Multinational discount stores continue to challenge department stores head-on, biting deeper into the local retail market share, but the competition has sharpened all players' determination to innovate.

The rapid growth of the multinationals is symbolised by Tesco Lotus, which has 27 outlets with three million square metres of sales space and a nearly 9% share of the market. All this has been achieved in only four years since UK-based Tesco teamed up with Lotus Supercentre and gradually increased its shareholding in the Thai operator.

Two French players-Carrefour and Casino Group, also continue to expand at a rapid rate, the former with its Carrefour hypermarkets and the latter through Big C Supercentres.

SET-listed Siam Makro Plc, the Iocal affiliate of the giant Dutch cash-and-carry wholesaler, has added about 150,000 square metres of new retail space in the past four years and the pace is yet to slacken.

In the first half of this year, multinational discount stores were on track to add 100,000 square metres of new retail space, compared with 70,000 in the same period last year. Big C and Tesco Lotus accounted for 95% of the growth.

Tesco Lotus has opened three outIets in the first half: in Chon Buri, Ubon Ratchathani and in Bangkok's Rattanathibet district, growing by 35,000 square metres.

Big C opened two outlets, one each in Don Muang and Ubon Ratchathani, with 20,000 square metres, and Carrefour added 14,700 square metres at Future Park in Bang Khae.

In the second half, Tesco Lotus plans to invest 4.03 billion baht in five more outlets: at Rama III, Bang Na Trat and Pracha Chuen in Bangkok, as well as Pattaya and Udon Thani.

Carrefour will spend 1.95 billion baht to open three outlets in Bangkok: at Ratchadaphisek, Bang Bon and Bang Pakok. Big C and Makro also plan two more outlets each.

With much of the prime retail space in central Bangkok now spoken for, the expansion trend is to the outskirts of the capital as well as the provinces.

Bangkok's western suburbs are especially lively, with at least three discount store chains seeking footholds in three districts: Bang Khae, Bang Bon and Bang Pakok.

Feeling the heat in Bangkok competition, Makro is looking increasingly to untapped areas of the provincial market. One outlet has opened in Surin, with others planned for Chiang Rai and another province yet to be named.

However, while discount stores have spurred a 33% expansion of selling space, the overall sales growth rate has taken a dip.

The Thai Retail Association was forecasting sales growth of just 5% to 7% for the first half, down from 10% a year earlier. First-quarter research from ACNielsen supports the scenario.

It said Thailand's retail business grew at a much slower pace than expected in the first quarter, with sales up 3% compared with 12% in the same period last year. At that rate, growth for the whole year would slip to 5% from 8% last year.

Major retailers said the decline was concentrated in the low and medium segments of the market, because both the baht and consumer confidence had bcen weakening.

"The first three months have been quite rainy this year," said Pittaya )earavisidkul, president of the Thailand Retail Association (TRA).

Retailers said deteriorating economic conditions included falling interest rates, declining consumer incomc and the lowering of official economic growth projections for the year to 3.5% or below, from 4.5%.

In June, the Bank of Thailand said general business confidence had fallen for the second month in a row, with more companies increasingly pessimlstic.

Nonetheless, the impact of multinational expansion has given rjse to populist sentiment among more nationalistic politicians that family-owned businesses are an endangered species that needs help. Among their proposals is zoning that would limit the establishment of giant stores to certain locations.

The number of family-owned shophouse retailers in the first half of this year was projected to decline by 10% from about 300,000 nationwide. The impact has been most pronounced in major centres such as Bangkok, Phitsanulok, Hat Yai and Chon Buri.

Thai-owned department stores, who were painted as the enemies of small family shops in earlier days, have also taken up the cry against the multinationals.

Among the recent casualties have been Super T of Tang Hua Seng and Supersave of the Imperial Group which packed up due to substantial losses of sales.

With prime retail space being snapped up by discount stores, department store operators have put expansion on hold, though that doesn't mean they're not investing in renovations and innovations.

Department stores are estimated to have invested betueen 300 million and 500 million baht on renovations in the first half in a bid to create a more attractive shopping atmosphere to combat discount stores' convenience advantage.

"We need continuous new activities to create freshness. That will pull in customers," said Chamnarn aytaprechakul, senior vice-president for marketing at The Mall Group.

About one billion baht has also been put into marketing and promotional events to build traffic.

The shift toward event organising has also resulted in significantly slower growth in advertising as businesses turn cautious about ad spending.

Advertising and media agencies predict a sharp decline in ad spending for the second half after growth of 15% last year and ll% in 1999. They say tbe industry is on track for 9% growth this year, mainly because some consumer-product giants have cut their budgets by 20% in line with a recession-induced slowdown in sales.

"We have to maintain marketing to increase both the desire to shop and the frequency of visits," said Mr Chamnarn.

Pricing was important, he said, but there were no economies of scale to be gained by waging a price war with discount stores.

The Mall has introduced a Super Shock programme that sells 100 basic grocery and wet-market items at 10% below cost.

"But if we offer appropriate and complete service, consumers will return," said Mr Chamnarn.

One hopeful trend for department stores has been the success of speciality stores, such as Power Buy and Super Sport, on their premises.

There are now 197 specialty stores with around 20 more expected by year-end.

Supermarkets, meanwhile, expanded only modestly in the First half. Tops Supermarket added just one outlet, while Food lion opened three, adding nearly 10,000 square metres of space.

With consumer spending at supermarkets declining because of the inroads made by discounters. operators are seeking new types of alliances. For example, the US oil firm Conoco has ioined with CRC Ahold (Thailand) Co, the operator of Tops, to offer logistics services for dry groceries to Jiffy convenience stores at 120 Jet service stations.

Convenience store operators report stable growth and expansion. 7-EIeven will maintain its growth rate of 200 new stores a Vear and Rival Siam Family Mart will add 70 outlets, with both shifting toward new forms of marketing activities including electronic commerce.

Still operators say discount stores have pushed down sales of convenience stores by 8 to 10%, especially with grocery items. Consequently, convenience stores have been adjusting their merchandise mix to offer more packaged foods as well as entertainment products such as CDs, movies, books and magazines.

"Though consumer purchasing power is declining, spending per bill was higher at our shops -from 38 baht to 42 baht in the first six months of this year after we added new services such as books and other entertainment products and packaged foods," said Piyawat Titasatthavorakul, managing director of C.P. Seven-Eleven Co.

The need to identify new marketing opportunities and niches will become keener as the mulinational discounters gain momentum, but some operators are proving that it can be done successfully.

Author: Sukanya Jitpleecheep
Source: Bangkok Post