Inclusive growth: retail strategies for emerging markets
Applying conventional retail evolution models from developed markets to emerging economies poses significant problems, says Hari Ramanathan of WPP's VML
As the retail landscape continues to shift – because of the pressures of technology and changes in consumer behaviour due to the pandemic – it’s crucial for brands to stay ahead of the curve and have a positive impact on market dynamics.
However, applying conventional retail evolution models from developed markets to emerging economies – like India, Latin America and Africa – can lead to problems, significant problems. After all, emerging markets make up about 83% of the world’s population.
To ensure inclusive growth that strengthens communities and societies, we must champion a retail model that embraces the unique cultural and economic characteristics of such markets and marries the advantages of traditional retail with modern technology and practices.
Understanding retail in emerging markets
The retail sectors in emerging markets – like India, Latin America and Africa – differ significantly from those in developed markets – like the US and Europe.
ASEAN and South Asia has over $640bn annually in traditional retail in grocery alone. These regions are characterised by having a large number of traditional retailers, deeply rooted in social foundations and community intimacy. Family-owned businesses play a vital role in local economies, directly impacting over 200-300m people.
Unlike the store-centric retail models in developed markets, the retail landscapes in these emerging markets thrive on a hybrid approach, combining in-store visits with home deliveries. This model relies on the strong sense of community and ownership that local retailers have built within their neighbourhoods, leading to value exchanges beyond mere transactions.
Moreover, retailers in these regions possess an intimate understanding of their customers' needs, allowing them to curate personalised product offerings tailored to their local communities. This level of personalisation remains elusive for e-commerce platforms, despite their technological prowess.
Acknowledging the scale of retail employment
Not only does retail in developing countries have its own characteristics, it is also a significant employer. Here is a sense of what that means:
- APAC – Across the region nearly 60% of non-farm employment is in informal work, most of which is in some way part of the traditional trade (from food to grocery retail)
- India – According to the Economic Times, there are approximately 70m small businesses in India, which employ around 450m people. The majority of these businesses are involved in traditional retail, such as kirana stores and local markets.
- Africa – In Sub-Saharan Africa, the informal sector accounts for around 66% of total employment. Although this includes various types of informal work, a significant portion is related to traditional retail, such as open-air markets and street vendors. For example, in Nigeria, the largest economy in Africa, the informal sector employs over 80% of the workforce, with many engaged in traditional retail activities.
- Latin America – The informal sector is also a significant source of employment in Latin America, accounting for around 70% of total employment.
These data points provide an insight into the vast number of people engaged in traditional retail across India, Africa, and Latin America. It highlights the importance of supporting inclusive growth in these regions to ensure the continued success of entrepreneurs and communities.
A new path for retail evolution
Given the unique characteristics of the retail sectors in emerging markets, a new path for retail evolution is needed – one that helps traditional retailers evolve by integrating modern technology and practices without pitting them against each other. This inclusive growth model would benefit entrepreneurs, communities, and contribute to a more equitable distribution of wealth.
According to a report by Boston Consulting Group and the Retailers Association of India, digital technologies can help traditional retailers improve their performance by up to 30% through better customer targeting, assortment optimisation, and cost reduction. Similar opportunities exist in Latin America and Africa, where the adoption of digital technologies can drive significant improvements in retail performance.
The retail evolution in emerging markets requires a distinct approach that acknowledges their cultural and economic context. By supporting the growth and the evolution of traditional retailers through the integration of modern technology and practices, we can foster a more inclusive and sustainable retail ecosystem across these diverse regions.
It's something consumers are not just ready for but have expressed a latent demand, a recent survey of 24,000 homes in India showed that only 7% of shoppers used online for fresh grocery, citing quality, inconsistency of stocks, return issues as top deterrents to adoption online for fresh grocery, all of which are supposed to be the core differentiators of online commerce vs traditional retail.
Technology as a catalyst for inclusive growth
We are not advocating for nostalgia; instead, we believe that technology will be the force that helps developing nations advance. By embracing an inclusive growth model that supports the evolution of traditional retailers through the integration of modern technology and practices, we can ensure the continued success of entrepreneurs and communities while addressing the pressing issue of wealth inequality in emerging markets.
It is essential for brands to recognise the unique characteristics of emerging markets like India, Latin America and Africa, and champion retail models that promote inclusive growth and sustainability. By doing so, we can pave the way for a more equitable and prosperous future for all, not the least the brands themselves.
05 February 2024
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