Effect of Grocery Store by Entrance of Hypermarket in Bangkok Thailand Dissertation

Excerpt from Dissertation :

Grocery Store by Entrance of Hypermarkets in Bangkok Thailand

Small grocery store owners in Thailand are faced with the ever growing threat of foreign -- owned hypermarkets. Hypermarkets are part of a global trend that threatens to destroy the small grocery store. If this trend continues the traditional market structure of Thailand might become obsolete in the future. This research explores strategies that small grocery store owners can employ to remain profitable and to survive into the future.

The Tesco Effect

Are There Any Advantages to Being a Small Retailer?

Benefits and Pitfalls of Tesco to the Economy

Thai Government and Economic Theory

Recommendations for Survival





Commodities are one of the most stable opportunities for retailers. They are considered to be a profitable opportunity and can be started with a relatively low investment. In areas where people have high purchasing power, the local grocery or convenient store is a lucrative business venture. High traffic areas increase the potential for these ventures. The local grocery store is an honored tradition in many parts of the world. However, there is a newcomer to the basic commodities scene and they threaten to eliminate the traditional way of life for the local grocer. These newcomers are in the form of the supermarket or hypermarket.

The draw of the local grocer is based on convenience. People do not have to get in their cars drive to the mall. However, the hypermarket offers a different type of convenience. They offer a wider selection of products and can offer considerable price competition to the local grocer. All around the world, the hypermarket is threatening to drive the local grocery stores out of business. Thailand is no exception and the hypermarket is quickly becoming the new way to shop.

Background of the Problem

Big chain grocery stores often stem from domestic companies, but they can also be represented by huge global giants like Wal-Mart. This study explores the problems being faced by grocers in Bangkok, Thailand as a result of entry of the giant, Tesco Lotus. The problem to be explored by this research study is how the small, local grocer can compete when a giant such as Tesco Lotus moves next door.

In the past, the local grocery store owner had a captive audience. Any venture into basic commodities was considered to be destined for certain profitability. This is not the case anymore, especially with the entrance of the hypermarket into the retail commodities market. This is a trend that is not only affecting small grocery stores in Asia, it represents a global trend. The question for the future is how small grocers can maintain their hold on the local customer when faced with the invasion of giants, such as Tesco Lotus.

Tesco Lotus was founded in 1998 as a joint venture between Charoen Pokphand Group in China and Tesco, already a giant British supermarket chain. In 2003, the CP Group sold its shares in Tesco Lotus (Tesco PLC 2011). Tesco Lotus Stores offer the consumer many advantages over the local grocer. The local grocer finds it hard to compete with prices due to the purchasing power of the hypermarket chain. They are often set in retail malls which offers the shopper the ability to get everything they need in one stop. They often contain bakeries, pharmacies, and other amenities such as food courts. They have large parking lots, as opposed to the limited street parking available to the local grocery store. They have more space and tend to carry general merchandise in a number of categories besides just food commodities. They often carry items such as clothing, shoes, electrical equipment, appliances, school supplies, automobile parts, and other things that the local grocer would not have the ability to stock due to space.

Tesco Lotus keeps their stores at a constant temperature of 27C. They have the ability to offer their own branded credit cards. They have also opened gasoline stations that offer similar items to a convenience store and smaller versions of the larger chain called Tesco Lotus Express Stores. The number of Express Stores continues to increase, creating direct competition for local convenience store chains. Tesco Lotus Express Stores have the advantage of brand recognition associated with the Tesco Lotus brand name. Convenience stores such as 7-Eleven may be able to compete with their established brand identity, but small local convenience stores do not have this advantage. Although 7-Eleven is the older established brand, anything associated with Tesco Lotus is a threat to their existence too.

Tesco Lotus has been a source of controversy among consumer groups. Tesco has a habit of aggressively pursuing those who speak poorly of them. Tesco has a reputation for legally stomping anyone who speaks out and damages their goals of rapid expansion and market domination. In 2008, Tesco Lotus sued a columnist for criticizing them in a news article (MacKinnon 2008). This and other similar actions gave Tesco the reputation of being a bully and drew harsh public criticism. The media maintains its right to freedom of speech and the case is still in the courts to be decided. Criticism by the journalist stemmed from Tesco's strategies to limit their tax liability. The article claimed that they were bad for the economy because they stomped out local businesses and did not wish to pay their fair share of tax burden.

The future of the mom and pop grocery store hangs in the balance. Expansion in the grocery store business is a result of population growth. Demand continues to increase with every new mouth that comes into this world. Expansion in the grocery business is inevitable, but who will capture the a larger share of this growth is the key question. In Thailand, small grocers and convenience store owners have led market expansion. However, in the past 10 years the entrance of the hypermarket has changed the profile of grocery stores not only in Thailand, but across all of Asia. The number of convenience stores has also grown, increasing from 1,500 to 7,800 since 1999 (Salsburg & Tuchinda 2010).

Although the small convenience store has grown, the entrance of the hypermarket took a large chunk out of their market share. Many of the hypermarkets to enter the Thai market are foreign-owned. They may not lead in number of stores, but they do lead in revenues, snatching the largest percentage of revenues from local competition. The three biggest foreign-owned chains are Tesco, Big C, and Carrefour. Leading convenience store players are also included in the list of major chains, including Makro and 7-Eleven. These major players provided a combined total of THB 473 billion ($14.4 billion USD) in 2010. The total grocery store revenue for that year was only THB 580 billio ($17.6 billion USD) (Salsburg & Tuchinda 2010). This means that huge chains had nearly 82% of the revenue, leaving only 18% to divide among local small grocery stores.

These figures highlight the dilemma faced by the small grocery store owner in Thailand. The big stores come into an area and quickly achieve market saturation and market domination. It is not that the local grocery stores are doing something wrong, it is just that the hypermarket has more to offer customers and the smaller store cannot compete on the same scale. The changing face of the grocery store sector in Thailand is not alone. In the United States, Wal-Mart had much the same affect that Tesco Lotus and the other big chains are beginning to have in Thailand. This research will explore the impact of big chains on the small grocery store and it will examine ways for the small grocery store to survive in the shadow of the hypermarket.

Aim of the Study

The aim of this study is to examine the problems faced by small grocery stores when a giant like Tesco moves in the same vicinity as them. It will primarily focus on stores in Bangkok, Thailand. Tesco is rapidly expanding its hold in Bangkok and the negative impact on small grocery stores is being felt throughout the city. The aim of this study is to explore the economic impact of the Tesco chain of local businesses. It will also explore strategies that local businesses can use to survive the invasion of the hypermarket.

Significance of the Study

This study will have an impact on a number of stakeholders throughout the retail grocery business. The first level of stakeholders is the small retailers themselves. They have the most to lose as they struggle to find a way to compete as the hypermarkets slowly consume their revenues. They must find a way to survive and this study will help them to gain insights into strategies they can use to do so.

The next layer of stakeholders is investors and consumers. Investors have a stake in the outcome of the study, as they will use this information to determine the best investments decisions for stability in the future. Consumers have a stake in…

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