RETAILING

Survival of the fittest

Sukanya Jitpleecheep

Thailand's retail landscape has changed significantly over the past five years, due mainly to the influence of international retailers that have brought in new business practices and changed the way millions of people shop, especially in urban areas.

The eventual entry of large foreign players was inevitable, but it was hastened by the economic crisis of 1997, which left many local retail operators in a precarious financial state. Without financial help from new strategic partners, local retailers could not restructure debts or raise funds to expand.

A new, more budget-conscious and demanding breed of consumer also emerged from the crisis. Once they started to grow accustomed to the lower prices and better service offered by the big operators, there was no turning back.

All this was bad news for any traditional local retail operators that had failed to adapt and upgrade. Calls for government regulations to curb the growth of multinationals found support in some quarters, but it has become clear that consumer choice will ultimately dictate which businesses survive.

The change has been most apparent in the supermarket and discount-store sector, with chains such as Tesco Lotus, Carrefour, Big C (Casino Group) and Makro continuously expanding their outlet totals from 1998 and posting healthy sales.

Given their greater bargaining power with suppliers, the big chains can sell products at lower prices. They counter claims of retail job losses with assertions that they have created thousands more jobs, not just in their stores but among supporting industries and suppliers. Exports of Thai-made goods to their networks abroad, especially in Europe, bring in further revenue, they argue.

The department store segment is the only area still controlled by majority Thai-owned retailers such as Central Retail Corp, Robinson and The Mall Group.

Local shopping patterns have been transformed. Consumers now prefer to buy household goods from discount stores, which are more convenient, with ample parking, air-conditioning and a host of additional features such as food outlets and mini-bank branches as additional attractions.

Wet markets and other traditional venues where shoppers can bargain will always have their place, but even these have felt the pinch. The owners of many small shops, for example, now go to the mega-stores to buy essentials that they can resell at respectable mark-ups to their neighbourhood customers.

Supermarkets and convenience stores that lack the scale of the bigger operators have been forced to reposition themselves to focus on niche markets. Japan-based Seiyu Supermarket, for example, sold its business to Tops, part of the Netherlands-based Royal Ahold group. Tops in turn has moved to counter the impact of giants such as Carrefour and Tesco Lotus by finding new niches, such as smaller outlets in inner-city areas that combine the features of convenience stores and supermarkets.

Another supermarket operators, Food Lion, adopted a new concept to compete with nearby wet markets, while Jusco made an alliance with Power Buy, the electrical and electronic goods division of Central.

Small, family-run shops also have been offered the possibility to upgrade by joining the networks of convenience-store chains, which have lowered their franchise fees as an inducement. As part of a larger network, small shops can modernise, obtain lower wholesale prices and keep retail prices more competitive.

In the face of major changes across the entire retailing spectrum, the government has been criticised for failing to promote a clear policy for the industry, and of doing very little to curb the expansion of foreign retailers. A law on retail zoning is now being drafted, but the danger is that it could be seen as targeting one specific group and harming foreign investor sentiment.

One of the government's responses has been a proposal to set up a non-profit organisation to help conventional retailers cut their supply costs and compete more effectively with large stores. The new body would represent small retailers and purchase supplies in bulk on their behalf from manufacturers, thus closing the price gap with the big chains.

EXPANSION

The number of discount stores is expected to exceed 200 within the next two to three years. Currently there are 100 discount stores across the country including Tesco Lotus (33), Big C (30), Makro (21) and Carrefour (16), compared with 50 outlets in 1997.

Discount stores not only play ar role as retailers but also as wholesalers, selling products to smaller grocery stores.

Market analysts estimated that the country had 260,000 retail outlets in 2001, of which half were modern in design and business practices.

About 30-35% of total retail space was controlled by major chains including Tesco Lotus, Carrefour, Big C and Makro, up from 10% to 20% five years ago. The figure is expected to reach 40% by the end of 2002.

The number of small grocery stores, meanwhile, has been steadily declining by 10-20% per year, according to the estimates.

There have been other casualties along the way, including long-established provincial department stores and familiar names in Bangkok such as Merry Kings, New World, December and Welco.

Daimaru Department Store, the first Japanese department store establish a presence in Thailand, has also closed its doors, along with Yaohan.

In Bangkok, several new fronts have opened on the retail battleground, including Rama III, Rama IV, Bang Bon, Phra Khanong, Bang Khae, Ratchadaphisek and Rattana Thibet. Each location is now packed with five to seven retailers of all types.

Retailers in main provinces such as Chiang Mai, Chiang Mai, Ubon Ratchathani, Nakhon Ratchasima, Phitsanulok and Hat Yai are also seeing the growing influence of the major chains.

Since the crash in 1997, only two major new shopping centres have opened: The Emporium in Bangkok and The Mall in Nakhon Ratchasima, both developed by The Mall Group.

ADJUSTMENT

The largest locally owned retail players have adjusted over the past five years by moving to focus on their core businesses and cut non-core operations.

Central retail Corp (CRC) sold stakes in CenCar Co to its French partner, Carrefour, and ceded majority control of Big C Supercentre to France's Casino Group. CRC also sold its supermarket holdings to Royal Ahold, which subsequently took Tops Supermarket on an expansion spree.

As a result, CRC was able to concentrate on its core Central department stores and on expanding promising businesses such as Power Buy and Super Sport.

The Charoen Pokphand Group, an agribusiness conglomerate, exited the supermarket and discount-store fields, selling its Sunny Supermarket business to Belgium-based Food Lion and its holding in Lotus Supercentre to UK-based Tesco Co.

Shopping centre developers, meanwhile, have frozen new projects and are focusing on renovating existing shopping complexes. Some have changed their positions to focus on specialised niche markets. A shift toward new forms of marketing activities including electronic commerce and catalogue sales is also evident.

As well, shopping centres have adjusted their merchandise mix to offer more packaged foods and entertainment products such as CDs, VCDs, books and magazines.

Some department stores are competing directly with discount stores by transforming themselves into information technology outlets, while others have joined with foreign supermarket chains to battle the discount stores.

New magnets such as bowling lanes, movie theatres and theme parks are showing up at some outlets. And while large-scale marketing activities used to take place three or four times a year, operators now feel the need to dazzle customers on a monthly or even weekly basis with specially themed promotions.

Along the way, retailers have learned the importance of market research and the use of information technology to better understand consumers. Family-style management has given way at many retail businesses toward professional operations with strong IT input.

The change in the retail landscape is also being felt by manufacturers, whose margins have shrunk because of the discount stores' aggressive bargaining. Traditional provincial wholesalers are also being squeezed out by highly sophisticated distribution and logistics operations, most of them owned by the chains or operated as joint ventures.

Manufacturers complain that the powerful discounters charge them high entry fees when they want to put their products on the shelves in the mass-market stores. At the same time, discount stores have broadened the range of their house-brand products to further pressure brand-name suppliers.

Some manufacturers have found the losses too hard to bear and have exited the business. Others, though, have decided to change their policies and become sub-contractors for discount stores.

To survive, manufacturers have had to invest in computerised systems to better track production and control costs. Staff have been trained in how to handle orders from modern retailers, and products are better classified by segment.