Rising incomes, an expanding economy and changing consumer patterns are attracting a growing number of international brands to Myanmar. By fuelling competition amongst existing players, their presence is expected to trigger an improvement in the range and quality of products and services on offer.
International attention has been driven by bullish retail growth, which has expanded by an average rate of 7-15% per annum since 2011.
Daw Win Win Tint, managing director of leading retailer City Mart Group and president of the Myanmar Retailers Association, told OBG international brands are attracted to Myanmar’s strong economic growth and increasing consumer purchasing power.
“The average basket of goods continues to grow by around 10% per year mainly due to increasing spending power in urban cities, especially Yangon, where salaries have risen significantly,” she said.
Several international brands have made forays elsewhere the retail supply chain, making strategic greenfield investments in local processing. In the fast-moving consumer goods (FMCG) segment, Carlsberg and Heineken both opened brewing factories in Myanmar earlier this year through joint ventures with local partners, and Japan’s Kirin acquired a 55% stake in market leader Myanmar Beer for $560m in August.
While modern retail currently accounts for just 10% of the FMCG segment, Daw Win Win Tint expects restrictions on foreign retail chains entering the Myanmar market to be lifted sometime in the future. As local purchasing power grows and Myanmar consumers have greater exposure to foreign brands via the internet and international travel, demand in the FMCG segment in particular is expected to rise.
“There needs to be more awareness of the potential of the FMCG sector, as Myanmar has a population of approximately 51m and the prospects of becoming a manufacturing hub for South Asia,” she told OBG.
Rising tide of consumerism
Industry observers forecast a surge in consumer activity in the coming years, with the McKinsey Global Institute predicting in mid-2013 that Myanmar’s GDP would expand by more than four-fold by 2030, from around $45bn to $200bn. The group also predicted that rising incomes would fuel expansion of the country’s consumer class, jumping from 2.5m to 19m over the period, with consumer spending to triple to $100bn per year.
As the country liberalises its retail market, the division of consumer spending between domestic and international retailers could see a shift. Local consumption habits continue to favour local products, though this is largely due to availability. In the beer segment for example, Myanmar Brewery accounts for more than 80% of sales.
Though Myanmar consumers may welcome the entry of new brands and chains, such a transformation is likely to be a strain on current operators, who will have to contend with high-profile rivals with international experience and economies of scale. This will force local retailers to adapt to the changing market, which should bolster the portfolio products on offer and promote market efficiency.
In addition to the prospect of greater competition, a decline in consumer confidence has the potential to cool sales in the shorter term. Though consumer sentiment in Myanmar remains among the most positive in the region, according to the most recent MasterCard survey, there has been a recent dip in the outlook of shoppers.
Myanmar’s rating on the latest consumer confidence index, issued at the end of July, slipped from a regional high of 97.2 in mid-2014 to 81.6. Although still ahead of the South-east Asian average of 71 – second only to Vietnam – the 15.6-point drop was one of the sharpest recorded over the period. Although Myanmar’s position on the MasterCard index may have eased somewhat, any rating above 50 suggests that consumers remain optimistic.
Weaker sentiment could be due in part to upcoming elections, scheduled for November, though increasing inflation is also likely to be a factor. According to the IMF, inflation reached 8% at the end of May. While low compared to an average of 23% between 2001 and 2010, this represents an increase from the 5% and 6.1% registered in FY 2011/12 and FY 2012/13, respectively.
The ongoing depreciation of the kyat and crackdown on dollarisation could also be impacting consumer confidence, with the currency falling some 25% year-to-date against the US dollar in August. In addition to affecting the price of foreign goods, this downward movement has also increased the cost of local goods that rely on imported components.