Mon, Nov 04, 2002 page10

• Tesco, Carrefour face Asian backlash

  RETAILERS Foreign companies may be to big for their own good. By squashing smaller local competition, they are also alienating consumers in the Asia-Pacific region

  • BLOOMBERG
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  Wanchai Sri-Preaning, who sells eyeglasses at his family's shop in Chanthaburi, Thailand, spends his free time taping posters to buildings on the main road into town. The message: A planned Tesco Plc shopping center nearby will destroy local retailers.

  "Shopowners like us will lose more than half of our sales to these stores," said Wanchai, who printed the posters with other local merchants. "Grocery stores and other small shops will be dead as soon as foreign superstores open."

  Asian governments are listening to small shopkeepers' protests. Thailand is drafting laws that would limit opening hours and store locations. Malaysia halted approvals of large-scale "hypermarkets" in April as it tightened regulations, and red tape in China has slowed expansion plans by Carrefour SA and Wal-Mart Stores Inc.

  

  A woman takes a break from shopping to adjust her sons hat and look at red lanterns hung on a main street in Beijing, Saturday. People in Asia are shunning Western retailers in favor of locally based outlets. In China, it's official policy to make sure that domestic retailers have an edge over their foreign counterparts.

  PHOTO: REUTERS

  Global retailers face mounting local opposition and legal hurdles as they try to tap into the consumer-spending growth that's fueling Asian economies from South Korea to Malaysia. The setback comes at a time when they're relying on Asian sales to counter sagging demand at home and in Latin America.

  "They're looking to expand in Asia as markets such as the UK aren't growing," said Iain McDonald, an analyst at Numis Securities Ltd in Liverpool, England, who tracks Tesco and other retailers. "In the long term, if their growth is halted in Asia, that would definitely hurt earnings."

  Tesco's total Asian sales jumped 54 percent in the six months to Aug. 10, dwarfing the 6.8 percent increase in the UK, where it's the No. 1 supermarket chain. Asia was the fastest-growing market last year for France's Carrefour, the world's No. 2 retailer after Wal-Mart, measured in local currency at stores open at least a year.

  The companies are drawing Asian shoppers to stores that sell everything from fresh produce to furniture under one roof -- often at lower prices than smaller local stores can offer.

  Tesco opened its biggest Asian store -- 34,224m2, with 420 employees and 1,600 car-parking spaces -- in suburban Bangkok in September, and has 40 Thai stores. It plans to expand to rural towns in January to reach more of the 40 million Thais living outside major urban areas.

  "They haven't introduced anything in Thailand which is going to have a huge effect on our plans," said Peter Bracher, Tesco's head of international corporate affairs.

  Michael Raycraft, head of Tesco's Thai business, said: "We hope the needs of the consumer are given a high priority in any proposals for new laws."

  Tesco's rapid expansion is prompting a local backlash. A bomb blast and a grenade attack damaged two of its Bangkok stores last July, and the retailer was charged by the Commerce Ministry last month with selling goods below cost -- along with Carrefour, Siam Makro Plc and Big C Supercenter Plc, controlled by France's Casino Guichard-Perrachon SA.

  They now face broader government opposition.

  "We have let stronger and richer foreigners expand superstores in the country for so long without proper controls," Thai Commerce Minister Adisai Bodharamik said in September. ``We want to create a more level playing field in the retail industry before thousands more small retailers go out of business.''

  In Malaysia, hypermarket operators must now submit new-store applications two years in advance, and they can't build within 3.5km of housing areas or city centers. The government raised the minimum capital required for large retailers to 50 million ringgit (US$13 million) from 10 million ringgit.

  Tesco, which said last November it planned to open 15 Malaysian stores in five years, has opened two since then.

  Carrefour has six stores in the country so far.

  Carrefour won't pull out of Asia or stop expanding there, said Christian D'Oleon, a company spokesman. He said while it's "understandable" that governments react to protect smaller businesses, growing demand for food safety and lower prices means the market for larger international stores is still there.

  Asia is "incontestably an important region" for Carrefour's future growth, he said.

  In China, the government promised foreign retailers more market access when it joined the WTO last year. Yet they still need permission from both local and national governments for new stores and have limits on what they can sell and how many stores they can open in each city.

  They also need Chinese partners to tap into a US$450 billion retail market.

  Carrefour was ordered by the government earlier this year to reduce stakes in its 27 China stores to end a 16-month dispute that threatened the outlets with closure. The company had breached a ban on overseas retailers owning more than 65 percent of a hypermarket or suburban store.

  Wal-Mart, which has 22 stores in China, hasn't started building its first Beijing store after a year of trying to get the go-ahead from authorities.

  The setbacks leave more room for local competitors such as Wu Mart Group Co and Lianhua Supermarket Co, China's biggest grocery chain, to expand. Lianhua plans to increase its stores to 6,000 from 1,700 by 2005, including 1,000 in the Beijing area, company spokesman Sun Ming said.

  "The Chinese government wants to encourage the development of strong domestic retail companies," said Huang Guoxing, a professor at People's University in Beijing who tracks China's retail industry.
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