Monday, August 9, 2010

Worries of monopoly in Thailand Retail sector after Carrefour withdrawal

The Thai retail industry may have a better competitive edge if Big C Supercentre or Berli Jucker takes over the local operations of Carrefour. Otherwise, the industry will be monopolised in the near future if the French brand’s outlets are acquired by Tesco.

Currently, the retail business in Thailand is in effect an oligopoly, dominated by a few large companies. Retailers, therefore, have high bargaining power with suppliers. Although customers have enjoyed the resultant low-price policy of these retailers, consumers may suffer in the long run when the industry is dominated by only one retailer.
Carrefour, a French conglomerate and the world’s second-largest retailer, is planning to leave Singapore, Malaysia and Thailand, and is seeking offers for its units in these countries. Many companies have shown interest in taking over Carrefour’s outlets, of which there are now 41 in Thailand.

Central Retail Corp could be in the running to take over Carrefour’s hypermarket business in Thailand, estimated to be worth US$500 million (Bt16.2 billion) to $600 million, as the French retailer is seeking to dispose of its Southeast Asia assets.

Potential bidders are Big C, which is operated by the France-based Casino Group, and Tesco Lotus, a UK-based retailer and Thailand's largest retail entrepreneur. Berli Jucker is the only candidate that has never been involved in the retail business before. It is a manufacturing and trading conglomerate whose chairman is liquor tycoon Charoen Sirivadhanabhakdi.

An academic expert in the business said the retail business in Thailand was being challenged because of a lack of regulations governing the sector.

"Currently, retailers can open new businesses independent-|ly. Although there are some re-gulations such as the City Plan-ning Act and the Trade Competition Act, these laws do not forbid the aggressive expansion of the business nationwide," said the source.

Under the Trade Competition Act, if any enterprise has more than 75 per cent market share in an industry, it must split off |companies to prevent over-|dominance. However, in prac-|tical terms, those subsidiary |firms still belong to the mother company, which has full authority to instruct them to follow its policies. The act cannot prevent the expansion of the retail or any business.

Thailand now has too many retail outlets, in particular hypermarkets, compared with the population and density in each community.

"Carrefour has decided to move out of Thailand as it cannot compete in this unregulated environment. Carrefour has gradually expanded its business while some competitors have aggressively expanded, aiming to dominate the market," said the source.

According to a Commerce Ministry report, the incomes of the four retail giants have grown each year along with the rising numbers of new outlets. The income of Tesco Lotus is almost double that of its nearest competitors because it has the highest numbers of outlets. In 2008, the income of Tesco Lotus exceeded Bt130.06 billion, Big C had Bt76.51 billion, Makro had Bt73.18 billion, and Carrefour's income was Bt27.97 billion.

Jit Siratranont, a board member of the Thai Chamber of Commerce, said the Thai retail industry was heading towards a monopoly as the government had not seriously enforced the Retail and Wholesale Business Act to regulate the business.

He expected to see only one or two large modern retailers in the future. As a result, Thai consumers would have limited choice, and would face high prices in the long run.

Jit added that because of the low bargaining power of Thai suppliers, they would be unable to refuse to pay high entrance fees to ensure that their products were sold at these large outlets.

A senior official at the Internal Trade Department said that if Berli Jucker took over Carrefour, it would be the best outcome for the retail industry. More competitors would be in the market to balance the bargaining power of other players.

Moreover, the Thai style of operation was better at compromising than foreign styles.

Right now, Thai consumers may not see any negative impact from the retail oligopoly, as they enjoy cheap goods. However, they will suffer in the long run as giant retailers gradually destroy rival Thai enterprises. Once a single giant retailer dominates the market, Thai consumers will pay the price.

According to the Internal Trade Department, the number of hypermarket stores in the Kingdom has increased considerably in the past decade, from only 65 outlets to 851. There are now 685 Tesco Lotus outlets, 78 Big C outlets, 41 Carrefour stores, and 47 Makro stores.

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