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Shake-up looming in retail sector

By Business Desk

The Nation

Big C’s Bt35-bn takeover of Carrefour set to benefit consumers; competition will intensify with rival Tesco Lotus

The retail industry is set for a major shake-up as France-based Carrefour, a large hypermarket operator here, has decided to sell its branches in Thailand to Big C Supercentre.

Big C, a subsidiary of Groupe Casino of France, will pay ค868 million (Bt35.5 billion) for Carrefour’s 42 branches, making it the Kingdom’s largest hypermarket chain with 103 branches.

Tesco Lotus, currently No 1 in terms of hypermarket outlets, will slip to second place.

A source from the retail industry yesterday said that following Groupe Casino’s acquisition, Thailand would see more intensive neck-and-neck competition between Big C and Tesco Lotus, which would benefit consumers.

“Big C wants to take the growth benefit from rapid store expansion. It also wants to protect and take market share and enjoy cost-efficiency benefits from the bigger chain. Big C will also have higher bargaining power with suppliers,” said the source.

Tul Wongsuphasawat, president of the Marketing Association of Thailand, said the success of the deal depended on how effectively Big C merged the two companies’ operations, as they have a different business culture, management, operational staff and support infrastructure such as IT systems.

“If the merger is conducted smoothly, Big C will gain higher operational efficiency from the larger store network. It also depends on the company’s strategy as to whether it will pass on those benefits to Thai consumers and society,” he said.

An executive at Central Foods Retail, operator of the Tops Supermarket chain, said the takeover would help balance the bargaining power with local suppliers between Big C and Tesco Lotus. Consumers would then see financial benefits, especially from lower retail prices.

“The move will not however impact Tops Supermarket as we target a different segment, of upper-middle-class shoppers,” said the executive.

Big C expects its combined business with Carrefour to increase financial returns by 1.2 per cent, based on combined 2010 estimated sales on a run-rate basis. The synergies are expected to be fully implemented by 2013.

The company plans to finance the acquisition with existing cash flow as well as borrowing, it said in a press statement.

Big C shareholders will vote on the deal at an extraordinary meeting on January 5. If approved, the transaction will be completed in the first quarter of next year.

“Big C and Carrefour’s Thai networks present strong geographical complementarities enabling Big C to double its presence in greater Bangkok. With 103 hypermarkets in total and a combined 2010 estimated turnover of over Bt100 billion, Big C will significantly expand its market position and will be close to being the leader in the hypermarket segment,” the company’s statement said.

In a separate statement, Carrefour which entered the Thai market in 1996, said it was selling the business in Thailand as growth prospects did not allow the group to build a leading position in the medium or long terms.

It holds a market share of 6 per cent and had net sales of ค723 million and earnings of ค67 million over the 12-month period to June 30.

Deputy Commerce Minister Alongkorn Ponlaboot said the retail industry and consumers should benefit from the deal, but the government would also closely monitor it for any competition implications.

He also acknowledged the likelihood of higher pressure on suppliers, and promised to closely monitor the merged entity’s price-cutting policy to ensure a level playing field.

According to the Bureau of Business Competition, the number of hypermarket stores in the Kingdom has increased considerably in the past decade, from only 65 outlets to 864 as of November 5 this year.

There are now 693 Tesco Lotus hypermarkets, 82 Big C outlets, 41 Carrefour stores and 48 Makro stores.

In terms of revenue, Tesco Lotus controls 40 per cent of the market with Bt135.93 billion generated last year, followed by Makro with Bt79.51 billion, Big C with Bt79 billion and Carrefour with Bt27.92 billion.

-- The Nation 2010-11-16

[Piengrudee]

Soon there will be no small retailer and wet market left. An invasion by Farang. So sad.

[craigt3365]

Soon there will be no small retailer and wet market left. An invasion by Farang. So sad.

Thailand's already been invaded by the Chinese....

[PattayaParent]

Soon there will be no small retailer and wet market left. An invasion by Farang. So sad.

Aren't all these companies a majority Thai shareholding?

[mitsubishi]

Soon there will be no small retailer and wet market left. An invasion by Farang. So sad.

Don't look so glum, the Thai's are nationalist.

If it all goes t*ts up they'll seize the assets and declare it theres

Also Tesco Lotus is only part farang company I think.

[steveromagnino]

Big C as I recall has Central family owning something like 25% so is the most Thai of the hypermarkets AFAIK; CP family a few years back only owned 2% of Tesco Lotus. Carrefour I think originally was the Robinson Family? Anyhow, they are all very foreign so no real change has occured; rather it is a change of foreign owners as opposed to new foreign investment.

The retail sector I think but am not 100% sure was one of the few deregulated to allow majority foreign ownership, in part because CP, Central were broke and needed to sell out.

As for driving out traditional wetmarkets and mom/pop stores, the Thai retailers association led by CP (7:11) led that nationalistic chant in the early 2000s under TRT, and steps were put in place to restrict hypermarket expansion. What isn't mentioned is of course that CP as part of TRT were left to run riot with 7:11 opening thousands of stores in that period, completely without any competition from their bigger counterparts - this is the largest threat to the mom/pops.

A well run wetmarket should have no issue competing with Tesco/Big C/Carrefour, none of which are that great at wetmarket produce; good but not great in some cases, quite average in other cases.

Problem is, many wet markets are poorly run with bad sanitation and cleanliness; those are the ones destined for the trash heap of retail at some point...but with significant restrictions in place now, perhaps many years from now as the hyper markets cannot open large format stores willy nilly like in 2000. Lotus has the express format and I think Big C has a counterpart, but they haven't quite hit the spot despite far better pricing than 7:11.

This buy was made partly because of those restrictions; otherwise Big C could have just opened stores next door as Carrefour is probably IMHO the weakest of the 3.

As for loss of traditional retail....consumers should be given the chance to speak with their feet. It's sad but such is the nature of progress. Smart mom/pop operators should be working into co-ops and the like; there is no inherent reason why Tesco Lotus should be able to wipe out a small mom/pop operator; the markets and service they deliver are quite different.