Wealthier consumers and international forays bode well for the market

As the country emerges from a protracted period of isolation from the global economic mainstream and with its economy experiencing strong growth, Myanmar’s retail sector looks set for major expansion in the years ahead. The arrival of modern retail formats and outlets, along with the shifting consumption patterns of a youthful and increasingly internationally oriented population, are poised to transform the sector, creating major opportunities for investors.

Population Profile

Myanmar’s predominantly young population is becoming wealthier. In FY 2013/14, GDP grew by an estimated 8.3%, according to the World Bank, predicting 8.5% growth for the following year. At the same time, preliminary data from the 2014 census showed a population of 51.4m, with 1.7m more females than males. While age distribution figures had yet to be released as of January 2015, data from the Central Statistical Organisation showed that 30% of the population was 10-24 years of age in 2010, while 32% was 14 or younger – evidence that a demographic explosion is already under way.

According to Lester Tan, the managing director of APB Alliance Brewery Company, these figures spell success for the industry. “The fast-moving consumer goods (FMCGs) sector mirrors GDP growth. With over 50m people and a growing economy, the outlook is rosy. However, there are many challenges that the country still needs to address.”

Indeed, strong GDP growth must be viewed in the context of a low starting base. World Bank figures put FY 2013/14 GDP per capita at just $1105, with poverty levels reaching 37.5% in 2009/10 and 73% of the population lacking basic access to electricity. There is also a widening urban-rural income gap, with city dwellers often far wealthier than their countryside counterparts. According to a mid-2014 report from City Mart Holding – Myanmar’s largest retail chain – 47% of urbanites are already part of the consumption class, with more than $325 in monthly income. The wealthiest consumer segment, at $750 or greater per month, accounts for a higher share of the urban population than in Cambodia or Vietnam, pointing to persistent wealth concentration.

Consumer Preferences

These consumers tend to be more accustomed to international brands than previous generations, as they have often lived and worked in other countries. This is creating domestic awareness of and demand for these goods. However, as wages remain relatively low, a large share of income is still spent on FMCGs, particularly food and beverages. Indeed, a May 2013 Ipsos report found that food accounted for 70% of purchases.

According to City Mart, some 99% of consumers shop for FMCGs in so-called wet markets – which, in Myanmar, are traditionally open-air centres made up of many small stalls. These are often located in highly accessible areas and have a long history behind them, forming part of the country’s core culture and acting as community and family meeting places as well as centres of exchange. Indeed, even higher-income consumers often buy their fresh food at wet markets.

By contrast, only 17% of consumers visit supermarkets, while 56% and 30% buy from grocery and convenience stores, respectively – with the latter two formats largely mom-and-pop outlets. Myanmar’s long history of import restrictions – now being gradually dismantled – has also left much of the retail sector in the hands of border traders and wholesalers. As a result, less than 10% of the total market belongs to modern retail – less than half the level seen in Vietnam, with 24%. This underscores the large potential upside for modern retailers going forward.

Modes Of Entry

The market is currently dominated by domestic players, with shopping centres largely made up of local tenants. However, this is starting to change, often by way of partnerships. For example, the US-based Yum! Brands is working with Singapore’s Yoma Strategic Holdings to debut Myanmar’s first KFC in 2015, while Singapore’s Parkson has partnered with First Myanmar Investment Company (FMI) to open a store in Yangon’s FMI Centre. This influx has raised hopes that global players could help to improve the retail sector as a whole. “The arrival of foreign food and beverage manufacturers in Myanmar will go a long way in improving the supply chain, product consistency and price. This will result in greater customer satisfaction,” Daw Win Win Tint, the managing director of City Mart Group, told OBG.

Despite these changing winds, some bureaucratic inefficiencies persist. “Barriers to entry within the beverage or FMCG sector are lower than other sectors, but the government can still speed up administration procedures related to company registration, which can be fairly tiresome and slow,” Mansoor Ali, the general manager of PepsiCo Myanmar, told OBG.

Heavy Hitters

Local retailer City Mart Holdings operates its eponymous supermarkets; Ocean hypermarkets; high-end Marketplace supermarket; Popular and City Books & Music bookstores; City Baby Club maternity stores; City Care pharmacies; Seasons bakeries and cafes; and City Express convenience stores. The Northpoint and Ocean Pazundaung, Ottataratiri Mingalar Mandalay, and Shwe Ghone Daing shopping centres and six smaller format malls are also part of its portfolio. Other outlets include Capital Diamond Star Group’s Grab & Go convenience stores and Capital hypermarkets; Orange’s eponymous supermarkets; Ga Mone Pwint and Sein Gay Har stores; and Myanmar Indo Best’s ABC convenience stores.

Rapid Expansion

With the urban population driving retail development, a high concentration of investment is taking place in Yangon – Myanmar’s largest city. Yangon State has a population density of 723 people per sq km, according to preliminary data from the 2014 census, far ahead of the next most densely populated state, Mandalay, at 206 people per sq km.

According to market research from Colliers International, a commercial real estate service provider, Yangon is receiving a sizeable amount of new investment in retail. In the third quarter of 2014, Colliers reported that Yangon had 150,000 sq metres of gross leasable area, up 25.2% year-on-year. Retail space is set to double by 2018, with some 250,000 sq metres of new space in the construction pipeline.

Indeed, several new retail complexes – including the AKK Shopping Mall, Myanmar Culture Valley, Orange Thaketa and the Ocean Supercentre – opened in 2014. These developments could ease pressure from soaring retail rents, which are one of the most challenging aspects of the market.

According to an ABC store manager, speaking to local media in March 2014, rent for an average-sized convenience store in the popular areas of Yangon, such as Botahtaung, Kyauktada, Latha, Pabaedan, or Lanmadaw, had tripled, “from MMK500,000 [$500] to MMK1.5m [$1500] in just four years”.

Other local businesses also reported being squeezed out of downtown locations by high rents, creating a knock-on effect in other districts, as retailers move further out, driving up rents as they go – albeit creating new retail centres in the process. To combat this, local and traditional retailers formed the Myanmar Retailers Association in 2013 in an effort to lobby for their interests, pushing for limits on rent hikes and a new consumer protection act.

As foreign retailers increase their presence, the sector is likely to see increasing demand for space of a higher standard, particularly in terms of air conditioning, lighting, parking and access. This could drive rents higher still, with Colliers forecasting average rents in Yangon will rise above $25-per-sq-metre in 2015, following 7% quarterly increases in 2014.

Branching Out

Meanwhile, the most visible indicator of the development of modern retail – the supermarket – remains concentrated in the city’s wealthier areas, largely as anchor tenants of shopping centres. However, they are beginning to extend their presence to other areas. Capital, for example, is planning to increase its number of convenience stores, from 20 to over 800 within five years, according to Colliers. Myanmar Indo Best has also expanded its convenience stores into Mandalay, reflecting the growing interest in expanding modern retail into other urban centres.

The period ahead will likely see the expansion of modern retail into areas previously dominated by traditional outlets. Yangon in particular looks set for a major boom in modern retail formats in its downtown area, with the arrival of more foreign brands and chains, mainly in partnership with local outfits.

As this happens, the face of Myanmar’s cities – and eventually countryside – is apt to see a change, as will the consumption patterns of its growing population.