Growth Of Supermarkets And Marketing Chains In Thailand Marketing Essay

Published Date: 23 Mar 2015

Retailing has significantly played an important role in Thailand economy since 1981. Retail business both traditional and modern retailing are linkages between producers and consumers. Most of products can be distributed from producers to consumer through many types of retail outlet.

In the last 30 years, agricultural sector had played major role in economic development as major export products and domestic products. Agriculture sector contributed about 20% of Thai Gross Domestic Product (GDP) in 1981, the second largest sector followed by wholesale and retail trade with 18% of GDP. At present, while agriculture had been decreasing its role in GDP due to economic structural changing, wholesale and retail trade has been taking over agriculture sector. In 2008, non agricultural sector accounted 91% of GDP, while agriculture sector accounted only 9% from total value 9,105 billion baht (market value). In this sector, manufacturing and wholesale and retail trade were major sectors with 40% and 14% respectively.

As increasing its role in Thai economic, wholesale and retail trade sector has stepped up their value from 800 billion baht in 1999 to achieve 1,100 billion baht in 2009 with approximately 400,000 stores both wholesale and retail (Department of Internal Trade, Ministry of Commerce, 2008). In Asia, Thailand is one of the fastest growing food retailing. (Shannon, 2009). Figure 4.1 and table 4.1. show historical data of GDP contribution.

Figure 4.1: Contribution of major sector in Gross Domestic Products

Table 4.1: Contribution of major sectors in Gross Domestic Product

Year

GDP 1 ( billion baht)

Contribution to GDP

Growth Rate

Agriculture

Manufacturing

Wholesale and retail trade

Transport & communication

others

Total GDP

Agriculture

Manufacturing

Wholesale and retail trade

Transport & communication

others

Agriculture

Manufacturing

Wholesale and retail trade

Transport & communication

others

1981

194.0

224.3

177.9

60.2

311.3

967.7

20.0%

23.2%

18.4%

6.2%

32.2%

- 

 -

 -

- 

 -

1985

227.3

268.1

197.4

85.9

412.4

1,191.3

19.1%

22.5%

16.6%

7.2%

34.6%

4.5%

-1.4%

4.4%

6.7%

32.5%

1991

282.7

604.3

362.6

157.6

704.5

2,111.9

13.4%

28.6%

17.2%

7.5%

33.4%

7.3%

11.7%

7.3%

7.4%

70.8%

1992

296.3

672.6

378.7

172.8

762.2

2,282.6

13.0%

29.5%

16.6%

7.6%

33.4%

4.8%

11.3%

4.4%

9.6%

8.2%

1993

289.1

747.9

408.5

191.4

834.0

2,470.9

11.7%

30.3%

16.5%

7.7%

33.8%

-2.4%

11.2%

7.9%

10.8%

9.4%

1994

303.4

819.1

446.7

213.3

910.5

2,693.0

11.3%

30.4%

16.6%

7.9%

33.8%

4.9%

9.5%

9.4%

11.4%

9.2%

1995

276.6

958.4

516.6

239.2

951.0

2,941.7

9.4%

32.6%

17.6%

8.1%

32.3%

-8.8%

17.0%

15.6%

12.2%

4.4%

1996

288.8

1,021.4

526.6

267.3

1,011.2

3,115.3

9.3%

32.8%

16.9%

8.6%

32.5%

4.4%

6.6%

1.9%

11.7%

6.3%

1997

286.8

1,036.2

510.6

279.9

959.1

3,072.6

9.3%

33.7%

16.6%

9.1%

31.2%

-0.7%

1.4%

-3.0%

4.7%

-5.2%

1998

282.6

923.6

443.1

254.5

845.9

2,749.7

10.3%

33.6%

16.1%

9.3%

30.8%

-1.5%

-10.9%

-13.2%

-9.1%

-11.8%

1999

289.2

1,033.4

458.3

270.1

821.0

2,872.0

10.1%

36.0%

16.0%

9.4%

28.6%

2.3%

11.9%

3.4%

6.2%

-3.0%

2000

309.9

1,096.2

474.8

290.4

837.1

3,008.4

10.3%

36.4%

15.8%

9.7%

27.8%

7.2%

6.1%

3.6%

7.5%

2.0%

2001

320.0

1,111.5

469.6

310.1

862.5

3,073.6

10.4%

36.2%

15.3%

10.1%

28.1%

3.2%

1.4%

-1.1%

6.8%

3.0%

2002

322.2

1,190.8

479.7

331.2

913.2

3,237.0

10.0%

36.8%

14.8%

10.2%

28.2%

0.7%

7.1%

2.2%

6.8%

5.9%

2003

363.0

1,318.3

493.7

340.6

952.5

3,468.2

10.5%

38.0%

14.2%

9.8%

27.5%

12.7%

10.7%

2.9%

2.9%

4.3%

2004

354.4

1,426.3

517.3

366.3

1,023.8

3,688.2

9.6%

38.7%

14.0%

9.9%

27.8%

-2.4%

8.2%

4.8%

7.5%

7.5%

2005

347.9

1,499.9

541.9

383.9

1,084.4

3,858.0

9.0%

38.9%

14.0%

10.0%

28.1%

-1.8%

5.2%

4.8%

4.8%

5.9%

2006

364.0

1,589.2

565.9

407.9

1,132.7

4,059.6

9.0%

39.1%

13.9%

10.0%

27.9%

4.6%

6.0%

4.4%

6.2%

4.5%

2007

370.5

1,687.4

592.1

431.9

1,177.7

4,259.6

8.7%

39.6%

13.9%

10.1%

27.6%

1.8%

6.2%

4.6%

5.9%

4.0%

2008

389.1

1,753.5

603.2

430.2

1,194.0

4,370.1

8.9%

40.1%

13.8%

9.8%

27.3%

5.0%

3.9%

1.9%

-0.4%

1.4%

Note: 1 GDP at constant price (year 1988)

Source: Office of the National and Economic Development Board, Thailand

4.2 Type of Retail outlet

Retail outlet can be classified in various aspects. Food and Non Food outlets are classified base on kind of product sold. Outlet format and managerial style are also used to classify as Traditional and Modern outlet. Type of retail outlets can be classified as figure 4.2

Retail Sector

Traditional Trade

Modern Trade

Fresh Market

Mom and Pop Shop

Hypermarket

(Tesco Lotus, Big C)

Supermarket

(Tops, Villa)

Cash and Carry

(Makro)

Category Killer

(Power Buy, HomePro)

Department store

(Central, The Mall)

Convenience store

(7-Eleven, 108shop)

Specialty store

(Boots, Watson)

Booth, Kiosk, Stall

Periodic Market

Remark: name in blanket is example of store.

Source: Adapt from Kitiveshpokawat,P. (2008) , Wongsakul, T. ( 2004) and Chirathiwat ,S. (1998)

Figure 4.2: Structure of Thailand Retailing

Retail sector of Thailand can be classified into 2 major categories; Traditional trade and Modern Trade.

4.2.1. Traditional trade comprises of several features and has been long with Thai society. As showed in figure 4.2, it can be classified in to 4 major formats.

4.2.1.1 Mom and Pop shop are traditional features of Thai grocery store. They operated at lower operational costs, no professional managers are hired. Most lack access to credit from financial institutions. (Wiboonpongs et al, 2004)

4.2.1.2 Fresh Market is generally an open food market. Some of the common names include "Cultural Markets" and "traditional markets". Fresh markets mainly sell fresh vegetable, fruit, flower meat and other grocery products.

4.2.1.3 Periodic Market or flea market has many retail vendors offering a range of products at discount prices in plain surroundings. It is rooted in the centuries-old tradition of street selling-shoppers touch and haggle over the prices of items.

4.2.1.4 Kiosk/ Stall

4.2.2. Modern Trade comprises of 7 categories. Characteristic of each modern retail format are varied among countries. Characteristic of Thailand modern retail outlet can be describe as table 4.2.

4.2.2.1 Department store is a large retail unit with an extensive assortment (width and depth) of goods and service that is organized into separate departments for purposes of buying, promotion, customer service, and control. It has the greatest selection of any general merchandise retailer often serves as the anchor store in a shopping center or district, has strong credit card penetration, and is usually part of a chain.

4.2.2.2 Hypermarket or Superstore is a retail self-service establishment offering a broad range of food and non-food products, with car parking facilities and with a range of floor space depending on country such as Belgium, Denmark, Spain, France, Greece, Italy, Luxembourg, Netherlands, Portugal 2,500 square meters or more; Germany 1,500 square meters to 5,000 square meters and Ireland, United Kingdom 2,323 square meters or more. These superstores have a much reduced non-food section compared with continental hypermarkets. (Euro stat, 1993, "Retailing in the European Single Market", Office for Official Publications of the European Communities, Luxembourg.)

4.2.2.3 Cash and Carry or Wholesale club is a bare-bones type of retailer. Merchandise is generally displayed on open pallets, with boxes cut open for display. Customers must buy memberships in order to shop in a Wholesale club. Makro is only one wholesale club or cash and carry store in Thailand. (Sternquist, 2007.)

4.2.2.4 Supermarket is a departmentalized food store with a wide range of food and related products; sales of general merchandise are rather limited. (Berman, 2001). At the beginning of 1990 century, the supermarket became the dominant type of retail food outlet. Stressing low prices and self-service. (Morgenstein et al, 1992).

4.2.2.5 Convenience store is usually a food-oriented retailer that is well located, is open long hours and carries a moderate number of items. This type of retailer is small, has average to above-average prices, and average atmosphere and customer service. (Berman et al, 2001) 7-Eleven is the largest food-based convenience store chains in Thailand.

4.2.2.6 Category Killer is an especially large store. There is an enormous selection in its product category, and it features relatively low prices. There is an enlarged trading area with customers drawn from greater geographic location. Crown books and Home Depot are

Table 4.2: Comparison of retail type characteristic

Type of retail

Department store

Hypermarket

Cash and Carry

Supermarket

Specialty store

Category Killer

Convenience Store

Product type

Non food product and luxury goods

Food and Non Food

Food and non food

Focus on Fresh food and grocery products

Health, Beauty and accessories (HBA) and drugs

Depend on category of store i.e. sportswear, home product , electric appliance

Ready to Eat, Drink, Food, Grocery and Books

Store Chain

Central, The Mall, Zen, The Emporium, Robinson

Tesco Lotus, Big C, Carrefour, Tesco Lotus Value, Mini Big C

Makro

Tops, Home Fresh Mart, Villa, Food Land

Boots, Watson

Power Buy, Super Sport, Home Pro, Home Work

BoonTavorn

7-11, 108 shop, Family Mart, Tesco Lotus Express, CP Fresh Mart

Price

Average to above-average

Competitive

Low

Competitive

Competitive to above-average

Competitive

Average to above-average

Target Customers

High-Medium

High-Low

High-Low

High-medium

Medium

High-Medium

Medium-Low

Target

Location

Central Business District (CBD)

Community area (Urban and Rural)

Community area (Urban and Rural)

CBD and Community

Department store, Shopping complex

Shopping complex, stand alone

Community

Salable area (Esq.)

Variety

3,500-15,000

4,000-12,000

800-1,500

variety

1,000-6,000

30-300

No. of store (2008)

39

205

41

293

n.a

n.a

6,272Source: Adapt from Thailand Research Development Institute (2002)

examples of category killer stores. For Thailand, Homework, Home Pro and Boontavorn are examples of category killer stores for home improvement products. Some countries call this type of store as "Big Box Store". (Retailing triumphs and blunders, Ronald D. Michman, Alan James Greco)

4.2.2.7 Specialty store concentrates on selling one goods or service line, such as apparel and accessories, toys, furniture, or muffler repair. In contrast to a mass marketing approach, specialty stores usually carry a narrow, but deep, assortment in their chosen category and tailor the strategy to selective market segments. (Berman et al, 2001). Boots and Watson are example in this categories for specialize in personal care product line.

4.3. Evolution and development of Thailand retailing sectors

The traditional Thai retail stores take the form of a shop-house and are a family business. (Feeny et al, 1996). While the first major step in the modernization of Thai retailing emerged over 40 years ago. According to TDRI (2002), the evolution of retailing sector of Thailand was divided into four distinct stages. At present, the evolution could be updated to five stages as following.

Stage 1: Incubation of Department store (1956-1982)

After, Central department store opened its first store, Wang Burapa branch in 1956. Then the first entry of a foreign department store, Japanese retail group Daimaru opened "Thai Daimaru" on Rajdamri road in 1964. In this period, 2nd branch of Central department store was established on Silom road in 1968. The third department store, Robinson, opened its first branch at Victory Monument in 1979. Followed by The Mall department store opened on Rajdamri road in 1981. Moreover, there was many small and medium size of Thai department store opened in this period such as Pata, Cathey, Merry King, Banglampoo. These department stores targeted to capture middle to lower income customers.

Key factors of development of department stores were successful in economic development since 1957 and rapidly increased of urban per capita income. In addition, new facilities and services provided in the stores such as escalator and fixed price offering also attract huge customers.

Currently, all of mentioned department stores were terminated and closed.

Stage 2: Expansion of department stores to vicinities (1983-1989)

Starting around mid of 1970s, Bangkok population had immigrated to vicinities area. Lack of public transportation service linkage, at that time, drove people to own their cars. In a consequence, department store expanded to vicinities area to serve these people. The first department store in shopping mall, Central Lard Prao, was established in northern Bangkok area in 1983. This mall created trend of shopping center which combined a department store, restaurants, and shops in one shopping center. In addition, The Mall also expanded its second branch to Ramkamhaeng road, eastern Bangkok area same year. After that, The Mall had continuously expanded their vicinities branches such as Ramkamhaeng 2nd branch ( 1986) and Ta Phra branch in southwestern Bangkok (1989). Nowadays, these department store have operate to serve customers in Bangkok suburb area.

Stage 3: Rising of new retail category and over investment (1989-1996)

Two digit growth rate during 1987-1989 and financial liberalization had resulted in enormous expansion of Thai retail business. In this period, the first convenience store, Central Minimart, had been originated by Central group. Followed by 7-Eleven, Japanese convenience store franchise held by Charoen Pokpand (CP) group in 1989, AM-PM in the next year and Family Mart in 1991. These convenience stores were located in community and crowded area such as bus stop. Aggressive expansion of 7-Eleven and AM-PM resulted in terminate of Central minimart. Cash and Carry was another new retail format initiated in 1988. Makro was the first cash and carry, joint venture of CP group and SHV Holdings N.V. of the Netherlands. Department store expanded their business to capture high-end customers for avoid high competition with other new format. Consequently, Zen at World Trade Center by the Central group and The Emporium on Sukumvit road by the Mall group were opened in 1992.

Furthermore, the first store of hypermarket, specialty store and shopping mall had been launched in this period. The CP group and Central group launched their first hypermarket, "Lotus" and "Big C" respectively.

Stage 4: Taking over by multinational hypermarkets (1997-2003)

Financial crisis in 1997 had enormous impact on Thai retail business. Bubble of economic and devaluation of Baht resulted in ability of debt payment. This year was starting point of multinational retail chain creeping into Thailand. The CP group was the first Thai retail business that sold its "Lotus" hypermarket to Tesco, leading hypermarket of United Kingdom. Big C by the Central group was sold to Casino group from France. Changing during this period has drastically impact on Thai retail structure and stakeholders. The pattern of retail trade switched from traditional trade to modern trade. Moreover, "private label or house brands" was introduced by hypermarket. House brands tend to offer low prices products for customers due to its low marketing cost.

Stage 5: Transformation of store format (2004- present)

As rapid growth of modern retail store particular on hypermarkets, many government policies and actions had been applied to protect local and traditional retailer, wholesaler and supplier. Town planning regulations were used to control expansion of multinational hypermarkets such as only 300 sq.m. salable area store can be opened within municipality area. These resulted in store format transformation of hypermarket to convenience store. Therefore, Tesco Lotus and Big C transformed its hypermarket store, over 8,000 sq.m., to under 300 sq.m. convenience store named Tesco Lotus Express and Mini Big C. Moreover, big hypermarkets transformed their formats to suit with target customer and try to close their customers. Shanon (2008) noted that with the objective of opening as close to shoppers as possible, CP group opened CP Fresh Mart which offer fresh meats, in addition to fresh and frozen food.

Rapid growth of food retail chain showed in figure 4.3 and table 4.3. In November 2008, there were 205 hypermarkets, 293 supermarkets and 6,272 convenience stores. Tesco Lotus is the largest chain in Thailand with total 538 stores. Hypermarket in Thailand was sharply growth in last 10 years with 400% growth. Among supermarket type, Tops supermarket is the largest supermarket with total 159 stores capturing every class of customers.

Figure 4.3a: Number of modern retail store by type of store, year 1997-2008

Source: Applied from AC Nielsen, November 2008

Figure 4.3b: Number of convenience stores, year 2002-2008

Source: Applied from AC Nielsen, November 2008

Table 4.3: Number of Food Retailing Store in Thailand, as of November 2008

Retail Category

Year

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Hypermarket

7

41

46

58

77

91

107

120

135

145

173

205

Big C

19

20

20

23

29

33

36

40

45

49

54

66

Carrefour

6

7

9

11

15

17

19

20

23

24

27

30

Tesco Lotus

12

14

17

24

33

41

52

60

67

72

92

109

Cash and Carry

15

16

17

19

20

21

23

29

29

29

41

41

Makro

15

16

17

19

20

21

23

29

29

29

41

41

Supermarket

46

50

61

67

78

95

96

84

110

126

143

190

Tops

38

38

41

41

44

49

47

71

85

89

93

94

Food Lion

2

5

13

18

26

34

36

 -

-

-

-

-

Foodland

-

-

-

-

-

-

-

-

-

-

-

11

Home Fresh Mart

6

7

7

8

8

8

8

8

9

9

9

9

Jusco

-

-

-

-

-

-

-

-

-

-

-

8

Leader Price

-

-

-

-

-

4

4

4

5

5

2

1

Tesco lotus Supermarket

-

-

-

-

-

 -

1

1

11

23

39

53

Villa

-

-

-

-

-

-

-

-

-

-

-

14

Convenience Store

-

-

-

-

-

2,788

3,012

3,433

4,124

5,288

5,807

6,272

7-Eleven

2,009

2,354

2,739

3,348

3,798

4,321

4,688

am/pm

97

 -

-

-

- 

-

-

Family mart

 -

-

-

- 

599

504

551

Jiffy (Conoco)

138

141

143

145

147

146

146

Mini Big C

 -

-

-

- 

1

2

7

PETRONAS (Suria)

94

95

95

100

98

98

101

Select (Shell)

108

113

119

113

111

111

107

Star mart (Caltex)

205

173

185

187

181

185

185

Tesco lotus Express

8

11

46

130

245

330

376

Tiger mart (Esso)

129

125

106

101

103

103

101

Tops Daily

 -

-

-

- 

5

7

10

Source: AC Nielsen, November 2008

4.4. Criteria and regulation related to modern retailer expansion

4.4.1 Expansion Criteria

Since more than 90% of retail sales are made at stores, the selection of a store location is one of the most significant strategy decisions a typical retailer makes. (Berman et al, 2001). In history, location of retail and service activity was described by "Christaller's central place theory" (Lee and McCracken, 1980). At present, all of location theory has been applied for realistic environments. Thailand retail chain had applied the analysis of retail site, trade area and location strategy technique from foreign retail chain who taking over Thai retail business such as Tesco, Carrefour and Casino. The process of site acquisition, location and market analysis of those chains are different in detail, but overall processes are similar. The figure 4.4 shows overall process of modern retail chain's decision process for opening each store.

Land Owner

Broker

Real Estate/ Property section

Analysis Section

Preliminary survey

Financial/Investment Analysis

Market Survey

Property Acquisition

Market and financial Analysis

Decision Making

(Board Approval)

Locate store

1st Submit

Approve

Skip

Reject

2nd Submit

Approve

Skip

Reject

Review

Figure 4.4: Store location analysis process

(source: from interview)

Stage I: Property Acquisition

Most of modern retail formulates their expansion strategy for a period. Normally, criteria for priority the strategy location are demographic data (population, household), income and expenditure and competition situation. Real Estate or Property section of each chain will seek for the location followed the expansion strategy. Broker, who is intermediary between land owner and retail chain, usually involves in this stage. The broker can be both brokerage firm and individual person. They will supply lands according to expansion strategy of each chain. Occasionally, sites are directly offered by land owner.

Stage II: Site Analysis

Then, strategic site with its description such as size, shape, location will be passed to Analysis section. For introductory of analysis, preliminary survey will be conducted for a few days to get initial decision from executives. If the site is potential, it will be passed to Market Survey for in-depth analysis. Following are key areas of analysis in market survey.

Site analysis is focus on site description (type of location, size, current usage, frontage, shape), amenities (such as competitor, hotel ,hospital, education institute, fresh market), accessibility (transportation facility, road, future infrastructure)

Isochrones driving analysis

Isochrones is equal drive time catchments which show everywhere that can be reached within specified time from a specified point or points. Isochrones is one method for defining catchment area based on drawing a line surrounding area at a given driving time from the target location. Within Isochrones area, market potential, market size, available hypermarket size, direct and indirect competitors within catchment area are analyzed. Figure 4.5 shows example of accessibility isochrones travel time in different time.

Figure 4.5: Example of accessibility isochrones travel time

(Source: GIS Bureau ,www.mds-mottmac.com accessed on 2 September 2009)

Competitor analysis

Based on Isochrones driving time, competitor analysis will be analyzed in each catchment area. Competitors will be clarified in each type such as hypermarket, supermarket, department store, fresh market. Strength and weakness of each competitor are considered with their information such as turnover, salable area and type of customer. The objective of this analysis is to assess competition situation and competitiveness of site.

SWOT Analysis

SWOT analysis is used to analyze overall factors of site. Strengths (S) and Weaknesses (W) are internal factors. Opportunities (O) and Threats(T) are external factors.

Trading area or Catchment area Analysis

Trading area is a geographical area containing the customers of a particular firm or group of firm for specific goods or service. Evaluation of trading areas in terms of demographic and socioeconomic characteristics of target customers is beneficial for retailer such in turnover forecasting and promotional activity planning. Trading area can be classified in 3 parts, primary, secondary and third or fringe. The primary trading area is the area closest to the store and accounts 50-80% of a store's customer. The secondary trading area is located outside the primary area and account and additional 15-25% of store's customer. The third or fringe trading area includes all the remaining customers and some out shoppers, who are willing to travel greater distances. In this stage, analysis section will outline trade area and explain characteristic of trade area. Interviewing customer within trade area is used to validate conclusion. Then turnover is estimated by calculation of household and/or population with consumption expenditure in each defined trade area. Figure 6 shows example of trading area of four sites.

Figure 4.6: example of trading area of four sites.

(Source: www.mappinganalytics.com/trade-area-analysis/... Accessed on 2 September 2009)

Financial analysis is to analyze total costs, including land cost, construction and operating expenses based on type and size of store, and potential revenue/turnover that derived from trading area analysis.

Stage III: Decision Making

After market analysis had been done, the report will be submitted to executive for consideration. If site is potential but not feasible in financial, the revision of turnover or cost would be considered. When project is approved, store design and structure design will be processed by related section and/or professional firms. Store layout and facilities will be designed based on recommendation from analysis section to satisfy target customers.

4.4.2 Rule and Regulation related to store expansion

Thai Government has effort to control an aggressive expansion of modern retailers especially multinational hypermarkets. (Euromonitor, 2006). Major controllers are acts, regulations and projects issued by both Ministry of Interior (MOI) and Ministry of Commerce (MOC), which are different objectives of control. MOI aims to optimize the use of land for each area, while MOC aim to promote fair and free trade for all stakeholders.

4.4.2.1 Regulation by Ministry of Interior

As usual with other construction, retail store is restricted by zoning restriction called "Town Planning Act B.E.2518 (1975)". The Town planning Act enforces on use of land to meet the purpose of each zoning, such as commercial area (red zone), government office area (blue zone) and agriculture area (green zone). Master Plan under Town Planning Act is different in each area. Together with the Building Control Act, B.E. 2522 (1979), and the Environmental Impact Assessment regulation, developing a new retail store is required to meet the regulation under these laws. For instance, commercial building with a selling space over 1,000 sq.m. cannot establish within 15 kilometers of city center, the building is spaced at least 15 meters away from neighboring land or public roads and the 10-metre-high building must be at more than 500 meters away from government offices, temples, archaeological sites and educational institutes. Under many conditions, the possible location is outside the community given the fact that the price of the land in town is very high and constructing small commercial building is not worthwhile.

The implementation of city planning to control retail stores does not prohibit their expansion but helps optimize the use of land in towns as well as alleviate downtown traffic congestion. As huge retail stores and wholesale stores normally gain immense popularity due to all conveniences they offer, a suburban location with good transport network would be thus more appropriate.

4.4.2.2. Regulation by Ministry of Commerce

Ministry of Commerce (MOC) enacted Trade Competition Act B.E.2542 (1999) and a Goods and Services Price Control Act to control all wholesale and retail business in perspective of fair trade.

Furthermore, MOC to promote fair dealing between modern retail chain and suppliers and promote Thai entrepreneurs to develop their own brands, new legislation called "Retail and Wholesale Act" which is drafted and brought for parliamentary debate since few years ago. This draft is more likely to impact foreign retail chains. Thus, for preventing any conflicts following implementation, MOC organizes public hearings aimed at ensuring fair conditions for businesses covered under the law. The hearings will focus on types of businesses to be controlled, the agency authorized to approve new businesses, support for small retailers, and punishment of violators. The draft will set a central body called "The Retail and Wholesale Supervision Committee", which will be charged with regulating retail nationwide. The committee will set guidelines relating to retail store operation such as the size and proximity to city center, area of locating, operating hours. In perspective of traditional and local small retail shop, the draft states to provide experts to give them suggestions on how to improve their services. Under the draft, existing modern retail chain can expand but must comply with new regulations to leave room for local retail business.

In additional, MOC promotes the strengthening of local retail shops by increasing their competitiveness. Department of Business Development (DBD) had emphasized on a network creation and linkage of local wholesale and retail business in each area. Business development and connections between manufacturers were also pursued. At presents, over 1,000 local stores in over ten areas, for example located on Chonburi, Sakonnakon and Chanthaburi, joined this project. Furthermore, the MOC also provided them with knowledge of retail business management skill such as distribution system and human resource development.

In conclusion, the government can control an aggressive expansion of modern retail chain through above laws and regulations. However, those tools temporarily lessen impact of these aggressive expansions. The new Retail and Wholesale act is still needed to issue.

4.5. Impact of multinational retailer expansion

Many type of modern food retail store had impact to their stakeholders. Figure 4.7 shows general linkage between producer/farmer and consumer through retail system including important stakeholders which are producer/farmer, distributor, retailer/wholesaler and consumers. Retail system generally started by producers and farmers. Goods both food and non-food products are usually handled by intermediaries which are distributors or suppliers. Both distributors and suppliers will supply products and agricultural produce, which they collected from producers, to retail outlets both traditional and modern trade. From the past, products were delivered from distributors to wholesale outlets, retail outlet and consumer respectively. Nowadays, many traditional retail outlets buy goods from multinational retail chains. This resulted in decreasing of power of distributors and suppliers. Otherwise, multinational retail chains have more bargaining power. Furthermore, they export local products to their chain in their home.

Since 1997, after Asian financial crisis, many studies have been conducted by Thai to explore the impact of multinational food retail chain particular on consumer and traditional retail outlets in several region of Thailand. While, international researchers explored effect of food retail chains on smallholder farmer and how to access their supply chain.

Producer/Farmer

Distributor/ Supplier

Modern Trade

Wholesaler

Traditional Trade

Retailer

Domestic Consumer

Export

Figure 4.7: General Linkage in retail system

(source: Modified by author)

4.5.1. Impact on Producer and Farmers

Stokke (2008) noted that farmer supplying supermarkets are relatively more productive, but many farmers are excluded from the supermarket supply chain due to capacity constraints in production and marketing. PricewaterhouseCooper (2005) also suggested that farmers can benefit by being integrated into the food supply chain. Farmers and modern trade players can explore partnership models for mutual benefits. Advantage of smallholders can be drawn upon Gaiha and Thapa (2007). The advantage is linked to production technologies and associated labor requirement. For example, Thai Fresh United has a portfolio of 140 herbs, spices, vegetables and fruits, each of which has stringent quality requirements. Smallholders, especially women, are able to give the careful attention that such crops require.

4.5.2. Impact on traditional retail

In Thailand, the high competition among modern trading chains has had a large negative impact on traditional stores through reducing producers' margin. (Wiboonpongs et al, 2004). Negative impacts resulted in improving of traditional store. It was noted that in Singapore, traditional wet markets were beginning to fight back against competition from supermarkets by making themselves more attractive places to shop.

4.5.3. Impact on Consumer

Modern retail chains seem to be benefit to consumer. PricewaterhouseCoopers (2005) pointed out that consumer in India to benefit from widely available choice. Modern trade in India resulted in increased availability of choice in products and services, rationalization and convergence of prices, better quality of food and non-food products and equalization in the standards of living available to consumers between countries. As result of Thai consumers, TDRI (2002) summarized that multinational retail chain had positive impacts. Multinational retail chain offer more variety of shopping which could response their needs and lifestyles. Thai consumers have been benefited from variety of services and facilities comparing to traditional stores such as cheaper price, delivery service, quality standard of products and more convenience parking.

4.5.4. Impact on Export

Most of big retail outlets in Thailand are multinational chains which have many branches and outlets around their regions; Europe, Asia America and Latin America. With an offering variety of products to their customers, good quality products of Thailand have been exported to their stores. This is one opportunity to increase export volume and value of Thai GDP. For instance, Carrefour Sourcing Division played the role of exporters for Thai products to international market since year 2000. During the past 5 years of supporting role for export industry, more than 30 suppliers of food products and 24 manufacturers of nonfood products such as handicraft, shoes, flower that are able to widen their market to international scale with Carrefour. For food industry, Carrefour Quality Line Mangoes has been exported weekly basis to Singapore market. With network of Carrefour stores in more than 30 countries worldwide, the opportunity of local manufacturers in Thailand is more broaden.

4.6. Food retail chain and fresh food

Globally, agricultural commodities are classified into 4 groups - cereals, vegetables and fruit, livestock, and fuel crops and vegetable oils. For Thailand, the Office of Agricultural Economics (OAE) has classified Thai farm crops into 8 groups using Thailand Standards Industrial Classification. Those crops are food crops, oil crops, fiber crops, vegetable, fruit tree, perennial tree, cut flower and others. Focusing on vegetable and fruit tree, OAE provide information on some major produces which are garlic, shallot, onions, potatoes, chilli, tomatoes, baby corn as vegetable and pineapple, longan, rambutan, durian, mangosteen, lichee, lemon and bananas as fruit. Vegetables and fruit annual production of Thailand has reached 11.3 million tones with 0.8% of world market share in year 2004. There are 1.24 million rais of land under vegetable and fruit cultivation in Thailand. (FAO statistic report, 2004)

Fresh Fruit and Vegetable (FFV) are important for small farmers and typically produced under less coordinated system. Its marketing system has changed from traditional marketing system to supermarket and hypermarket. Space for FFV in these retail chains has increased rapidly. Consumer behavior was one of factors driven the changing. This changing has significantly impact to market access of farmers.

Marketing system for FFV and had been developed over the past several decades as following;

From the past practice

Farmers mainly supplied their produces to wet market both directly and through intermediaries. Produces mostly supplied within their area due to low development in marketing chain and logistics. Most of retail store were Mom & Pop grocery shop which represented traditional groceries. Those shops sold limited variety of FFV which were supplied from wet market.

Since 1970s

Thai supermarket chain, Foodland, was originally spread in Bangkok-urban areas. These supermarket served customers with a wide range and large FFV. Supermarket had slightly changed consumer's behavior. Most consumers still buy FFV from traditional market - wet market and mom & pop grocery shops. The reasons were cheaper and fresher produces of wet market. In rural areas, only mom & pop grocery shop and wet market served consumers. Farmer directly sold their products to consumers. However, there was not much market outlet for farmers.

During 1980s

Bangkok residential area expanded to suburb due to increasing in per capita income and population growth together with real estate and infrastructure developments. Change in living pattern such as spent less time on shopping and cooking, had drive consumers to shop at convenient place with one stop shopping such as shop in department store with supermarket within store.

At that time, most of supermarkets are local operated by department store owner and opened in their department store. The first hypermarket, Marko, was opened in 1988 in Bangkok.

In this decade, organic farming had also emerged and will be major product in supermarket in next decades. Organic FFV was supplied to urban supermarket as premium products. Note that, only a small number of farmers engaged in organic farming organized by private companies.

During 1990s

Early 1990s, many modern retail stores had been opened in many big cities other than Bangkok such as Chiang Mai and Sriracha. More hypermarkets were also rapidly opened in suburb area.

After economic crisis in 1997, Thai retail businesses sold their business to foreign investor due to business collapse and foreign direct investment promotion by government. For instance, they resulted in rapid expansion of modern retail trade especially hypermarket. All modern retail stores have spread from urban, big cities to medium cities and small towns even rural area across the country. These changes have impact on traditional grocery shops, wet market, marketing system for agricultural produce and consumers.

This was starting point of big changing in FFV marketing system. Expansion of food retail chain outlets together with increase in the export of processed food, FFV has increased its importance in value chain.

In this decade, a big market for FFV was opened in Patumtani province named "Talad Thai market". It became the largest FFV wholesale and retail market in Thailand for farmers and consumers. It is also the biggest FFV market in Asian. It represented a new image of wet market with cleanliness, technology and parking.

Since 2000s

Shelf space for FFV in modern retail stores, both hypermarket and supermarket has increased rapidly because urban consumers changed their behavior to shopping at modern retail stores. In 2002, 40% of fruit and 30% of vegetables were sold through supermarket and hypermarket in Bangkok area. (ACNielsen 2003). Those evidences seem to be new opportunity for farmers to participate in value chain expansion. Organic vegetables are also increasing popularity in the market place for domestic market mainly through modern retail stores with the raise of health concerns.

Joint venture with experienced foreign companies brought some benefits to local business. In addition, Technology and technical such as logistic management and procurement procedure can be transferred to local business. Most of hypermarket established their distribution center at strategic location (Wang Noi, Ayuttaya) to be a center for receive produce from supplier and distribute to their stores, also performed quality control and additional processing for their stores.

4.7. Fresh Food supply chain

In general, most of retail chains both supermarket and hypermarket sell same product category of fresh food which can be grouped as shown in figure 4.8.

Figure 4.8 Combination of Fresh Food section of Supermarket

(source : www.bigc.co.th accessed on 2 September 2009)

In many countries around the world there has been a marked tendency to shift from procurement by individual supermarkets, which may involve purchasing from wholesale markets, to a centralized system involving a central buying office for fresh fruit and vegetables, with several distribution centers in a country. In South East Asian, there has been a major shift in the structure of food distribution from small independent stores supplied by wholesale markets, to supermarket supplied by contracted producers and manufacturers. (Cadilhon et al, 2003). In Thailand, hypermarkets have been improving the supply chain of fresh produce and bring benefits to both farmers and customers. Oraphan (2006) highlighted supply chain management for fresh food products of modern retail chains as shown in figure 4.9.

Primary Producer

Manufacturer

Collector

Distribution Center

Wholesalers

Consumers

Retailers

Figure 4.9: Food supply chain of Modern Trade

(Source: Oraphan,2006)

Normally, producers are required to join certification. In this case small producers are to change long-standing production practices in order to supply supermarket. (Wiboonpong et al, 2004)

A wholesale market is considered a premier center of trade for food and other agricultural products. The wholesale market's target customers include farmers, collectors, broker, caterers, retailers and consumers. In Thailand case, Talad Thai is the largest privately owned wholesale market in Asia opened in 1995. The market is open 24 hours a day and d has 25,000 parking spaces. The emergence of supermarkets has not created any direct impact on wholesale markets as the former are located in larger cities and the latter serve the entire country. Furthermore, most suppliers to hypermarkets or supermarkets still depend on the wholesale market for their supplies. There are 6 specialized wholesalers in the market who deliver to supermarket chains. They source their products from farmers and farmers' groups, usually on the basis of a verbal contract. The emergence of hypermarkets has led the wholesale market to improve its efficiency and started using new technologies to face competition. Small farmers are still depending on the wholesale market to market their produce. (Tejathavon, 2003 and Chen et al 2005)

4.8 Government policies related to Fresh Food retailing

Due to increasing in role of modern retail outlets as major channel for FFV market, Ministry of commerce, Thailand (MOC) try to link and use multinational retail chains effectively. In March 2009, agreement between MOC and leading modern trades, Tesco Lotus, Carrefour, Big C, Makro and Tops Supermarket, were signed to increase their selling volumes for fruits and vegetables in domestic outlets and export markets. After agreement, they will purchase 20-30% of agricultural output to solve an oversupply and falling prices of FFV during the harvest season encountered by farmer. This program will help raise prices of FFV and solve oversupply problems.

For instance, Tesco Lotus will increase its volume of FFV from 30,685 tons a year to 45,000 tons. Of this amount, 5,000-10,000 tons will go for export to United Kingdom, its headquarter, with the total 8 billion baht.

Moreover, to directly supply FFV to consumer in upcountry and rural area, MOC also cooperate with local administrations nationwide to sell fruits and vegetables at local city halls. This program would release huge volumes of FFV directly to consumers. Not only domestic market, MOC by Department of Export Promotion is negotiating with modern traders abroad to increase their imports of FFV and seasoning products from Thailand. Targeted markets are China, Japan, the Middle East and neighboring countries. (The Nation, 31 March 2009)

In addition, distribution channel of garlic with a Thai garlic caravan to consumers was launched by MOC during oversupply period. Participating vehicles will distribute produces to various provinces such as Talad Thai, linked up grower with the producer of chilli paste and modern wholesalers and retailer with growers' cooperatives.