Sold on discipline and focused

Despite the influx of giant hypermarket chains, Siam Makro has not only survived but thrived. President Suchada Ithijarukul talks about how the  cash-and-carry store differentiates itself from the competition and how it plans to flourish in the future.

"Five or six years ago, I was asked: 'Is Siam Makro going under?' This was because after the 1997 crisis, there were many strong newcomers entering the retail sector," Suchada said.

Prior to the arrival of giant hypermarket chains, such as TescoLotus, Carrefour and Big C, Siam Makro had not had any major competitor. Anything it put on its shelves would sell. The company, hence, had to change its business "paradigm" to cope with a changing environment, she said.

Among the things that have kept Siam Makro alive is its ability to maintain a "cost leadership". As a wholesaler who sells goods to merchants, who in turn resell the goods to end-consumers, costs, prices and cash management are crucial, she said.

"We must exercise high discipline in business conduct. We have to keep everything within the frame of our set business model. Therefore, having a good system is also important. In our business, where margins are only 3-5 per cent, price adjustments and new promotions are very common," the Siam Makro president said.

Besides cost leadership, discipline and a good system, Suchada said Makro should stay focused and differentiate itself from competitors.

"We must accept that we can't serve everyone. Therefore, we must choose what we want to be," she said.

Siam Makro has chosen to keep its identity of being the one-stop shop for commercial shoppers, and provide space for restaurants, hotels and mom-and-pop stores, whose survival is threatened by hypermarket chains. It has also chosen to keep a membership system, a cash-only operation and a charge for bags, Suchada said.

Siam Makro focuses on consumer goods - basic items for daily living - which according to ACNielsen has a total market worth of Bt1.2 trillion to Bt1.4 trillion. The figures calculated on the basis of the number of households, which stood at 20 million in 2006, up from 1996, when the figure was 15.3 million.

""The number of households indicate the number of customers. Every 30 to 40 households need to have one mom-and-pop store and a restaurant - both of which are our [direct] customers," she said.

Siam Makro target customers total about 1 million, of which 500,000 are grocery stores.

"Our [annual] sales figure of Bt70 billion is quite small [compared to the market size]," she said.

Thanks to its excellent customer-relationship-management (CRM) system, Siam Makro knows what are the top five items bought by its customers and when there is a promotion for the particular item, its staff places a call to inform the customer.

Siam Makro has also initiated the "Makro Retailers Alliance" project to help mom-and-pop stores survive and be aware of competition from modern trade stores.

While selecting goods, Siam Makro does not believe in buying goods its suppliers suggest. Instead, it purchases goods solely based on customer demand. However, to run the business successfully, the company has to closely watch not only the demand from its commercial customers but the demand patterns of the end-consumers as well.

"We must look across to the 'next shot'. We can't look at just our member customers alone. We have to watch the buying behaviour of end-consumers as well. For instance, when there's an advertisement for a product, customers will come to the stores asking for it the same day," she said.

In the future, Suchada said, Siam Makro will keep its focus on the cash-and-carry format but will seek "value creation" opportunities.

"For example, the frozen-food market was largely ignored earlier. Who would have thought there would be a market for frozen pork legs? Starting from nothing, Siam Makro now earns several billion bahts from frozen-food sales," she said.

Siam Makro will move into "in-depth" marketing. A reflection of this is its penetration into the food-services business, which has helped it serve its restaurant customers better. Suchada also said Siam Makro might consider penetrating into various foreign-foods segments.

"Soon, customers may not have enough time or because of high oil prices, ordering over the Internet, as in the B-to-C [business-to-customers] format could take off. In the future, we may see mom-and-pop shop owners using their PDAs to place an advance order for Mama [instant noodles] so that they can pick up this order as soon as they arrive at [Makro]," she said.

"The most important thing is cost management. And focus, which in our case is a choice of what we won't do. When you are focused, you can set strategies. Of course, one must pursue strategies with discipline. No deviation is allowed because margins are very slim as it is. Even when we recruit one staff member, we have a benchmark that governs how much additional sales we need to achieve [to justify that recruitment, and hence, the added cost]," Suchada said.

pichaya@nationgroup.com