A report says that discount retailers systematically strip out middlemen through direct sourcing and private labels, creating a structural cost advantage versus traditional grocers
Income constraints, limited discretionary buffer and fragmented traditional retail is creating structural demand for discount retail across Southeast Asia (SEA), as per a report. A large proportion of households in SEA sit in the lower-to-middle income brackets, with about 25 to 35 per cent spending is on essentials, making consumers sensitive to price increases in core categories like food, household products.
The report by Redseer Strategy Consultants noted that even modest inflation in core categories is materially compressing disposable income. At the same time, fragmented traditional retail leads to inefficiencies that discount retailers can solve for. The report added that within retail, fast-moving consumer goods (FMCG) and household products are appropriate categories for discount retail owing to the essential/ staple product nature and high wallet share.
“Their price transparency and low perceived risk enable quick trust-building and reduce the need for heavy marketing or assisted selling. Simple product characteristics allow efficient operations with minimal reliance on sales staff or after-sales service,” the report mentioned.
The Case Of 4s
The report pointed out that discount retailers work across 4s (SKU, store, staffing and sourcing) to have better gross and net margins. Discount retailers systematically strip out middlemen through direct sourcing and private labels, creating a structural cost advantage versus traditional grocers.
“They complement this with ultra-lean operations, minimal staffing, low-cost store formats, and limited SKUs focused on high-turn products. The model prioritises efficiency over experience, often leveraging ‘no-frills’ merchandising to reduce handling costs. Winning players balance this efficiency with enough assortment and quality to sustain repeat traffic without diluting margins.,” the report noted.
Redseer highlighted that discount retail has reshaped the developed markets in Europe, particularly for essential, high-frequency FMCG and grocery products. This model is now gaining popularity in Southeast Asia as well, where players like Dali and O! Save have seen store counts grow from one in 2020 to 888 by the end of 2024 and zero in 2020 to 750 by the end of 2025, respectively.
