2009. The inflation rose to 5.2% in 2018 due to higher taxes on
consumption, an increase in global oil prices and domestic food supply bottlenecks, especially of rice. However,
inflation fell to a more moderate level of 2.5% in 2019, due to the easing of rice prices and base effects from the
high inflation in 2018.

Table 55 Average Inflation Rate in the Philippines (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 - 2019
Average
% 3.6 0.7 1.3 2.9 5.2 2.5 N/A
inflation rate
Source: Euromonitor - Passport Economies and Consumers 2020 Edition, as of 1 June 2020

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Foreign Direct Investment (FDI) saw robust growth but remains low

FDI witnessed a robust CAGR of 29.0% over the period of 2013-2018 and accounted for 2.0% of total GDP in
2018. A young demographic, a booming economy and a stable economic environment have made the country
appealing to foreign inflows.

In order to attract foreign investment, the government promised to undertake a series of measures favouring
investment. In May 2016, the government implemented the Comprehensive Automotive Resurgence Strategy
(CARS) under which automotive companies manufacturing 200,000 units of the same model annually will
receive a USD 1,000 government subsidy per vehicle. In addition, in November 2017, it announced plans to
recognise 300 new economic zones in 2018. The government also promised to cut the corporate income tax rate
from 30%, the current rate, to 25% starting in 2020. Furthermore, the government’s three-year rolling
infrastructure plan (2018–2020) focusing on the five regions with the highest poverty rates is expected to attract
more foreign investments. Lastly, President Rodrigo Duterte signed an executive order further liberalising
investment rules to attract foreign capital and help boost economic growth. The order removed ownership
restrictions and further opened up certain sectors and activities, such as construction, to foreigners.

Table 56 Foreign Direct Investment Inflows in the Philippines (2013 – 2018)

CAGR
Unit 2013 2014 2015 2016 2017 2018
2013 - 2018
PHP
Foreign direct 95,152.4 234,636.1 202,344.4 328,420.5 438,703.1 340,023.3 29.0%
million
investment
inflows USD
1,835.4 4,525.9 3,903.0 6,334.9 8,462.1 6,558.7 29.0%
million
Source: Euromonitor - Passport Economies and Consumers 2020 Edition, as of 1 June 2020

4.2 THE RETAILING INDUSTRY IN PHILIPPINES

4.2.1 Market Overview
Store-based retail still preferred by consumers

Favourable economic factors and demographic factors support the growth of a robust retailing industry in the
Philippines. In 2014, the retailing industry recorded PHP 2,356,624.2 million (USD 45,456.9 million) of sales;
by 2019, sales had grown to PHP 3,275,981.0 (USD 63,190.4 million). This translates into a CAGR of 6.8%
over the period of 2014-2019. Store-based retail accounted for 93.6% of the total retail sales recorded in 2019.

Malls continue to be the main shopping destinations. Malls offer a one-stop experience to consumers, fulfilling
their shopping, dining, and entertainment needs. Non-store-based retailing in the Philippines is still small
compared to store-based retailing, but registered high a CAGR of 21.8% between 2014 and 2019.

There is also a trend towards online retailers setting up pop-up stores in malls to increase their physical presence,
since the Philippine consumer still feels more confident with purchasing what they can see and feel. The
physical retail space remains important to capture sales from the Philippine market.

Brick-and-mortar retailing evolving through omni-channel strategies

The Philippine retailing industry is undergoing business model disruption, particularly the inevitable integration
of digital platforms. Given Filipinos’ love of shopping malls, brick-and-mortar stores will remain very relevant,
but the importance of connecting the retail stores to digital services will increase. Adopting an omni-channel
strategy, with a particular presence in the digital space while enhancing the in-store experience, will be a must
for retailers to remain competitive in the marketplace.

Retailers in the Philippines are ready to embrace an omni-channel strategy, using e-commerce to complement
their existing business model. The leading department store chain in the country, SM Retail, has launched its
own online shopping platform, offering a wide range of products and different payment options such as cash on
delivery, debit payments and credit payments. It offers a click-and-collect service, which allows consumers to
order goods online but still aims to drive traffic in-store through collection. Omni-channel retailing is also seen

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as helpful to certain categories, such as electronics and appliances. Filipinos are accustomed to inspecting and
testing appliances and electronics before making a purchase. Grocery retailers have also started moving into the
online grocery space, providing their customers with an additional and convenient purchasing option. Even
convenience stores like 7-Eleven are embracing e-commerce.

The growing popularity of major e-commerce platforms such as Shopee and Lazada will help more retailers to
adopt this strategy as the two players look to boost their number of merchants and brands. Retailers will take
advantage of this opportunity to be present online without having to create their own platforms or spending on
online marketing.

Lifestyle branding generates renewed interest

Retailers in the Philippines are adapting to the changing needs of local shoppers, for example by trying to make
visits to physical stores more of an experience. Several retailers have started renovating their physical stores and
are opening flagship branches. Bench, a local retail brand of apparel, accessories, and fragrances, is leading the
way in lifestyle branding by opening a larger flagship store to highlight a higher-end image and brand. SM
Appliance has also started renovating its stores to incorporate different elements, such as designated areas to
provide design inspiration to shoppers. Daiso Japan variety stores, meanwhile, are highlighting Japanese culture,
while direct seller Amway has launched its first Experience Centre, aimed at improving the shopping
experience. Such experiential elements have also been extended to social media marketing strategies. Several
players in the home and garden channel are heavily utilising Instagram, taking advantage of its popularity to
show inspiring photos of home interior designs.

Modern retailers entering the traditional retail space

Retail channels in the Philippines consist of traditional retail formats and modern retail formats. Increasingly, the
lines are blurred, as traditional retailers procure from modern retailers. Modern retailers, in a bid to win market
share, are also targeting the traditional retailers to expand quickly and reach more consumers.

Modern retail formats are organized, and examples include supermarkets, hypermarkets, department stores,
warehouse retailers and convenience stores. Traditional retail formats, on the other hand, are ‘unorganized’ and
include sari-sari stores, neighbourhood stores and small-scale grocers. In particular, sari-sari stores are found
everywhere in the Philippines: there may be 2-3 sari-sari stores on one street. Sari-sari stores are popular as it is
easy to find one, the prices are low, and they sell by piece instead of in volume, which caters to the single
consumer.

To keep prices low without having to commit to a large volume of inventory, sari-sari retailers may procure
goods from modern trade channels, such as discount retailers or warehouse retailers, as prices are lower when
purchase is made in small bulk volumes. Puregold, a major consumer goods trading company, launched a
programme to support sari-sari retailers. Under its Tindahan ni Aling Puring program, sari-sari retailers can fill
up their stores with inventory with just PHP 5,000 (USD 96.4) in capital, as compared to a typical convenience
store requiring at least PHP 20,000 (USD 385.8). With this, Puregold is able to quickly expand the number of
stores in its network in the Philippines.

Informal retailing

According to the Philippine Association of Stores and Carinderia Owners, there are an estimated 1.3 million
neighbourhood or sari-sari stores in the Philippines. As the majority of these operate within a household, the
owners do not see the need to declare or register their business with the tax authorities, thus making them
informal retail outlets. Sari-sari stores that operate in commercial areas are usually registered and so qualify as
formal traditional grocery retailers.

Sari-sari stores are still some of the most visited retail outlets by Filipinos as they are widely available in
residential areas nationwide. However, outlet growth remains flat as a result of the increasing popularity of
modern and formal retailing, which is being led by the expansion of convenience stores. Informal retailing in the
Philippines also includes a large number of illegal street vendors, which are most commonly seen in Metro
Manila. There are concerns that street vendors are contributing to garbage and traffic congestion in the cities and
a few cities have started to focus on organising this group. In 2019, the city government of Manila started to
control the growth of street vendors and relocate them to locations with less traffic.

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Informal retailing is also prevalent on social media platforms such as Facebook, with individuals seeing their
social networks as potential customers. These are usually considered customer-to-customer or C2C businesses.
The products sold range from simple baked goods to pre-owned clothes and accessories or gadgets and
electronics. The launch of Facebook’s marketplace in the Philippines has been widely accepted and has
increased C2C selling. According to the DTI’s e-commerce office, there are around 20,000 of these illegitimate
vendors on the internet, not just social media. Due to the absence of official documentation and registration,
these businesses fall under informal retailing.

Major retail players in a state of change

In the past years, the retailing industry in the Philippines has seen many changes as key players review their
portfolio based on their strategy to maximise efficiency. There has been consolidation in the market as players
shed less profitable business units as part of their business rationalisation process, while major retailers snap up
mid-sized to small retail companies to expand market share.

Robinsons Malls owned by Robinsons Land under the JG Summit conglomerate owns about 46 shopping malls.
Separately, Robinsons Retail Holdings has been obtaining ownership of numerous minor retail firms including
Southstar Drug, Generics Pharmacy, De Oro Pacific Home Plus Depot and Chic Centre. Robinsons Retail has a
network of around 1,619 stores not including the 1,954 stores of The Generics Pharmacy. Robinsons Retail has a
diverse strategy on expansion having supermarkets, department stores, do-it-yourself stores, convenience stores,
drugstores, fashion and beauty shops, and speciality stores which include Daiso, Toys ‘R’ Us, Robinsons
Appliances, and Costa Coffee shops.

Puregold runs stores in various retail formats and owns more than 200 big and medium sized stores nationwide.
Its hypermarkets carry the Puregold Price Club brand and offer a variety of food and non-food products catering
to both retail customers and resellers. Puregold Junior is its supermarket format. It also has Puregold Extra as the
discounter segment and S&R Membership shopping. In a recent move, it gave up on the convenience store
format, selling out its stake in Japanese convenience store chain Lawson.

Finally, there have also been other market movements. In 2005, Makro, partnered with SM and Ayala to set up a
chain of wholesale membership stores but ceased operations in 2012. In 2012, WalterMart, a 20-year-old chain
of community malls was co-opted by SM. In 2015, SM Supermalls acquired the 63-year-old Cherry Foodarama
grocery chain.

Retailing industry an important influence of the local economy

Total retail sales in the Philippines grew from PHP 2,356,624.2 million (USD 45,456.9 million) in 2014 to PHP
3,275,981.0 million (USD 63,190.4 million) in 2019. The increase in retail sales represents a CAGR of 6.8%
between 2014 and 2019, driven in part by GDP growth. The tangible effects of these positive factors have made
the retailing industry an important influence of the economy. According to the Philippine Statistics Authority,
the retail sector is expected to make up 20% of the country's GDP by 2025.

Table 57 The Philippines Total Retail Sales (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014- 2019
PHP
Total 2,356,624.2 2,479,310.4 2,636,119.3 2,814,708.8 3,028,522.2 3,275,981.0 6.8%
million
Retail
USD
Sales 45,456.9 47,823.4 50,848.1 54,292.9 58,417.2 63,190.4 6.8%
million
Source: Euromonitor Passport - Retailing 2020 Edition

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4.2.2 Legislative and Regulatory Policies

Consumer welfare and foreign investment encouraged in Retail Trade Liberalization Act

The retailing industry in the Philippines is regulated by the Retail Trade Liberalization Act of 2000, which seeks
to promote consumer welfare and to stimulate growth in the industry. Under the regulations of the Act, a
foreigner or a company with foreign equity can engage in the retail business in the Philippines with minimum
paid-up capital of USD 2.5 million. To the retailer, this meant increased competition from foreign players and
new entrants. To the Filipino consumer, this meant possibly lower prices, higher-quality goods, and a wider
range of choices. The laws were meant to liberalize the retailing industry to enhance its efficiency and
competitiveness.

TRAIN Act likely to affect retail sales

The Tax Reform for Acceleration and Inclusion (TRAIN) Act took effect on January 2018 and the various
changes made to the different taxes in the Philippines have an impact on the performance of the retailing
industry. With the revised tax structure under TRAIN Act, personal income tax is reduced for a majority of
taxpayers, which means higher disposable incomes. Expenditure on normal goods is likely to correspondingly
increase.

The government seeks to regulate consumption of certain categories of products via taxes under the TRAIN Act.
New taxes were imposed on sugar-sweetened beverages, at PHP 6 per litre of drinks with sugar and artificial
sweeteners, and PHP 12 per litre of drinks sweetened with high fructose corn syrup. Sin taxes on cigarettes and
alcohol were increased. With increased taxes, and hence prices, the government hopes to discourage
consumption of such “undesired” goods.

Further liberalization is expected in the retailing industry

The government has announced plans affecting the amount of capital required for foreign investment and foreign
ownership of businesses. If implemented, this will support the retail market to be further liberalized with the
entrance of foreign players.

In October 2017, the Philippines government announced plans to lower the minimum required amount of capital
for foreign investors to USD 200,000. This represents a significant reduction of 92% from the current minimum
paid-up capital of USD 2.5 million, among the highest in Asia, under the Retail Trade Liberalization Act of
2000.

At the Arangkada Philippines Forum 2017, Socioeconomic Planning Secretary Ernesto Pernia announced that
the Philippines would allow more investment areas with full foreign ownership. In certain sectors, the
government is also looking to raise foreign ownership permitted to 100%. Currently, under the Retail Trade
Liberalization Act of 2000, full foreign ownership is permitted only if the paid-up capital exceeds USD 7.5
million. Retail and trade are in the list of areas being looked into.

In September 2019, the government passed the amendments to Retail Trade Liberalization Act, which will
further clear the way for more foreign investments in the local retail sector. The bill allows a foreign-owned
partnership, associations, and corporations to engage or invest in the retail industry with a minimum paid-up
capital of PHP 200,000. The bill is expected to open up the Philippine retail industry resulting in a greater
variety of products, more choices of goods for consumers, the inflow of new technologies and investments.

4.2.3 Drivers and Constraints

Strong economic growth

The Philippines was one of the fastest growing economies in Asia in 2019 and is currently classified as a lower-
middle income country. The National Economic and Development Authority (NEDA) reported high growth
numbers of the country’s gross national income and predicts that the Philippines is on track to becoming an
upper-middle income country by 2020. The GDP growth of the Philippines has also been strong and sustained as
an emerging market.

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In addition, disposable incomes for a majority of the population are expected to increase with the TRAIN Act
coming into place. Sustained economic growth, rising GDP per capita, and increased disposable incomes, will
continue to boost consumer confidence to spend.

An emerging middle class population

The population size of the Philippines stood at 108.1 million in 2019. The relatively young population has been
seeing a surge in middle class households as GDP per capita rises. The middle class population is less price-
sensitive and more conscious of quality and brand, which means higher-value spending.

The middle class population spend long hours at work in urban areas, and increasingly demand products and
services that are convenient, even if it costs a premium, such as ready-to-eat food and other off-the-shelf
products and services.

Availability of easy credit

Retail companies can get loans easily, as banks offer credit with loose terms and offer financing of up to 60% of
the capital. With this, the barriers to entry in the retailing industry are lower and could mean retail companies
can expand easily. This could potentially result in increased competition for existing players as there will be
many new entrants to the market, but this also leads to a more robust and dynamic retailing industry in the
Philippines.

At the same time, the low interest rates encourage spending by consumers. However, the use of credit is
dependent on the culture, and the Philippine culture does not encourage the use of credit for daily expenses, thus
the propensity to spend because of the availability of credit is moderate.

4.2.4 Market Outlook

Good prospects for the retailing industry

In March 2020, the government enforced a strict COVID-19 lockdown in the Philippines which lasted for about
9 weeks countrywide and 11 weeks for Metropolitan Manila. The lockdown restricted commuting from other
cities into Metropolitan Manila, suspended public transportation within the city and non-essential retail outlets
are closed during the lockdown. During the lockdown period, increase sales in grocery retailers has been
observed while the sales of non-grocery retailers has decreased as department stores and other non-essential
products retailers are closed. Retail sales is expected to pick up after the government partially releases the
lockdown and department stores are allowed to reopen in mid-May and public transportation to resume in June
2020. Although the situation hindered the sales growth in 2020, the retailing industry in the Philippines is still
emerging and expected to grow by 3.5% in 2020 which is a slower growth rate compared to 7-8% growth in
recent years. In the second half of 2020, it is anticipated that social distancing rules will be maintained which
will limit the number of visitors to department stores or retail outlets. Retail sales growth is projected to resume
from 2021 onwards as consumers are likely to feel more confident and start to increase their spending after the
COVID-19 situation eases. Consequently, retail sales is expected to grow by 12.0% in 2021 and 11.0% in 2022.
Overall, the retailing industry will reach a market size of PHP 5,584,337.0 million (USD 107,716.3 million) by
2025. The total retail sales value is expected to grow at a CAGR of 10.5% from 2020-2025.

Table 58 The Philippines Total Retail Sales (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F
2020F- 2025F
PHP
Total 3,390,386.1 3,797,232.4 4,214,928.0 4,657,495.4 5,123,244.9 5,584,337.0 10.5%
million
Retail
USD
Sales 65,397.2 73,244.8 81,301.8 89,838.5 98,822.3 107,716.3 10.5%
million
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

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Modern retailers move into suburban areas

Grocery retail accounts for the bulk of the store-based retail in the Philippines. In 2019, grocery retail accounted
for 38.8% of store-based retail sales. Most of the modern grocery retailers are located in Metropolitan Manila,
while local retailers dominate other cities and suburban areas. Despite the aggressive expansion in recent years,
there is still opportunity for retailers looking to tap underserved markets outside of the cities. It is anticipated
that mid-tier cities will become new retail hubs in the future, as modern retailers move into these cities to serve a
population with higher income. This will generate more competition for traditional and informal retailers.

Increasingly, major retailers are opening outlets outside of Metropolitan Manila, in Metropolitan Cebu and
Metropolitan Davao, as well as other smaller suburban areas. Close to 80% of SM Retail’s store openings were
outside Metropolitan Manila in 2016. 7-Eleven, the country’s largest convenience store chain, is also aiming to
penetrate new territories outside Metro Manila, as it sets to open 124 new outlets in Luzon outside Metropolitan
Manila, and 150 more outlets in Metropolitan Cebu and Metropolitan Davao. Newcomer Alfamart started its
business operations in suburban towns south of Metropolitan Manila, as the city is crowded and saturated.

Development of e-commerce and other related technologies

E-commerce continues to grow as internet penetration grows in the Philippines. Internet retailing registered a
CAGR of 42.6% between 2014 and 2019 and is forecast to register the highest growth rates among non-store-
based retail channels between 2018 and 2023. In 2018, internet retailing accounted for 51.5% of non-store
retailing and it is expected to increase to 78.8% of non-store retailing sales in 2023. Metropolitan Manila is the
core market of e-commerce companies, but the market has started to expand towards the provinces. Online
marketplace, Shopee has seen rapid growth in orders from the Visayas and Mindanao regions.

Cash is the primary method of payment in the Philippines, as most of the population remains unbanked. The
emergence of mobile technologies and online payment methods will drive e-commerce as it becomes more
secure and easier for consumers to make purchases online. AI technologies and robotics are also increasingly
applied to improve warehouse logistics and delivery, hence improving shipping speed and customer service
levels. These new technologies are expected to drive consumer confidence in making online purchases.

Players focus on building brands

Concerns about the authenticity of products have risen as e-commerce has become more popular. With
thousands of sellers, verifying the authenticity and quality of each seller’s products is a challenge. Both Lazada
and Shopee have thus focused on attracting as many official stores and brands as possible. To do this, Lazada
launched LazMall to help showcase authentic and original branded products, guaranteeing that if a customer
receives a non-authentic product it will compensate them with double the amount spent. In April 2018, Shopee
also launched a dedicated in-app space called Shopee Mall, which showcases official brands and Shopee’s top
sellers. In addition, Shopee provides several benefits when purchasing from Shopee Mall, such as 7-day returns.
It also guarantees that if a product is not 100% genuine, it will also refund a customer’s money and provide free
shipping with a minimum spend. According to Shopee, a dedicated space for brands and top sellers caters for
those consumers who are looking for a premium shopping experience. Shopee also holds “Super Brand Day”
events which showcase the exclusive sales of its partner brands.

E-commerce part of retailers’ omni-channel strategies

More and more retailers in the Philippines are integrating e-commerce into their business models. They are
either setting up their own platforms, with this being the case with most homeshopping and direct selling
retailers, or partnering with established e-commerce websites like Lazada and Shopee. Lazada and Shopee are
also aggressively partnering with official brands to beef up their seller portfolio. In 2019, e-commerce still
accounted for a small share of retailers’ overall sales, with online retailing in the Philippines continuing to lag
behind most of its neighbours. Retailers will, however, continue to focus on e-commerce as they seek to remain
relevant. However, in the Philippines, store-based retailing will remain the dominant channel as Filipinos enjoy
shopping with a personal touch. Retailers will thus choose an omni-channel approach over pure online retailing,
with online sales also helping to drive traffic to physical stores via the click-and-collect model.

Nevertheless, the channel offers growth potential not only in Metropolitan Manila but also other key cities. In
fact, according to Zalora, 60% of its sales is derived from outside Metropolitan Manila, primarily because the

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apparel people want is not available in the provinces and ordering online is more convenient than travelling to
the city. However, as internet retailing grows, there will be a need to review regulations which protect the
consumer. This is not yet a pressing concern but the growing internet marketplace could be an avenue for
cybercrime and so government institutions such as the Department of Trade and Industry and National Bureau of
Investigation’s Cybercrime Division will start to consider new rules and regulations.

Consumer mindset and receptiveness

The average consumer in the Philippines is still cautious about online purchase, especially for grocery items, and
prefers to buy from physical stores where they can see the quality of the products they are purchasing. Online
retailers, to elevate concerns from the consumer, are currently making use of pop-up store spaces to promote
their brands and build consumer confidence in their products.

In suburban areas, the consumer may perceive modern retailers to be more expensive and “cold” in their service.
The Philippine culture also means that consumers tend to gravitate towards familiar sellers, with whom they
have built relationships with, for daily purchases. For non-grocery items, the consumer may choose to purchase
from independently operated small retail outlets rather than chain stores. For grocery items, the consumer may
choose to patronize the local sari-sari store instead of a modern supermarket or a convenience store.

For retailers entering the modern trade market or e-commerce, it is necessary to consider marketing efforts to
build consumer confidence, reach consumers through multiple channels, and invest ample resources to win the
hearts of the Philippine customer.

4.3 CONVENIENCE STORES IN THE PHILIPPINES

4.3.1 Market Overview
Convenience stores offer a wide range of products and services

Convenience stores in the Philippines are concentrated in cities and serve mainly the urban resident. The urban
lifestyle is busy and hectic, and consumers are increasingly turning to convenience stores for purchases of
everyday grocery items and for a variety of services. The operating hours and locations of convenience stores
have increased the urban consumer’s reliance on this modern retail format.

Convenience stores cater not only to ‘on-the go’ customers but also to consumers living in nearby areas who
might not have time or see the need to grocery-shop at supermarkets or hypermarkets. Convenience stores now
stock a wide range of products, including frozen food items, household items, and even fresh food products like
fruits and vegetables. Becoming a one-stop shop, convenience stores also offer a variety of services such as cash
withdrawal, bill payment, credit top-up, postage, or parcel collection.

Players localize offerings based on location and consumer trends

Depending on their location, convenience stores may stock different items or brands of items based on demand
from target consumers. Convenience stores located in residential areas may stock more products of local brands,
simple household items, and ready-to-eat meals; convenience stores located in areas with a high concentration of
tourists may stock items like tourist SIM cards, maps, local guidebooks, and choose to stock products of
globally-recognized brands; while convenience stores located close to schools or universities may stock more
snack items or stationery products.

International players are also localizing product offerings to connect with consumers in the Philippines. Lawson,
a convenience store brand from Japan, gives a local touch to its convenience stores with its Karinderia Station.
The Karinderia Station is unique to the Philippines and mimics the local neighbourhood Karinderia stall offering
a variety of dishes with rice. As consumers become more demanding, players are also sourcing from new
suppliers to elevate their product offerings: Lawson partnered with Gourmet Farms, a gourmet grocer known for
its sustainable sourcing, to offer high-quality grocery items.

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Consumers visit convenience stores for meals

With the urban population having hectic lifestyles, convenience stores have become the answer for their meals.
Hot meals and beverages are driving growth, making convenience stores an emerging competitor to foodservice
providers.

In convenience stores, consumers can have a drink and consume simple snacks such as bakery items, which can
constitute a simple meal for the busy Philippine consumer. As convenience stores are operated round-the-clock,
they also offer ready-to-eat meals. Ministop pioneered ready-to-eat meals in convenience stores in the
Philippines, and it continues to expand its offerings of ready-to-eat meals.

Tapping on the trend of consumers purchasing ready-to-eat meals, convenience stores have also started to
upgrade their culinary offerings with hot food stations. Ministop is equipping every store with an in-store
kitchen facility, while Lawson operates Karinderia Stations. Lawson’s Karinderia Stations offer familiar local
dishes and unlimited rice refills when consumers dine in-store, attracting young professionals and students who
want to have a quick and cheap meal in a comfortable environment.

As compared to Karinderias, which are local eateries offering a variety of dishes at cheap prices, food from
convenience stores are subject to relatively high food safety standards. Convenience stores also provide a good
environment for dining, with seats and air conditioning which can be a respite from the humid weather in the
Philippines. The low prices provide good value for money to the consumer, which explains the increased
popularity of consumers having meals at convenience stores.

Convenience stores a growing channel

Between 2014 and 2019, convenience store sales registered a CAGR of 17.8% in the Philippines. The number of
outlets similarly registered a CAGR of 17.1%, as the number of outlets grew to 4,339 outlets in 2019. As of
2019, convenience store sales has grown from 4.0% in 2014 of the total sales for grocery retailers to 6.5% in
2019. This share is expected to increase as the population increasingly patronize convenience stores.

Table 59 The Philippines Convenience Stores Figures (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
PHP
33,881.3 37,759.2 46,787.3 53,686.3 63,441.1 76,694.9 17.8%
Convenience million
stores sales USD
653.5 728.3 902.5 1,035.6 1,223.7 1,479.4 17.8%
million
Number of
- 1,971 2,458 2,949 3,321 3,754 4,339 17.1%
outlets
000
Selling
square 210.5 262.5 360.6 409.1 465.9 537.8 20.6%
space
meter

PHP 17,189,903.6 15,361,757.5 15,865,479.8 16,165,703.1 16,899,600.4 17,675,708.7 0.6%

Sales per
outlet
USD 331,576.2 296,313.1 306,029.4 311,820.4 325,976.5 340,946.9 0.6%

Sales per PHP 160,956.3 143,844.6 129,748.5 131,230.3 136,168.9 142,608.6 -2.4%
selling space
(square
meter) USD 3,104.7 2,774.6 2,502.7 2,531.3 2,626.6 2,750.8 -2.4%
Convenience
stores’ sales
contribution % 4.0% 4.2% 4.8% 5.2% 5.7% 6.5% N/A
to grocery
retailers
Source: Euromonitor Passport - Retailing 2020 Edition

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Convenience stores will continue to be the fastest growing grocery channel

Convenience stores will continue to post strong growth over the forecast period. Ongoing urbanisation and the
emergence of new business districts will continue to create demand for 24-hour retail services. The channel will
also benefit from the ideas of new owners and the expansion of certain players, as well as a consumer shift
towards more frequent shopping, albeit with smaller basket sizes. The challenge now for convenience stores is to
overtake traditional grocery retailers, particularly sari-sari stores, which still dominate the retail industry in the
Philippines.

Like other retail channels, convenience stores will also be affected by economic uncertainty, particularly rising
inflation. This has the potential to limit the growth of convenience stores as this format charges a price premium
of around 5-15% in return for greater convenience and accessibility. As such, convenience store operators will
need to remain cautious with their pricing.

4.3.2 Drivers and Constraints

Changing lifestyles and consumer demand

The Philippines has a relatively young population, and a huge proportion of young professionals living in single-
person households. These young professionals often have high disposable incomes and are willing to pay a
premium for convenience. At convenience stores, they are able to purchase daily necessities as and when they
need them, enjoy hot meals at any time of the day, and perform a variety of services. Convenience stores serve
the needs of this growing segment well.

In Metropolitan Manila, traffic jams are common, and people often spend hours waiting in jams. To avoid being
stuck in jams, consumers are increasingly turning to convenience stores nearby to make purchases of everyday
necessities, rather than travelling to hypermarkets or supermarkets to shop for groceries. The increase in
condominium developments and townhouses in cities has also brought about changes in consumer purchase
behaviour. With convenience stores or minimarts located within the condominium complexes, consumers are
getting used to purchasing from modern small format retailers.

Rise of e-commerce

Convenience stores can leverage their network of stores and locations in prime areas to add value for consumers.
While e-commerce is on the rise in the Philippines, logistics and delivery remain a key challenge. The ubiquity
and locations of convenience stores make them the perfect collection point for online purchases.

7-Eleven is leading the venture into logistics by capitalizing on its warehousing capabilities and on its huge
network of stores located nationwide in the Philippines. Beyond providing in-store experiences, convenience
stores can tap opportunities from e-commerce as a bridge between the virtual world and the real world.

Convenience stores compete with both supermarkets and traditional retail formats

Convenience stores face intense competition in the market. While the young urban consumer is turning towards
convenience stores, hypermarket and supermarket operators are looking to have a slice of the pie by launching
small format outlets. These small format outlets help the supermarkets to expand their presence in small
neighbourhood areas and this can pose competition to convenience stores, given that the latter’s price points are
higher than those of other grocery formats.

Among small format retailers, sari-sari stores are traditional retailers that the consumer in the Philippines is very
familiar with. Modern retailers, such as convenience stores, are faced with scepticism from the older generation
of consumers, who view modern retailers to be more expensive and less flexible as compared to sari-sari
retailers who often sell in smaller quantities and provide credit to regular customers. Sari-sari stores, operated
independently, are also ubiquitous and may be found on every street and corner.

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Network expansion the way to keep margins

Convenience store brands rely heavily on logistics and hence invest heavily in strategically located distribution
centres. Profitable operations for convenience stores stem from operating a large number of branches to achieve
economies of scale. Key players in the industry are adopting an expansion strategy to lower the per store costs of
operation. More outlets are being opened, not just in Metropolitan Manila but also in growth areas, such as
provinces outside. As the number of outlets increase, sales is being spread out among a greater number of stores
in a particular area, especially areas with high foot traffic, hence lowering sales per store.

Lawson opened in the Philippines in 2015 and suffered losses because the brand did not open many new outlets
upon market entry. To stay competitive, convenience stores can no longer charge high premiums as before.
Factoring the cost of operation of physical stores, margins for the retailers are getting thinner.

4.3.3 Market Outlook

Convenience store sales growth rates will slow down to moderate rates

The growth of convenience stores is expected to extend into the forecast period. However, the COVID-19
lockdown has hindered the growth of convenience stores as the outlets need to shorten their operating hours due
to the curfew during the lockdown months. Moreover, the long period of strict lockdown in Philippines that has
led to unemployment and lower disposable income is expected to improve from 2021. Thus, convenience stores
sales is expected to grow at a slower pace at 7.4% in 2020 and will increase strongly by 22.0% in 2021 and
18.1% in 2022 as consumers’ purchasing power recover and essential purchase on food and household products
remain a priority. The sales of convenience stores is projected to grow from PHP 82,380.4 million (USD 1,589.0
million) in 2020 to PHP 197,100.7 million (USD 3,801.9 million) in 2025 at a CAGR of 19.1%. In the forecast
period, retailers are expected to expand their operations by opening more stores outside of Metropolitan Manila
in under-served markets, the sales per outlet is expected to register positive growth rates, and convenience stores
are expected to contribute a greater share to the total sales of grocery retailers.

Table 60 The Philippines Convenience Stores Figures (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F-
2025F
PHP
82,380.4 100,504.1 118,702.2 140,383.7 166,387.0 197,100.7 19.1%
Convenience million
stores sales USD
1,589.0 1,938.6 2,289.6 2,707.9 3,209.4 3,801.9 19.1%
million
Number of
- 4,573 5,061 5,468 5,838 6,174 6,526 7.4%
outlets
000
Selling space square 569.7 649.6 725.6 802.7 880.3 964.8 11.1%
meter

PHP 18,014,513.3 19,858,536.0 21,708,514.0 24,046,535.0 26,949,621.0 30,202,370.8 10.9%

Sales per
outlet
USD 347,482.1 383,051.4 418,735.7 463,833.8 519,831.4 582,573.7 10.9%

Sales per PHP 144,602.2 154,709.6 163,596.1 174,889.7 189,020.9 204,299.9 7.2%
selling space
(square
USD 2,789.2 2,984.2 3,155.6 3,373.4 3,646.0 3,940.7 7.2%
meter)
Convenience
stores’ sales
contribution to % 6.1% 6.9% 7.6% 8.3% 9.1% 10.0% N/A
grocery
retailers
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

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Geographical spread of new convenience store outlets

As Metropolitan Manila becomes increasingly crowded and saturated with retail stores, players are starting to
plan expansion outside of Metropolitan Manila.

Outside of Metropolitan Manila, rental costs are lower and there is relatively less competition. Consumers in
Metropolitan Manila are well served with a high density of retail stores in various formats. Outside of
Metropolitan Manila, convenience stores are not as commonly found. Key grocery retailers are tapping
opportunities outside of Metropolitan Manila as it is less competitive and are expected to space out outlets
geographically to cover a good spread of areas in the Philippines.

Immense potential of the convenience store market

Even with such high growth rates in sales recorded from 2020-2015, there remains room for growth of the
convenience store market. A single convenience store in the Philippines serves more than 40,000 Filipinos,
while that in other countries in the ASEAN region such as Indonesia, Malaysia, and Thailand serves between
4,000 and 9,000 people. In more developed countries, the ratio is approximately 1,500 people to each store.

The market of convenience stores in the Philippines remains one of the most unsaturated in Asia, in addition to
consumer trends pointing to growth in demand for modern small retail formats such as convenience stores.

4.3.4 Competitive Environment

Pioneer of convenience store retail segment in the Philippines is the leading player with a
strong foothold

Player 1 pioneered the modern-day convenience store retail segment with its first store opened in 1984, and has
held its ground as number one since. As of 2019, Player 1 operates 2,786 stores, the largest number of outlets
among players in the market. With its aggressive network expansion, it continues to have a strong foothold in
the convenience store segment.
Beyond retail, Player 1 is expanding its business areas by venturing into logistics, inspired by the Walmart
model in the US. Capitalising on its existing store network nationwide, Player 1 stores now serve as collection
points for consumers and businesses to pick up their deliveries. In the Philippines, one of the key pain points for
online retailers is logistics due to the underdeveloped infrastructure in the country. With this move, Player 1 sets
to offer an efficient logistical network supporting last-mile delivery, with its 11 warehouses and more than 2,000
physical stores located nationwide.

Player 1 is also focusing on digital aspects such as digital payment systems and e-commerce. According to
Player 1, it noticed that its money services, which include the CLiQQ app, GCash, PayMaya, Alipay and
Coins.ph, are driving commission income. The CLiQQ app has the potential to extend financial services even to
far-reaching communities through 7-Eleven’s extensive network. Moreover, most of the Player 1 stores in
Greater Manila now offer free Wi-Fi to further attract more customers. Player 1 invested PHP 50 million in the
first half of 2018 in enhancing its digital services, enabling it to offer greater convenience to its customers. It has
started to reinvent its CLiQQ pay, a mobile wallet which stores reward points which can be used to pay for items
purchased and CLiQQ shop, an e-commerce venture where products bought online are available for collection in
Player 1 outlets. Player 1 has witnessed a positive response to this as it has become one of the most downloaded
mobile applications and has contributed to the chain’s growth.

As the convenience stores market has high potential and is lucrative, foreigner brands have been introduced to
the market in recent years. Player 3 was launched to the Philippines market in 2014. In 4 years, Player 3 has
established itself as one of the key players. The brand, a joint venture between SM Retail and Indonesia-based
PT Sumber Alfaria Trijaya, enjoyed its initial success in Indonesia, and expanded overseas to open more than
700 outlets in the Philippines. Player 3 continues to grow its presence, opening more stores in the Philippines.

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Table 61 The Philippines Market Share Rankings of Convenience Stores in 2019

Ranking Convenience Store Brand % Market Shares by Revenue Listing Status

1 Player 1 69.6 Public

2 Player 2 14.5 Public

3 Player 3 8.7 Public

4 Player 4 2.6 Public

5 Player 5 1.9 Private

Source: Euromonitor Passport - Retailing 2020 Edition

4.4 FORECOURT RETAILERS IN THE PHILIPPINES

4.4.1 Market Overview

Forecourt retailing still in its infancy stage but poised for growth

Oil firms are starting to venture into non-oil businesses to stay relevant in the changing consumer environment.
They are also taking advantage of the growing demand for convenience in dining, as their scattered networks are
already in the best position to address this need.

The majority of service stations in the country still do not have any retail outlets in their forecourts. With the
expansion in forecourt retail sales, petrol retailers are looking to expand their non-oil business revenues with
forecourt retail outlets. For example, Pilipinas Shell, which operates 155 Shell Select outlets and around 58
deli2go outlets, will continue to expand the revenue contribution of the non-oil business.

Three key formats of service stations

The Department of Energy in the Philippines categorizes forecourt retail outlets into three main categories based
on the number of pump islands.

Fuel stations located along major highways are the first category of forecourt retail outlets with 5 or more pump
stations, considered to be large format service stations. The average spending at these large format service
stations and their forecourt retail outlets is the highest since most of the travellers passing at these stations are
travelling along the highways. They will spend more on fuel and take long breaks at the forecourt retail outlets,
hence spending more per transaction. The next category of service stations has 3 or 4 pump islands, with at least
3 or 4 dispensing pumps installed. These are the standard-sized service stations, found along main roads. The
final category is the smallest service station format usually located along secondary roads, which has 1 - 2 pump
islands and at least 1-2 dispensing pumps per island installed.

7-Eleven a preferred partner for service station companies

Most gasoline companies or service stations in the Philippines, especially those classified as mid-sized or large,
operate convenience stores in the forecourts. 7-Eleven has embarked on an aggressive expansion plan to enter
the forecourt retail space, with several partnerships with different service station brands.

Seeing 7-Eleven’s expertise and experience in convenience store retail operations, petrol retail brands also see 7-
Eleven as a preferred partner. In 2009, Caltex signed a partnership with 7-Eleven to replace its in-house brand of
convenience store, Star Mart, and there are now 7-Eleven convenience stores at more than 100 Caltex service
stations. 7-Eleven operates 67 outlets at Chevron service stations in 2017, and 8 at Total Gas service stations.
Caltex ended 2018 with 600 service stations and made non-oil tie-ups such as offering Happy Plus points
earned, which are redeemable in Jollibee, Chowking and other Jollibee group quick-service restaurant chains,
when customers refuel at Caltex service stations.

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Strong forecourt sales but growth in number of outlets relatively slow

Forecourt retailers sales registered a CAGR of 13.7% between 2014 and 2019, growing from PHP 2,457.9
million (USD 47.4 million) in 2014 to PHP 4,668.4 million (USD 90.0 million) in 2019. However, the number
of outlets grew at a slower pace with a CAGR of 2.9% in the same period. Correspondingly, sales per outlet saw
a CAGR of 10.5%. Forecourt retail sales account for just 0.4% of the total sales of grocery retailers and there is
room for grocery retailers to grow this segment as sales per outlet have been registering strong growth rates,
CAGR 10.5%, in the review period.

Table 62 The Philippines Forecourt Retailers Figures (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
PHP
2,457.9 3,008.8 3,124.2 3,543.2 4,091.7 4,668.4 13.7%
Forecourt million
Retailer sales USD
47.4 58.0 60.3 68.3 78.9 90.0 13.7%
million
Number of
- 506 549 446 486 542 583 2.9%
outlets
000
Selling space square 50.4 54.3 43.8 45.5 49.0 51.5 0.4%
meter
PHP 4,857,509.9 5,480,510.0 7,004,932.7 7,290,535.0 7,549,262.0 8,007,547.2 10.5%
Sales per
outlet USD 93,696.5 105,713.6 135,118.2 140,627.2 145,617.8 154,457.6 10.5%

Sales per PHP 48,767.9 55,410.7 71,328.8 77,872.5 83,504.1 90,648.5 13.2%
selling space
(square USD 940.7 1,068.8 1,375.9 1,502.1 1,610.7 1,748.5 13.2%
meter)

Forecourt
retail sales
contribution % 0.3% 0.3% 0.3% 0.3% 0.4% 0.4% N/A
to grocery
retailers
Source: Euromonitor Passport - Retailing 2020 Edition

4.4.2 Drivers and Constraints

Increase in the number of convenience stores inside forecourt

The increasing number of partnerships between petrol service stations and convenience store retailers contribute
to the growth of forecourt retailers. In 2009, Chevron Philippines Incorporated (CPI) signed a memorandum of
agreement with Philippine Seven Corporation (PSC) as a locator inside Caltex gasoline stations. This partnership
accounts for more than 70% of 7-Eleven convenience store retail outlets inside forecourt. 7-Eleven is a co-
locator of other key service station brands such as Total, PTT, Phoenix, Unioil, Seaoil, Flying V, and Petron. As
7-Eleven expands the number of convenience store outlets aggressively, this will drive retail sales inside
forecourt. Today, more convenience stores are being placed in service stations that are located along highways,
catering to growing consumer traffic going in and out of Metropolitan Manila.

Competitiveness of petrol service brands

With the increase in gasoline prices, customers are more price-conscious, looking out for price discounts and
promotions for petrol retailers. Service stations now offer rewards for a specific amount of gasoline spent. As the
primary purpose of the Philippine consumer visiting a service station remains to refill petrol, and making
purchases from the retail outlets is secondary, the performance of the forecourt retail outlet hinges on the
marketing efforts of the service station to attract customers in the competitive landscape. According to the
Department of Energy, the number of petrol service stations grew from 6,264 service stations in 2015 to about
9,003 in 2019, growth of 43.7%, due to the growth of the number of smaller brands and independent players.

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Increased focus on growing non-fuel business

To mitigate the impacts of fuel price fluctuations, service station companies are looking to grow their non-oil
businesses. One of the top choices is the expansion of the retail business inside forecourt. As the top three
players wrestle for market share in the fuel business, they are increasingly looking at other areas to expand their
business. Leveraging on its number of locations, Petron has revived its convenience store brand Treats and
ready-to-eat food segment San Mig Food Ave. Pilipinas Shell is increasing the number of its “Deli2go” serving
pastries and coffee, and Shell Select stores.

Decision to include retail outlets in forecourts of dealers

Most of the service stations in the Philippines, especially the smaller formats, have ample space in the forecourts
but have no additional service offerings, such as convenience store outlets or quick-service restaurants outlets.
These stores are bare, and often unattractive with limited service offerings. Operators must revitalise existing
service stations to entice motorists to refill petrol and make purchases from their stores. However, a key
constraint is that for dealer-operated service stations, the decision to invest and revamp the service station lies
with the dealer.

Local regulations impose restrictions on forecourt retailers’ products and operations

Forecourt retailers have been impacted by local regulations which restrict sales of certain products. For example,
under city ordinances, some areas in Metropolitan Manila city prohibit the display of cigarettes and e-cigarettes
and impose limited times for selling beer and other alcoholic drinks (until 10 pm). Green packaging imposed by
local governments also means that forecourt retailers incur higher costs in offering eco-friendly packaging.

4.4.3 Market Outlook

Sales forecast to outpace outlets expansion

As the government enforces a strict lockdown in the Philippines, especially in Metropolitan Manila, public
transportation within the city are suspended and has resulted in a decrease in traffic inside service stations. As
such, the sales of forecourt retailers decreased by 7.5% in 2020 due to having fewer visitors for both service
stations and forecourt retailer outlets. After the lockdown has been partially lifted in Manila and public
transportation resumes in June 2020, road traffic is expected to return at a slower pace as schools remain close
and some companies advise their employees to continue working from home since public transportation strictly
limits the number of passenger load. As such, forecourt retailers sales is projected to pick up healthily from 2021
onwards at 13.8% in 2021 and 13.6% in 2022 as consumers’ purchasing power recover and essential purchase
on food and household products remain a priority.

Forecourt retailing is still a developing sector in the Philippines and service station operators typically include a
forecourt retailers outlet in new service stations. Although the expansion of new service station and forecourt
retailers are likely to be on hold in the second half of 2020 due to COVID-19 pandemic, the expansion is
expected to gradually take place from 2021 once the situation stabilizes. Thus, new sales could be generated
from future outlet expansion and the sales is expected to grow by a CAGR of 14.2% over the forecast period
from PHP 4,320.3 million (USD 83.3 million) in 2020 to PHP 8,406.5 million (USD 162.2 million) in 2025.
Forecourt retail sales is projected to grow at a faster rate than the growth of the number of outlets as investment
is required to open new outlets. Average expenditure is also expected to increase.

Table 63 The Philippines Forecourt Retailers Figures (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F-
2025F

PHP
Forecourt 4,320.3 4,917.0 5,586.5 6,373.8 7,311.9 8,406.5 14.2%
million
Retailers
USD
sales 83.3 94.8 107.8 122.9 141.0 162.2 14.2%
million
Number of
- 599 631 669 698 724 749 4.6%
outlets
000
Selling space 53.1 56.2 59.9 62.7 65.3 67.9 5.0%
square

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CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F-
2025F
meter

Sales per PHP 7,212,559.3 7,792,429.5 8,350,548.4 9,131,482.8 10,099,341.1 11,223,593.3 9.2%
outlet USD 139,123.1 150,308.2 161,073.8 176,137.2 194,806.3 216,492.0 9.2%
Sales per PHP 81,431.5 87,534.4 93,274.1 101,575.0 111,939.1 123,864.9 8.8%
selling space
(square USD 1,570.7 1,688.5 1,799.2 1,959.3 2,159.2 2,389.2 8.8%
meter)
Forecourt
Retailers
sales
% 0.3% 0.3% 0.4% 0.4% 0.4% 0.4% N/A
contribution to
grocery
retailers
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Stiff competition as players look to enhance retail operations

As service stations focus on improving their convenience store retail operations through partnerships with
specialist grocery retailers, competition will become more intense. However, there remains a huge opportunity
for more convenience stores to be opened since only a small percentage of service stations operate their own
retail outlets inside forecourt.

To retain market share, service stations must also enhance their product offerings and implement a stronger
marketing campaign to reach out to a larger market of consumers. Service stations may also enhance rewards
programmes to improve brand loyalty among price-sensitive motorists. Caltex, for example, partnered with
Robinsons and Jollibee for their rewards programme. Shell has the Pepeng pasada and Shell Citi Visa for its
customers to earn rebates and enjoy other promotions.

Similarly, Petron continues to expand its non-fuel businesses with the addition of various food kiosks and
restaurants and other service establishments at some of its stations. In May 2019, Petron unveiled plans to invest
more than USD 1 billion to expand its retail network and optimise its refineries in the Philippines and Malaysia.
This includes USD 400 million in capital expenditure for its retail network expansion, to bring the number of
Petron services stations in the Philippines and Malaysia from 3,000 in 2018 to 6,000 by 2022.

4.4.4 Competitive Environment

Two key players account for bulk of market share

Player 1 leads the forecourt retail space in many other countries in Southeast Asia. Player 2 has an estimated
market share less than half of that of Player 1. The forecourt retail landscape is highly concentrated with the top
two players accounting for the bulk of the market share. Player 4 has been expanding and is inching closer to
Player 3, the next biggest player.

As service stations focus on improving their convenience store retail operations through partnerships with
grocery retailers, the competition will only intensify. However, there remains a huge opportunity for more
convenience stores to be opened since only a small percentage of service stations operate their own retail outlets
inside forecourt. To retain market share, service stations must also enhance their product offerings and
implement a stronger marketing campaign to reach out to a larger market of consumers. Service stations may
also enhance rewards programmes to improve brand loyalty among price-sensitive motorists.

Table 64 The Philippines Market Share Rankings of Forecourt Retailers in 2020

Ranking Forecourt Retailers Brand % Market Shares by Revenue Listing Status
1 Player 1 46.7 Public
2 Player 2 20.4 Private
3 Player 3 8.3 Public
4 Player 4 7.8 Private

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5 Player 5 2.5 Private

Source: Euromonitor Passport - Retailing 2020 Edition
4.5 QUICK-SERVICE RESTAURANTS (QSR) INSIDE FORECOURT IN
THE PHILIPPINES
4.5.1 Market Overview
Quick-Service Restaurants mainly in large format stations

To enhance the consumer experience, service stations are adding a variety of service offerings at the forecourt
retail space, including convenience stores, quick-service restaurants, and cafés. More international brands of
quick-service restaurants, such as McDonald’s and KFC, are entering the forecourt retail space.

The plan has been to open more quick-service restaurants, mainly large service stations with more than 5 pump
stations. These service stations can serve the needs of larger vehicles travelling long distances along major
highways, and thus see higher demand from drivers who might need to have meals at the service stations, which
also serve as rest stops.

Variety of quick-service brands inside forecourt to cope with demand

Within the biggest service stations, there are as many as 15 quick-service chains in different categories,
including chicken (such as KFC and Jollibee), burger (such as McDonald’s), pizza (such Pizza Hut), Chinese
food (such as Chowking), bakery goods (such as Red Ribbon and Goldilocks), coffee (such as Starbucks),
seafood (such as Above Sea Level), and Filipino food. Sometimes, directly competing brands, such as Jollibee
and KFC, are even housed in the same service station compound to meet the preferences of customers.

Increase in per transaction spending as Quick-Service Restaurant (QSR) sales grow faster than
number of transactions

Quick-service restaurant sales grew from PHP 4,447.0 million (USD 85.8 million) in 2014 to PHP 7,513.8
million (USD 144.9 million) in 2019 at a CAGR of 11.1%, while the number of transactions grew at a CAGR of
6.6%. A single transaction usually consists of complete meals and à la carte purchases of individual food
products. Complete meals are those meals coupled with drinks and desserts. Pit-stop in-between travels usually
require heavy meals.

Table 65 The Philippines Quick-Service Restaurants (QSR) Sales Inside Forecourt Figures (2014 – 2019)
CAGR
Unit 2014 2015 2016 2017 2018 2019
2014- 2019
PHP
Quick-service 4,447.0 4,923.0 5,450.0 6,033.2 6,720.7 7,513.8 11.1%
million
restaurants
sales USD
85.8 95.0 105.1 116.4 129.6 144.9 11.1%
million
Number of
‘000 25,537 27,402 29,402 31,548 33,476 35,158 6.6%
transactions
Source: Euromonitor estimates from trade interviews and desk research

4.5.2 Drivers and Constraints

Oil retailers increasing partnerships with top Quick-Service Restaurant (QSR) brands

With increased fuel prices, oil retailers have been re-investing in the business by opening more service stations
across the Philippines. At the same time, these companies are looking to increase revenues from the non-oil
business by adding more retail outlets in the forecourt.

As consumers have many available choices, service stations are partnering with top quick-service restaurant
brands that may attract consumers to stop at the service station to have a meal and perform other required
services. A variety of brands in different quick-service food categories are being selected and opened within
service stations to lure different consumers to dine, refill gasoline, and shop at the stations. Quick-service

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restaurant choices have been expanded beyond top brands such as McDonald’s, Pizza Hut, Jollibee and
Starbucks, to include local brands serving desserts, bakery goods, seafood, or local delicacies.
Quick-Service Restaurants (QSR) not a priority for service stations

In general, smaller-sized service stations would prioritize opening a grocery retail outlet, such as convenience
stores. This is because convenience stores stock a variety of goods, as well as ready-to-eat meals and beverages
that can fulfil most of the needs of the consumer. Convenience stores also offer a variety of services such as cash
withdrawal, ATM services, and value top-ups.

Convenience stores add much more value in terms of the guest experience and forecourt retail sales. Given the
same space, service stations would prioritize opening a convenience store over a quick-service restaurant, which
serves only one purpose of providing food services. With the same floor space, convenience stores can meet
various needs of the consumer, including having a meal, making payment, posting goods, purchasing snacks or
other items, while quick-service restaurants can only fill the stomach of the consumer. There are few service
stations big enough to accommodate quick-service restaurants in addition to convenience stores, so service
stations need to make a choice.

4.5.3 Market Outlook

Quick-Service Restaurant (QSR) sales will continue to grow

The affordability of quick-service restaurants inside forecourt in the country will continue to provide satisfaction
for budget conscious travellers. While quick-service restaurants brands are intended for the mass market, service
stations also have premium offerings from restaurants inside forecourt areas. Although quick-service restaurants
consumers are familiar with purchasing takeaway meals from inside forecourt outlets, the COVID-19 lockdown
has limited the number of commuters leading to fewer visits to the service station. As such, this contributed to a
decrease in sales by 5.9% in 2020. It is observed that some quick-service restaurants brands try to cover their
sales loss by focusing more on takeaways, delivery or selling their popular menu in a frozen format. These
solutions will help the brands to cover partial loss in 2020. Furthermore, quick-service restaurants target segment
includes consumers within the low and middle income group. The long period of lockdown has impacted the
low income consumers the most since their jobs are less stable. It will take some time, likely beyond the second
half of 2020, for employment and consumer purchasing power to improve. As Filipino consumers typically
enjoy out of home dining, sales is expected to recover by 12.3% in 2021 and 21.1% in 2022 once the situation
stabilizes and income level recovers. Overall, quick-service restaurant sales is projected to grow at a CAGR of
12.4% from 2020-2025. In terms of the number of transactions, it is forecasted to grow at a CAGR 6.9% in the
same period, implying that sales per transaction is forecasted to increase. In 2025, quick-service restaurants
inside forecourt is projected to record more than 45.7 million transactions, bringing in PHP 12,668.2 million
(USD 244.4 million) worth of sales.

Table 66 The Philippines Quick-Service Restaurant Sales Inside Forecourt Figures (2020F - 2025F)
CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F
2020F- 2025F
PHP
Quick-service 7,069.9 7,938.7 8,900.5 9,996.7 11,252.2 12,668.2 12.4%
million
restaurant
sales USD
136.4 153.1 171.7 192.8 217.0 244.4 12.4%
million
Number of
‘000 32,740 34,933 37,344 39,958 42,755 45,748 6.9%
transactions
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Competing local restaurants easily accessible

The Filipinos consume a huge volume of quick-service food products annually. However, there are many
offerings from different providers. Many times, the Filipino consumer may patronize an independently operated
quick-service restaurant that serves local food. These outlets are located along major highways and are easily
accessible. Thus, while the Filipino consumer may make purchases at grocery retail outlets inside forecourt, they
may not patronize quick-service restaurants inside forecourt to have their meals. The challenge hence is for the
brand to attract the consumer in a variety of ways such as discounts or promotions.

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4.5.4 Competitive Environment

Top three players account for half of the market value

Player 1, a local brand operating more than 1,000 outlets in the country, is the largest quick-service restaurant
chain in the Philippines. Similarly, within the quick-service restaurants inside forecourt segment, Player 1 also
tops the charts with 32.5% of the total market share in 2019. Player 2 holds a market share that is less than half
of Player 1’s.

The top three brands hold approximately more than half of the total market share. Industry concentration is high
with the top five brands holding 64.3% of the market share in 2019 and 3 out of the top 5 players are local brand
names. With the Filipino consumer’s love for fried chicken, fried chicken can be found in the menus of each of
these top five players. These top five brands will continue to thrive inside forecourt as service stations often
prioritize opening outlets of these well-known brands to attract customers.

Table 67 The Philippines Market Share Rankings Quick-Service Restaurants (QSR) Inside Forecourt in 2019
Ranking QSR Brand % Market Shares by Revenue Listing Status

1 Player 1 32.5 Public

2 Player 2 12.8 Private

3 Player 3 8.5 Public

4 Player 4 5.3 Private

5 Player 5 5.2 Public

Source: Euromonitor estimates from trade interviews and desk research

4.6 CAFÉ INSIDE FORECOURT IN PHILIPPINES

4.6.1 Market Overview
Cafés inside forecourt targeted at travellers

Filipinos are habitual coffee drinkers, both at home and out of home. Approximately 90% of the coffee
consumed by consumers in the Philippines is instant coffee, and the Philippines is the world’s largest importer of
soluble coffee products. Prior to the recent development of retail inside forecourt, the service station provided
limited services. Should there be a convenience store located within the service station, drivers, especially those
driving long distances, would stop for a quick coffee, usually instant, to take a break. The coffee also helps them
stay alert while driving.

Increasingly, popular chained coffee shops such as Starbucks are opening outlets inside forecourt, and these are
often located inside forecourts of service stations located along major expressways, targeting the upper middle
class who travel often. While public transportation vehicles such as buses pass through expressways, they do not
usually stop for refuelling at these service stations. Rather, it is the drivers of private cars and vehicles used for
field trips who usually stop for a refuel, restroom break, or a meal break. Service stations located along major
highways in the provinces connected to the expressways are seeing the growth of cafés and quick-service
restaurants inside forecourt, since there are no malls or F&B outlets in the vicinity. The main target markets for
cafés inside forecourt are motorists, commuters and tourists.

Cafés inside forecourt mostly company-owned for quality control

Many cafés inside forecourt are outlets of international chained speciality coffee shops, and company-owned
under a master franchise or licensing agreement. Starbucks is licensed to Rustan Coffee Corporation, while The
Table Group holds the master franchise of Coffee Bean and Tea Leaf brand in the Philippines. Café France
outlets within forecourt are all company-owned, though there are 3 dealer-owned outlets. Seattle’s Best Coffee is
operated by the master franchise Coffee Masters Inc.

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The brands have adopted this model of operation to retain control in monitoring quality and consistency in
product and service across outlets. As cafés expand in the inside forecourt landscape, the international brands
see the importance of operating outlets as company-owned so that the main company holds the power to make
key decisions relating to operations and centralize marketing efforts to promote the brands.

Moderate growth in café outlet expansion

Between 2014 and 2019, café inside forecourt sales grew from PHP 465.8 million (USD 9.0 million) in 2014 to
PHP 589.7 million (USD 11.4 million) in 2019, at a CAGR of 4.8%. Similarly, the number of coffee cups sold
registered a CAGR of 5.5%, with 3.3 million cups sold in 2019. However, the number of outlets has remained
relatively stagnant at just over 60 outlets in the Philippines, signifying an increase in demand for coffee
consumption inside forecourt.

Table 68 The Philippines Café Inside Forecourt Figures (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014- 2019
PHP
Café inside 465.8 488.8 512.3 536.7 562.6 589.7 4.8%
million
forecourt
sales USD
9.0 9.4 9.9 10.4 10.9 11.4 4.8%
million
Number of
- 54 55 56 58 60 62 2.5%
outlets
Number of
coffee cups million 2.5 2.7 2.8 3.0 3.1 3.3 5.5%
sold
Source: Euromonitor estimates from trade interviews and desk research

4.6.2 Legislative and Regulatory Policies

Government plans to support farmers to export coffee

Under the Philippine Coffee Industry Road Map (PCIR) drawn up by the government for 2017 to 2022, the
government plans to support local coffee farms to increase their production aggressively to achieve a self-
sufficiency ratio (SSR) of over 160%. This means that by 2022, the Philippines market would have a coffee bean
surplus, sufficient to supply to its domestic market, as well as export to overseas markets. With this, it is
expected that the cost of coffee will be lowered as compared to importing from overseas markets, and this could
potentially give rise to new opportunities in the market.

4.6.3 Drivers and Constraints

Expansion strategy by café brands

The café market in general is competitive and key players are looking to consolidate and cement their market
position by expanding. The inside forecourt segment is one of the more attractive channels, since the service
station has a captive audience. Café brands are increasingly seeking partnerships with service station companies
to expand their network and footprint according to the network of the service station partner, and this will drive
the growth of the number of outlets of cafés inside forecourt.

Competition from alternative products

Most of the service stations have grocery retail outlets such as convenience stores. At these convenience store
outlets, the consumer is able to purchase ready-to-eat meals and drinks, such as canned coffee. Canned coffee or
bottled coffee costs less but may be of the same quality as freshly prepared coffee from cafés inside forecourt.
For example, Starbucks’ bottled Frappuccino costs less than PHP 50 (USD 1.0), as compared to a drink
purchased in-store, which would cost at least PHP 110 (USD 2.1). The majority of price-conscious Filipino
consumers are used to the taste of instant coffee and are familiar with it. They may choose the cheaper option of
canned coffee, and this may hinder sales growth of cafés inside forecourt.

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4.6.4 Market Outlook

Slight increase in growth rates of the market

As the lockdown restricted commuting from other cities into Metropolitan Manila and caused a decrease in
traffic inside service stations, the café inside forecourt revenue is expected to decrease by 24.2%. Increase in
road traffic after the lifting of the lockdown, together with the expectation that the employment situation and
income level will improve from 2021 onwards, consumers will likely shift back to purchase coffee at cafés
inside forecourt. Thus, café inside forecourt sales is projected to increase by 8.4% in 2021 and 6.9% in 2022
with a forecast CAGR of 7.5% from 2020-2025. In 2025, café inside forecourt sales is expected to reach PHP
642.2 million (USD 12.4 million) from PHP 447.0 million (USD 8.6 million) in 2020.

Table 69 The Philippines Café Inside Forecourt Figures (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F
2020F- 2025F
Café PHP million 447.0 484.4 517.9 554.6 596.0 642.2 7.5%
inside
forecourt USD
sales 8.6 9.3 10.0 10.7 11.5 12.4 7.5%
million

Number
- 63 65 67 69 71 74 3.2%
of outlets

Number
of coffee million 2.5 2.7 2.9 3.1 3.3 3.5 7.1%
cups sold
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Starbucks announces price increase

In October 2018, Starbucks Philippines announced that all beverages would see an increase in prices by 3-9% in
all of its outlets, including those inside forecourt, island-wide. Product price ranges from PHP 110 (USD 2.1) to
PHP 200 (USD 3.9), depending on the type and size of the drink. The move comes amid the high inflation rates
in the Philippines, and the rising costs of other goods consumed in the operations.

A statement from Starbucks explained that they periodically evaluate pricing to balance running costs while
providing maximum value to consumers with fair pricing. With the price increase, the market may see some
shift in consumption of other brands.

Third wave coffee movement an opportunity to introduce local specialist coffee shop brands

As the market moves towards third wave coffee, where the status of coffee is elevated to an artisan food product,
existing players are upgrading their product offerings. Starbucks and Coffee Bean & Tea Leaf, for example,
have started to offer nitro-brew and cold-brew coffee drinks, which are considered artisan methods of coffee
brewing that brings out flavours better.

Currently, the brands of cafés inside forecourt are considered mainstream brands. These brands are chained
outlets and offer mainly the same menu across outlets. As the consumer becomes more willing to pay for artisan
and premium coffee, there is an opportunity to widen available brands of cafés inside forecourt, or even invite
independent specialist coffee shops and local brands to set up shop at service stations.

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4.6.5 Competitive Environment

Player 1 remains the market leader for café inside forecourt

Player 1 is the market leader among café inside forecourt retailers with 56.5% of the total market shares for café
inside forecourt. The brand is considered premium in the Philippines market in general but captures a wide range
of consumers, from the regular customer who buys at least a cup of beverage from Player 1 daily, to the
customer who visits Player 1’s outlets for an occasional treat. In 2019, Player 1 had more than 390 outlets inside
forecourt and outside forecourt. While other players in the top 5 hold significantly lower market shares than
Player 1, less than 10% of the market share in 2019.

Table 70 The Philippines Market Share Rankings of Café inside Forecourt in 2019
% Market Shares by % Market Shares by Total
Ranking Café Brand Listing Status
Revenue Number of Cups Sold
1 Player 1 56.5 53.2 Private

2 Player 2 6.4 9.0 Private

3 Player 3 5.3 4.7 Public

4 Player 4 4.2 14.9 Private

5 Café Amazon 2.7 3.9 Private

Source: Euromonitor estimates from trade interviews and desk research

4.7 CAFÉ OUTSIDE FORECOURT IN PHILIPPINES

4.7.1 Market Overview
Coffee a lifestyle beverage in the Philippines

Coffee is an all-day beverage in the Philippines; the Filipino does not limit consumption to any specific time of
the day. Breakfast is not complete without a cup of coffee, often paired with pan de sal, a local bread, or fried
rice by the locals. Coffee is also consumed after lunch or dinner as an alternative to desserts. The coffee-
drinking habit of the Filipino consumer in his youth starts early, when needing to stay awake to study or
complete assignments. Coffee has become a lifestyle beverage among Filipinos, as seen by the popularity of
independent coffee houses in the country. Business meetings are conducted over a cup of coffee. Afternoons are
spent in coffee houses drinking coffee with friends. Thus, cafés and coffee houses have become a familiar space
away from home and also serve as a working space.

Long before the bubble tea craze, the Philippines already had Zagu, a shake with tapioca pearls that was
launched in the early 2000s. In 2011, bubble tea became popular in the country with the introduction of the
Gong-Cha brand from Taiwan. The bubble tea craze continues in Metropolitan Manila with popular brands such
as Coco Fresh Tea & Juice, Macao Imperial Tea, Gong Cha, TenRen’s Tea, Happy Lemon, and Chatime, and in
the provinces with independent brands.

New players launch in Metropolitan Manila as Starbucks expands beyond

Beyond Metropolitan Manila, café brands are now increasing their presence in other key growth areas in the
Philippines. The number of local independent cafés continues to grow not only in Metropolitan Manila but also
in provinces. These cafés are often located in less crowded areas and provide a better environment for
consumers to enjoy their coffee, at more affordable prices. These coffee houses will support the growing coffee
culture.

Starbucks was launched in 1997 in the Philippines and has sustained its market leadership in the specialty coffee
segment. Beyond Metropolitan Manila, the brand is now increasing its presence in other key growth areas in the
Philippines. It opened three outlets located within shopping malls and one stand-alone outlet in Metropolitan

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Davao, Starbucks is looking at adding one more stand-alone outlet after the success of its first stand-alone outlet,
and are looking to open stores in non-mall-based stores.
McDonald’s seeks new growth opportunities in the speciality coffee segment by opening its first stand-alone
McCafé outlet in Makati city in Metropolitan Manila in 2017. Notable new entrants include Tim Hortons, a
Canadian quick-service restaurant brand, which has opened its first store in Makati.

Local operators of specialist coffee shops hold licenses and master franchises

Most of the international chain specialist coffee shops are company-owned under a master franchise or licensing
agreement. Rustan Coffee Corporation operates Starbucks under a licensing agreement, which states that all
stores will be company-owned. Table Group holds the master franchise of Coffee Bean and Tea Leaf (CBTL) in
the Philippines. Both brands, with 100% company-owned outlets, are able to better monitor and manage the
quality of the outlets as they embark on ambitious expansion plans.

Coffee Masters Inc. owns the master franchise for the Seattle’s Best Coffee brand. Independent specialist coffee
shops are also popular in the country. Bo’s Coffee offers franchising agreements to individuals who wish to run
a small business under the Bo’s Coffee brand.

Cafés outside forecourt continue to flourish

Filipino consumers are habitually heavy drinkers of coffee. As out-of-home consumption gains popularity, the
number of café outlets saw a CAGR of 1.1%, to 8,844 outlets in 2019. Correspondingly, café sales registered a
CAGR of 5.5% between 2014 and 2019, growing from PHP 40,909.2 million (USD 789.1 million) in 2014 to
PHP 53,445.1 million (USD 1,030.9 million) in 2019. The number of coffee cups sold exceeded 270 million
cups in 2019.

Table 71 The Philippines Café Outside Forecourt Figures (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014- 2019
Café PHP
40,909.2 43,472.3 46,613.6 49,096.8 51,321.9 53,445.1 5.5%
outside million
forecourt USD
sales 789.1 838.5 899.1 947.0 989.9 1,030.9 5.5%
million
Number
- 8,384 8,414 8,487 8,599 8,718 8,844 1.1%
of outlets
Number
of coffee million 244.4 247.7 252.4 258.3 264.5 271.0 2.1%
cups sold
Source: Euromonitor estimates from trade interviews and desk research

4.7.2 Legislative and Regulatory Policies

TRAIN laws discourage sugar consumption

There are no direct legislative or regulatory policies on the operation of cafés in the Philippines.

Under the TRAIN Act, sin taxes are imposed on sugar to discourage the consumption of sugar. Consumers may
be encouraged to turn to beverages with less sugar, as sugar prices rise and, correspondingly, the prices of
beverages with high sugar content. Coffee, being a widely consumed beverage, was exempted from the new tax
structure. This could further drive the consumption of coffee in the Philippines.

4.7.3 Drivers and Constraints

The government helps the coffee industry to meet growing demand

The government recognises the opportunity to increase the local production of coffee beans, as demand is
dynamic. Local coffee producers are therefore receiving increasing support from the government and from local
and international coffee shop chains. Local coffee shops highlight local production, with more consumers
conscious of the origin of products and keen to help local farmers. According to the Department of Agriculture,

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Philippine coffee beans can compete with imported coffee, given the right tools and advanced education on
coffee production. Figaro and Bo’s Coffee are local brands that are already at the forefront of sourcing local
coffee beans. Local brands attribute their growing success to younger consumers, as they share these products
and their experiences on social media, thus, spreading awareness. Some international specialist coffee and tea
shops also recognise the potential in promoting locally-produced coffee. Seattle’s Best Coffee has launched an
initiative called Café Comuninad to support local farmers.

Local brands with novel concepts grow

The number of local independent cafés continues to grow not only in Metropolitan Manila but also in more
urbanized provinces. These cafés are often located in less crowded areas and provide a better environment for
consumers to enjoy their coffee, at more affordable prices. These coffee houses will support the growing coffee
culture.

Increased consumer awareness and knowledge

Coffee beans were categorized as a commodity, and consumption of instant coffee was most common. However,
in recent years, successful marketing strategies by major chained specialist coffee shops have raised consumer
awareness not only of the quality of coffee, but also about its specific origin, type and flavour profiles.
Consumers now have a growing demand for freshly prepared coffee and premium coffee beans.

Consumers are increasingly willing to pay for premium coffee beans based on origins or certified coffee, such as
those labelled fair trade. This will shift demand from soluble coffee products such as instant coffee, to fresh
coffee products.

Availability of good quality coffee supply locally

The Philippines produces coffee beans of high quality by global standards. As the consumer becomes more
sophisticated and knowledgeable, they are starting to look beyond the taste of the coffee too. Consumers now
want to know the origin of the coffee and have assurance that the coffee consumed was produced and sourced in
sustainable ways.

Young entrepreneurs from coffee-producing areas in the Philippines are leading the movement to put
Philippines-produced beans into global arena, by creating their own brands to promote local coffee. Other than
selling these coffee products in their own cafés, they may also distribute to other independently run coffee shops
and cafés in the key cities of Manila. This has led to changes in the local supply chain as specialist coffee shops
and coffee roasters start purchasing coffee directly from local farmers, and this has impacts on costs and pricing
for the consumer.

4.7.4 Market Outlook

Café outside forecourt sales will continue to grow

As part of the strict COVID-19 lockdown measures in the Philippines, the government permits only one person
per household with a “quarantine pass” to leave their home to perform essential activities such as buying
takeaway meals and grocery shopping which implies that many residents will be staying at home. This also
means that consumers, especially those in Metropolitan Manila, who typically purchase their coffee at a café
would shift to making coffee at home during the lockdown period. As a result, café outside forecourt revenue is
expected to decrease significantly by 22.3% in 2020. After the lockdown is lifted, it is anticipated that some
groups of employees will continue to work from home and consumers are likely to carry on with their at-home
coffee consumption in order to save on their spending in the second half of 2020. However, as employment
situation and income level is expected to improve in 2021, consumers will likely start to shift back to their usual
coffee purchase at cafés and coffee shops. Café outside forecourt sales is projected to pick up by 4.4% in 2021
and 6.9% in 2022 with a forecast CAGR of 6.0% from 2020-2025, growing to PHP 55,653.6 million (USD
1,073.5 million) in 2025.

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Table 72 The Philippines Café Outside Forecourt Figures (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F
2020F- 2025F
Café PHP
41,516.1 43,342.8 46,333.5 49,345.2 52,404.6 55,653.6 6.0%
outside million
forecourt USD
sales 800.8 836.0 893.7 951.8 1,010.8 1,073.5 6.0%
million
Number of
- 8,721 8,779 8,833 8,883 8,928 8,974 0.6%
outlets
Number of
coffee cups million 210.5 218.5 226.6 234.9 243.2 251.8 3.7%
sold
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Strengthening of local sourcing and procurement

Currently, over 90% of the coffee consumed in the Philippines is instant coffee, making the Philippines one of
the top importers of soluble coffee products globally. Global demand for premium roasted coffee has opened
doors for beans farmed in the Philippines to be exported. The climate of the Philippines allows high-quality
beans to be farmed locally. The beans available are the popular Robusta, Arabica, Excels, and Liberica varieties.
As the market becomes aware of the opportunities existing locally, there will be changes in the supply chain.
Sourcing from overseas distributors will drop, as cafés start sourcing from local farmers directly.

Third wave coffee gaining traction

As independent specialist coffee shops spring up throughout the country, there is a demand for quality fresh
coffee. The third wave of coffee is a movement, led mainly by independent coffee roasters, to produce high-
quality coffee, and to educate the consumer market to perceive coffee as an artisanal food item rather than a
cheap commodity.

Even though there has been a demand for better-quality coffee, the majority of the population is still used to the
tastes of instant coffee. There has been willingness to pay premiums for artisan coffee drinks by consumers who
can afford to, though the extent and potential size of this market is still unclear.

4.7.5 Competitive Environment

Player 1 the leader of café outside forecourt

Player 1 was one of the first international café brands to enter the Philippines market. With its long time in the
market, it is clearly no surprise that it is the market leader holding close to a third of the market share. Its market
share is nearly 10 times of the second largest player. In general, the rest of the market is highly fragmented, with
independent local brands fulfilling the coffee demand from the Filipino consumer market.

Table 73 The Philippines Market Rankings and Shares of Café Outside Forecourt for 2019
% Market Shares by % Market Shares by Total
Ranking Café Brand Listing Status
Revenue Number of Cups Sold
1 Player 1 22.7 25.0 Private

2 Player 2 2.5 2.7 Public

3 Player 3 2.3 0.5 Private

4 Player 4 2.3 1.9 Private

5 Player 5 1.4 1.5 Private

Source: Euromonitor estimates from trade interviews and desk research

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5. MYANMAR
5.1 MACROECONOMIC ENVIRONMENT IN MYANMAR
An impoverished country with strong growth potential

Myanmar remains one of the least developed countries in Southeast Asia. It recorded strong GDP growth rates
for the review period of 2014-2019 at a 11.3% CAGR. Since 2011, the country has gone through stages of
democratisation and financial liberalisation, culminating in an overall strong economic development. Both the
industrial and service sectors have registered robust growth. Key industries include agricultural processing,
natural gas and wood products. The government, and in particular the military, still control a large stake of the
industrial sector. The service sector is interconnected with information technology, mainly in urban centres. In
fact, the ongoing urbanisation and rural exodus are strengthening the service sector. During the review period of
2014-2019, the country saw an increase in exports, a large proportion of which was gas, and mainly to Thailand.

Private spending also drove growth. Myanmar’s retail market grew strongly to account for 19.8% of GDP in
2019 at USD 13,960.3 million. As of 2019, there were approximately 230,000 retail outlets in the country, with
grocery retailers accounting for 88.7% of total store-based retailing outlets. Myanmar imports the majority of its
consumer goods from neighbouring countries such as Malaysia, Thailand, China, Singapore and India. In recent
years, there has been growing market penetration by international brands, especially by those in the luxury retail
segment such as Coach, Tumi, Pandora, and Swarovski.

GDP per capita registered a healthy 10.6% CAGR from 2014-2019, amounting to MMK 2,074,477.3 (USD
1,356.4) in 2019. In 2015, the World Bank reclassified Myanmar as a lower-middle-income country, climbing
up from its previous low-income threshold. The increase in GDP per capita was linked to growth in industries
like manufacturing and tourism, as well as the country’s increasing urbanisation, which has in turn led to a rising
middle class. This has also resulted in an income gap between the urban class, which accounts for about one-
third of the population, and rural residents, who account for the vast majority of people in Myanmar.

Table 74 Myanmar GDP Figures (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014-2019
MMK
65,564.6 73,051.4 80,130.0 89,416.9 100,709.4 112,116.0 11.3%
billion
Nominal
GDP USD
millio 42,868.8 47,764.0 52,392.3 58,464.4 65,847.9 73,306.0 11.3%
n
Nominal
GDP % 12.5 11.4 9.7 11.6 12.6 11.3 N/A
growth
MMK 1,254,085.1 1,386,682.6 1,510,599.3 1,675,021.9 1,875,117.2 2,074,477.3 10.6%
GDP per
capita
USD 820.0 906.7 987.7 1,095.2 1,226.0 1,356.4 10.6%
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

A young population relocate in search of better job prospects

As of 2019, the country’s population remains young. People aged 65 years or older represent only 6.0% of the
total population. The demography segment between 18 and 64 years old make up the bulk of the population at
62.4%, implying a youthful labor force. Currently, 30.9% of Myanmar’s total population live in urban areas.
This is expected to grow further, as the Burmese youth have increasingly moved to urban centres such as
Yangon and Mandalay in search of better job prospects in the industrial and service sectors. According to the
World Bank, Myanmar’s industrial sector currently employs around 16% of the workforce.

Population growth over the review period of 2014-2019 was moderate at 0.7% CAGR as the average rate of
children per household has fallen in line with declining fertility rates and higher literacy and education levels.
The average number of children per household is expected to decline further to 1.2 children by 2020 – a ratio
similar to that of developed countries.

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Table 75 Population of Myanmar (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 – 2019
Total
000 52,280.8 52,680.7 53,045.2 53,382.5 53,708.3 54,045.4 0.7%
population
Urban
000 15,501.3 15,729.4 15,957.1 16,186.6 16,423.5 16,674.1 1.5%
population
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

A growing middle class live in urban areas

Rising employment opportunities along with a growing economy were responsible for the robust growth of
urban residents’ disposable income at a 10.2% CAGR over the review period of 2014-2019. The share of the
population that falls into the middle class and lives in urban areas registered healthy growth during the same
review period. The number of middle class households accounted for 22.9% of total households in 2019. This
number is expected to increase in the future.

The increase in disposable income in urban areas, which presented a CAGR of 10.2% over the review period,
coupled with the expansion of retail outlets is expected to significantly boost consumer spending in the future.
However, income disparity between urban and rural areas remains strong. The residents in the capital of Yangon
have about 65.0% more disposable income than those who live in rural areas.

Disposable income per capita of urban residents in Myanmar is expected to remain stable. The economy of
Myanmar continues to undergo reform and the disposable income per capita of urban residents is forecasted to
register a CAGR of 11.1% from 2020-2025, as of 1 June 2020. The middle class and the affluent part of the
population are concentrated mainly in the urban areas of Myanmar. It is estimated that by 2030, the number of
middle class income population will reach 19 million, should the country’s economic reformation continue on
the current trajectory.

Table 76 Myanmar Disposable Income Per Capita – Urban Residents (2014 – 2019)
CAGR
Unit 2014 2015 2016 2017 2018 2019 2014-
2019
Disposable
income per MMK 927,641.2 1,047,894.7 1,034,590.3 1,149,009.7 1,356,716.0 1,506,896.5 10.2%
capita –
urban USD 606.5 685.2 676.5 751.3 887.1 985.3 10.2%
residents
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Growth in consumer spending boosted by retail expansion

Increasing disposable income and the rise of a growing middle class have shored up consumer expenditure,
which reported a healthy 12.5% CAGR between 2014 and 2019, growing from MMK 39,013,006.2 million
(USD 25,508.3 million) in 2014 to MMK 70,162,020.1 million (USD 45,874.8 million) in 2019. This was
driven by the growth of consumer expenditure, which recorded a CAGR of 12.5% from 2014-2019. Yangon’s
retail market underwent rapid change over the review period, with the estimated addition of 50,000 square
meters of retail space in 2019, with the opening of new shopping malls like Kantharyar Shopping Centre, Times
City and Terminal M. Existing shopping malls like Junction City and Myanmar Plaza are performing well, with
full occupancy rates. Despite the market being dominated by local brands, international brands have entered the
market to meet rising demand from the growing middle class.

Consumer expenditure on food and non-alcoholic beverages reported a robust 11.6% CAGR between 2014 and
2019, and accounted for 55.9% of consumer spending in 2019. A large share of consumers favoured purchases
of more expensive food items focusing on taste and quality rather than price only. The increased presence of
local and international cafés and restaurants supported by a growing ‘eating out’ culture in urban centres have
benefited the growth in consumer expenditure on food and non-alcoholic beverages.

In the forecast period of 2020 to 2025, consumer expenditure is expected to continue to rise with the newly
affluent consumer’s growing appetite for quality goods from both local and international brands. Consumers are
also spending on a wide range of products and services including travel. Lifestyle changes resulting in

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consumers eating out and visiting cafés more often will further increase consumer expenditure on food and non-
alcoholic beverages. Consumer expenditure is expected to continue to grow to reach MMK 143,224,592.8
million (USD 93,646.1 million) in 2025, as of 1 June 2020.

Table 77 Consumer Expenditure in Myanmar (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014 -
2019
Consumer
expenditure % 59.5 61.9 56.9 57.8 61.5 62.6 N/A
to GDP
MMK
39,013,006.2 45,241,126.6 45,617,670.8 51,643,601.4 61,970,578.1 70,162,020.1 12.5%
Consumer million
expenditure USD
25,508.3 29,580.5 29,826.7 33,766.7 40,518.9 45,874.8 12.5%
million
Consumer MMK
expenditure 22,610,239.7 25,893,760.1 25,810,712.4 29,083,220.9 34,736,889.7 39,200,666.5 11.6%
million
on food
and non- USD
alcoholic 14,783.5 16,930.4 16,876.1 19,015.8 22,712.4 25,631.0 11.6%
million
beverages
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Table 78 Consumer Expenditure in Myanmar (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F -
2025F
Consumer
expenditure % 63.5 64.8 65.9 66.5 67.0 67.5 N/A
to GDP
MMK
76,596,765.7 87,659,701.3 99,602,667.4 112,312,792.6 126,796,437.9 143,224,592.8 13.3%
Consumer million
expenditure USD
50,082.1 57,315.5 65,124.3 73,434.7 82,904.7 93,646.1 13.3%
million
Consumer MMK
expenditure million 43,158,204.1 49,638,679.5 56,204,955.5 63,013,186.5 70,869,072.8 79,883,956.7 13.1%
on food
and non- USD
alcoholic 28,218.6 32,455.8 36,749.1 41,200.6 46,337.1 52,231.4 13.1%
million
beverages
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Budget deficit responsible for inflationary pressure

Inflationary pressures in the country persisted in 2019 at 8.8%, representing the second highest rate in the review
period of 2014-2019, after 2015 when it reached 9.4%. Myanmar’s government has printed new money to cover
its deficit instead of increasing taxation, adding further inflationary pressure to an already inflationary economy.
This is due to natural disaster-related shocks in the past 5 years, which caused CPI for basic food crops to
increase. The depreciation of the Myanmar Kyat since 2015 has also led to higher prices of imported goods. In
addition, the country is highly dependent on oil imports – approximately 70-80% of total oil – in order to cover
its power needs.

Table 79 Average Inflation Rate in Myanmar (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014-2019
Average
% 5.0 9.4 7.0 4.6 6.9 8.8 N/A
inflation rate
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

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FDI boosted by economic growth and government support

The Burmese economy’s process of democratisation and liberalisation continued during the review period,
presenting a high CAGR at 56.2% from 2013-2018. Specifically, the Foreign Investment Law of November
2012 eased investment and opened up retail and wholesale lending and leasing activities for financial
institutions. In line with the growing economy, the government also offered favourable terms in some specific
areas such as profit repatriation and tax holidays to further attract foreign investors.

In October 2018, the government’s Myanmar Investment Commission (MIC) launched a major investment
promotion plan which aimed to attract more than USD 200 billion of foreign investments over the next 20 years.
According to the investment promotion plan, the government will establish simplified, fast and clear investment
processes and ensure fair treatment of local and foreign investors. The government’s plan to improve the
investment environment is expected to generate further FDI.

Most FDI comes from Asian nations such as Singapore, China, Hong Kong, South Korea, Japan and Thailand.
Asean countries were the biggest contributors of foreign inflows, accounting for around 59% in 2018. While
FDI from Asian economies is expected to continue flowing in, that from Western countries has slowed in recent
years due to their dissatisfaction with the Myanmar government’s handling of the situation in Rakhine State. The
Netherlands was one of the countries from the European Union with the highest FDI rates.

FDI mainly goes to the service sector and manufacturing industry, accounting for 58.0% and 24.0% in 2018,
correspondingly. Investment in the manufacturing sector has increased strongly from 17.0% in 2017, due to
Chinese companies, especially in the apparel industry. These companies are setting up businesses in Myanmar to
take advantage of relatively low labour costs.

Table 80 Foreign Direct Investment Inflows of Myanmar (2013 – 2018)

CAGR
Unit 2013 2014 2015 2016 2017 2018
2013-2018
MMK
Foreign 546,170.6 932,484.6 3,332,393.0 3,702,840.5 5,875,995.7 5,079,679.7 56.2%
million
direct
investment USD
inflows million 357.1 609.7 2,178.9 2,421.1 3,842.0 3,321.3 56.2%

Source: Euromonitor - Passport Economies and Consumers 2020 Edition, as of 1 June 2020

5.2 THE RETAILING INDUSTRY IN MYANMAR

5.2.1 Market Overview
Modern retailing grows rapidly in Myanmar

Myanmar’s retailing industry experienced strong growth in the last five years, with total retail value sales
registering a CAGR of 13.1%. Modern retailing has expanded considerably with local retailers, such as City
Mart, Marketplace and Ocean, increasing their presence in existing cities while expanding into regional capitals
through the opening of new branches. In addition, convenience store chains such as Grab & Go (G&G) and City
Express, which did not exist before 2012, have emerged. Currently, Grab & Go (G&G), a major local player in
chained convenience stores, has over 300 outlets in Yangon, Bago, Nay Pyi Taw and Mandalay. New retail
concepts, such as variety stores, for example Miniso, MGOU and Daiso, and forecourt retailers have also
appeared within the period. Many forecourt retailers are operated and owned by chained convenience store
operators.

In May 2018, Myanmar’s Ministry of Commerce (MoC) issued Directive 25/2018, allowing 100% foreign-
owned companies, as well as joint venture companies established between Myanmar companies and foreign
companies, to conduct retail or wholesale businesses in Myanmar. This is expected to introduce greater
competition among retailers, as foreign investors will find it easier to enter the Myanmar market.

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Urban consumers turn to modern grocery retailers for grocery shopping

More consumers are shopping at modern grocery retailers, particularly city-dwelling young consumers who are
less tied to traditional shopping habits. These consumers often live a busy lifestyle. Hence, they are looking for
retailing formats that offer longer opening hours and a large variety of products in the same location. They are
attracted to greater assortments of modern, aspirational products available in formats such as supermarkets, as
well as the more comfortable and clean shopping environment of a modern retail store. In particular, middle-to-
high income consumers are increasingly drawn to fresh and organic products. As a result, new forms of retail in
the form of farmers’ market, where producers directly sell their products at upscaled venues, are increasing in
popularity amongst this demographic group.

Economic reforms open Myanmar up to international retailers and investors

Historically, modern retail establishments only emerged in Myanmar during the early 1990s. Before that, the
country’s retailing sector was entirely dominated by state-owned enterprises such as government-operated stores
selling household products, small-to-medium sized neighbourhood stores and the wet markets. The modern retail
channel continued to grow gradually between the 1990s and the early 2010s, but its growth stepped up a gear
following Myanmar’s economic reforms and liberalisation policies in the early 2010s. International food and
beverage brands came to the country to set up local manufacturing and bottling facilities, and to sell products at
cheaper prices than before. Combined with the increasing number of middle class families, these developments
encouraged more consumption and led to double-digit growth in the retailing sector.

Retailing is still dominated by traditional retailers

The retailing industry in Myanmar is currently still dominated by small-to-medium sized family-owned
traditional retailers which accounted for the bulk of the country’s retailing sector. Grocery sales through kiosks
located in wet markets or street-side stalls remain robust due to their low prices, as they attract lower-income
households. As access to refrigerator storage remains limited to most in this price-sensitive socioeconomic
group, they continue to regularly purchase fresh produce in small quantities. Nevertheless, modern retail
channels are developing in the cities where the middle class population is growing. Consumers often visit
supermarkets/hypermarkets and shopping malls as a recreational activity rather than for household chores.
Currently, modern retailers in Myanmar are mostly operated by local companies, but the retail share of
international companies is expected to change in the near future, after the government of Myanmar allows 100%
foreign-owned companies to operate in the country’s retail and wholesale sector.

Internet retailing emerges in Myanmar

E-commerce has started to take off. Many online-only sellers, particularly those selling beauty and cosmetics,
apparel, footwear and groceries, operate through the social media platform, Facebook. Facebook often works as
their main store front and online-only sellers deliver directly to customers’ homes. SHOP.com.mm, the local arm
of Chinese e-commerce company Alibaba Group, sold over USD 90,000 worth of goods in the first hour of its
first online sale on 11 November 2018. According to representatives of the company, over 1,500 orders were
placed in the first hour. Most purchases were made through mobile phones. Its shopping app was accessed by
over 150,000 users. In addition to SHOP.com.mm, there are a growing number of other online shopping
websites running in Myanmar. This trend is catering to an increasing number of young urban consumers who are
purchasing not only clothing and electronics, but also groceries online.

Informal retailing is also moving online. Not many consumers have bank accounts or financial cards, which
precludes shopping online from overseas vendors. This has presented opportunities for entrepreneurs to sell via
social media. A growing number of entrepreneurs are bringing goods into the country from other countries and
selling these informally via Facebook. The most popular products sold informally online are fashion brands,
such as Fitflop sandals.

The rise of internet and mobile retailing will be bolstered by telecommunication companies. For instance,
Telenor rolled out 4G LTE service and expanded its coverage to more than 180 cities and townships in
Myanmar. Ooredoo upgraded its 4G network across 200 townships, enabling more than 15 million people to
access a high internet speed. At the same time, internet and mobile retailing are expected to continue to grow as
telecommunications infrastructure expands and more Myanmar consumers become digitally connected.

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Retailing industry registers strong growth

Myanmar was closed to the rest of the world for around 60 years until 2012. Economic reforms such as
liberalisation and the removal of sanctions by the international community started to open up the country to the
world. Myanmar’s GDP increased significantly due to foreign direct investments in the country’s manufacturing
and services sectors. It led to increasing disposable incomes for local consumers. The growing middle class in
urban cities became exposed to international culture and trends, sustained by the explosive growth of internet
penetration. Consumers are eager to catch up with the rest of the world and they are interested to try out new
FMCG brands. Consumer confidence has been on the rise, and the retail sector has experienced as much as a
13.1% CAGR in the 2014-2019 period. Nonetheless, Myanmar’s retailing industry has not yet reached its full
potential, as the middle class is still in nascent growth. Additionally, modern retailing is largely limited to the
cities. Hence, the industry has a positive outlook in the next three to five years due to both rising demand from
consumers and better-quality services provided by businesses.

Table 81 Myanmar Total Retail Sales (2014-2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014- 2019
MMK
Total million 11,531,997.8 13,993,955.8 15,207,683.3 16,982,818.9 19,215,111.6 21,351,206.7 13.1%
Retail
USD
Sales 7,540.1 9,149.8 9,943.4 11,104.1 12,563.6 13,960.3 13.1%
million
Source: Euromonitor Passport - Retailing 2020 Edition

5.2.2 Legislative and Regulatory Policies

Government allows 100% foreign-owned companies to conduct retail businesses in Myanmar

In May 2018, the Ministry of Commerce issued a directive, allowing 100% foreign-owned companies and joint
ventures between local and domestic investors to conduct retail and wholesale businesses in Myanmar. The new
measure allows retail and wholesale trading of all types of commodities (except those prohibited by law) which
are domestically manufactured or imported from abroad. Domestic companies, foreign firms and joint ventures
are all permitted to operate.

The minimum capital requirements for 100% foreign-owned firms to operate in the retail and wholesale
industries are USD 3 million and USD 5 million, respectively. For joint ventures where the local investor has at
least 20% equity ratio, the minimum capital necessary for retail and wholesale are USD 700,000 and USD 2
million, respectively.

Retail and wholesale trade can be conducted in any townships in all states and regions, based on relevant
regulations. However, foreign businesses and joint ventures are not allowed to operate mini-markets,
convenience stores and any retail distribution where the floor area is smaller than 929 square meters or 10,000
square feet.

The Ministry of Commerce has also issued standard operating procedures for retail and wholesale business
registrations as well as a list of products allowable for trade. The list contains 24 products and items, such as
consumer goods, which include clothes, watches and cosmetics; foodstuffs, which include agricultural, fishery,
animal and instant products, beverages and locally-produced liquor; household and kitchen items; drugs and
medical equipment; as well as vehicles and vehicle parts.

Favourable policy for foreign investors will increase retail competition

Local retailers expect increased competition from foreign players after a new regulation allows foreign-owned
firms to operate in the country’s retail sector. There is currently one Japanese supermarket, AEON, which is in
joint venture agreement with the local supermarket chain Orange. In the future, 100% foreign-owned
supermarkets/hypermarkets, especially those coming from ASEAN economies, are expected to enter the
retailing industry in urban cities such as Yangon and Mandalay. Myanmar’s Ministry of Commerce permitted
about 34 foreign retail and wholesale businesses to operate in the domestic market between July 2018 and
December 2019. Among these 34, 29 will operate wholesale, four will operate both wholesale and retail, while

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only one will produce retail operations. The Ministry also permitted 27 joint ventures of retail and wholesale
businesses between foreign and local companies; for example, MyCare, Unicharm, Unilever and Nestlé.
Government grants permission to new delivery service provider

The rise of internet retailing in Myanmar has been supported by the increasing availability of express delivery
services, which allows consumers to receive goods ordered online. A growing number of delivery service
providers are taking an interest in the Myanmar postal and delivery space. In June 2018, the Myanmar
government granted permission to seven new registered express delivery players to carry out operations in the
country. They include RG Express Services Co, Myanmar Zarla Distribution Co, First Courier Service Co,
Hercules Logistics Co and UMG Logistics Co, which will provide domestic delivery services.

5.2.3 Drivers and Constraints

Myanmar’s young population creates strong domestic demand

Myanmar is currently experiencing a youth bulge where 30.0% of the population are 13-29 years old, followed
by 21.8% in the 30–44 year-old bracket in 2019. These age groups represent not only a young and aspiring
workforce, but also a large untapped consumer market for companies to target. Urbanisation also contributes to
the growth of the consumer base for retailing, as consumers in the cities have greater access to modern retailing
formats. Across all age groups, 43.7% cited employment or search for employment as the key reason for moving
between states/regions to urban areas.

About 24% of the Myanmar population earns more than USD120 per month, as the bulk of the population
(>60%) continues to be employed in the agricultural sector. However, this share is expected to increase to 48%
by 2022, driven by rising employment opportunities in the services and manufacturing sectors. The younger
generation of consumers, characterised as “voracious consumers”, have higher affinity for foreign brands and
products. They are expected to drive up consumer spending. There is also a slow but steady transformation of
consumers’ shopping habits and decision making, as shown by a shift towards modern retailing in urban areas.
Local modern retail operators such as City Mart, Capital and Gamone Pwint, have increased the presence of 24-
hour convenience stores. On the other hand, supermarket and hypermarket branches have expanded into smaller
cities like Pathein, Taunggyi and Mawlamyine.

Urban consumers become more aspirational and buy imported brands

Local consumers are brand-loyal and price-sensitive. Nevertheless, there is a growing middle class population in
urban cities who are aspirational consumers and willing to spend their disposable income on premium imported
products. Economic growth and rising disposable incomes have enabled growing numbers of consumers in
Myanmar to look beyond necessities and purchase products which enhance their lifestyle or appearance. Besides
raising their discretionary spending, consumers are also buying more premium imported brands, especially those
from the West, Japan and South Korea. However, in regional towns and rural villages, consumer spending
power cannot match those in urban cities. Therefore, there is more demand for locally produced cheaper
alternatives or affordable imported products from neighbouring countries such as Thailand, China and Malaysia.

Young urban consumers buy more products from online channels, and visit modern trade establishments such as
shopping malls as a recreational activity. Meanwhile, young working adults do not have as much time to go to
traditional markets as the busiest hours are in the early mornings between 7am and 9am. Young working adults
therefore often opt to go in the evenings to modern trade retailers that have extended opening hours.
Convenience store chains such as Grab & Go (G&G), One Stop Mart and City Express also provide quick and
affordable shopping venues for young working adults, as well as additional conveniences and services like hot
breakfasts or microwaveable food that can be heated up in stores.

Increasing digital connectivity

Consumers buying through the internet, such as Facebook selling pages, is increasing in Myanmar. Many online
retailers have a Facebook Business Page, where non-grocery items such as fashion, beauty and cosmetics
products and consumer electronics products are commonly sold. Since the age of internet shopping, rural
consumers are able to purchase the same products as urban consumers.

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Internet access plays an important role in the development of internet retailing. According to a new report
released by media company We Are Social in 2020, Myanmar has 22 million internet users, representing a 41%
internet penetration rate, a 2-percentage point rise from the previous year. Internet retailing is also increasingly
going mobile. According to the same report, Myanmar recorded about 68 million mobile phone connections.

Distribution challenges

Distribution, especially cold storage distribution, is one of the key challenges of Myanmar’s retailing industry.
Due to frequent electricity outages, fresh produce in Myanmar is often kept at room temperature and because of
the under-supply of cold-chain logistics providers, the transportation and storage of imported fresh produce and
perishable food products such as dairy remain a key challenge for modern trade retailers.

Infrastructure remains underdeveloped in Myanmar. According to the Asian Development Bank, transport
infrastructure is in need of USD 45-60 billion of investment over the next 15 years. At present, 20% of
Myanmar’s road network comprises paved roads. International cargo traffic has grown annually at above 10%
and the increasing liberalisation of foreign direct investment will further increase traffic at ports. There is a risk
that the domestic transport network is unable to cope with the increasing volume of imported goods.

There is also a growing demand to develop the transportation network in rural areas because 70% of Myanmar’s
population live in rural areas. Due to a lack of transport networks in rural areas, some products may not reach
all remote areas of the country, resulting in a shortage of stock, especially for towns and villages situated in
mountainous regions. Sometimes, consumers have to wait a long time for goods to reach these areas. The
waiting time would increase if there are weather-related challenges such as floods. For locally produced fresh
goods such as meat and vegetables, they are sourced locally and sold at nearby traditional markets, without the
need for long-distance transportation. Therefore, imported fresh products have little demand outside major cities.

Recognising these impediments to logistics, the Myanmar government has invested in improving transportation
and logistical infrastructure. Myanmar opened its first dry ports in early 2019 that linked the Mandalay region in
upper Myanmar to Yangon region in lower Myanmar to facilitate the flow of goods between cities along the
Irrawaddy river. Myanmar further plans to have eight more dry ports in the future to link regional major cities.
Myanmar also opened its first commercial warehouse in Shan state, Eastern Myanmar in 2019. The warehouse
encompasses substantial storage capacities and is the third professional cold storage facility for agricultural
produce like potatoes.

Counterfeit goods are still prevalent due to weak government control

Counterfeit goods and illegal trade are among the biggest challenges for retailing companies operating in
Myanmar. Counterfeit goods are pervasive in Myanmar because there have not been many efforts by the
government to control illegal trade so far. Businesses lose sales to counterfeit goods, because consumers are
either not aware that they are buying counterfeit products, or they have chosen counterfeit products due to their
lower prices. Even large multinationals can be significantly impacted by the prevalence of counterfeit goods.
Four intellectual property right bills have been drafted, even though laws are not expected to be enforced until
2020.

Rural consumers have not adopted a modern lifestyle

Myanmar consumers are price-sensitive and brand-loyal. Therefore, it is a challenge for imported international
brands which are premium-priced and have exclusive availabilities to capture the national market. There is also a
considerable urban-rural divide in Myanmar, in the form of large differences in consumer behaviours across
rural and urban consumer segments. This means many rural consumers have not yet adopted a modern lifestyle
and their purchases are limited to basic necessities.

In Myanmar, some 70% of the population live in rural areas with a high concentration (38%) of the population
in three central Myanmar-majority regions of Yangon, Mandalay and Ayeyarwady. Due to unreliable electricity
supply in rural areas, modern retailers with cold storage would need to invest heavily in power generation to run
their outlets. Moreover, consumers in these areas do not have a habit of eating frozen meat and vegetables. There
are also differences in sanitary practices. The rural population use just basic soap bars and hair shampoos
whereas urban consumers have adopted a large variety of sanitary products, such as shower gel, facial foams,

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conditioners, etc. It will take considerable time for rural consumers to shift to a modern lifestyle or start
purchasing international brands due to different consumer behaviours compared to their urban counterparts.

5.2.4 Market Outlook

Retailing industry maintains strong growth

Despite the impact of the COVID-19 lockdown, retail sector is expected to continue to grow by 2.8% in 2020.
This is lower than the typical annual growth rate of about 10.0% as many non-essential retail outlets are closed
and generally lower income level during the lockdown period. However, Myanmar’s rapid economic
development continue to offer market potential which attracted foreign brands to enter the Myanmar market
driving the growth of the retailing industry. Thus, retail sales is expected to benefit from the growing economy,
as well as the recovery of disposable income and tourism sector in 2021. Retail sales is projected to grow
significantly by 15.5% in 2021 and 11.0% in 2022. Overall, retail sales growth is forecast at a CAGR of 11.6%
in the forecast period to reach a market size of MMK 38,054,120.2 million (USD 24,881.3 million) in 2025.
Myanmar does not currently have a large manufacturing sector for consumer goods. The country still imports the
majority of its consumer goods from neighbouring countries such as Malaysia, Thailand, China, Singapore and
India. The country’s middle class consumers have a growing appetite for premium brands from Europe and the
United States, which provides significant opportunities for international brands in Myanmar’s retailing industry.

Table 82 Myanmar Total Retail Sales (2020F-2025F)

CAGR
2020F 2021F 2022F 2023F 2024F 2025F
2020F- 2025F
MMK
Total 21,942,809.6 25,343,945.0 28,134,505.2 31,146,445.4 34,450,071.6 38,054,120.2 11.6%
million
Retail
USD
Sales 14,347.1 16,570.9 18,395.5 20,364.8 22,524.9 24,881.3 11.6%
million
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Modern retailing will continue to gain momentum, led by supermarkets

Modern retailing growth momentum is set to continue in Yangon, the country’s biggest city, with new retail
projects expected to be completed soon. Many urban consumers are increasingly attracted to the mixed-use
developments which offer a one-stop destination for their entertainment needs, including shopping and dining.
Apart from the convenience they provide, mixed retailers are increasing their appeal by rolling out seasonal
promotions and discounts to attract both new customers while retaining existing ones. Other regional capitals are
starting to embrace modern retailing concepts through the establishment of modern retail outlets in such cities.
There were literally no modern convenience stores, variety stores or forecourt retailers before 2012. All of these
have appeared within the last five years and they are expected to continue growing.

Among the new modern retailing outlets that are emerging in regional capital cities, supermarkets will be the
key driver for modern grocery retailing. This channel is in fact expected to be an important focus of foreign
investment following the introduction of economic liberalisation measures in 2018. Furthermore, increasing
focus on health and wellness will motivate consumers to turn away from traditional grocery retailers to
supermarkets, as the latter emphasises the freshness of its fruits, vegetables, meat and seafood, and offers a wide
range of health-positioned products. Apart from supermarkets, non-grocery specialists catering to consumers’
lifestyles and hobbies are also growing, such as pet stores, and furniture and homeware stores. Established
specialist chains such as pharmacies and consumer electronics are also opening new branches in existing cities
to get a slice of consumer spending on non-food items.

Social media platforms enable small retailers to sell online

Internet retailers of all sizes have also established a growing presence in Myanmar. Many of these are small
independent businesses operating out of owners’ homes and selling through social media. The rise of social
media platforms and apps like Instagram Stories, Facebook Live, and Messenger in Myanmar have
fundamentally changed how retailers interact with consumers online. Consumers are increasingly driven towards
specialist stores to purchase specific brands and products that are not available in supermarkets or convenience
stores. On the business side, leading brick-and-mortar retailer City Mart has expanded into the online space by
launching its internet retailing platform www.citymall.com.mm. This will allow the retailer to compete with the
online-only platform www.shop.com.mm owned by the Chinese e-commerce giant Alibaba.

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Acceptance of online payment will increase

Digital payments are still in the early stages in Myanmar and most e-commerce retailers in the country offer
cash on delivery as a payment method. However, according to Visa, contactless payments have made significant
progress in Myanmar, with one in every five face-to-face Visa transactions currently being contactless. This
indicates that Myanmar is making progress towards a more cashless society, and acceptance of online payment
methods is expected to rise in the forecast period, as consumers become more comfortable with cashless
transactions. Progress will be sustained by another payment giant, MasterCard, that aims to include 500 million
new consumers into its payment ecosystem and attract 40 million micro-and-small merchants to accept the use
of its cards by 2020.

Myanmar continues to rank low for ease of doing business

Challenges associated with future retail market development are mainly related to general business challenges in
Myanmar. Despite some economic reforms, ease of doing business in Myanmar has improved little in the past
few years. According to the Ease of Doing Business index 2020 published by the World Bank, Myanmar
climbed six positions to reach 165th place out of 190 countries. It also slightly improved on the Corruption
Perceptions Index 2019 by Transparency International, where it moved two spots up to 130 th. This indicates that
change in Myanmar remains gradual. Nevertheless, it is expected that Myanmar’s youthful population along
with a growing appetite for aspirational and premium brands will provide ample opportunities for future retail
market development both in physical and online retail channels.

5.2.5 Competitive Environment

Fragmented retailing industry expects to see new entrants

The retailing industry is moving towards further fragmentation as existing and new retailers compete fiercely
with one another, and there are no plans for collaborations. Since Myanmar embarked on economic reforms in
2012, many international non-grocery brands and retailers have set up business in urban areas. 1 Stop Mart is a
notable new entrant to the country’s convenience store sector. Another is Loi Hein Group, which entered the
sector in 2019 with its Alpine Retail Express convenience store chain.

Convenience stores is a growing retailing channel in Myanmar, especially in the bigger cities like Yangon and
Mandalay. There are no international convenience store chains in Myanmar yet. The channel is currently
dominated by local convenience stores chains such as ABC, Grab & Go (G&G), City Express and 1 Stop Mart.
Forecourt retailers have increased their presence over the past three years. Currently, not all fuel stations in
Yangon have forecourt retailers. Many of these forecourt stores are owned by the same companies operating
convenience store chains. Forecourt retailers which are located on major highways are expected to perform well,
as there is less competition from other modern retail formats in rural and semi-urban areas. In urban areas,
forecourt retailers have to compete with convenience stores as well as supermarket branches.

Joint ventures in the retailing industry facilitate distribution

Premium Distribution is one of Myanmar’s largest importers and distributors of premium grocery brands from
European countries, the US, South Korea and Japan, etc. It is backed by City Mart Holdings Co., Ltd. In July
2018, Premium Distribution and financial advisor Trust Venture Partners formed a joint venture to acquire the
business of hydroponic plant grower Provide Advanced Technology (PAT), which grows organic salad and
vegetables. PAT currently partners with City Mart for retail distribution of its salads under the brand name
UniVege. The product range is comprised of various salad combinations including Japanese/Korean/Greek or
Today’s Best Mix.

Starting from 2018, City Mart started offering products sold directly from growers outside the Yangon area
through Premium Sojitz Logistics, a temperature-controlled supply chain venture between Japanese logistics
firm Sojitz and Premium Distribution. Refrigerated trucks supplied by Premium Sojitz Logistics Co have already
started transporting strawberries daily from Pyin Oo Lwin in Mandalay Region, Upper Myanmar at temperatures
that never exceed 8 degrees Celsius to high-end supermarkets such as Marketplace in Yangon. The joint venture
is also planning to export locally-grown strawberries to Thailand via air transport starting from 2019.

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In 2017, Metro Wholesale & Food Specialist Company announced a joint venture partnership with the
Singapore-listed Yoma Strategic Holdings Ltd to develop a one-stop food distribution platform in Myanmar.
According to the agreement, Metro will take an 85% stake in the newly established joint venture called Metro
Wholesale Myanmar Ltd., with the remaining 15% shares owned by Yoma Strategic Holdings. Metro's efficient
one-stop wholesale distribution platform will provide distribution solution for a market which is currently
fragmented, with retailers often having to source their products through a complex mix of local retail and
wholesale distributors as well as importers.

Table 83 Myanmar Market Rankings and Shares of Retailers in 2019

Ranking Retailer Brand % Market Shares by Revenue Listing Status

1 Player 1 0.7 Private

2 Player 2 0.3 Private

3 Player 3 0.3 Private

4 Player 4 0.2 Private

5 Player 5 0.2 Private

Source: Euromonitor Passport - Retailing 2020 Edition

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6. LAOS
6.1 MACROECONOMIC ENVIRONMENT IN LAOS
Robust GDP growth supported by the service sector and consumer spending

Laos reported robust 9.1% and 7.4% CAGRs in terms of GDP and GDP per capita, respectively, over the review
period of 2014-2019. Natural resources, including mining and hydropower, were key growth drivers. The review
period witnessed a number of new mining and power projects, including the building of two large and 11 smaller
hydropower plants. Production in mining remained focused on copper, gold and silver. For 2019, GDP growth
remained strong, with the construction of infrastructure, export of electricity, and the service sector being the
main drivers of growth.

Laos has gradually shifted from a production-based to a service-based economy. This includes services in
financial and insurance activities and wholesale and retail trade, amongst others. Consumer expenditure was the
key contributor to growth in the services sector. Specifically, continuing urbanisation during 2014-2019 resulted
in the creation of a middle class with growing spending power located in the capital and other main cities.

The rapid urbanisation further boosted the construction of commercial and residential real estate in big cities.
Modern retailing, including a number of newly opened shopping malls, was mostly developed in Vientiane, and
began to emerge in other major cities. Sectoral growth was further encouraged by the ongoing construction of
the Laos-China railway, the first high-speed rail line linking the country to China.

Agriculture employed around half of the workforce but had a relatively minor contribution to the country’s GDP
(15.9% of GDP in 2018). Less than 5% of the land is suitable for agriculture, with rice accounting for the
majority of production. As the Laos government moves to promote investment in the manufacturing and service
sectors, more Laotians are expected to leave farming jobs for job opportunities in these sectors. In addition,
manufacturing employed 9.1% of the workforce and accounted for 7.3% of GDP in 2018. Manufacturing was
traditionally concentrated in garments but also grew and diversified to include equipment parts.

Table 84 Laos GDP Figures (2014 - 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014 -
2019
LAK
106,797.3 117,251.6 129,279.1 140,749.1 152,414.5 165,128.4 9.1%
Nominal billion
GDP USD
12,290.1 13,493.2 14,877.3 16,197.3 17,539.7 19,002.8 9.1%
million
Nominal
GDP % 13.8 9.8 10.3 8.9 8.3 8.3 N/A
growth
LAK 16,084,415.2 17,393,283.1 18,884,440.1 20,242,931.1 21,583,868.2 23,032,061.5 7.4%
GDP per
capita
USD 1,851.0 2,001.6 2,173.2 2,329.5 2,483.8 2,650.5 7.4%
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

A young population undergoing urbanisation

Laos has a young population with 38.2% of its citizens in 2019 aged 17 or under and only 4.2% aged 65 or
older. Improvements in living standards and education have resulted in a significant drop in fertility rates,
resulting in a modest 1.5% CAGR in population growth over the review period of 2014-2019. The demography
in the 30-64 age bracket recorded the fastest growth in the review period, implying that Laos will begin ageing
in the medium term despite its current young population.

Although the country has been undergoing strong urbanisation, the majority of its population remain rural
residents. About half of the population are employed in the labour-intensive agricultural sector that only
accounts for a minor fraction of the country’s GDP. In order to decrease labour shortage in the non-agricultural
sectors, the government has encouraged workers to relocate to city centres and leave rural areas. Specifically, the

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government boosted the industrial and service sectors in order to generate employment opportunities for local
people. In addition, it recruited 5,000 officials in the public sector in 2017 and a further 3,000 in 2018.

Table 85 Population of Laos (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 - 2019
Total
000 6,639.8 6,741.2 6,845.8 6,953.0 7,061.5 7,169.5 1.5%
population
Urban
000 2,075.9 2,148.5 2,224.0 2,302.0 2,382.3 2,464.0 3.5%
population
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Disposable income grows in line with population moving to more profitable sectors

Disposable income per capita for urban residents recorded a 3.8% CAGR over the review period of 2014-2019.
The year 2014 registered the strong growth of 6.1%, respectively, due to an increase in civil servants’ wages of
more than 30% in that year. This increase had a negative impact on the country’s deficit, but significantly
encouraged consumer expenditure.

In addition, average wages in the industrial and service sectors, which employ a growing percentage of the urban
population, were higher than those in the agricultural sector. This further pushed an increase in disposable
income and the growth of an urban middle class. Urban consumers attracted to shopping as a leisure activity
boosted demand for both traditional retailers (accounting for the majority of sales) and international players that
saw an increased penetration rate during the review period of 2014-2019.

Disposable income per capita of urban residents in Laos is forecasted to continue to grow in parallel with rising
GDP per capita. Urban areas are expected to grow faster than rural areas because of the boom of employment in
the industrial and service sectors, especially in tourism. The government has indeed relaxed visa requirements to
encourage inbound tourism. There are also plans to introduce electronic visas to attract more foreign tourists
through ease of application.

Table 86 Laos Disposable Income Per Capita – Urban Residents (2014 – 2019)
CAGR
Unit 2014 2015 2016 2017 2018 2019 2014 -
2019
Disposable
income per LAK 13,635,845.7 14,116,644.7 13,865,988.2 14,492,372.9 15,706,216.2 16,460,677.5 3.8%
capita –
urban USD 1,569.2 1,624.5 1,595.7 1,667.8 1,807.5 1,894.3 3.8%
residents
Source: Euromonitor - Passport Economies and Consumers 2020 Edition, as of 1 June 2020

A booming economy and rising incomes benefit consumer expenditure

Consumer expenditure grew by a robust 8.0% CAGR during the review period of 2014-2019. The growth was
supported by an expanding middle class with increasing spending power located in Vientiane and other big
cities.

Food and non-alcoholic beverages accounted for the majority of consumer spending, accounting for half of all
consumer expenditure. Laotians have gradually changed their consumer behaviour and started complementing
their traditional rice-based diet with more fish, meat, vegetables, cereals and bread. As these items have a higher
CPI than rice, this benefited the value growth of consumer expenditure on food.

In addition, there has been growing demand for packaged food which has encouraged the expansion of modern
retailers in Vientiane and large cities such as Savannakhet, Luang Prabang and Pakse. The capital has witnessed
the appearance of a number of new commercial areas, shopping malls and supermarkets. In addition, a newly
emerging ‘eating out’ culture in big cities together with a growing supply of restaurants and cafés further
boosted food and drinks expenditure.

Consumer expenditure in Laos is expected to continue as the expanding economy and rising incomes continue to
drive consumer confidence to spend. In particular, consumer expenditure on food and non-alcoholic beverages is

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expected to register a CAGR of 10.5% over the forecast period, as of 1 June 2020, boosted by a growing ‘eating
out’ culture and more international F&B brands entering the Laos market.

Table 87 Consumer Expenditure in Laos (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019 2014 -
2019
Consumer
expenditure % 73.2 73.0 67.4 66.9 69.7 69.6 N/A
to GDP
LAK
78,127,613.6 85,636,512.5 87,072,447.5 94,130,029.8 106,241,839.0 114,974,973.4 8.0%
Consumer million
expenditure USD
8,990.8 9,855.0 10,020.2 10,832.4 12,226.2 13,231.2 8.0%
million
Consumer LAK
expenditure 39,102,217.6 42,820,728.2 43,491,139.7 47,036,892.9 53,138,298.9 57,500,521.2 8.0%
million
on food and
non- USD
alcoholic 4,499.8 4,927.8 5,004.9 5,413.0 6,115.1 6,617.1 8.0%
million
beverages
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Table 88 Consumer Expenditure in Laos (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F -
2025F
Consumer
expenditure % 69.3 69.6 70.0 70.1 70.2 70.3 NA
to GDP
LAK
123,092,878.1 137,105,865.7 151,800,993.7 167,371,173.1 184,508,971.8 203,408,169.9 10.6%
Consumer million
expenditure USD
14,165.4 15,778.0 17,469.1 19,260.9 21,233.1 23,408.0 10.6%
million
Consumer LAK
expenditure million 62,177,310.2 69,407,998.0 76,653,458.1 84,376,851.1 92,932,715.9 102,333,218.2 10.5%
on food
and non- USD
alcoholic 7,155.3 7,987.4 8,821.2 9,710.0 10,694.6 11,776.4 10.5%
million
beverages
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020, as of 1 June 2020

Low inflation due to low CPI and oil prices

The inflation rate fell in 2015 and has remained low in the following years, mainly due to a low CPI that
registered an average annual change of less than 1% as well as low oil prices. However, the rising price of fuel
has driven up inflation in recent years, with inflation rates reaching 3.2% in 2019. The depreciation of the Laos
kip against the Thai baht and US dollar has pushed up the price of imported goods, especially from Thailand –
the source of half of all imported goods. Therefore, despite relatively low inflation, the general public perceived
that the price of goods and costs of living were rising.

Table 89 Average Inflation Rate in Laos (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 - 2019
Average
% 4.2 1.3 1.6 0.8 2.0 3.2 N/A
inflation rate
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Electricity generation, mining and construction absorb the majority of Asian FDI inflows

FDI inflows mainly come from China, Thailand and Vietnam. Electricity generation including the construction
of power plants and mining have been the key recipients of foreign investments. In addition, foreign investments
have mainly funded a number of large retail and infrastructure projects in big cities as well as the Laos-China
Rail Project, which has been heavily financed by Chinese investments. In the review period, international
investors were beginning to use Laos as a production base to reach the broader Mekong region, including

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southern China, or as a way to diversify from existing production bases in Thailand or Vietnam. New Special
Economic Zones in Vientiane and Savannakhet have also attracted major manufacturers from Europe, North
America, and Japan.

The accession of Laos to the World Trade Organization in 2013 led to a more stable, transparent and predictable
business environment which – together with the country’s trade liberalisation driven by commitments within the
AFTA (ASEAN Free Trade Area) – further attracted foreign investment. These positive steps counterbalanced
the country’s low ranking in the global index evaluating the ease of starting a business in a country.

Table 90 Foreign Direct Investment Inflows of Laos (2013 – 2018)

CAGR
Unit 2013 2014 2015 2016 2017 2018 2014-
2018
LAK
Foreign 3,343,118.6 5,799,528.3 9,096,146.3 8,108,165.6 13,189,849.7 11,094,311.1 27.1%
million
direct
investment USD
inflows million 384.7 667.4 1,046.8 933.1 1,517.9 1,276.7 27.1%

Source: Euromonitor - Passport Economies and Consumers 2020 Edition, as of 1 June 2020

6.2 THE RETAILING INDUSTRY IN LAOS

6.2.1 Market Overview
Traditional retailing still dominates the retailing industry in Laos

The retailing industry in Laos is diverse with different formats of traditional trade or general trade and modern
trade. Traditional retailing still dominates the retailing industry. It remains part of Lao culture and tradition,
where people enjoy good relationships with shop owners, and are able to negotiate for prices of fresh goods.
However, the rise of modern retailing has gradually taken market shares from traditional retailing. Modern
grocery retailers are increasing in popularity due to their convenience, cleanliness and neat organisation of
products.

The government’s labelling requirements, introduced since 2016, have made many small and illegal parallel
imports lose out, since all the products coming to Laos have to be labelled in the Lao language. While such a
regulation is not yet effectively enforced across Laos, it will continue to impact informal retailing and traditional
retailing, as consumers become more conscious of issues related to product safety and will be looking for
information such as ingredients and country of origin in product labels.

Modern non-grocery retailing is most developed in Vientiane, while emerging in other major cities. Many
consumers in towns and cities also generally shop locally and will only travel out of their local area to shop
when buying non-grocery items. There is, however, growing interest in shopping as a leisure activity in major
cities. Those living in Vientiane have increasing access to shopping malls, with a number of significant launches
towards the end of the review period.

Shopping malls emerge in Vientiane

Shopping malls are growing in Vientiane, with more than 10 of them currently established. Vientiane Center
was launched in March 2015, being jointly developed by Chinese company Yunnan Construction and domestic
player Krittaphong Group. This is a four-storey site and offers global brands such as adidas and Nike, including
luxury options such as Gucci, Shiseido, Dior and Longines. November 2015 also saw ITECC Mall launch in
Vientiane, with this covering nine storeys. This mall includes a supermarket, duty free outlet, jewelry and watch
specialist retailers, apparel and footwear specialist retailers, electronics and appliance specialist retailers and
sports goods stores, alongside a fitness center, consumer foodservices, convention halls and entertainment
venues. It offers parking space for 3,000 cars, while also benefiting from the launch of the ITECC Ocean Park
theme park in 2016. August 2016 also saw the launch of the Vientiane New World project including an open
Lao-style shopping center with 100 shops. Beyond Vientiane, there is however limited presence for shopping
malls apart from big cities in Savannaket and Champasak provinces.

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Imports from China and Thailand offer consumers more choices

There is a large Chinese community in Vientiane, with many retailers operating in areas such as grocery,
restaurants, electronics and banks. There is also growing Chinese trade with Laos, which helps bring in
affordable Chinese imports and make them available to a large number of consumers. Chinese products are
popular in Laos given many consumers’ low disposable income levels and general preference for inexpensive
products. As Chinese investments in Laos continue to rise, the range of retailing products and prices will become
more diverse in Laos and this will in turn drive more retail sales. Thailand is also influential for the retailing
industry in Laos. Many non-grocery goods are imported from Thailand, thus increasing the range of products
available in Laos.

Retailers operate more effectively by adopting IT solutions

IT systems have greatly changed the business model of the retail business in Laos. Only 10 years ago, sales
transactions were still recorded with paper and pen. Nowadays, most of the sales take place via electronic
devices. SAP and CRM systems have been adopted in many retail businesses, and such systems not only help
retail businesses operate more effectively, but also provide data which help businesses generate insight on sales
and customers, and develop effective sales strategies such as penetration, coverage and increasing customer
loyalty.

Informal retailing remains strong in Laos

Informal retailing has a strong presence in Laos, as many small vendors are motivated to operate within an
informal retailing format in order to avoid taxation and time-consuming bureaucracy. Complex business
registration procedures deter many from operating in the formal economy, as does a lack of transparency in
taxation. Many tax payments are determined case-by-case via negotiation, which also leads to risks of bribes
helping to obtain preferential terms. The majority of retailers in Laos operate on a very small scale and would be
unable to afford to operate if they paid for legal registration or taxation. The strength of the informal economy in
the country means that informal vendors face little social censure.

Informal retailing is particularly strong in apparel and footwear, packaged food, beauty and personal care and
food and beverages. It is nevertheless present across all areas of fast-moving consumer goods. Low-income
consumers are most reliant on informal retailing, and middle to high-income consumers are increasingly using
modern retailers. However, all income groups use informal retailing, particularly when buying fresh produce.

Retailing industry driven by the growth of middle-income consumer segment

Total retail sales in Laos grew strongly at a CAGR of 8.8% from LAK 9,334.1 billion (USD 1,074.2 million) in
2014 to LAK 14,259.5 billion (USD 1,641.0 million) in 2019. Laos’s economic growth and urbanisation have
fuelled retailing growth. Shopping habits have evolved in urban Laos, driven by higher incomes and increasing
exposure to Western culture. Middle and high-income shoppers are becoming more aspirational and attracted to
branded products. Consumers have also developed more knowledge and interest in foreign brands, through
growing contact with the outside world, whether online, via expatriates or foreign tourists or due to Laotians’
own travels outside the country. On the other hand, the growth of the retailing industry has been hindered to
some extent by the popularity of informal retailing, especially among low-income consumers.

Table 91 Laos Total Retail Sales (2014-2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014- 2019
LAK
Total 9,334,129.3 10,260,150.1 11,025,924.4 11,901,298.8 12,951,452.2 14,259,482.1 8.8%
million
Retail
Sales USD
1,074.2 1,180.7 1,268.9 1,369.6 1,490.4 1,641.0 8.8%
million
Source: Euromonitor Passport – Retailing 2020 Edition

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6.2.2 Legislative and Regulatory Policies

Government tightens restrictions on foreign investments in retailing

The Lao government fully liberalised the retail sector in 2015, allowing foreign retailers to enter the country.
However, it increased restrictions later in the year. From October 2015, foreign direct investment was prohibited
in retail outlets priced less than LAK 8 billion, in order to ensure that small-scale businesses remain under the
control of Lao nationals. 100% foreign ownership is permitted in shopping malls costing LAK 160 billion or
more, while up to 70% foreign ownership is allowed for retail developments costing LAK 80-159.9 billion and
51% in those costing LAK 8-79.9 billion. This legislation also required shopping malls to secure a site of at least
50,001 square meters in order to ensure sufficient parking space, while hypermarkets must secure a space
measuring 20,001-50,000 square meters. Developers are also required to start construction within two years of
getting a governmental concession, while concession holders may not sell concessions to a third party without
securing government approval first.

Special Economic Zones offer incentives to investors

The government has also created Special Economic Zones (SEZs) in Vientiane, Savannakhet, and Champasak
provinces, among others. SEZs offer a range of incentives and tax holidays to investors, depending on the
industry. International investors have been attracted by the relative abundance of inexpensive electricity, the
low cost of labour, Laos’s centralised location in the Greater Mekong Sub-Region, and improving transportation
infrastructure connectivity.

Few government initiatives to prevent informal retailing

There were few government initiatives to prevent informal retailing during the review period. Restrictions are
mainly limited to border controls, although corruption can result in bribes easing the way of illegal imports or
counterfeits. Commercial law is still developing in the country, with little understanding of property rights.

Product labelling requirements

The Department of Internal Trade, Ministry of Industry and Commerce introduced Ordinance 2501/MoIC DDT
concerning product labelling in the Lao language on 16 December 2015. The Ordinance entered into force on 8
January 2016. Under the Ordinance, product labels must comply with Article 19 of the Law on Consumer
Protection, which requires information on product labels regarding the type of goods; trademark registered by
the manufacturer and the trademark used in trade by the importer in Laos; location of manufacture, the
importer’s trading address in Laos, and the country of origin of the manufacturer; and price, amount, quality,
weight and net weight, components and component percentage, directions for use, warnings, date of
manufacture, and the expiration date.

6.2.3 Drivers and Constraints

Middle and high income consumers seek to shop for branded and premium goods

Laos is seeing strong economic growth, driven by foreign direct investments and rising private consumption. As
a result, the middle-income group is expanding while the high-income group stays a minority in Laos. Middle-
income consumers remain price-sensitive but are beginning to spend more on retail products as incomes
continue to rise. Some middle-income consumers are increasingly changing their buying patterns, although most
remain focused on buying essentials. As incomes rise, many are initially focused on improving their homes and
acquiring cars or motorbikes, rather than dramatically increasing retail spending.

The relatively small high-income group is made up of consumers who are interested in aspirational purchases
and brands. However, these consumers often prefer to travel to Thailand for shopping, where the range of brands
and products available is much wider. The opening of shopping malls in Vientiane has encouraged more high-
income consumers to shop in Laos.

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A growing base of technology-savvy young consumers boost retail spending

The Laotian population remains very young, with the bulk of its population in the 18-29 years old bracket.
Middle to high-income teenagers and young adults are increasingly interested in fashion and are often influenced
by Thai and Vietnamese fashion trends. These consumers are also increasingly interested in social media and in
the internet in general, thus driving growth in internet retailing from a low sales base.

Lower import tariffs and greater ease of doing business benefit retailing industry

Lower tariffs or duty tax resulting from Laos being a member of WTO since 2013 have made the costs of
imported goods lower. This allows retailers selling imported products to compete more easily with parallel
imports from Thailand. According to industry feedback, the process of setting up retail is not as complicated as
it was in the past. Furthermore, the Lao government is working to make it easier for Lao businesses to thrive.

Poor road infrastructure restricts consumers’ access to products

Road infrastructure tends to be poorly maintained in Laos, affecting logistical costs. Most rural roads are
unpaved and are therefore at risk from flooding. For instance, from August to September 2019, many areas in
Laos, particularly Savannakhet and Champasak provinces in the south were affected by floods. Most rural
consumers thus mainly rely on home-grown products and traditional retailers such as informal retailers and
village shops. They also tend to stock up on weekly or monthly visits to the nearest town or city. Distribution
beyond large cities such as Vientiane, Luang Prabang and Savannakhet is difficult, although roads between large
cities are to receive more investment.

Many urban roads are also in poor condition, with heavy traffic congestion being a rising issue. Difficulty in
travel between cities results in many urban consumers choosing to shop locally when possible. This is
particularly the case for those without private transport.

Underdeveloped postal infrastructure makes delivery of products purchased online difficult

The postal infrastructure is underdeveloped in Laos. For example, many buildings do not have numbers and
address systems may vary, even within the same city. Only five cities in Laos have street names, which makes
home delivery beyond these cities very challenging. Consumers ordering products online have to go through
extra steps, such as obtaining a PO box at their local post office to ensure more reliable deliveries. Alternatively,
consumers have the option of using delivery service providers like DHL which offer door-to-door delivery and
more reliable services, but at higher prices. In line with increasing demand for delivery of food and goods from
e-commerce, the Lao Ministry of Post and Telecommunications is putting in effort to improve its door-to-door
delivery services. This is expected to facilitate online shopping business in Laos, where digital penetration and
e-commerce are still nascent.

High rental costs and shortage of US dollars in the Lao market represent challenges for the
retailing industry

The costs of operating a retailing business rose in the review period. For example, high rental costs make it very
expensive for retailers to operate in high-traffic areas. Secondly, retailers also reported a shortage of US dollars
in the Lao market, which makes it challenging for retailers with international partners since almost all retail
products are from overseas.

Low income level constrains consumer spending for the majority of consumers

Laos remains a poor country, although incomes rise rapidly. The World Bank classifies Laos as a lower-middle-
income economy, although close to 61% lived below the international poverty line of USD 2 per day in 2016.
Extreme poverty is diminishing rapidly as incomes rise. In fact, the share of those living below the international
poverty line of USD 1 per day dropped by three percentage points over 2011-2016 to below 28%. The majority
of consumers remain very cost-conscious and thus keep spending to a minimum.

Urbanisation is rapidly increasing as Laos goes through a shift from an agrarian to a service-oriented economy.
Consumers are increasingly mobile and willing to move in search of better economic prospects. The share of the
urban population continued to rise over 2014-2019, reaching 34.4% in 2019. However, the majority of the
population remains rural, while much of the country is covered by thick forests and mountains. This makes rural

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distribution very difficult, with retailing development focused on major cities. Urban consumers are driving
sales growth across retailing, while middle to high-income urbanites have growing interest in internet retailing.

Laos shopping centres face competition from shopping centres in Thailand and traditional
markets

Although imported goods from Thailand are popular in Laos, many consumers still cross the border into
Thailand in order to shop at famous department stores in the country. Consumers also have the perception that
goods and products sold at shopping centres in Laos are expensive. Hence, they prefer to shop at traditional
markets such as Morning Market and San Jiang Market. Morning Market has been open for many years and
offers a wide range of products including clothes, shoes, bags, jewellery, stationery, books and Lao handicraft.

6.2.4 Market Outlook

Overall positive outlook for retailing industry, but low income level is likely to restrict growth

Despite the COVID-19 pandemic across Asia, Laos is one of countries with the lowest cases of COVID-19
infection. Despite the COVID-19 lockdown imposed in April which hindered total retail sales, the retailing
industry is projected to grow by 1.9% in 2020 as consumers may continue to prioritize essential products
purchase in the second half of 2020 as well. Higher spending on non-essential items are likely to be seen from
2021 onwards. Additionally, as tourism partially contributes to retail sales in Laos, the recovery of tourism
industry after the COVID-19 pandemic in 2021 and 2022 will likely have positive impacts on the overall retail
sales as well. Furthermore, retailing will benefit from ongoing economic growth in the forecast period, enabling
many consumers to spend more on discretionary products. Thus, retail sales is projected to increase by 10.0% in
2021 and 7.4% in 2022. The sales growth is forecast with a CAGR at a of 7.4% from 2020-2025 to reach a
market size of LAK 20,735.2 billion (USD 2,386.2 million) by 2025.

Urbanisation will also benefit sales, especially as urban middle-income consumers become increasingly
aspirational in their purchasing decisions. The internet and social media will also have a growing influence on
consumers, with many becoming more interested in branded goods and fashion trends, which will encourage
higher consumer spending. Pharmacies and beauty specialist retailers are expected to perform well, due to a
growing focus on health and wellness, while apparel and footwear specialist retailers will also enjoy strong
sales, due to consumers developing greater interest and higher spending power to buy branded apparel products.

However, forecast period growth will be slower than the review period. Key constraints include the large
proportion of rural population and entrenched consumer habits. Despite urbanisation, the majority of the
population will continue to live in rural areas where access to modern retailing is minimal. As Laos remains a
relatively poor country, most consumers will still prefer informal retailing, which offers lower prices.
Consumers will also continue to prioritise essential purchases. On the other hand, as Laos continues to urbanise
and more consumers move out of poverty, the retailing industry will see rising spending in the modern retail
channel, which will attract most middle-to-high-income consumers.

Table 92 Laos Total Retail Sales (2020F-2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F
2020F- 2025F
LAK
Total 14,524,761.2 15,972,000.9 17,148,950.9 18,347,683.3 19,570,237.8 20,735,245.0 7.4%
million
Retail
USD
Sales 1,671.5 1,838.0 1,973.5 2,111.4 2,252.1 2,386.2 7.4%
million
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

Modern retailing will grow in parallel to Laos’s increasing modernisation

Laos is changing very rapidly, with rapid urbanisation and economic growth likely to continue. Consumers will
also increasingly become connected to the outside world via the internet. Ownership of smartphones increases
rapidly and gradually, leading to improving connectivity. This paves the way for a growing middle-income
group interested in global fashion trends, thus more likely to be interested in leading brands.

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Significant potential for internet retailing

A growing number of consumers are going online in Laos, with soaring ownership of smartphones and 4G
networks expanding at the end of the review period. Young middle-to-high-income consumers are also
increasingly interested in social media, with Facebook and WhatsApp being particularly popular. These trends
offer opportunities and threats for formal retailing. The rise of informal retailing online will place greater
competitive pressure on formal retailing players, with consumers paying cash-on-delivery for orders placed via
platforms such as Facebook. However, some retailing players are capitalising on social media as a new
marketing channel, with Kplaza in electronics and appliance specialist retailers, for example, operating a
frequently updated Facebook page and gaining almost 12,000 likes by December 2018. The potential growth of
internet retailing has driven discussions amongst the Bank of Laos, Ministry of Industry and Commerce, and the
Ministry of Post and Telecommunications to manage and facilitate e-commerce in Laos.

Strong traditional culture and consumers’ focus on costs will be key constraints for retailing

Laos is also expected to preserve its traditional culture, with the roles of the extended family and Buddhism
likely to remain strong in most consumers' lives. The country will remain predominantly rural, while retailing is
likely to see the bulk of its development in urban areas. While income will rise, the majority will continue to be
impacted by low income levels and keep spending to a minimum. These factors will continue to constrain sales
growth for retailing, particularly as informal retailing will remain widely available, socially acceptable and
considerably more affordable.

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7. SINGAPORE
7.1 MACROECONOMIC ENVIRONMENT IN SINGAPORE
A strong economy driven by services and manufacturing

Singapore is a premier financial and wealth management centre globally and one of the richest countries
worldwide. It was ranked amongst the richest countries in the world by GDP per capita and recorded a GDP of
SGD 507,567.0 million (USD 372,116.6 million) in 2019.

Singapore’s economy grew by a healthy 4.9% CAGR over the review period of 2014-2019. There were dips in
growth from 2014-2016 due to a volatile global economic situation which led to a slowdown in global demand
and impacted exports from Singapore, especially those going to China. However, the economy recovered to
register 7.2% growth in GDP in 2017 and subsequently maintained healthy growth of 6.6% in 2018. The upturn
was due to the positive contribution of the services and manufacturing sectors, key pillars of the Singaporean
economy, which accounted for 70.4% and 21.4% of GDP, respectively, in 2018. The manufacturing sector’s
strong performance – 7.2% in 2018 – was attributed to the electronics, transport engineering and biomedical
manufacturing clusters. The services sector grew by 3.0% in 2018, mainly supported by the finance and
insurance, business services, and wholesale and retail trade sectors.

The economy also benefited from high productivity levels and a high-quality workforce. In 2019, Singapore
retained the second position on INSEAD's annual Global Talent Competitiveness Index, which measures a
country's competitiveness based on the quality of talent that it can produce, attract and retain. The government’s
investments towards automation have led to a productivity-driven growth model requiring a smaller labour
force. Advanced manufacturing processes and a high degree of digitalisation make manufacturing the major
contributor to Singapore’s overall productivity levels.

Table 93 Singapore GDP Figures (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 - 2019
SGD
398,947.9 423,444.1 440,218.2 472,079.1 503,395.2 507,567.7 4.9%
Nominal million
GDP USD
292,483.8 310,442.9 322,740.6 346,099.0 369,058.1 372,117.1 4.9%
million
Nominal
GDP % 3.7 6.1 4.0 7.2 6.6 0.8 N/A
growth
SGD 72,937.5 76,503.0 78,508.3 84,115.8 88,923.4 88,937.7 4.0%
GDP per
capita USD 53,473.2 56,087.2 57,557.4 61,668.5 65,193.1 65,203.6 4.0%
Source: Singapore Department of Statistics, Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

An ageing population expected to change the economic landscape

Singapore is one of the most congested countries worldwide with a property development system that is
dominated by apartments. Its population density has a negative effect on real estate pricing but is particularly
lucrative for businesses.

Population growth in Singapore is slowing as its population ages. Total population growth amounted to a 0.9%
CAGR during the review period of 2014-2019. The younger age brackets registered low growth or decline,
while the older population grew solidly. Specifically, the population aged 65-79 grew by a 6.6% CAGR from
2014-2019 and the population aged 80 and older grew by an equally strong 6.1% CAGR during the same period.

Falling birth rates have resulted in a decline in the labour force and represent one of the main reasons that the
government favours a productivity-driven growth model. On the other hand, a growing number of affluent older
consumers are expected to influence the consumer landscape and spur demand for age-specific health and
medical products and services. Nearly all of the population is considered urban, due to the small size of the city-
state and its highly urbanised nature.

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Table 94 Population of Singapore (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 - 2019
Total
000 5,469.7 5,535.0 5,607.3 5,612.3 5,661.0 5,707.0 0.9%
population
Urban
000 5,469.7 5,535.0 5,607.3 5,612.3 5,661.0 5,707.0 0.9%
population
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Wage increases and foreign manpower-tightening policies fuel disposable income

During the review period of 2014-2019, disposable income per capita for urban residents reported a 3.0% CAGR
to reach an average of SGD 43,730.4 (USD 32,060.4) in 2019. Growth in disposable income was driven by
higher wages and the Singaporean government’s handouts such as the Pioneer Generation Package which was
created in August 2014. Its aim was to support the ageing population by giving extra subsidies to senior citizens
in relation to health insurance.

The government’s foreign manpower-tightening policies in conjunction with a productivity-driven economy

helped narrow the income gap and further contributed to an increase in disposable income. Nevertheless,
Singapore faces income inequality due to the influx of low-skilled labour versus a rise of high-paid jobs in the
financial and technology sectors.

Disposable income per capita for urban residents in Singapore will continue to grow from 2020-2025 at a CAGR
of 3.7%, as of 1 June 2020, driven by increasing wages as the labour market shrinks. The wide income gap
between low-skilled labour from neighbouring countries and highly paid jobs in technology and financial sectors
will start to narrow with support from the government.

Table 95 Disposable Income Per Capita – Urban Residents in Singapore (2014 – 2019)
CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 - 2019
Disposable
income per SGD 37,637.1 39,062.9 39,351.9 40,743.9 42,363.5 43,730.4 3.0%
capita –
urban USD 27,593.2 28,638.5 28,850.3 29,870.9 31,058.3 32,060.4 3.0%
residents
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Online sales and a focus on quality responsible for expenditure growth

With some of the highest average incomes and rates of consumer expenditure in Asia Pacific, Singaporeans
enjoy one of the strongest levels of discretionary spending power in the region. Consumer expenditure
accounted for 36.2% of GDP in 2019 and grew by a 4.3% CAGR over the review period of 2014-2019.
Consumer expenditure has seen a shift from traditional retail formats to online sales, resulting in strong sales of
the latter and declining rentals of retail space due to decreased demand. Consumer expenditure was further
boosted by a growing number of affluent older consumers who have changed the retail landscape. This also
supported strong growth in demand for health goods and medical services relevant to an older audience.

Consumers’ willingness to spend on quality and rising interest in home cooking in line with a growing
assortment of higher-quality products from supermarkets favoured the growth of consumer expenditure on food
and non-alcoholic beverages. A growing number of health-conscious consumers are willing to spend more on
better-quality and healthier products. Retailers responding to this trend introduced the ‘Healthier Choice’
symbols that appear on a wide range of packaged food products on supermarket shelves. Food expenditure is
further encouraged by online grocery retailers that, despite accounting for a minority share of sales, have
registered strong growth – a 14.6% value CAGR of food and drink internet retailing from 2014-2019.

In the forecast period 2020 to 2025, disposable income will continue to rise in Singapore. However,
discretionary spending is expected to remain relatively stable due to higher housing costs, and consumer
expenditure is expected to register a CAGR of 4.4% over the same forecast period, as of 1 June 2020. In 2019,
consumer expenditure on food and non-alcoholic beverages was only 6.7% of total consumer expenditure and
will see a CAGR of 3.8% during the forecast period, driven by a general increase in spending across all
categories.

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Table 96 Consumer Expenditure in Singapore (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014-2019
Consumer
expenditure % 37.3 36.5 36.6 35.4 35.0 36.2 N/A
of GDP
SGD
148,910.0 154,728.1 160,911.7 167,322.2 176,095.8 183,801.2 4.3%
Consumer million
expenditure USD
109,171.6 113,437.0 117,970.5 122,670.2 129,102.5 134,751.6 4.3%
million
Consumer SGD
expenditure 10,518.1 10,753.0 10,942.3 11,173.3 11,753.7 12,319.2 3.2%
million
on food and
non- USD
alcoholic 7,711.2 7,883.4 8,022.2 8,191.6 8,617.1 9,031.7 3.2%
million
beverages
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Table 97 Consumer Expenditure in Singapore (2020F – 2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F -
2025F
Consumer
expenditure % 37.7 37.8 38.1 38.4 38.7 38.8 N/A
of GDP
SGD
178,764.8 186,789.4 196,088.6 205,155.8 213,470.5 221,902.8 4.4%
Consumer million
expenditure USD
131,059.2 136,942.4 143,760.0 150,407.5 156,503.3 162,685.3 4.4%
million
Consumer SGD
expenditure 12,704.0 13,378.7 13,736.4 14,157.6 14,686.2 15,299.7 3.8%
million
on food and
non- USD
alcoholic 9,313.8 9,808.4 10,070.7 10,379.5 10,767.0 11,216.8 3.8%
million
beverages
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

Mild inflation linked to higher pricing of imported goods

As Singapore’s economy is dependent on the imports of goods, its inflation and currency fluctuations are also
dictated by changes in the pricing of global goods. Over the review period, Singapore’s economy recorded mild
inflation owing to increased oil prices, utility costs and higher pricing within imported food categories. In
addition, the government allowed the Singaporean dollar to slightly appreciate in order to mitigate the higher
pricing of imported goods.

Table 98 Average Inflation Rate of Singapore (2014 – 2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014 - 2019
Average
% 1.0 -0.5 -0.5 0.6 0.4 0.6 N/A
inflation rate
Source: Singapore Department of Statistics, as of 1 June 2020

FDI intensity is high and expected to grow further

Singapore is the third largest recipient of FDI inflows in Asia Pacific, garnering SGD 104,847.7 million in 2018.
Foreign investment is an important economic driver and represented 20.8% of the nation’s GDP in 2018. Its
open economy and a constructive regulatory environment that facilitates starting businesses are further enhanced
by tax breaks appealing to foreign investors. Singapore is ranked amongst the five easiest nations to do business
globally.

FDI inflows registered a healthy 8.1% CAGR between 2013 and 2018. FDI was strengthened by capital inflows
on transport infrastructure in order to build a high-speed rail link between Singapore and Kuala Lumpur in
Malaysia in that period.

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On the other hand, the government’s restrictive measures towards foreign labour inflows will increase labour
costs for foreign investors. However, this should be counterbalanced by the country’s focus on increased
automation which will further favour the already high productivity rates.

Table 99 Foreign Direct Investment Inflows of Singapore (2013 – 2018)

CAGR
Unit 2013 2014 2015 2016 2017 2018 2013-
2018
Foreign SGD
70,913.2 92,857.8 82,077.2 102,044.2 104,567.7 104,847.7 8.1%
direct million
investment USD
inflows 51,989.1 68,077.6 60,173.9 74,812.5 76,662.5 76,867.8 8.1%
million
Source: Euromonitor Passport - Economies and Consumers 2020 Edition, as of 1 June 2020

7.2 THE RETAILING INDUSTRY IN SINGAPORE

7.2.1 Market Overview
Modern and traditional retailing formats thrive alongside each other in Singapore

Singapore has established itself as one of the most popular shopping destinations for tourists in the Southeast
Asian region. Its vibrant retailing scene benefits from a base of high income, sophisticated consumers, and offers
a large variety of retail formats, including suburban malls, heartland malls, specialist retail outlets selling
international and luxury brands, supermarkets, convenience stores, neighbourhood shops and wet markets.

Retail malls are popular shopping destinations for tourists as well as locals, as Singaporeans enjoy shopping in
an air-conditioned environment. Most store-based retailers are located within shopping malls. Only a handful of
brands, most of them internationally renowned brands such as Apple and luxury fashion labels, open
independent flagship boutiques, primarily along Orchard Road.

Orchard Road is home to some of Singapore’s most popular shopping centres, such as ION Orchard, Ngee Ann
City and Paragon, as well as high-end specialist retail outlets. The development of Marina Bay has attracted
many luxury outlets to the area. Singapore’s largest shopping mall, Vivo City, is located in the Harbourfront
area. In addition, The Shoppes, a luxurious and upmarket shopping centre at Marina Bay Sands, caters to high-
income consumers and tourists.

In addition to the high-end shopping centres located in central locations, suburban malls are an important part of
the retailing industry. These are malls located in suburban neighbourhoods, and they offer a wide range of retail
outlets, dining options and amenities, which appeal to heartland consumers and families. Singapore also has a
large number of modern grocery retailers, such as supermarkets, hypermarkets, convenience stores and forecourt
retailers, which cater to consumers’ daily shopping needs.

Despite the ubiquitous presence of modern retail outlets, traditional retail formats continue to play an important
role in Singapore’s retailing industry, catering to the heartland population and elderly consumers. Among the
well-known traditional retailing formats in Singapore are the many independent small retailers located in
suburban neighborhoods; night markets where vendors set up booths to sell street food, cheap or second-hand
apparel, and household products; and wet markets where vendors sell fresh vegetables and meat.

Singapore’s technology-savvy consumers drive the popularity of internet retailing

Internet retailing has developed rapidly in Singapore. Singapore’s Department of Statistics reported that internet
retailing made up 5.6% of total retailing in Singapore as of July 2019. Singaporeans are avid online shoppers,
due to the high level of internet penetration and a large technology-savvy consumer base in Singapore. One of
the attractions of internet retailing for consumers is access to more affordable goods. For example, young
consumers are becoming increasingly familiar with buying lower-priced Chinese goods from China-based
internet retailing platforms, such as Taobao. Convenience is another incentive for online shopping, as consumers
can shop in the comfort of their homes and have the goods delivered. As a result, online grocery services are

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picking up fast, with NTUC FairPrice’s “FairPrice On” and RedMart leading the way with their expanding
product areas and improving delivery service.

Blogshops, a form of informal retailing, have emerged as a new channel for buying fashion and lifestyle
products, especially among female consumers. Blogshops are online fashion stores that use blogs to sell their
goods, the majority of which are apparel and footwear products, with some selling lifestyle and household
goods. Such is the success of blogshops that some have become popular e-commerce platforms in Singapore,
such as Love Bonito, and some have even expanded into physical retailing as well.

As internet retailing becomes more popular in Singapore, consumers have started to demand better customer
service from brands, such as the ability to buy goods online and having the items delivered. Hence, developing
an omni-channel retailing experience for customers has become a focus of many retailers in recent years.
Physical retailers have slowly begun to realize the importance of omni-channel retailing in order to help them
compete with online retailers. While many retailers are ramping up their online presence, they have also been
revamping their offline facilities in line with an omni-channel retailing strategy, such as providing click-and-
collect services. For most physical retailers, physical stores continue to provide the customer service and
“human touch” for consumers to associate with the brand, while the online platforms would cater to consumers’
new shopping habits, e.g. being able to browse products and make purchases anytime and anywhere.

Consumers are increasingly comfortable with cross-border online shopping

As internet retailing gains popularity in Singapore, consumers have become more sophisticated in their online
shopping behaviours, with more consumers buying products through international e-commerce sites. In addition
to high internet and smartphone penetration, Singaporeans enjoy high disposable incomes which allow them to
splurge on branded products sold through international websites. Moreover, the exemption from import duties
and the Goods and Services Tax (GST) for purchases below SGD 400 and favourable exchange rate have
created additional incentives to purchase foreign goods. On top of all of these, Singapore’s excellent logistics
infrastructure provides consumers with the assurance of receiving shipped products. Singapore’s cross-border e-
commerce rate is significantly higher than neighbouring countries like Thailand, Malaysia and Philippines.

New business models associated with internet retailing emerge in Singapore

As part of the development of the internet retailing scene in Singapore, new business models have emerged in
Singapore. A number of start-ups have adopted the cashback scheme, which has become a popular shopping
reward model among Singaporean consumers. Shopback is one of the most prominent players among companies
offering cashback, and it offers cashback on e-commerce purchases from over 500 merchants in Singapore.
Cashback business models work almost exclusively with e-commerce platforms, with few to no partnerships
with brick and mortar stores.

Click and collect services are gradually gaining acceptance among Singaporean shoppers, with some companies
offering such services for their own products purchased online. Some convenience stores offer locker services,
in partnership with several delivery companies. Consumers who purchase products online have the option to
pick up their products from an eligible convenience store, and the benefit is that they can pick up whenever
convenient. Start-ups are seen to get a slice of the market for delivery and collection services. For example, Park
N Parcel allows neighbors to act as parcel collection points on behalf of shoppers.

Heartland malls become popular shopping destinations

In the physical retailing space, suburban malls, also known as “heartland malls”, have grown in popularity in
Singapore. Traditionally, shopping centres in the suburbs tend to be strata-titled malls and are usually filled with
independent establishments. In recent years, heartland malls have become popular in suburban neighbourhoods.
These malls have attracted a large variety of retail and dining options, including grocery shopping outlets and
specialist retailers selling international brands like Uniqlo, Kinokuniya and Sephora. Heartland malls are popular
among Singaporeans, because of the convenience they offer. Consumers are able to meet all their shopping
needs in a heartland mall without making a trip to town. In addition, with the additional amenities they offer like
restaurants, food courts, libraries and bank outlets, consumers are increasingly choosing to “hang out” in
heartland malls for leisure as well as shopping.

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Wide range of price tiers among retailers

There is a wide range of price tiers among retailers, targeting different income segments. For example, for
supermarkets, Sheng Siong targets low to middle income consumers; NTUC FairPrice is perceived to be popular
among middle income consumers; NTUC finest, Marketplace and Jasons tend to be more popular among middle
to high-income consumers.

Conglomerates like Dairy Farm Holdings have a portfolio of grocery retailing formats, ranging from
hypermarkets (e.g. Giant) to convenience stores (e.g. 7-Eleven) and supermarkets (e.g. Cold storage).
Conglomerates have a strong presence in Singapore due to the high costs of rent in Singapore that require high
cash flow to sustain the business.

Retailing registered slow growth for the past three years

The retailing industry in Singapore registered slow growth in the review period, with a CAGR of 0.3% between
2014 and 2019. In 2019, the retailing industry has a market size of SGD 34,601.2 million. Retail sales registered
moderate growth in 2014 due to a more buoyant macroeconomic environment and positive consumer sentiment.
However, the retailing industry grew marginally in 2015, followed by slight decline in 2016 and 2017. This can
be attributed to a combination of macroeconomic factors and business factors. Among the main factors are rising
rents and labour costs which contributed to the thinning margins of retailers in recent years. Moreover, the
Singaporean economy performed weakly in 2015 and 2016, impacted by the uncertain global economy and the
slowdown in China. In 2018, the retailing industry remained sluggish with mixed performances across sub-
industries. The medical goods & toiletries, furniture and household equipment and food retailer industries
reported higher sales than the previous year, while several industries including computer and
telecommunications equipment, apparel and footwear, supermarkets, hypermarkets and department stores
experienced declining sales, according to data from the Department of Statistics.

Consumer foodservice remains strong, despite the more challenging operating environment faced by retailers in
recent years. This is because dining out is widely recognised as a national hobby. It is common for Singaporeans
to queue up for the popular stalls in a local food centre (known as “hawker centre”) or travel across the island to
try out some well-known dining outlets. Meanwhile, independent cafés have flourished in Singapore, as
Singaporeans (especially millennials) are experienced seekers and visiting a specialist independent café has
become a form of experience to them.

Table 100 Singapore Total Retail Sales (2014-2019)

CAGR
Unit 2014 2015 2016 2017 2018 2019
2014- 2019
SGD
34,036.7 34,170.6 33,962.8 34,170.3 34,726.4 34,601.2 0.3%
Total Retail million
Sales USD
24,953.6 25,051.8 24,899.4 25,051.5 25,459.2 25,367.4 0.3%
million
Source: Euromonitor Passport – Retailing 2020 Edition

7.2.2 Legislative and Regulatory Policies

Relevant regulatory regime governing the retailing industry

The main regulatory body for the retailing industry in Singapore is the Ministry of Trade and Industry. Retailers
in Singapore are required to adhere to all laws and regulations relating to the sale of goods. In addition, they
must not engage in any unfair practices as set out in the second schedule of the Consumer Protection (Fair
Trading) Act.

Retailing businesses must comply with the Competition Act as set out by the Competition Commission of
Singapore. The Act aims to protect businesses and consumers from anti-competitive practices of private entities
that would be detrimental to the business environment. Under the Competition Act (Chapter 50B), businesses
should not engage in anti-competitive business practices, including anti-competitive agreements, decisions and
practices; abuse of a dominant position; and mergers and acquisitions that substantially erode competition.

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The Singapore Retailers Association has developed the Good Retail Practices and Standards Scheme.
Participation in the scheme is voluntary. Retailers who adopt and adhere to SRA's Code of Practice may display
the "Good Retail Practices and Standards" logo within their stores. The scheme covers areas like itemised
receipts, refund/returns policy, pricing and anti-touting.

Government aims to promote e-commerce

In 2017, the Singaporean government unveiled intentions to bolster e-commerce receipts to 10% by year 2020,
up from 3% of total retail receipts in 2017. This will be led via the Retail Industry Transformation Map. The
Retail Industry Transformation Map was launched in September 2016 to build the retail industry to constitute a
mix of omni-channel retailers and local brand owners with global footprints. This demonstrates the government
providing assistance to local retailers to build digital capabilities and enable access to e-marketplaces.

As part of the SMEs Go Digital initiative launched in 2017, SPRING Singapore, a department under the
Ministry of Trade and Industry, provides support to SMEs to strengthen their digital marketing efforts in
collaborations with partners such as Google. Under Enterprise Singapore, the government offers a shared e-
commerce platform to enable SMEs to pool their resources for more efficient operations. The platform, designed
to get SMEs into the online marketplace, offers support such as integrated warehouse functions, inventory
management solutions and order fulfilment capabilities, and it is estimated to increase efficiency by up to 45%.
Meanwhile, organisations such as IE Singapore also help companies leverage e-commerce in garnering growth
opportunities in overseas markets.

Other initiatives in the private sector are also providing support to local SMEs. The 99% SME movement is a
national initiative led by Singtel, DBS, and Mediacorp. Initiated in 2015, the effort makes e-commerce
accessible to more companies through the set-up of an e-marketplace and offering training opportunities.

The Singaporean government also unveiled plans to boost AI capabilities through the establishment of a new
national programme called AI.SG in 2017. Its aim is for the National Research Foundation (NRF) to invest up to
SGD150 million over five years in AI.SG.

New GST on imported services will apply to overseas-based suppliers

Under Budget 2018, the government announced that a new GST on imported services will apply to overseas
suppliers without an establishment in Singapore. The new GST will apply to digital business-to-business (B2B)
services such as marketing, accounting, IT and management services, as well as business-to-consumer (B2C)
services such as video and music streaming, apps, listing fees on electronic marketplaces, software and online
subscription fees. E-commerce for goods less than SGD 400 will not be affected, for now. The new policy will
affect internet retailers offering imported services but does not affect internet retailers selling goods to
Singaporean consumers.

7.2.3 Drivers and Constraints

Development of new shopping malls boosts retail sales

The development of new shopping malls was a growth driver for the retailing industry in the review period, as
consumers are attracted by the novelty of new shopping malls, and the convenience offered by heartland malls.
New shopping malls also provide the space for retail brands to expand their store network in land-scarce
Singapore. For example, the development of The Shoppes mall in Marina Bay has attracted many luxury outlets
to the area while the new retail concept Jewel at Changi Airport has attracted both new retailers and shoppers
from abroad and locally. Suburban malls, on the other hand, offer a large variety of retail and dining options,
ranging from specialist outlets for international brands to budget stores, supermarkets, libraries, bank branches,
hair salons, and sometimes even gyms and cinemas. Visits to suburban malls have become a regular leisure
activity for many Singaporeans, which will in turn increase consumer spending at malls.

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Consumer foodservice operations partner with online delivery platforms to reach more
consumers

Along with the rise of online shopping, many retailers have started offering delivery or collection services,
making it even more convenient for consumers to order products online. In the consumer foodservice space, on-
demand delivery services have gained traction rapidly in recently years, as shown by the strong growth of online
food platforms like Foodpanda and Deliveroo. As of the beginning of 2018, Foodpanda and Deliveroo were the
industry leaders, with deliveries from 3,800 and 3,500 restaurants, respectively. Since November 2018,
Foodpanda has started offering a pick-up feature on its app, allowing customers to place their orders on the app
for pick-up. A study commissioned by Deliveroo and released in March 2019 found that 69% of consumers in
Singapore order from food delivery apps at least once a month. The study also found that 53% of consumers
started using food delivery apps more frequently in the last two years.

Food delivery platforms help consumer foodservice operators reach out to more customers and increase their
brand visibility. Within the past year, food and beverage brands that have started partnering with food delivery
platforms include Crystal Jade Kitchen, Aloha Poke and Ben & Jerry's.

Personalised promotions help retailers increase sales

Supermarkets like NTUC have been investing in beacon technology placed at physical store fronts, which
enables them to push personalised promotions to consumers based on their online shopping behaviour and
previous purchase history. Using data analytics, retailers are analysing the online basket mix and online basket
size of consumers, marrying the data with the aisle that consumers are browsing for items at the physical store
front and pushing consumers personalised promotions to upsell and/or cross-sell items to them. This way,
retailers are not only able to provide personalised promotions to consumers, they are also able to keep
consumers engaged with more effective targeted promotions, as opposed to mass promotions done in the past.
Despite the rise in e-commerce, consumers are still particularly keen on browsing products in-store especially
for fresh products. Hence, in leveraging technology, retailers are able to provide a holistic consumer experience
and drive more sales.

High operating costs and a competitive retailing industry

Singapore’s retail sector has been subdued since Q4 2011 when retail rents reached a peak. Over the years,
higher operating costs and a more competitive retail landscape have contributed to the thinning margins of
retailers. This has led to several international retailers, including GAP, Banana Republic, New Look, Lowrys
Farm and Carrefour exiting the Singapore market. The retailing industry went through a particularly challenging
time around 2016, due to a significant slowdown in the local and regional economy which weighed down retail
expenditure, stiff competition from e-commerce and an expensive labour market. The country saw 5.4 million
square feet of vacant space in the malls, the highest in the past decade, according to data for Q3 2016 from the
Urban Redevelopment Authority of Singapore.

Internet retailing a threat to brick-and-mortar retailers

Technology-savvy Singaporean consumers, with their eager adoption of online shopping and use of
technologies, have developed new consumer habits which are proving detrimental to brick-and-mortar retailers.
With a fast pace of life in Singapore, consumers are attracted by the convenience of online shopping. This
includes saving time from visiting the stores and having the goods delivered to consumers’ homes. The younger
generation of consumers particularly enjoy the satisfaction of online shopping (being able to make a purchase
anytime, anywhere with a few clicks), and they tend to be more internet-savvy and thus they are comfortable
about making purchases online. Department stores in Singapore are amongst the largest retailers facing the
threat of irrelevance in the digital age. For instance, Metro has closed its six-storey flagship department store and
chose to consolidate its efforts onto its remaining two branches and revamping their offerings. For instance,
Metro’s Paragon outlet has been refurbished and rebranded as The Great Curator Store, aiming to differentiate
itself from online platform by sourcing and curating products that are not easily found online.

Another example of consumers’ new habits is “showrooming”, whereby customers visit retail stores to try out
products, before going online to find the retailer that offers the cheapest price. The increasing use of
smartphones has helped to fuel this trend, as consumers can make price comparisons instantaneously, and decide
which platform to shop on.

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Manpower shortage results in higher operating costs

Manpower shortage has been a problem for the retailing industry. Many consumer foodservice outlets and online
food delivery companies have mentioned manpower shortage to be a challenge. In general, it is difficult for
retailers to hire or retain staff, because the average salary for the industry is low and the level of turnover is high.
Most Singaporeans prefer office-based jobs to working in retail shops and food establishments. The problem of
manpower shortage is made worse by Singapore’s tight labour market. The inflow of foreign workers, an
important source of manpower for the retailing industry, has slowed down in recent years, as the government
aims to reduce the economy’s reliance on foreign manpower and encourage businesses to be more productive.

The retailing industry is expected to turn to technologies to overcome the manpower constraint. Recent
innovations include the use of robots in a retail store to provide information to customers, the implementation of
touch screens in the stores, and the adoption of radio frequency identification tags which would allow cashiers to
scan items much faster and in bulk. The consumer foodservice industry is also adopting automation to increase
efficiency. In March 2019, food delivery platform Deliveroo launched its largest dine-in space at
Alice@Mediapolis, which features 10 kitchens and a 40-seater space, offering customers a fully automated
ordering experience. Customers first place their orders at the self-serve kiosks on site. Once the food is ready,
customers will receive a notification on a digital status board to pick up their food from one of 12 digital
cubbies.

7.2.4 Market Outlook

Retailing industry continues to register slow growth due to pressure to keep prices low

The COVID-19 pandemic across Asia has had a significant impact on Singapore, with the highest number of
confirmed cases across Southeast Asia, as of May 2020. From April 2020, the Singaporean government has
enforced “Circuit Breaker”, a strict social distancing measure which requires all non-essential businesses to
close and for residents to stay at home unless they are going out to purchase essential items or exercise. On the
19 May 2020, the Singaporean government announced a three-phase approach to easing the Circuit Breaker
measurers over the coming months, with retail shops being able to reopen in the second phase. The government
officially announced the start of phase 2 with department store, retail shops, consumer services and sport
facilities to reopen on 19 June 2020 under safe distancing measures. As only essential businesses such as
grocery retailing can operate during the Circuit Breaker, the impact on the retail environment has been
particularly severe. Retail sales is expected to decrease by 12.8% in 2020. The Circuit Breaker period was long
and strict and is anticipated to impact the overall economy and disposable income negatively until the end of
2020. The situation is expected to improve from 2021 onwards. Retail sales is projected to recover and grow by
16.0% in 2021 and 3.9% in 2022. While online retailing is expected to continue to contribute a healthy growth to
the total retailing after the circuit breaker ends.

Overall, retailing is projected to maintain a growth of 3% - 4% from 2022-2025. The retailing industry remains
highly competitive, and retailers will be forced to keep prices low in order to attract customers and compete with
online retailers. In the short term, loss of revenue due to the Circuit Breaker measurers and high operating costs
and cash flow remain a key challenge for retailers, but growth is expected to pick up after the Circuit Breaker
measurers are lifted and with the general recovery of the economy. From 2020-2025, the retailing industry is
forecast to grow at a CAGR of 6.1% to reach SGD 40,607.7 million (USD 29,771.0 million).

Table 101 Singapore Total Retail Sales (2020F-2025F)

CAGR
Unit 2020F 2021F 2022F 2023F 2024F 2025F 2020F-
2025F
SGD
30,183.3 35,012.7 36,370.5 37,770.0 39,158.8 40,607.7 6.1%
Total million
Retail
Sales USD
22,128.5 25,669.1 26,664.6 27,690.6 28,708.8 29,771.0 6.1%
million
Source: Euromonitor estimates from trade interviews and desk research as of May 2020

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Adoption of mobile payments will further boost internet retailing

Improvements in mobile technology and payment security have made Singaporeans more confident about
making mobile purchases. It is an increasingly popular mode of payment particularly amongst younger
Singaporeans. This is expected to boost internet retailing, as consumers can make purchases anytime anywhere.
The implication for retailers is that it will be increasingly crucial to have a mobile-friendly website, and also
facilitate transactions via a brand’s mobile application. As more retailers become more accepting and provide
mobile payment services, retail in Singapore is expected to be boosted by the convenience offered.

Vending machines expected to achieve significant growth with more products available

Products and services that offer convenience to consumers are well received in Singapore due to the fast pace of
life in Singapore. The latest trend leveraging convenience is the use of vending machines as a bridging sales
channel between e-commerce and physical stores. From a customer’s point of view, these round-the-clock
services are conveniently placed in or near student campuses, accommodation, corporate areas and hotel lobbies
for time-strapped customers who want on-the-go items.

Although the most common products sold through vending machines are packaged drinks and snacks, vending
machines in Singapore are increasingly stocking non-food products like books, newspapers, electronics and
provision items for busy families to grab on-the-go without having to queue up in convenience stores. With
rising health consciousness among Singaporeans, vending machines are selling healthcare products like
multivitamins and hair tonic. Vending machine sales is expected to grow significantly over the coming years as
they offer a more compact and cost-effective solution to retailers, while providing a more unique, attractive and
convenient option to consumers.

Retailers leverage technologies to achieve greater efficiency and better customer service

Retailers in Singapore have embraced technology solutions in different aspects of their operations to achieve
greater efficiency and cost savings, as well as to provide better customer service. This is manifested in increased
digital transformation at the backend (e.g. supply chain and operations) and front-end (e.g. adoption of
customer- facing technologies like self-checkout counters, mobile payment options or online ordering
platforms).

Convenience stores such as Cheers have installed an automated payment and money exchange machine which
helps increases the transparency and traceability of cash and goods exchange at the store front. Additionally, this
also helps to increase efficiency by alleviating the workload of front service staff to be less transactional and
focused on the consumer’s needs, where time taken by the front service staff in processing payments could be
used to engage with consumers.

There are strong government incentives for retailers to adopt digital solutions and innovation. This is largely to
help retailers cope with the decrease in foreign workers in Singapore, which has traditionally filled the gap for
front line service staff in Singapore.

Increasing focus on experiential elements of in-store retailing

Sophisticated Singaporean consumers are increasingly demanding engaging shopping experiences. In order to
meet these expectations, retailers across different areas have been revamping their store layouts to be more
upbeat and fun, providing value-added services through in-store staff expertise, quick service, and personalised
attention, offering in-store interactive workshops, and incorporating virtual and augmented reality elements for
enhanced customer experience. For instance, Decathlon’s Singapore Lab at Kallang boasts several “try-out”
zones to allow customers to try out actual products in environments closely simulating real-life environments.
Such focus on experimental experience is expected to grow in the forecast period with the advance of
technologies and higher consumer expectations. This also means physical stores are likely to remain relevant
and will be able to compete effectively with online shopping channels by offering consumers a personal touch
and innovative shopping experiences.

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High operating costs are a key challenge

High operating costs will remain a challenge, particularly for retailers that operate physical outlets. The retailing
industry is highly competitive. With the entrance of online retailers and the increasing use of the internet by
consumers to make a purchase decision (e.g. comparing prices or researching products online), competition will
continue to intensify for retailers, pushing down profit margin as retailers have to compete with a growing
selection of online retailers that offer more competitive prices.

The rise of online retailing brings opportunities as well as challenges. Most consumers still prefer to see the
products themselves before making a purchase. Hence, retailers which are working on developing an omni-
channel strategy are expected to have more success in drawing consumers to their stores, while providing an
online platform for consumers to find out more about the products or order products. The adoption of
technologies, such as personalised promotions derived from the use of data analytics, are expected to drive sales
by offering consumers more effective targeted promotions.

7.2.5 Competitive Environment

Fragmented industry sees large players gaining market shares through acquisition

The industry is highly fragmented with many retailers in various retailing formats. The rise of internet retailing
has expanded the competitive environment with many internet retailers gaining access to the Singapore market.
With the rise in e-commerce, new players such as RedMart are expected to disrupt the traditional retail scene,
which would lead to further fragmentation of the industry.

On the other hand, there is increased consolidation of retailers across segments, that are complementary to one
another in nature. Such acquisitions are usually led by conglomerates with large capital and appetite to acquire
companies and expand their portfolio of retailers. In 2019, NTUC Enterprise Co-operative Limited announced
its acquisition of local foodservices provider Kopitiam Investment Pte Ltd.

In an effort to remain competitive in an ever-changing landscape, the conglomerate backing Dairy Farm
Holdings (which includes retailers such as Cold Storage and 7-Eleven), Jardines Matheson Holdings Limited,
launched the Innovate Jardines program in 2016 where the company explored incubating start-ups with
innovative ideas and launching internal innovation hackathon campaigns. With the rise of start-ups disrupting
the retailing industry, conglomerates that traditionally enjoyed a strong market positioning and market share of
the industry are looking towards acquiring smaller competitors and even start-ups in order to remain competitive
and retain their market share.

Table 102 Singapore Market Rankings and Shares of Retailers in 2019

Ranking Retailer Brand % Market Shares by Revenue Listing Status

1 Player 1 3.4 Private

2 Player 2 2.9 Public

3 Player 3 2.3 Private

4 Player 4 2.0 Private

5 Player 5 1.8 Private

Source: Euromonitor Passport – Retailing 2020 Edition

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