Southeast Asia Consumer Trends 2020

Southeast Asia (SEA) Consumer Trends

Facebook and Bain & Company recently published a comprehensive report on Southeast Asia consumer trends. Since I have covered Sea Limited (SE) stock, I thought it would be good to look at the key findings. This would align directly with SE’s growth story in the future.

Here is the condensed version of it if you don’t want to read through everything.

1. A Surge of Digital Consumers

Southeast Asia (SEA) Consumer Trends 2020
Source: Facebook, Bain & Company

In 2019, Bain & Company projected that the number of digital consumers would reach 310 million by 2025.

*Digital consumer is someone who purchased a product or service (excluding travel) online in the past 12 months.

The shocking discovery is that by the end of 2020, the forecast figure for digital consumers in Southeast Asia is expected to hit 310 million. This target has already been achieved 5 years in advance.

This means that the pandemic has accelerated digital consumption disproportionately in 2020 or either that, Bain screw up their forecasts.

To put things into context, 310 million digital consumers represent about 70% of Southeast Asian’s population.

Bain projects the number of digital consumers to hit 340 million by 2025.

Southeast Asia (SEA) Consumer Trends 2020
Source: Facebook, Bain & Company

The rise in digital consumers also means more online shoppers.

You can see that across all countries in Southeast Asia, there is a sharp jump of people who are going online for shopping.

Looking at Southeast Asia as a whole, 44% of the respondents prefer to buy from online channels. That is about a 50% increase from 2019.

2. Southeast Asia’s Online Retail Penetration

Southeast Asia (SEA) Consumer Trends 2020
Source: Facebook, Bain & Company

Even though there are more online shoppers, the online penetration rate is still extremely low as of today.

In 2019, Southeast Asia’s online retail penetration is merely 3%. In 2020, it has increased by 1.6x to about 5%.

Though Southeast Asia has overtaken India’s online retail penetration of 4%, it is still highly underpenetrated as compared to China’s 31% and US’s 17%.

This goes to show how early e-commerce is in Southeast Asia and the world in general.

Southeast Asia (SEA) Consumer Trends 2020
Source: Facebook, Bain & Company
Southeast Asia (SEA) Consumer Trends 2020
Source: Facebook, Bain & Company

Another way we can look at e-commerce retail is Gross Merchandise Value (GMV). GMV refers to the monetary value of goods and services sold through online market places.

With GMV, we can go on to further compute the average digital spending per person. It is simply the total GMV divide by the total number of digital consumers.

The forecasted GMV and average digital spending for 2020 is about $53 billion and $172 respectively.

Bain predicts that by 2025, GMV would increase by 2.8x to $147 billion. Average digital spending person would increase 3.5x to $429.

3. What are Consumers Buying?

Source: Facebook, Bain & Company

Online adoption has increased by at least 1.4x across all categories. This means that more offline retail products are now beginning to make its way into online channels.

But the one that showed the highest growth is groceries.

Source: Facebook, Bain & Company

If we look at it from a purchase frequency standpoint, it is no surprise who is on the top. Clothing, electronics and personal care and beauty remain to be popular items people go online shopping for.

However, what is interesting here is groceries and beverages have become even more popular than toys and baby care products. It used to be the least online-penetrated categories but this pandemic has shifted the dynamics.

Once people have been through the process of buying things online for the first time, there is no going back. It could be a pivotal moment that potentially transforms a consumer buying behaviour forever.

Southeast Asia (SEA) Consumer Trends 2020
Source: Facebook, Bain & Company

Not only are consumers spending more online, they are also buying across a wider category.

In 2019, each Southeast Asian digital consumer purchase an average of 3.7 categories. In 2020, that figure has increased by 40% to 5.1.

Buyers are now putting more a wider range of of categories into their shopping cart.

Thailand digital consumers have the highest average number of categories purchase online of 5.4.

4. How do Consumers Discover?

Southeast Asia (SEA) Consumer Trends 2020
Source: Facebook, Bain & Company

The next insight is how do consumers discover products?

You would think it probably arise from a need or want. But the pie-chart above shows otherwise.

More than half (53%) the volume of online purchases is through discovery, in particular, social media, short video and messaging.

The factors that influence buying decisions today are different from yesterday.

As this article about the rise of Pinduoduo puts it, E-commerce is now moving from a search-based, intent-driven experience to one which is interactive, emotional, impulsive and discovery-driven.

The traditional “pull model” is where a user searches for a product and the platform returns the options. Such “search-led” purchases only account for about 35% of online sales.

It is now about a “push model” where products are being pushed to people through AI algorithms and recommendations.

People don’t know what to buy now but they want to buy something. Instead of the user going to the product, it has now reverse to products coming to the users.

Hence, most buying decisions do not happen in the search box anymore. But rather it is through the news feed, videos, live streaming, messages or subtle influences from their social contacts.

Live streaming videos in particularly have been gaining huge traction in e-commerce. It now accounts for about 40% of total engagement and sales whereas 60% is through traditional on-site searches.

On average, consumers watch 17 short-videos (<1 minute), 13 medium-length (1 minute to 30 minutes) and 0.75 long videos (> 30 minutes) per day.

5. Consumer Brand Loyalty

Source: Facebook, Bain & Company

54% of Southeast Asian respondents have switched their most purchased brand in the last 3 months across categories.

Vietnam and Thailand are more open and willing to switch brands and try new things. Singapore is the outlier with only 1/3 of the respondents saying they switched brands.

The reason why people purchase from new stores also differs across countries. For Indonesia, the Philippines, Thailand and Vietnam, it is because they find the products interesting.

On the other hand, for Singapore and Malaysia, it is because there are better deals and promotions.

The most cited reasons for switching brands are reliability and value.

As for e-commerce websites (Shopee, Lazada and etc.), the top few reasons for switching are value, better quality, faster delivery time, better availability and better product selection.

6. How do Consumers Pay?

Southeast Asia (SEA) Consumer Trends 2020
Source: Facebook, Bain & Company

Most preferred payment method is still cash-on-delivery but cash transaction saw the biggest drop from 40% to 34%.

E-wallet shows the biggest jump of 8%. It has now overtaken bank transfer to be on par with credit/debit card in 2020.

Source: Facebook, Bain & Company

In Southeast Asia, high spenders make up 44% of the population in Tier-1 cities and 32% in Tier-2 cities.

The interesting insight is high-spenders at Tier-2 cities are rising faster than Tier-1 cities. The spending gap between Tier 1 and 2 cities is narrowing as we see more middle class emerging.

Nevertheless, regardless of Tier 1 or 2 spenders, both segments are similar in a way that they don’t know exactly what they want. Both discover products through social media, short videos, switched brands in the past 3 months and have bought 4 to 5 times online in the past 3 months.

7. Summary of Southeast Asia Consumer Trends

E-commerce is flourishing in Southeast Asia and there is a huge market for it. Here is a summary of the key insights that were in the report.

  • The number of digital consumers forecasts for 2025 has been achieved in 2020.
  • Online channel for shopping has increased by 50% in Southeast Asia
  • Southeast Asia’s online retail penetration is only 5% (India – 4%, US – 17% and China – 31%)
  • Forecast GMV for 2020 is $53 billion, expected to increase 2.8x to $147 billion in 2025
  • Forecast average digital spending person for 2020 is $172, expected to increase 3.5x to $429
  • Grocery shows the highest growth across all categories
  • Southeast Asian digital consumer purchase an average of 5.1 categories, up 40% from 2019
  • Clothing, electronics, personal care & beauty have the highest purchase frequency
  • Consumers buy products through discovery rather than intent-driven
  • The E-commerce platform has evolved from a pull to push model
  • Products come to people, not people search for products
  • Live streaming video is gaining huge traction in e-commerce
  • On average, consumers watch 17 short-videos, 13 medium-length and 0.75 long videos per day
  • 54% of Southeast Asians have switched brands in the past 3 months
  • E-wallet show the highest growth in the preferred mode of payment
  • Cash-on-delivery still most popular, but is declining in popularity
  • Spending gap between Tier 1 and 2 cities is closing up

8. Sea Limited’s Future Growth

Overall Southeast Asia consumer trends are bullish for Sea Limited. E-wallet payments are on the rise and this could be a good opportunity for SeaMoney. The number of digital consumers is increasing and more people are coming to e-commerce platforms for purchases.

Southeast Asia has a young booming population growth and we are also seeing more high spenders in tier-2 cities. Sellers & businesses would eventually move online as that is where their customers and buyers are.

This would kickstart a virtuous cycle that would even further accelerate the growth of e-commerce and digital consumers in Southeast Asia.

Shopee is well-poised to take advantage of this macro tailwind, but it has to be strategic in user acquisition and retention.

Aggressive spending on marketing expenses would not be sustainable and it could end up with spiralling losses like Lazada before Alibaba’s acquisition.

Competition is tough in the region and understanding such consumer trends in Southeast Asia is critical. User’s time spent online are becoming more fragmented and it is driven by short spurts of sessions per day.

Knowing how to capture the attention and retain loyalty is equally or perhaps far more important than spending massively on promotions to acquire users.

Loyalty is measured by taking the daily active users (DAU) divide by monthly active users (MAU)

Source: Defining interactive e-commerce, a model as observed through the case of Pinduoduo

Pinduoduo has successfully done this as they aim to make e-commerce an interactive digital space in which leisure and shopping are intertwined. They have the highest % of “stickiness” as compared to Alibaba’s Taobao and JD.

Games, videos, social chat apps are what contribute to the “stickiness” of an app. Shopee has the added advantage of introducing gamified elements as Sea Limited has Garena. Finding the synergy between Shopee and Garena or SeaMoney is crucial in that aspect.

In summary, the success of Shopee or any other e-commerce platform goes to the one that understands the psychology of consumers and is able to successfully capture their attention. Once that has been accomplished, the rest is easy.

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4 Comments

  1. A very well written article going indepth into the ecommerce of SEA and also the critical factors that lead to a successful e-commerce platform. Thank you.

  2. Based on the metrics above and current price level of USD 14X, what would you consider fair value? Would current price level be considered to be overly hyped as price level really soared after earning results.

    Love to hear your thoughts.

    • Hi Joel, I have not really done an intrinsic value sort of calculation as this company is in an early-stage, hyper-growth phase. It’s hard to pinpoint an exact price entry and I just DCA when it’s cheap (from a TA standpoint). It could be high in the short-term but cheap in the long-term, no one really knows.

      I evaluate the current price today and where Sea can go in the long-term (5-10 years). Just betting on the trend of e-commerce, gaming and growth in Asia

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