BANGKOK – While a spike in Covid-19 cases has sparked panic buying and short-term shortages on grocery store shelves in Thailand, analysts, economists and free market advocates worry about a longer-term challenge to the kingdom’s retail business: potential monopoly dominance by a sole corporate player.
The worries have been prompted by the “conditional agreement” announced on March 9 by the UK-based Tesco Holdings Ltd to sell their Thailand and Malaysian outlets to the Charoen Pokphand Group (CP), Thailand’s agribusiness colossus.
The CP Group’s US$10.6 billion acquisition has yet to be finalized as it must first be approved by Tesco’s shareholders and by Thailand’s Office of Trade of Trade Competition Commission (OTCC), a process that could take up to 90 days.
The proposed acquisition promises to be a test case for Thailand’s revamped OTCC, an independent body set up in 1999 to curb the growth of local monopolies and unfair business practices.
After doing or accomplishing little during its first 17 years of existence, the OTCC got a significant power injection with the passing of the Trade Competition Act in 2017, which boosted the body’s budget and clout.
“The CP-Tesco deal has put the OTCC in the spotlight,” said Pavida Pananond, associate professor at Thammasat University’s Business School in Bangkok. “I think their ruling will also have implications for foreign investors interested in Thailand in terms of the perceived strength of the competition law, especially in the service sector.”
The OTCC will have its work cut out for it. It must prove that CP, with the acquisition of Tesco’s 1,997 outlets, might hold excessive dominance over Thailand’s retail sector.
The CP Group is Thailand’s leading agri-business conglomerate with vast operations and interests worldwide, including multiple sectoral investments in mainland China and Southeast Asia.
In the late 1980s, CP deliberately moved into retail and telecommunications, which the group’s chairman and founder Dhanin Chearavanont, 80, presciently saw as rapid growth areas for Thailand’s then accelerating economy and rapidly growing middle class.
In 1988, the CP Group opened Siam Makro PLC, a joint venture with the Netherlands-based SHV Holding NV, that started Makro cash-and-carry stores in Europe. It followed with the opening of Lotus Supermarket in 1994 and later took on the kingdom’s now booming 7-Eleven franchise.
Both Siam Makro and Lotus fell victim to the 1997-98 financial crisis, which forced the then-highly leveraged CP Group to sell equity stakes to foreigners, with UK-based Tesco Holdings BV taking a majority share in Lotus and rebranding the stores as “Tesco-Lotus”, and SHV Holding NV taking over Siam Makro.
As the Thai economy recovered from the crisis, so too did the CP Group’s bottom line. In 2013, the company bought back a controlling stake in Siam Makro and this month announced its pending repurchase of Tesco-Lotus, including 1,967 outlets in Thailand and 68 in Malaysia.
The CP Group was not the only big Thai conglomerate to bid on Tesco.
The TCC Group, owned by liquor and property magnate Charoen Srivadhanabhakdi, and Central Group, Thailand’s most established retailer founded by the Chirathivat family, were also in the race.
The three families rank among Thailand’s wealthiest, collectively worth more than US$65 billion.
TCC and Central offered less for Tesco, about $9.3 billion and $7.1 billion respectively, but may have lost the bid for other reasons, industry sources say.
“If TCC had won it they would have had a real monopoly over the hyper-market segment, but with the CP deal it is not clear that it is a monopoly,” said Chatrchai Tuongratanaphan, former executive director of the Thai Retailers Association.
TCC currently owns the Big C hyper-market store chain, bought from France’s Casino Guichard Perrachon and the Central Group in 2016, and is currently Tesco-Lotus’ main rival in the hyper-market segment.
The Central Group, with its profit from the Big C sale, bought Big C’s chain in Vietnam. Central is best known for its upmarket department stores, but has also branched out into Tops Supermarket groceries and Family Mart convenience stores.
At present, however, Central Group has no presence in the hyper-market sector.
“I think it will be difficult to prove that the acquisition has resulted in a monopoly in a particular segment,” Pavida said. “CP and Tesco are shrewd enough to know that.”
The OTCC’s challenge will lie in showing that CP’s overall presence in the retail market gives it a form of “undue” dominance, especially over suppliers, industry observers said.
“CP has the biggest share of the retail market, but they have divided it up between convenience stores, cash and carry and hyper markets,” said Chatrchai.
“If you separate the market segments, they can say, ‘oh, we do not dominate.’ But Makro has no direct competitor and in the convenience stores they dominate the market, so the OTCC would have to prove that altogether it is a big market share,” said Chatrchai, currently an advisor to Thai Retailers Association.
The CP Group’s proliferating 7-Eleven stores are part of the picture. The chain now boasts more than 11,000 outlets nationwide, growing at a rate of about 700 stores a year since 2013, when it had only 7,412 outlets.
The CP Group owns about 46% of the 7-Eleven stores and franchises the rest out to private players.
If the Tesco deal goes through, the CP Group will add 1,574 Tesco Express stores to its network, controlling 12,500 of the estimated 16,000 brand name convenience stores nationwide.
There are still many so-called “mom & pop” stores, especially in the countryside, though they are fast disappearing in Bangkok.
The Tesco deal will also give the CP Group 214 Tesco hypermarkets, 179 Talad Lotus (mini marts) and leased space in 191 malls in Thailand, along with 46 Tesco hypermarkets, 13 supermarkets and nine convenience stores in Malaysia.
“What the OTCC should be looking for is how CP dominates the retail market through its various outlets: Makro in cash and carry, 7-Eleven in convenience stores,” Thammasart University’s Pavida said.
“My argument is don’t just look at the market dominance from the customers point of view, but also from the suppliers point of view, where you have one huge player in all the segments of modern trade retail.”
OTCC will need to hone its arguments, which ever way it rules.
“As a general matter, competition authorities globally focus on where the parties’ activities overlap in the same relevant antitrust market. In Thailand, the OTCC is required to look at the benefits of the transaction to consumers and Thailand, wider public interests and that there is no materially negative impact on competition,” a source close to the transaction said.
“The Thai retail market is diverse, competitive, dynamic and expanding with players of all sizes – this will not change as a result of the transaction,” the source said. The CP Group and its retained public relations company Brunswick did not immediately respond to Asia Times’ request for comment.
The CP Group-Tesco case comes at a time of growing political awareness of the adverse impacts of market dominance by Thailand’s well-established conglomerates, both on economic competitiveness and equality.
While Prime Minister Prayut Chan-ocha’s two administrations – one coup installed, the other elected – have professed to prioritize creating a more equitable society, their alliance with top conglomerates under the state’s “pracharat” development scheme has drawn skepticism.
Thailand remains one of the world’s most unequal societies and poverty is actually on the rise despite respectable economic growth rates, according to World Bank data.
Between 2015 to 2018, Thailand’s poverty rate increased from 7.2% to 9.8%, with the number of Thais living in poverty rising from 4.8 million to 6.7 million, a recent World Bank report said.
Part of the blame can be placed on declining global commodity prices and drought over the past six years, to be sure, but some can also be attributed to the unequal control of key segments of the economy that stifles productivity gains and discourages foreign direct investment.
“If you have high market concentrations, the incentives to innovate and to take part in price competition is low,” said Birgit Hansl, World Bank country manager for Thailand.
“Without competition it is unlikely that innovation is taking place or the incentive for innovation is much lower, and then there is less opportunity for productivity growth and with less productivity growth firms cannot pay higher wages for workers, so wage growth is low. That means shared prosperity is not increasing,” she elucidated.