Smaller operators banking on new government to ensure fairer environment for all

Only implementation of the Kingdom's first-ever retail business law will settle the conflict between the giants and local retailers, whose businesses tend to be damaged by the rapid expansion of major operators, writes Petchanet Pratruangkrai.

Thousands of minor retailers nationwide are set to lose their businesses sometime soon due to the rapid expansion of retail giants, both in Bangkok and upcountry. Leading the charge is Tesco Lotus, which is set to open more than 100 branches of its Tesco Express franchise - a smaller retail shop that is similar to a convenience store.

Many small retailers have the same complaint: that they have been forced out of business by the aggressive investment of multinational retailers who set up shop in their area.

Despite complaints of unfair practice being lodged with the Commerce Ministry, only temporary measures have been launched to limit expansion, measures with which some major players have been reluctant to cooperate.

Along with calling many meetings, the ministry has asked the retail giants - including Tesco Lotus, Carrefour, Makro, Big C and 7-Eleven - to put a freeze on new outlets for 30 days.

More importantly however, the ministry is waiting for the new government to consider the long-awaited retail business legislation, which proposes fair practice regulations designed to meet the needs of both big and small operators.

Under the proposed law, expansion of major retailers will be zoned and some of their practices that are considered unfair will be banned.

However, when the ministry requested a 30-day freeze on expansion, Tesco Lotus refused to cooperate, saying the freeze would cause too much damage to its business.

In fact, Tesco Lotus is moving forward with expansion plans not to protect its business but to ensure huge future profits. The company would like to see its express shops on every street corner rather than be restrained by new laws.

Some retail operators believe Tesco Lotus is afraid it will lose its competitive advantage and be unable to achieve its goal of market domination if the retail business law is implemented.

People have also questioned why Tesco Lotus was the only firm to reject the ministry's request for an expansion freeze. A Tesco Lotus executive recently responded that delaying business expansion would not only cause losses to the company but would also impact on Tesco Lotus's suppliers and national employment.

At the moment, 7-Eleven is the country's largest operator of convenience stores with more than 3,000 outlets nationwide. Tesco Lotus intends to compete with 7-Eleven by doubling to 200 the number of its Express outlets this year, targeting densely populated areas for expansion.

Due to rising investment costs and potential restrictions, Tesco Lotus has found itself unable to rely on its original hypermarket concept. Lotus Express stores were devised as a solution that would offer future competitiveness through lower investment and higher profits. Additionally, the smaller-sized shops can penetrate markets anywhere.

It has been estimated that in order to set up a new hypermarket, a company must invest about Bt200 million. However, the investment costs for a convenience store are just Bt2 million to Bt10 million, meaning the owner can break even much more quickly.

Tesco Lotus has claimed that expansion of its businesses will benefit consumers. Yet products in Lotus Express shops sell at higher prices than in the company's own hypermarkets.

If Tesco Lotus achieves its expansion goals, the company will dominate the retail market. As a result, suppliers will be forced to conform to its unfair conditions.

According to a ministry survey, the size of the modern retail industry has increased by 119.6 per cent over the past five years from 1,821 outlets to 3,999. Total value of the retail market rose by 60 per cent between 2001 and 2004, from Bt208 billion to Bt335.39 billion. The ratio of profit disbursement from this industry will sway towards the retail giants if they are allowed to expand their businesses unimpeded by government agencies.

Thousands of small retailers have been forced out of business since the United Kingdom's Tesco and other multinationals came to Thailand 10 years ago. The ousted government made a mistake years ago when it failed to approve the retail business law when it was initially proposed.

In interviews conducted by The Nation with small retailers in Bangkok last week, shop owners all said that they only needed access to a small amount of the local market in order to earn a living.

Moreover, in a survey conducted by The Nation on small retailers in Yaowarat, Bang Rak, Lak Si and Nonthaburi, business owners urged the government to accelerate implementation the retail business law.

After being let down by a government that paid no attention to them but focused only on giant retailers that are not even Thai, small retailers have suffered long enough.