Thailand’s retailers adapting to changing consumption patterns

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New retail legislation, combined with developments in consumer purchasing habits, are set to impact activity in Thailand’s retail sector, particularly the food and drink segment.

Several new levies, which came into force in mid-September, target soft drinks containing sugar and are intended to encourage Thais to consume less sugar so as to improve health, as well as prompt producers to cut sugar content in their products.

They include a tax of 20-30% of the suggested retail price of sugary drinks, as well as a 45% tax on liquor based on its value, in addition to a tax of 50% based on its level of alcohol. The levels will be gradually increased over a six-year period.

New taxation could lead to new product partnerships with academia

While the levies, which are expected to have a significant impact on the food and beverages segment of the fast-moving consumer goods (FMCG) industry, will likely weigh on sales in the short term, in the long run they should lead to more linkages with food researchers.

Facing increased taxes, suppliers will need to develop sugar-free products, and retailers will need to promote them as alternatives to popular, though soon to be more expensive, product lines.

Changes in consumer retailing patterns, tastes and regulatory requirements should be a driving force in bringing academia, the state and the retail industry closer together, according to Ekaphol Pongstabhon, managing director of Tipco Foods, which focuses on the production and export of canned fruit products and beverages.

“Innovation depends on partnerships; we need to work with universities and laboratories,” he told OBG. “University labs are currently developing some interesting products, yet the government needs to step in heavily and create partnerships here. We want the universities to think more commercially in order to help consumers and, in turn, benefit people’s lives.”

Thai consumers shift to online shopping

Alongside new legislation, changes in the way consumers purchase goods are also set to affect retail patterns.

Consumer preferences are starting to move away from traditional over-the-counter retailing towards digital purchasing, a migration the FMCG segment will have to track.

It is estimated that 10% of Thai households will utilise online shopping channels in 2017, up from 7.3% last year, with the popularity of this form of retailing set to increase even further as internet penetration rates and online services improve.

Although online sales make up only a small fraction of overall retail sales, the Thai Retailers Association projects short-term growth to be in the 15-20% range annually, compared to the 3-5% average in recent years for aggregate retail consumption. According to local stakeholders, many retailers are investing heavily in digitalisation, with an eye on long-term returns.

Recent activity in the online grocery segment also seems likely to bolster this trend.

“The Thai food retail segment has long been characterised by high levels of competition,” Pascal Billaud, CEO of Central Food Retail Group, told OBG. “This trend will definitely continue with the market entry of large e-commerce players such as JD.com in partnership with Central Group and other players.”

Rise in consumer confidence reverses four months of declines

Consumer confidence bounced back in August, according to the findings of a monthly survey conducted by the University of the Thai Chamber of Commerce, suggesting a favourable climate for such investment.

The index ­– where a score of below 100 represents a deteriorating outlook and an index of over 100 represents an improving outlook – reported sentiment rising to 74.5 points, up from July’s 73.9. While it is still below positive territory, the August figures reversed four months of decline.

Despite a slow start for the segment and the economy as a whole earlier this year, growth in the grocery market is expected to increase at a projected compound annual growth rate of 7% for the 2015-20 period, according to Inside Retail Asia, with total food sales made by organised retail chain stores expected to top $145bn by 2020, up from $73bn in 2015.

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