The spotlight on south-east Asia’s retail sectors has grown in recent months, as the future of Carrefour‘s operations in Malaysia, Singapore and Thailand came into question.
That focus intensified this week when Carrefour sold its Thai business to Big C, a local retailer part-owned by French rival Casino and, surprisingly, decided to keep hold of its stores in Malaysia and Singapore.
The two French retailers’ views on Thailand could not be more different. Carrefour, which entered the country in 1996, wants to offload its 42 stores in the country to focus on markets where it can “occupy a leading position”. Casino, which has been present in Thailand since 1999 through a majority stake in Big C, has 67 outlets and described the acquisition as giving it a “co-leading position” in the country with Tesco.
The deal will boost Casino’s scale in a market that experienced an increase in retail sales of around a third between 2004 and 2008. Thailand has a large rural and relatively poor population. Grocery products account for over half of the country’s total retail sector but that mix is likely to shift in coming years towards non-food as the economy develops, putting Casino’s “everything under one roof” concept in a strong position for growth.
With the Thai government’s low opinion of foreign companies, Big C’s ownership structure – it is part-owned by Casino and also by Central Retail, Thailand’s largest retail chain – would have helped it fend off competitive bids from Tesco, as well as giving it essential insight into operating in the country and providing the opportunity for operational synergies. Christopher Hogbin, an analyst at Sanford Bernstein, estimates the savings at EUR30m (US$41.2m).
Additionally, Hogbin suggests in an analyst note that Carrefour may have not making the best use of its store estate in Thailand. “Sales densities suggest there is some scope for Casino to improve the operation of Carrefour’s stores – Big C’s sales densities of EUR50 per square metre per week in 2009 were 16% higher”. Hogbin says margins were “more similar” but Big C’s still stood at 9.5% compared to Carrefour’s 9.3%
However, Casino’s ambitions in south-east Asia do not end with Thailand. It already operates nine stores in Vietnam and plans to open five stores each year until 2012. Additionally, it is reportedly in the running for Matahari’s hypermarket business in Indonesia. The chain of 38 stores is valued at around US$1bn, and Matahari is selling the Hypermart chain to focus on its core healthcare and property assets. Hypermart is one of the top three grocery retailers in Indonesia and an acquisition would pit Casino against its French rival Carrefour, which, according to Planet Retail data, is currently the second-largest retailer in the country.
Carrefour exiting Thailand will continue to fuel the suspicion that it is focusing its attention on more mature markets in western Europe, which may slow its long-term growth. Hogbin says the sale “reinforces Carrefour’s exposure to lower growth and arguably less attractive markets in Western Europe”.
“As such,” Hogbin asks, “how will Carrefour’s sustainable long-term growth rate compare to peers? International operations with rapid spending growth, low share of modern retail and fragmented competition, in our view, offer better growth opportunities than more mature western European grocery markets – and as such international operations are a key driver of long-term growth rates for the companies in our coverage.”
Despite ending the auction for its outlets in Malaysia and Singapore, the speculation over Carrefour’s future in the countries will remain.
According to the Wall Street Journal, Carrefour CEO Lars Olofsson said the operations did not attract bids that would have justified proceeding with sale.
However, given Carrefour’s current focus on ensuring it holds a “leading position” in the countries in which it operates, the decision to remain in Malaysia and Singapore is possibly a temporary fix while it considers its options.
In Malaysia, the retailer operates 23 outlets, and despite great ambitions for growth in the country, has only opened some ten hypermarkets over the past decade. In Singapore, Carrefour really only has a token presence with two outlets, a store estate that has remained stagnant for a number of years. How long will Carrefour persist with its operations these markets?
In any case, Carrefour’s Olofsson insists the company remains committed to emerging markets. The Wall Street Journal quoted him as saying the markets are going to be “the major engine of growth in the medium and long-term for our company”.
And, this week, the Carrefour website carries news of the world’s second-largest retailer having opened eight more stores in China in the last three weeks. It seems old hat to state now but China still does offer so much potential for growth.