Enter the giants

Foreign hypermarket operators have revolutionised the way goods are sold, but at what cost? For those that cannot compete on size and scale, the challenge will be to innovate with niche offerings and service

By SUKANYA JITPLEECHEEP

Hypermarkets, a new phenomenon emerging after the 1997 crisis, have expanded steadily at the expense of smaller stores, which do not enjoy advantages that come with size such as an economy of scale and modern management.

The most striking feature of the changes in Thailand's 1.7-trillion-baht retail and wholesale industry over the past three years lies in the sector's diversification, which has forced most players to restructure their approach to management as well as their marketing strategies.

Thailand's retail landscape, particularly in prime locations in Bangkok and other major urban centres, has changed dramatically, largely due to the influence of the foreign discount store chains that have taken over the market.

First appearing shortly after the economic crisis, the hypermarket operators continue to expand their market share despite opposition by family-run shops and local retailers.

Less competitive retail operations such as independent supermarkets, department stores and shopping centres have temporarily halted their expansion plans, leaving foreign operators and local retailers to fight over leftover market share.

Initially, discount store operators tried to gain a foothold in the suburbs of Bangkok where larger, cheaper space was still available. Prime locations included Chaeng Watthana, Rattanathibet, Sukhaphiban and Rarm Intra.

Competition was moved up a notch after the discount stores started invading areas of the inner city, such as Sukhumvit, Rama IV, Phra Khanong and Ratchadaphisek.

On Rama IV Road, Tesco Lotus and Carrefour compete head-to-head with locations across the road from each other. Tesco Lotus in some locations offers shoppers around-the-clock service.

Industry observers point to this as a clear indication that the popularity of discount stores is spreading rapidly due to their greater variety and discount prices.

Amarin Development Co is giving Erawan Sogo a new lease on life with a 300-million-baht makeover. The property, to be reopened in October 2004, will also be renamed Erawan Bangkok.

Convenience for shoppers coupled with air-conditioned comfort and modern design have demonstrated strong appeal to a wide range of income earners.

As the number of discount stores continues to grow, the number of family shophouses and family-run department stores still operating has fallen.

In 2001 alone, according to the Commerce Ministry, more than 900 local retail operators ceased operations because they could not compete _ the highest casualty rate of any sector.

The government has taken some measures aimed at protecting local retailers from the foreign giants by introducing various trade regulations, setting up Allied Retail Trade, a state-owned operator of franchised shops, and issuing updated fair business practice guidelines along with new retail zoning laws.

But local retailers, particularly family-run shops, have seen little benefit from the government's measures to date as they have been impractical to implement.

On the other hand, some of the measures even seemed to benefit the existing discount store giants.

For example, new discount stores are required to be located 15 km outside the downtown areas of urban centres. But in cases where two leading operators are already established, the result is continued domination of the area's retail trade, and more traditional shophouse-based operations going out of business.

From 2002-03, the changes in Thailand's retail landscape were even more pronounced. Hypermarket chains Tesco Lotus, Big C and Carrefour all rushed to expand upcountry ahead of the enforcement of new zoning rules that will restrict where they can build.

At the same time, they also introduced new, smaller-sized store formats to be built into local neighbourhoods to be closer to consumers and compete directly with established retailers on their own turf.

Tesco Lotus has introduced a Value Store retail format aimed at serving the upcountry market and express minimarkets to be built-in at gas stations. Big C Supercenter Plc has opened Big C Compact, a scaled-down version of its bigger stores for upcountry locations.

The new store formats have had a significant impact on other imported retail formats such as 7-Eleven and Tops as well as some locally owned department stores.

As a result, supermarkets and convenience stores have been forced to adjust their strategies in order to compete.

7-Eleven has shifted its focus to ready-to-eat food products and has added new services to its stores such as cosmetics, magazines and entertainment items. Soon, it is expected to expand into providing tickets for entertainment events as well as seats on budget airlines. It has also joined with the oil giant PTT to operate more shops at PTT service stations.

Tops, for its part, has fought back by introducing its own scaled-down supermarket format called City Market Tops, for its part, has fought back by introducing its own scaled-down supermarket format called City Market in office buildings and in local communities and neighbourhoods.

Food Lion has introduced Food Lion Paradise and The Mall Group's Home Fresh Mart has renovated its stores to sell more high-end and specialty products.

Department stores Tang Hua Seng and Robinson have also refurbished their locations and added more brand name products along with more chain food outlets to compete with the discount stores.

Some shophouse operators have transformed their stores into 7-Eleven franchises, while others have installed air-conditioning, brighter lighting and less-cluttered display units. Some have begun offering delivery services and off-premises sales of consumer products at weekend markets in order to survive in the intense competition.

Not only retailers have been affected, but wholesalers as well. To protect their interests, they have set up the Thailand Wholesale and Retail Association, geared to mobilise the buying power of tens of thousands of wholesalers and small grocery stores nationwide in a bid to combat the growing dominance of modern discount stores and hypermarts.

Marketing and sales support, as well as mail-order services, will be offered through the association in a bid to encourage consumers to support small member shophouses.

While critics may condemn the government for failing to protect small retailers, Thai consumers have benefited the most from the competition which has forced all industry players to enhance their services to meet international standards.

Thai consumer behaviour has also been dramatically changed, with many choosing to shop in modern, air-conditioned retail outlets with friendly staff and a wide variety of reasonably priced products that wouldn't be out of place in any developed nation.

Other positive effects have included instances where Thai-made products have made the leap to the store shelves of major discount chains around the world.

The outlook for Thai retailers _ with the exception of most mom-and-pop stores _ has started to improve on the strength of the improving economy.

Big retailers seem to have largely recovered from the worst of the 1997 economic trough, as indicated by more than 25 billion baht in new mall investments made in the last two years. The figure includes Central Retail Corporation's Central Festival Phuket, Amarin Group's Erawan Bangkok, the Maneeya Group's Maneeya Shopping Centre, Siam Piwat's Siam Paragon and Central Pattana's Central World and Central Shopping Complex Rama IV.

Another indication of the advanced state of Thailand's retail trade can be seen in the recent announcements by Central Retail Corporation and its development arm Central Pattana Plc, which are considering ventures abroad within the next three to five years.