Household debt forces cut-back in purchases of daily necessities
Thailand’s food companies are feeling the pinch from lower consumer spending, higher household debt, and the economic slowdown, and they expect to fall short of this year’s sales projections.
Kriengsak Theppadungporn, managing director of Ampol Food Processing Co, producer of Chaokoh canned coconut milk, said the company’s sales growth this year would be the worst in the 25 years of its existence.
During previous economic slumps, food products still enjoyed sales growth because people had to buy food for daily life. But this year, Ampol now expects sales to total Bt2.4 billion, below the previous projection of Bt3 billion, a 15-per-cent increase over 2012. In the first nine months, sales grew by only 10 per cent year on year.
“Sales both domestically and for export have faced a big drop. I have never seen this in my life before. Previously, the economy has been in trouble, but food businesses were not hurt.
“According to discussions with other companies, they face the same destiny right now. It’s the worst scenario I have [seen since I began] operating business. People’s purchasing power is getting low, hit by the high level of household debt,” he said.
Metta Prabsutha, deputy managing director of frozen-food producer PFP Trading Co, said that in the first nine months sales grew by only 7-8 per cent compared with the same period last year, below its previous projection of 15 per cent. She blames the slower economy and reduced spending power for this drop in growth.
Business-to-business deals account for 65 per cent of PFP’s sales. So when the restaurant chains it supplies face a drop in business, food orders to PFP decline too. This trend has been clear since May.
“Business-to-business sales dropped 20-30 per cent because the number of people eating out is lower. It is hitting sales of restaurant chains in department stores, such as for suki and Chinese food,” she said.
This trend has hurt the company’s orders for seafood products. Their sales dropped 30 per cent in the period from 600-700 tonnes a year earlier. June was especially bad, as orders dropped 50 per cent.
Overall, Metta said sales in the domestic market would grow by 10-12 per cent this year to between Bt2.1 and Bt2.2 billion. Local sales make up 65 per cent of the total and export the rest.
However, the outlook looks better in the final quarter because restaurant operators plan to launch activities to stimulate the market. Kriengsak too projected that the situation would recover this quarter, which is the food industry’s peak season.
The US shutdown crisis has not had any impact on exports so far. However, Kriengsak expressed concern on the looming dispute over raising the US debt ceiling. If it fails to do so, the United States will lose its credit rating, causing an inflow of investment funds into emerging nations, including Thailand. The result would be a strengthening of the baht, which would hit the country’s export sales.