Retail Industry in Thailand

All businesses that sell goods and services to consumers are consider under the category of retailing. In 1997 there was a biggest financial crises in Asian (South East Asia) especially Thailand which was known as Tom Yum Kung Crisis. Thailand was seriously facing with the decline of economic growth where the private companies were going bankrupt causing the overall decline in its economy. The solution to the problem was the Free Trade Agreements that were made between Thailand and the United States of America and between Thailand and China. This agreement helps to facilitate the flow of money in and out of countries. Due to the free trade agreement between the nations, a large number of foreign companies were attracted to invest in Thailand but much in the retail sector. The Thai retail market has strengthened their control by the overseas retail operators during in 1999 and 2000 where the large number of investors initially brought in a lot of job opportunities and capital, making the nations economy better. However, looking in long term we could probably see that too much of Thailands economy and business sector was and are controlled by foreign corporations especially in Retail Industry by the foreign companies such as Tesco Lotus, Seven-Eleven, and Big C that entered Thailand Retailing Industry and have been growing rapidly. Oppositely, many local stores were forced to declare bankruptcy due to the fierce competition created by huge companies. There are approximately five hundred supermarkets operating in Thailand. The difference between supermarkets, superstores, hypermarkets and cash-and-carry type stores in Thailand is their respective size and method of purchasing. At presently the retail businesses such as supermarkets, superstores or hypermarkets stores can generate more sales than convenience stores especially for snack foods. The largest chains of retail store compare in terms of dollar sales value are Siam Makro, Big C supercenter, Tops supermarket and Carrefour. Moreover, there have been attempts to stop the spread foreign retail stores such as Tesco Lotus, Big C and Seven-Eleven but the reason that could not stop the spread is that people continue to support the business by still purchasing at these stores and neglecting the difficulties of the local grocery stores. From my point of view I strongly agree and would prefer to do shopping in Big C, Tesco Lotus or Makro rather than the local stores because firstly, the prices of goods sold by the large stores are cheaper than those in small local shops. This may be due to the fact that large corporation order products in relatively larger bulge and thus the prices are discounted. Secondly, the large supermarkets and

convenient stores are able to provide a larger variety of goods due to their larger store areas and higher capital.

Thirdly, the products in foreign retail stores are arranged in a clean and pleasant-looking environment while the products in small local shops are sometimes dusty and expired. Fourthly, the retail stores are more accessible to people than the local stores which many had gone bankrupt because of the fierce competition by huge companies. The large corporations retail stores such as Tesco Lotus, Big C, Makro and 7-11 are seen as having a higher class than small local shops. Another good reason to shop at foreign retail than local store is that If we look at current Thailand economy where price of oil getting higher and uncertainties of the Baht's value against the U.S. dollar have affect the level of economic growth. At this point, I think that consumers have adjusted their behavior in terms of the way they use cars to reduce fuel consumption such as saving habits have been adopted to cope with the higher cost of living. Lastly, I experience that most of the people and I visit foreign stores more often than the locals due to the stores famous image and reputation. For these reasons, Thais, resident expatriates and tourists in all major cities have turned to shop more at modern retail market rather than at traditional markets because consumer can park their car and get everything in one trip from modern retail market with better value and good quality.

Chapter 1: Introduction

The Retail sector is one of the important components of Thailand GDP worth approximately Baht 1.4 trillion (Modern Trade 40% and Traditional Trade: 60 %). However, the retail market is expected to grow at least 3-5% in the year 2011. Recently in the past during the year 2010 Thailand retail sector continued to show improvement and was generally positive with the recovery of the overall economy while in the same year the retailing industry faces with economic uncertainties and political problems leading to the shutdown of Ratchaprasong intersection in Bangkok by anti-government Red Shirt protesters during April-May 2010. This has disturbed the operation of large numbers of retailers in the same area. However, governments are stimulating the policies with an effort to improve consumer confidence to stimulate their spending while the Leading chained retailers such as CP, Ek-Chai Distribution System Co Ltd, Central Retail Corp and Big C Supercenter PCL have performed aggressive marketing and promotional campaigns to continually expand their sales channel through the internet because it requires less capital investment and helps the retailers capture wider groups of consumers which particularly are the younger generation. According to the Retail Sale Index there has been an increase interest from both domestic and international retailers because of the significant development of retail sector in the past decades with the entrance of new and more modernized players operating under various trading formats in response to the stimulate the consumers behavior. In 2011, Thailands retail market is expected to remain strong as Thai economy has improved because of the foreign tourists had return and the rising demand from Chinese and Indian economies which will help the increase of the Thai export sector. From the Nation In Thailand, the Chinese investors will not invest in upstream businesses such as in the manufacturing sector as they had done in the past. Their investments will be widely enhanced in local middle-stream and downstream industries such as in setting up local wholesale centre, in logistics and distribution, and even in retail business. The investors from China now will set up their business for logistic and product distribution directly in Thailand. The investor will basically use Thailand as their hub to distribute their goods in ASEAN to enjoy the trade benefits that will flow from the ASEAN Economic Community in 2015.

According to Chatrchai Tuongratanaphan, a retail expert and adviser to the Thai Retailers Association, said that Thailand could take advantage of the wholesale trade centre in order to promote the export of Thai products together with Chinese goods to ASEAN markets because Thailand has already got a good geopolitics features such as location at the centre of the Indian and Pacific Oceans where it can be a trading hub for ASEAN. It will also attract many shoppers from ASEAN into the country especially the investors will also use ASEAN to connect with other trade communities,"

The Contribution of Retail Industry Currently, the Thai government is interested in capitalizing on the opportunities within the service industry due to the fact that it is the key sector that contributes to the countrys economy.

Construction 7% Agriculture 13% Industry 32% Services 48%

According from the statistics provided by the Ministry of Labor, the foreign corporations in the retail field such as Tesco Lotus, Big C, Carrefour, Siam Makro and seven-eleven etc have provided steady increase with a large number of jobs like 135,526 workers working in retail industry in 1990 while 195,299 reported in 1999. During between the year 2000 to 2005, employment in the service industry expanded by 2.6 million compared to 1.6 million in the manufacturing industry. Currently there are

around 12.6 million workers are in the service industry and the demand is growing by 5 % per year. Therefore, without the large retail corporations, a considerably large number of people might become unemployed and this would unavoidably affect the nations economy. However, it must also be acceptable that the wide spread of foreign retail stores and supermarkets has obviously put local stores into a very difficult positions where many storeowners had difficulties trying to survive in this competitive situation and others who could not bear the pressure fell and declared themselves bankrupt.

From the Biz week 5th September 2006, more than 50 representatives of bankrupted local store owners from various provinces traveled to the capital city to ask for help from the Government due to the fact that huge foreign retail stores had set up too many new branches in many places and the outcome of the result of their expansion was the local store owners difficulties. According to the same source on 30 march till 5 April 2007, a survey was conducted and found that owners of the local store agreed that they face more difficulties where 88 percent having a severe decrease in sales and the other 12 percent had a slight decrease after the spread of foreign modern market. Furthermore, large foreign retail stores are able to sell goods at lower prices due to the fact that they purchase goods in a much larger quantity and forced local stores to lower their prices. Moreover, statistics have shown that during year 2001to 2006, the 60,529 local stores in retailing industry out of 90,681 stores had gone bankrupt. The problems affecting the retail industry is that the industry heavily depend on investment in intangibles field such human development and technology applications. The critical problem facing by the retail industry is seeking for qualified service staffs to meet new technology applications because most of available staffs have received little formal services training and lead to high turnover rate of qualified staffs. It is also interesting to note that the requirement of human resource in retail sector is heavily concentrated in skilled labor. Major Retail Operators in Thailand Traditional Trade The Traditional trade operators consist of Mom and Pop stores and local street store etc. These stores are usually small in size but they are being mostly operated by local family owners. In Thailand retail sector, the traditional market tends to have the biggest market share than modern trade market.

Modern Trade 1.1 Superstore or Hypermarket Thailand have the only 2 major players under this market segment are Tesco Lotus and Big C. This type of market deals with a very large retail facility which carries an enormous range of products under one roof including full lines of groceries and general merchandise which allows customers to satisfy all their shopping needs in one trip. Tesco Lotus is known as the biggest player hypermarket segment. On the other hand, Big C is the second participant within the hypermarket segment. In 2010 Big C acquired Carrefours Business operation to become a leader of hypermarket operator in Thailand with similar to Tesco lotus in 2011.

1.2 Supermarket Sector. A super market is defined as a self-service store offering a wide variety of food and household merchandise products. The sector is larger in size and has wider selection but smaller than a hypermarket. The major players of this market sector are Central Food Retail (CFR), Foodland and Villa Market.

1.3 Convenience Sector. A convenience store is defined as a small store located alongside with busy roads in populated areas. The items available are such as snack, ice-cream, beverages, cigarettes, selection of processed food, groceries, newspapers and magazines, toiletries, and hygiene products. Some of these stores also offer services like bill payment. This sector is dominated by 7-Eleven, V Shop Express, 108 Shops, Family Mart and Tesco Lotus Express

1.4 Department Store Sector. A department store is specializes in selling a wide range of personal and residential product. The department store segment is dominated by two major players namely Central Retail Corporation (CRC) which operates Central, Robinson and Zen and on the other hand is The Mall Group which operates The Mall, Emporium and Siam Paragon. 1.5 Specialty Stores. Specialty stores are small stores specialize in a specific range of merchandise with high levels of service and expertise. The Specialty store segment in Thailand is dominated by two players namely Watson and Boots. Both chains offer a wide variety of products including pharmaceutical product, health and beauty items, personal care and consumer goods 1.6 Category Killer This segment focuses on few categories of merchandises and offers a wide variety of such merchandise at relatively low prices. In Thailand, there are a number of such chain stores with individual specialization and the major segments includes office supplies, consumer electronics, sporting goods, home improvement and furniture etc.

Graph of Major Retailer in Thailand

[Thai Retail Busin ess Struct ure (Sourc e: Thai Retail ers Assoc iation) } Chapter 2: PEST (LE) Analysis Overview of Thailand Retail Industry 2.1 Political & Legal Environment Retail companies are greatly affected with the decision concerning with both political and legal environment. Political decisions can affect the business in both positive and negative side. From the current situation, Thailand had face with many political problems since 2006 till now. An unstable government has given the country an image of instability to control. Political factors include government policies relating to the industry, tax policies, laws and regulations, government pressure, contract enforcement law, employment laws, competition regulation, trade restrictions, tariffs, interest rates, monetary policies and safety regulations etc. In the year 2010 Thai retailing business faces with both economic uncertainties and political turmoil leading to the shutdown of Ratchaprasong intersection in Bangkok by anti-government Red Shirt protesters during April-May 2010. This has disturbed the operation of large numbers of retailers in the same area.

Moreover, the political risk is risks that do affect the business in such a way that owners or investors not making much money as they expected and will lose money. Currently with new election campaigns there has been an announcement for new employment wage to set at standard 300 baht/per person and the salary for employee with Bachelor degree is set at 15000 baht.This can affect the retail companies as well as other industries because if the rise in wages as well as rising in cost of material will absolutely make the companies much harder to earn profit. If the companies pass those costs to consumers, it will also affect the consumer to stop buying the product because they are getting very expensive. Sometime with political decision can lead to the problem of Inflation in Thailand. This affects to every importance business such as the investor fear to invest business which leads to no tourists and affecting tourism and hospitality industry. On the other hand, legislation environment do concerned with government protection laws that include the prevention of an unfair competition as well as protecting consumers from unfair retail practices. For example, if some company promotes their products by telling lies in their advertising and deceives through their packages and through their prices will get penalty based on the rules and regulation.

2.2 Economic Environment Economic is another important factor where the organizations in the retail industry must also give enough attention to the nation economic stability. The economy of Thailand by retailer sector has been active since the year 2002 with a sharp increase in new investment with both domestic and foreign. However, with political uncertainty and the global financial crisis in 2008 has weakened Thailands economic growth by reducing domestic and international demand for both its goods and services including tourism. Currently, the retail sector is one of the important components of Thailand GDP worth with approximately 1.4 trillion Baht. Moreover, Thailands economy and many business sectors are controlled by foreign corporations especially in Retail industry by the foreign companies such as Tesco Lotus, Seven-Eleven, Carrefour and Big C that entered to Thailand Retailing industry and have been growing rapidly. Thought with the rapid growing of foreign retail companies has affect many of the local stores to declare bankruptcy due to the fierce competition created by these huge companies. Under economic environment, the increase or decline with interest rates, government spending, unemployment policy, taxation, exchange rates and inflation rates can affect every business. This also

have great impact on retail industry in the food sector when importing from USA because If the economics of the nation is declining can lead to decline in the currency of the exchange rate. U.S Exporter U.S Trader Thai Importer Thai Distributor

Retail Central Warehouse Depot

Supermarkets, Supercenters, Wholesale outlet

(The above diagram is indicative and varies between chains. Besides the above distribution channel, the principal and manufacturer can also deliver food products directly to their distributor.) This can further lead a great problem for the US exporter because it would be easier for Thailand to rather do export. A decline in currency would also reduce the purchasing power of Thai baht when import from USA. Moreover, a bad performance of the nation economic can make the government to increase the tax rate on import product. This can affect the investor to stop importing and however it will affect the USA economy too. Therefore, an increase or decrease in inflation rate, government spending and exchange rate can have a great affect on import and export field.

According to Busaba Chirathivat (Thai Retailers Association president) Thailand's retail sector is expected to continue growing by 7-8 per cent by the end of this year as a result of the new government which is expected to help boost the Consumer Confidence Index. To attract additional foreign investment, the government of Prime Minister Abhisit has promised to look for ways to expand investment opportunities and focusing more on green technology and manufacturers. Looking on another economic factor is the inflation rate. The inflation rate in Thailand was last reported at 4.08 percent in July of 2011.

From 2000 until 2010, the average inflation rate in Thailand was 2.51 percent. Therefore, Thailand economy used to get benefits from low inflation rate but at currently thing is getting expensive. Last year in 2010, Thailands retail market remain strong as Thai economy has improved because of the foreign tourists return and the rising demand from Chinese and Indian economies which help increase Thai export sector. According from the statistics provided by the Ministry of Labor, the foreign corporations in the retail field such as Tesco Lotus, Big C, Carrefour, Siam Makro and seveneleven have provided steady increase with a large number of jobs like 135,526 workers working in retail industry in 1990 while 195,299 in 1999. During between the year 2000 to 2005, employment in the service industry expanded by 2.6 million compared to 1.6 million in the manufacturing industry. Currently there are around 12.6 million workers are in the service industry and the demand is growing by 5 % per year. It can also be seen that in 2010 with positive economy performance has increase a high competitive environment in retail industry. The retailer like Tesco Lotus expanded with large scale on both large and small format not only in Bangkok but also in provinces. On the other hand, Big C opened 4 hypermarkets, 2 Juniors, and 9 Mini Big C stores. Moreover, in 2010 Big C had acquired Carrefours Business operation to become a leader of hypermarket operator in Thailand with similar to Tesco lotus in 2011. 2.3 Social Culture Environment It must also take into a consideration for the retail industry that the social factors do affect the retail business that comes in a broad range of categories. Most importantly there are key factors that retailers must make themselves aware of when they trying to decide where to locate their businesses. Social factors often include the cultural aspects, health consciousness, population growth rate, age distribution, income and lifestyle of peoples. Unlike in U.K where a trend of getting internet access at home and buying online is developing. Thai people would rather go with family to retail mall and shop everything by themselves in one trip. With political decision about the policy to increase the wages of employment to be 300 baht and worker with bachelor degree must be paid at minimum salary of 15000 baht. This can help to improve the economy because the more income consumers have will make them spend more. Therefore, it is important that the company must operate in accordance with the social systems in order to gain good reputation and effective public image. Customer service has become a more visible component of the retail business with stores offering incentive and loyalty programmes to improve

satisfaction of customers. On the other hand, cultural aspects are very important in order to understand the various needs of different individuals that belong to different cultures.

2.4 Technological Environment The most important factor that shape people's lives is technology. Technology plays an important part in the retail industry. There are still many businesses that do shop online. Retailer companies with advancement in technology can have a competitive advantage over the competitors. The technological factors are involved with the new inventions and ideas such as R&D activity, automation, logistic with faster distribution channel in order to distribute product by the use of technologies to support marketing information systems and manage good relationship with customer and providing an effective services to satisfy them. Big retailers like Big C and Tesco lotus use modern technology to enhance the experience their customers by giving the loyalty cards that are as use as one way of technology in order to keep the track consumer spending habits and buying trends. This technology help the companies to exactly know who, what, when and how people are buying certain products and the companies can come up with their promotional campaigns. Retail companies also uses technology to enhance their stores safety, security and communication is through the use of radios that give retailers the perfect way improve their communication and performance between themselves and customer by allowing the members of staff to communicate over a wide area but they can be used as a health and safety tool so workers can report accidents, check stock levels and stay in touch across the entire site from the shop floor to the distribution area.

REFERENCES http://www.nationmultimedia.com/2011/01/19/business/Chinese-storm-looms-over-retail-industry30146662.html http://www.businessweek.com/news/2011-06-23/thai-banks-retailers-to-lead-stock-rebound-top-fundsays.html http://retailindustry.about.com/od/famousretailers/a/asian_2010_largest_retailers.htm

http://www.euromonitor.com/retailing-in-thailand/report http://thairetail.blogspot.com/search?q=big+c http://www.economywatch.com/world-industries/retail-industry.html