Tesco concerned about new retail law

In the mid ‘90s British Tesco retailer partnered with struggling Thai superstore retailer Lotus to enter the Thai market and eventually dominated the market. According to Sir Terry Leahy, the President of Tesco Group, England, the reasons for the merger with -and subsequent acquisition of - Central Group’s Lotus were to expand in Southeast Asia, tap into the growing middle class market of Thai consumers and have better access to Thai products for export like fruit and flowers.

Pattaya, with only 90,000 registered residents, but the second largest retail market in Thailand due to the 11 eastern provincial shoppers, has two Tesco Lotus superstores and a controversial, smaller Tesco Lotus Express which was and is opposed by smaller retailers feeling squeezed out of the market.

The new legislation, which needed further approvals before it comes into force, would create a central body, to be called the Retail and Wholesale Supervision Committee, to regulate retail businesses nationwide.

That body would take its lead from provincial governments, like Chonburi, which would assess and approve or reject plans for any new supermarkets in their area.

The Deputy Commerce Minister, said: “The new law approved today will decentralize authority to provincial regulators and allow greater hearing of public opinion.”

The Government is also taking tougher measures to enforce city zoning laws in order to slow the expansion of foreign retailers. This is what caused the protests when the Tesco Lotus Express was opened on Sukhumvit Highway in Pattaya. Pattaya currently has few zoning ordinances or restrictions, but this could change under the new law, if enacted.

Tesco has had a difficult time in Thailand since a military coup and not much has changed under the new government, which has led to Tesco’s restrictions on expansion plans in this country, one of the chain’s most successful overseas markets.

The company was forced to temporarily halt the expansion of its chain of small convenience stores and only last year reactivated the Tesco Lotus Express store expansion.

The Commerce Ministry has claimed that more than 100,000 small shops have been forced to shut over the past decade due to rapid expansion of large retail chains.

A Tesco spokesman said: “We are still waiting to see the details, but there appears to be no mention of Thai consumers and we would ask the Government to consider how this law will benefit them.”

Sir Leahy recently had a meeting with Thai Prime Minister Abhisit Vejjajiva to discuss the draft of a new version of the retail law. The draft was submitted to the prime minister on November 12 and the cabinet will review the draft at its next session. Sir Leahy voiced his concern that because world and regional economies have changed, any new retail laws should employ both traditional and modern business models to aid retail survival.

Sir Leahy emphasized that Tesco and its Thai hypermarket unit, Tesco Lotus, is in Thailand to stay. The group has done a lot for social development projects and for education. Also, Tesco Lotus neither pulled out nor reduced its investment during the economic crisis. Furthermore, Tesco promotes Thai fruit and flowers to the world. In 2009, for example, the group expects to be able export Thai fruit (such as lychee and longan), for up to $238.8 million -- a 30% growth over 2008.

If the Thai government facilitates a reduction in air transportation costs, Tesco is confident that it can export more Thai fruit. (At present, Tesco exports about 220,000 tons per year.) The transportation cost from Thailand to America is $3.6 per kg. compared to $2.4 per kg. from Vietnam to America; this reduces Thailand’s competitiveness.

“This is just the first step in the process and we will continue to work with the Government to explain the benefits that modern retail brings to Thai consumers and suppliers.” He said that such issues were bound to occur occasionally for a business that was operating in a number of different markets around the world.

“The important thing is that we have a strong business in Thailand which is popular with our customers,” the spokesman said.

The proposed law will be sent next to the nation’s top legal experts before being submitted once again to the military-appointed parliament for final endorsement.

With a strong presence in many countries world-wide, a new hyper supermarket set to open in Armenia and 13 super stores opening in Poland next year, Tesco will continue to grow wherever governments cooperate.