BANGKOK – Thailand’s Office of Trade Competition Commission (OTCC) soon needs to make the toughest decision of its 21-year uneventful existence, a ruling that could mark a watershed for the kingdom’s top conglomerates and future overall competitiveness.
Specifically, the OTCC will decide on whether the March 6 agreement by the Charoen Pokphand Group (CP) to purchase UK-owned Tesco Lotus for US$10.6 billion would potentially lead to a monopoly or undue dominance of the nation’s retail sector.
The CP Group, Thailand’s largest agro-conglomerate founded and run by the country’s wealthiest non-royal family with an estimated net worth of $27 billion according to Forbes’ latest 2020 ranking, already has a massive modern retail presence through its 7-Eleven convenience-store franchise.
Under Thailand’s Trade Competition Act, CP’s proposed takeover of Tesco’s Thai assets requires an OTCC review because of its financial size to determine whether or not it would result in a market monopoly or excessive dominance in a business sector. Thailand’s total retail market is worth an estimated 3.6 trillion baht ($115.5 billion).
The commission has 90 days to decide after it received complete documentation from the CP Group on the deal, reportedly in early September. OTCC Chairman Sakon Varunyuwattana has hinted that the commission is expected to make its ruling before the end of this month.
The OTCC’s difficult task is to define what constitutes a monopoly in such a diverse sector comprising department stores, hypermarkets, wholesalers who often also act as retailers, grocery stores, fresh markets, and convenience stores as well as the once ubiquitous “mom and pop” shops.
OTCC is the outgrowth of the former Trade Competition Bureau established in 1999, under Thailand’s first Trade Competition Act of that same year. The bureau was widely panned as a “paper tiger” for failing to block a single monopolistic activity in its 18-year existence.
On October 5, 2017, with the passing of the amended Trade Competition Act, the rebranded OTCC was granted greater autonomy (the former bureau was under the Commerce Ministry) with its own enlarged budget and enhanced enforcement powers, either in the form of fines or in terms of recommending the case be picked up by state prosecutors.
Under Thailand’s competition promotion laws, market dominance is defined as when a merger or acquisition results in a market share of over 50% and with total revenue of more than 1 billion baht. If the three largest operators control 75% of any market, a merger move requires the OTCC’s approval.
Based on its past public statements, CP is likely to try to partition the retail market into three main segments – cash and carry, hypermarket and convenience stores – and argue that the acquisition of Tesco will not constitute dominance in the hypermarket space.
CP has also argued that the acquisition of Tesco Lotus will benefit consumers, allowing them greater convenience and competitive prices on products.
CP already owns Siam Makro, Thailand’s leading wholesale cash-and-carry store chain, which was bought back from the previous majority stakeholder – the Netherlands’ SHV Holding – in 2013.
Siam Makro was originally launched in 1988 as a 51-49% joint venture between CP Group and SHV, but the then cash-strapped Thai conglomerate sold its majority stake to the Dutch partner after the 1997-98 Asian financial crisis.
Another victim of that crisis was the Lotus Supermarket hypermarket chain established in 1994. After the crisis, CP was forced to sell its stake in Lotus to the UK’s Tesco Group, which changed the brand name to Tesco Lotus thereafter.
The buyback of Tesco Lotus this year was seen as a personal triumph for CP senior chairman and founder Dhanin Chearavanont, 81, who is credited for building the group from its humble origins in animal feed and the poultry business into the diversified behemoth it is today, with some 200 companies in eight sectors spanning agriculture, retail, telecommunications, e-commerce, automotive, finance, pharmaceuticals and real estate.
It was Dhanin who three decades ago decided to move the CP Group into retail, in prescient anticipation of the emergence of Thailand’s middle class. The 1997-98 crisis stalled the then heavily leveraged group’s expansion plans, but only temporarily.
“It is actually my child,” Dhanin said of the buyback of Tesco Lotus. “I am buying it back with a belief that I can raise this child better with new techniques and technologies,” he told local media after the announced $10.6 billion deal in March of this year.
Another early CP venture into the retail space came in 1988 when it picked up the licensing rights for the 7-Eleven convenience-store chain from the then-US-based owner.
Prior to the Tesco purchase, CP was already a leader in the retail market with some 129 Makro outlets, some 10,268 7-Eleven convenience stores (half of them franchises) and 360 CP Fresh Market stores across the country.
If the Tesco deal gets the OTCC’s go-ahead, it will add another 200 Tesco hypermarkets and 1,600 Tesco Express convenience stores to CP’s ever-expanding and lucrative retail network.
Industry sources estimate that CP’s total wholesale and retail revenue would reach 700 billion baht ($24.5 billion) this year if the deal goes through, representing a substantial proportion of the kingdom’s entire retail market of 3.6 trillion baht.
CP’s two contenders for the Tesco Lotus bid were the TCC Group, owned by liquor billionaire and real-estate titan Charoen Sirivadhanabhakdi, and the Central Group, owner of the Central and Robinson department-store chains, Tops supermarkets and the Family Mart convenience stores.
Central group’s total retail revenue is about 200 billion baht ($6.4 billion) annually, while TCC’s Big C revenues amount to about 150 billion baht ($4.8 billion), according to industry estimates. Both groups bid less than CP’s $10.6 billion for Tesco Lotus.
Analysts say that if TCC had won the bid, its monopoly of the hypermarket segment would have been obvious. TCC owns 153 Big C hypermarket stores, 63 Big C Markets and 1,018 Mini Big C convenience stores, making the group CP’s main rival in the retail space.
“If TCC had won, it would have been a real monopoly in the hypermarket segment,” said Chatrchai Tuongratanaphan, adviser to the Thai Retailers Association, a trade group. “But when CP got it, it was not very clear.”
CP Retail Development Company Ltd, which was set up to take over the Tesco Lotus operation, declined to comment to Asia Times on the pending OTCC ruling.
“CP Retail Development Company Limited has been working to ensure the OTCC has all of the necessary information to assist their assessment,” the company said in a statement. “We respect the regulatory process and will not be commenting on it.”
The OTCC also declined to comment on the case for this article.
Judging by CP’s past public comments, it is likely that its lawyers and representatives will argue that since it currently has no hypermarket stores prior to the Tesco acquisition, it will not amount to a monopoly or market dominance.
This may be true, but many observers are hoping the OTCC will look at the bigger picture, taking into account CP’s unmatched vertical integration in the food sector.
Besides being Thailand’s leading supplier of farm-raised broiler chickens and shrimp, Charoen Pokphand Foods (CPF) also produces a huge range of brand-name processed foods from packaged bacon to frozen shrimp dumplings, already on ubiquitous display at Siam-Makro and 7-Eleven outlets. Its second brand, ARO, has a wide product line ranging from packaged rice to french fries.
“The OTCC needs to consider the impact of a retailer who controls the whole supply chain starting with the production of goods for sale,” said Somchai Pornattanacharoen, president of the Thai Retailer and Wholesaler Association. “They can produce their products very cheaply then allocate the best shelf space for them. So other suppliers cannot compete with them in marketing.”
Somchai, a veteran of Thailand’s wholesale business, recalled when the country had more than 10,000 small wholesalers nationwide four decades ago, before the big foreign hypermarkets like Tesco and Carrefour entered the market.
“There was competition because there were a lot more wholesalers, which was good for the suppliers,” Somchai recalled. “With only three big retail groups [CP, TCC and Central], it will be more difficult for suppliers in the future.”
Leading Thai suppliers were also reluctant to comment on the pending Tesco purchase.
“We do have concerns about the dominance of the big groups, but we cannot criticize them too much because they are still buying products from our industries,” said Ghanyapad Tantipipatpong, a former president of the Thai Food Processors’ Association.
She noted that Thai food processors faced similar market dominance by the hypermarket chains in Europe and the US.
CP All, the operator of 7-Eleven convenience stores, claims to have 6,000 suppliers, of which 2,200 are small to medium-sized enterprises (SMEs).
While it behooved them to diversify their product line, there is little doubt that CP’s growing dominance over distribution channels in Thailand’s retail sector will give them greater bargaining power in setting prices from suppliers.
“This CP-Tesco deal will allow them to tie a lot of their businesses together, and the suppliers, who used to supply their goods to Tesco-UK may be replaced by CP’s own brands,” said Assistant Professor Buppa Lapawattanaphun, lecturer at the University of the Thai Chamber of Commerce in Bangkok.
“CP’s own brands will have even more distribution channels,” she noted. “When you own the distribution channels, why should you help others to make money? So there will be an impact on the SME suppliers.”
The CP-Tesco takeover comes at a time when Thailand’s SMEs are already reeling from the Covid-19 pandemic, which has slowed domestic consumption, undermined exports and dried up working capital for many cash-strapped firms.
The deal also comes at a time of rising frustration with Thailand’s judicial system, which seems to many to favor the rich and famous while keeping the downtrodden down and out.
“Given the close connections between the monopoly holders and the government, you can’t expect them to get very far, certainly not under this government,” said historian Chris Baker, who together with his wife Thai academic Pasuk Phongpaichit has published several books on modern Thai politics.
“I think if you had a proper elected government here you would have more of a chance, but there is almost none under a military government,” Baker said, referring to Prime Minister Prayut Chan-ocha’s military-aligned coalition government.
The OTCC, no doubt aware of the ramifications of its pending ruling on the CP Tesco deal on its own reputation as an antitrust agency, may seek a compromise ruling to placate the politically powerful CP Group and the public at the same time.
But a compromise would not be welcome by many observers.
“The OTCC’s job is to call a spade and spade, to decide whether CP’s strategy leads to monopolistic control or not,” said Pavida Pananond, a professor of international business at Bangkok’s Thammasat University. “If they are not clear in explaining their criteria, it will set a precedent for future antitrust cases,” she said.
“Thailand is at a stage where we need to enhance our competition policies,” Pavida said. “What this decision would convey to foreign investors is that the Thai conglomerates are very powerful and they also wield strong political power. Who will want to come and invest in Thailand, and secondly, who will do anything here without engaging the big conglomerates?”