CP-Tesco merger spells pain for small businesses

CP-Tesco merger spells pain for small businesses

The decision by the government's competition watchdog to approve the merger of Charoen Pokphand Group and local retail business Tesco Lotus left me speechless.

Voting 4-3 to approve the merger, the Office of Trade Competition Commission (OTCC) ruled out a monopoly situation, although it agreed the 338-billion-baht deal would result in "increased market power". It may significantly lower competition, but it "won't create major damage to the economy or consumer benefits", it said.

How could that be? I wonder where OTCC members do their shopping to have come up with such an unrealistic view.

It's an open secret that Thais, in general, are under CP's influence in one way or another. According to Longtunman.com, CP's empire has a massive range, from seeds to animal feed, from retail to telecommunications, e-commerce, digital business, property and automobile -- in addition to pharmaceuticals, banking and finance outside of Thailand.

I know CP's successes are due to its innovations and personalised marketing which covers all types of customers -- farmers can buy seeds and feed from CP, just as end-users can buy food, ingredients and services.

Tesco Lotus' shares have been divided into three portions -- 40% are held by CP All (the operator of 7/11), 40% by Charoen Pokphand Holding, while the rest are owned by CP Merchandising, which sells animal feed and butchered meat.

A quick fact-check shows how omnipresent 7-Elevens are with more than 12,000 outlets in Thailand, while Tesco Lotus has about 2,000 hypermarket branches and small stores across the country. One can easily find either a 7-Eleven or a Tesco Express store just a few steps away from one's home or office.

In order to make it impossible for the merged business -- which has a market share of around 70% -- to become a monopoly, the OTCC set out seven conditions that CP must follow.

I found three of the conditions rather ironic. One prohibits another merger with any modern-trade retail operator in the next three years. Does this mean the retail giant is free to command a 100% market after 2023?

Another condition requires the company to increase purchases from community enterprises by 10% each year, which the OTCC said will boost the local economy and create over one million job opportunities.

The last requires the business giant to maintain all deals with its partners for the next two years. It won't be easy to prove if the conglomerate actually complies with this.

Even with the above-mentioned conditions, it's hard to believe that our market won't be monopolised, or the company won't compete with its own business partners or use them as market testers. Remember the accusation that 7-Eleven had breached ethics by copying a snack recipe from a supplier, before replacing theirs with a similar product made by one of its own subsidiaries?

Makro, a hypermarket chain under CP, recently introduced a service to facilitate rot pumpuang -- "mobile supermarkets" in local communities. Last year, a local supermarket chain tried to launch its mobile supermarket service, but it was heavily criticised by the public for trying to monopolise the market, leaving little opportunity for small traders. But Makro was smarter. They didn't launch their own service -- instead, they chose to be a one-stop supplier for rot pumpuang operators.

Their new service will certainly be a hit because Makro can definitely provide any ingredient at the most affordable prices, thanks to its large-scale farming. As such, even if consumers avoid buying products from these controversial chains, they are still likely to end up buying their chicken, pork, fish, or eggs at fresh markets or mobile supermarkets.

Biothai mentioned a similar case of Edeka and Kaiser's Tengelmann in Germany in 2015. The attempt by Edeka, Germany's largest supermarket chain, to take over around 450 Kaiser's Tengelmann outlets in 2015 was initially unsuccessful, as regulators said it would limit consumer choice. However, the merger was later approved, on the condition that the company kept all off its staff employed for at least five years, so the workers wouldn't become a financial burden for the government. Edeka eventually settled with its rival, Rewe, which took over some Kaiser's Tengelmann branches.

Though the merger was successful, Edeka was only a giant supermarket operator, not a turnkey producer like CP.

Going back to OTCC's decision, I'm not sure if a Thai conglomerate buying a retail business back from a foreign company will create opportunities for small businesses.

The merger may boost economic growth, but what about its impact on small businesses? As a consumer, I wish there are more producers in the food industry, as tough competition would benefit consumers.

Sirinya Wattanasukchai

Columnist

Sirinya Wattanasukchai is a columnist for the Bangkok Post.

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