Originally posted at http://capitalistexploits.at/ [3]
By: Chris Tell
The evolution of the Western shopper is well documented… Gone are the small local outlets from which our previous generation shopped. Modern adolescents now spend their waking hours roving shopping malls while glued to smart phones. I wrote an article on the topic of virtual crack [4] a while back, it may be worth a quick review for those that missed it.
Traffic congestion, just like bureaucracy creates a lag on economic activity, but remains a valid barometer for identifying changing or accelerating trends.
In Economics classes, as boring as they are, we are taught about supply and demand. Where supply exceeds demand falling prices are the result. This is precisely why “rebooting” the world’s economy by increasing the supply of useless scraps of paper (some call it “money”) is asinine at best, and at worst will lead people and nations to conflict. But that’s a topic for a later post. On the other side of the coin, demand exceeding supply typically results in rising prices.
Now, consider traffic jams with respect to supply and demand.
Last month in Phnom Penh, Cambodia it became painfully obvious that the increased supply of motor cars, trucks, buses and tuk-tuks has exceeded the capacity of the existing infrastructure. This is exciting for us, given that the infrastructure today is waaay better than it was 10 or even 5 years ago. A mere decade ago the roads, if one could accurately label them as such, were absolutely horrendous, yet were less, not more crowded. Back then the average Cambodian couldn’t imagine to afford a tuk-tuk, let alone a car.
Today, not only are there plenty of vehicles on the roads, but they are now driving on roads which would be acceptable in any Western city, at least within the city limits. Those further out are shabby, but still remarkably good, and many times better than they were just a few short years ago. Things are vastly different in today’s Cambodia, and they are changing rapidly and consistently.
An investment theme that we focus on quite a bit is that of changing consumer habits. This is where traffic jams come into my story, and in a most unlikely place… supermarkets. Yes, supermarkets.
Everyone knows that a rising middle-class enjoys higher levels of disposable income, the question is how they allocate their spending and who benefits and who doesn’t. When your mode of transport is walking, a bicycle or maybe a scooter, you’ll have two issues to confront when heading off to the store:
- There is only so much you can carry as a pedestrian, or on a bicycle or scooter.
- You’ll naturally shop close to home to avoid carrying your goods a long distance.
Basically, consumers in markets which don’t yet enjoy sufficient disposable income will shop accordingly, and you’ll find little “Mom and Pop” stores are the most common. In economies and markets that are moving up the consumer spending ladder, there is a transition that occurs. Once disposable income increases, more motor cars hit the roads. Now it makes perfect sense to travel further to shop, since you can transport greater quantities of goods in a car.
While only anecdotal, I think there is a correlation between traffic caused by increasing disposable income and supermarkets. Mark and I saw this day in and day out while living in Thailand. The not-so-obvious beneficiaries of this are the smaller chain stores, not the large scale supermarkets such as Carrefour, Tesco, Makro, etc., but rather Alfamart (AMRT [5]) in Indonesia, and 7-11?s (one on EVERY corner in Thailand). In Cambodia you have Lucky, owned by DFI [6], it’s probably the best company to own in this space in our opinion. These (not so little) guys are simply everywhere, and their financials are pretty appealing.
Across SE Asia we’re experiencing increasing urbanization and rising incomes. The impediment to “supply” is undoubtedly infrastructure. We can therefore glean a lot by watching the steady build up of traffic in frontier markets. Think of it as demand trying to (literally) get to supply. That’s an investment opportunity that’s easy to understand.
- Chris
“Ever consider what pets must think of us? I mean, here we come back from a grocery store with the most amazing haul – chicken, pork, half a cow. They must think we’re the greatest hunters on earth!” – Anne Tyler, Pulitzer Prize-winning Novelist