Global Economics

Thai Trouble for Tesco


Thai shoppers love Tesco's cheap produce, but critics say its low prices are driving mom-and-pop stores out of business

The critics may have a point. Tesco Lotus's superstore in Bangkok's Lat Phrao district is certainly a world away from the scruffy mom-and-pop stores that used to serve the local residents here.

Sitting amid an ocean of parking spaces, this vast edifice boasts a DVD store, a hotpot restaurant, numerous American fastfood outlets, tinkers, tailors, ATMs and cell phone stands, and all that before you get to the vast aisles of the superstore itself. All under a single roof. It's cheap, clean and right next to the expressway.

A few kilometres further down the expressway is a new mini mall with a luxury supermarket for upscale Thais and expatriates, and a gaggle of restaurants specialising in cuisines from around the world. Tastes, like the times, are changing.

Tesco, Britain's biggest supermarket retailer, is not the only international player on the scene here—Carrefour has long had a presence through its Big C stores. But it is Tesco, thanks to its success, that has become the focus of intense criticism for its aggressive marketing and expansion.

It is not an unfamiliar complaint. Tesco has for years faced similar criticism in the UK, although the complaints are less about struggling small businesses and more about the character of the traditional British high street, with its friendly local butcher who knows just how Mrs Miggins likes her Sunday roast trimmed.

Ironically, though, British shoppers are increasingly discovering that a bit of competition only hurts uncompetitive businesses. In place of old-fashioned stores, many high streets are now hosting a new generation of butchers and cheesemongers and delicatessens that sell high-quality local produce and organic foods, and are just as friendly as the old lot. Farmers' markets are springing up too. The British high street is indeed changing, but often for the better.

The criticism in Thailand is no less ironic, but it has been so ferocious of late that Tesco has taken the extraordinary step of launching a libel suit against Kamol Kamoltrakul, a business writer, and Jit Siratranont, vice general secretary of the Thai Chamber of Commerce.

Tesco's suit cites an article Kamol wrote in BangkokBizNews, which accused the retailer of using sneaky accounting tactics to dodge taxes and claimed that Tesco earned 37% of its income from Thailand, which would indeed be an alarming piece of news if it were true. Kamol has conceded that he got that part wrong, inflating the real number by 10 times after apparently misreading a figure in the company's accounts.

He says that Tesco unfairly repatriates income to the UK by charging royalties to the Thai operation in exchange for management expertise and for the use of its brand and trademarks, which would succeed in avoiding Thai corporate taxes but still leaves the income exposed to UK taxes, which are about the same.

However, the main thrust of the complaint, made by both men, is that Tesco's aggressive growth puts small local stores out of business—the tax issue is a bit of a red herring, given that it is a common practice for most international brands operating in Thailand or anywhere else in the world.

But even this mom-and-pop argument is problematic. Tesco first started doing business in Thailand in 1998 and now employs 30,000 people in 370 stores, the vast majority of which are Tesco Express stores that compete directly with 7-Eleven, which has been doing mom-and-pop stores out of business across Thailand for 20 years.

One source says that Jit has a hidden agenda that he has succeeded in promoting to some local journalists. "He is playing a political game, looking for the support of big businessmen up-country who cannot compete with Tesco," he says. "Those who can't compete always complain, but consumers aren't complaining. 7-Eleven isn't complaining."

Political game or not, Tesco is not taking the criticism lightly. Journalists in Thailand and the UK have slammed the company for trying to silence Kamol with such heavy-handed tactics, but a Tesco spokesman responded by saying: "Tesco is of course not trying to intimidate Mr Kamol or Mr Jit, but we do have a right to defend our company and our colleagues against false allegations. We took this action reluctantly but felt we had no choice after a sustained campaign of misinformation spread by the two individuals over many months.

"Tesco does not have a history of acting through the courts and will only do so under extreme provocation. In fact until 2008 we had never taken any libel action at all. It would therefore be irresponsible and misleading to suggest that Tesco had a policy of attempting to suppress criticism."

Tesco is clearly afraid that the constant scaremongering could make its business a target for popular revolt, similar to the protests against ThaiBev when it tried to list on the Thai stock exchange. That seems unlikely—the image of wholesome mom and pop stores serving the community is a nice one, but it doesn't bear much scrutiny.

"These small stallholders are the ones who are most likely to evade taxes, ignore labour laws and sell liquor and cigarettes to children, so it's interesting to think of them as the fabric of Thai society," says Supavud Saicheua, an economist at Phatra Securities.

Instead of pursuing its problems through the courts, Tesco might be better off trying to make peace in other ways. It first came to Thailand in partnership with Charoen Pokphand, the country's leading retailer, but the group sold its minority stake in Tesco Lotus (and in Dutch-owned Makro) in 2003 to focus on its majority shareholding in 7-Eleven. Since then both Tesco and 7-Eleven have grown considerably, and largely in competition with each other, but only Tesco has drawn the ire of critics. That could provide a clue for how Tesco can most effectively silence its critics.

"Tesco could dilute into the stockmarket," says Kongkiat Opaswongkarn, chief executive of brokerage firm Asia Plus. "Giving some ownership to the Thai people would probably help to alleviate its problems. They don't need the cash of course, but cash is not the only angle—making friends at least gives you a local shareholder base to protect you in the future."

Judging by how popular its stores are, despite the critics, Tesco Lotus would be a popular stock. And what better way to keep people happy than by selling them stuff they want at cheap prices, on the one hand, and earning them a nice yield on the stock exchange on the other. It would certainly get a more favourable reaction in the press than suing journalists.


Toyota's Hydrogen Man
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus