[MW Special Report] Ecommerce in Thailand – Part 1

Thailand will be the second largest e-commerce markets in Southeast Asia (SEA) as more consumers shift to online shopping for convenience. The potential in Thailand is evident- Alibaba announcing a deal to pay close to US$1 billion to raise its stake in e-commerce firm Lazada and JD.com entering a US$500 million joint venture with Thai retailer Central Group. With all the big players entering the market, will there be enough market share… to share?

Thailand will be the second largest e-commerce markets in Southeast Asia (SEA) as more consumers shift to online shopping for convenience. The potential in Thailand is evident- Alibaba announcing a deal to pay close to US$1 billion to raise its stake in e-commerce firm Lazada and JD.com entering a US$500 million joint venture with Thai retailer Central Group. With all the big players entering the market, will there be enough market share… to share?

Revenue Growth in E-commerce Industry                                 

The figure above shows the comparison of the growth of e-commerce in various SEA countries from 2018 to 2022. Though the second largest e-commerce market is currently Singapore, Thailand is expected to surpass Singapore in 2020. Thailand’s e-commerce market reported amounts of US$3,540 million in 2018[1], with an expected annual revenue growth rate of 13.2% (CAGR 2018-2022), reaching US$5,830 million in 2022.     

Countries in SEA will experience a decline in the growth of revenue these five years, with Thailand dropping from 19.65% in 2018 to 9.75%. Though this is expected when markets mature and growth slows down, Thailand ranks fifth by 2022. Hence, we believe that Thailand’s annual revenue growth is only moderate and we dig further to analyse the reasons.

 

Reasons: Declining Population Growth but Rising Middle Class

Population Growth Over the Past 5 Years (2011-2016) (%)
Country	2011	2012	2013	2014	2015	2016
Thailand	0.48	0.46	0.44	0.40	0.35	0.30
Indonesia	1.30	1.28	1.26	1.22	1.18	1.14
Vietnam	1.06	1.07	1.06	1.07	1.08	1.07
Singapore	2.08	2.45	1.62	1.30	1.19	1.30
Philippines	1.64	1.65	1.65	1.63	1.60	1.56

Source: World Bank Group, 2016

Thailand’s demographics faces two problems- declining population growth and quickly aging population. Thailand’s population growth is the lowest in SEA and has been declining from 0.48% to 0.30% in 2016. It has decreased even further in 2018 to 0.21 and some estimates show that Thailand will add one to five million in its population annually before growth stops in 2050.^[2] Coupling this with its aging population, the growth in Thailand does not seem as promising. Thus, big retail groups in Thailand are hedging their bets and expanding into Vietnam. Central Group revealed plans to invest US$512 million over the next five years to expand its retail operations in Vietnam as Central Group’s CEO, Tos Chirathivat, believes that Vietnam is a country with “strong potential growth as an emerging market with high GDP growth.”^[3]

Rising Middle Class and Affluent Customers (MAC)

By 2030, the MAC population is expected to be higher in Thailand than in Malaysia and Thailand’s affluent class is growing even faster than the middle class. This steady increase in income is driving consumer demand and purchase, presenting an opportunity for companies that offer consumer products, trade-up options, luxury goods, and experiences. Basket size is a key metric which measures the average total amount spent for every dollar made by a customer over a defined period of time. Based on a study done by Iprice, Thailand has a GDP per capita of US$17,000 and ranked fourth, with a basket size of US$42.[4] This is expected to nearly double.[5]

Trend: Rise of Mobile E-commerce and Mobile Payments

One trend in particular for Thailand is the surge of mobile e-commerce as 96% of Thailand’s population has access to a mobile phone, with 70% of the population owning smartphones. Thailand has the second largest mobile traffic of 79%, right after Indonesia. Similar to other SEA countries, mobile traffic is highest over the weekends and in Thailand’s case, on Sundays, at 84%. For social media, LINE is one of the most popular platforms in Thailand. Thailand is the only country in Southeast Asia where LINE dominates the messaging market.[6]

In Thailand, 70% of payments are still done by cash on delivery (COD) and Peter Kopitz, managing director of the Thai branch of Zalora, believes that this trend is here to stay- at least until 2020.[7] This is due to lack of trust in security of personal financial details as mentioned earlier and supported in a Visa Mobile Wallet and Contactless Study which revealed that 82% of Thais believed security is more important than convenience when it comes to mobile and contactless payments.[8] Yet, Thais are supportive of mobile wallets as 61% believed that one day they will no longer need to carry a card or cash and will instead be able to use their mobile wallets for everyday spending.[9] Visa’s Country Manager, Suripong, believes that ““Once Thais become familiar with innovative security measures, such as encrypted tokens, they are much more likely to use mobile and contactless payments more regularly.”[10]

 

Major Players in The Market

Source: EIQ, 2016

Merchant	Type	Products	Year of Launch	Monthly Visits (source: iPrice)	Key Investors
1. Lazada	B2C	Everything except cars	2012	75,648,690	Alibaba Group
2. Chilindo	C2C	Wide range except groceries	2013	13,484,858	Private, Accelerator: Seedstars World
3. Shopee TH	C2C	Everything except cars	2016	11,219,036	SEA Group
4. 11 Street TH	B2C	Everything except cars	2017	8,143,099	Joint Venture between Celcom Axiata Bhd. and SK Planet Ltd.
5. Notebook Spec	B2C	Notebooks, Tablets, Mobile	2008	4,063,263	Private
6. Tarad	C2C	Everything	1999	3,358,464	Porar Web Application Co. Ltd
7. JIB	B2C	Electronics & Media	2001	3,059,598	Private, Somyot Chaowalit
8. Central Online	B2C	Everything except groceries & cars	1973	2,421,093	Chirathivat Group
9. Advice Holdings	B2C	Electronics & Media: Smartphone & IT goods	2009	1,892,384	Private
10. Munkong Gadget	B2C	Electronics & Media	2006	1,738,827	Private

Source: iPrice, 2017

Lazada is the king of e-commerce in Thailand

Lazada has significantly outperformed its competitors in almost every category: highest traffic in Thailand, highest number of apps installed, highest number of followers on Line and Facebook.[11] Despite so, competitors have not been deterred and entered the market, joining the hype.

Chilindo, a Thai-based e-commerce, has been gaining consumer traction as it rose from 4^th in the ranks to 2^nd over the past 2 quarters in 2017. It has beaten the top 3 international players (Lazada, Shopee and 11street), by providing a unique service which allows customers to buy through auctions. Chilindo is also very active on Facebook, posting engaging content like videos and gifs which display the fun products they sell. They have 500,000 app downloads and 3,510,000 likes on Facebook.  11street is also another contender which shows high potential, ranking 3^rd after launching in 2017. 11street has a competitive edge in its Korean branding and coupled with its aggressive integrated marketing communication, it has gained rapid brand recognition in Thailand.

New entrants

Chinese e-commerce company, JD.com announced that it will open an online shopping site in Thailand, JD Central, in April 2018 through a tie up with local retail giant Central Group.[12] With this move, JD.com, China’s 2^nd online shopping service, is taking on a stance to challenge Alibaba Group Holding in SEA. JD Central will be a site of its own e-commerce platform and enable Thai consumers to access Chinese products such as electronics. Also, the entrance of another tech giant, Amazon, into SEA will significantly disrupt the e-commerce market of SEA. Amazon has picked Singapore as its initial entry point to SEA and has Indonesia on its radar for the future.[13]

Social Commerce (Classifieds/P2P): Facebook, Instagram, Line

Source: EIQ, 2016

Social commerce is a unique e-commerce business model which excels in Thailand. Social commerce involves merchants setting up “shops” on Facebook and Instagram, where they post images and details of their products and online shoppers can easily inquire about product details or agree to a deal. According to a PwC report, Thailand is the biggest social commerce market and around 50% of online shoppers purchase products through social networks.[14] In August 2017, Facebook realised this need and launched its first ever Facebook Shop. Companies like Shopee and LINE have also eyed this market segment. Shopee tried to lure merchants selling on social networks to its online by offering easy integration of their Instagram shops and reimbursing shipping, cash on delivery fees to sellers. LINE Shop was also created but its success has been hindered by technical issues: requirement to upload merchant product catalogues on the app through mobile phones, as well as limited payment options through LINE Pay.

 

Conclusion

The undeniable growth of Thailand’s e-commerce industry has attracted more big players, changing the game of Thailand’s e-commerce industry. Yet, there is a worrying concern regarding Thailand’s shrinking population growth and in turn, its potential for revenue growth. Despite its moderate revenue growth, we at Momentum Works believe that there is still a sea of opportunity in Thailand due to its rising middle class and its surge of mobile commerce. Nevertheless, players should continue to add value in their business models and by differentiating themselves from their competitors, they will be able to benefit from the growing e-commerce market of Thailand.

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Thanks for reading The Low Down, insight and inside knowledge from the team at Momentum Works. If you’d like to get in touch with us about any issues discussed on our blog, please drop us an email at [email protected] and let us know how we can help.

 

[1] https://www.statista.com/outlook/243/126/ecommerce/thailand#

[2] http://worldpopulationreview.com/countries/thailand-population/

[3] https://insideretail.asia/2017/08/21/thailands-central-group-to-invest-512-million-in-vietnam/

[4] https://ecommerceiq.asia/thailand-ecommerce-market-outlook/

[5] Ibid.

[6] https://www.bangkokpost.com/learning/learning-together/1305542/whats-happening-in-e-commerce-in-thailand-

[7] https://www.techinasia.com/rocket-execs-set-solve-southeast-asian-logistics-built-operational-backbone-ecommerce-empire

[8] https://www.retailnews.asia/security-key-mobile-wallet-adoption-thailand/

[9] Ibid.

[10] Ibid.

[11] https://www.bangkokpost.com/learning/learning-together/1305542/whats-happening-in-e-commerce-in-thailand-

[12] https://asia.nikkei.com/Business/AC/JD.com-to-open-shopping-site-with-Thailand-s-Central-Group

[13] https://techcrunch.com/2017/07/25/amazon-singapore-launch/

[14] https://www.bangkokpost.com/learning/learning-together/1305542/whats-happening-in-e-commerce-in-thailand-