Thailand Food and Drink Report Q2 2008

Thailand represents one of the most attractive food and drink markets in the Asia Pacific region. The country, ranked joint fourth alongside a more mature, but also more challenging Japanese market, offers a number of opportunities to foreign players. However, the new government is likely to continue to legislate against easy mass grocery retail (MGR) expansion in a bid to protect the independent sector, although the investor confidence has been boosted by the election of the new administration. The government is expecting private investment to grow by 5-6% in the course of the current year, dwarfing the 0.5% figure achieved in 2007.

To this end, French Carrefour's Thai operations announced a THB3bn (US$92.3mn) investment, which is to be used to open six or seven more hypermarkets in the country. The company quoted its confidence in the new government as the key reason for the tripled investment budget, with its local operation CenCar also planning a US$7.3mn investment in the renovation of its 24 stores into 'premium hypermarkets' and the addition of beauty products and other non-food items. Moreover, CenCar has signed a memorandum of understanding with the Commerce Ministry to export local products though Carrefour's global network, with a view to regaining some of the shares taken by the Philippines, Vietnam and Indonesia in recent years, due to high prices of Thai exports. UK-based Tesco is pursuing a similar strategy though its Tesco Lotus local subsidiary, which is to work with local fruit and vegetable growers with a view to exporting THB1.6bn (US$49.5mn)-worth of produce to its international markets.

However, local fruit and vegetable growers are increasingly finding themselves with surplus stock, with this oversupply resulting in falling prices and decreased revenues for the growing agricultural sector. Part of the problem is the quality of Thai produce, which is considered inadequate for European and the US markets, although the industry and the government are working on rectifying the situation.

Nevertheless, both MGR and food and drink industries continue to show a fair amount of dynamism. An overwhelming trend is that of investment in expansion of production and penetration of the local market.

To this end, in March 2008, leading spirits and beer producer Thai Beverage (ThaiBev) revealed its intention to tap the opportunities within the non-alcoholic beverages sector by using its extensive existing distribution network across the country. The company is planning to boost its product portfolio with energy drinks and coffee brands as part of its diversification strategy and in response to the high per capita consumption of energy drinks in particular. Similarly, in February 2008, Thai agro-industrial group Chokchai announced plans to invest THB100mn (US$3.18mn) in turning its existing dairy production facility into a fully integrated dairy farm. The move will allow the company to boost dairy sales and lower costs, with the strategy also supported by the expansion of its increasingly popular premium fast-food business, which is already a target of other companies in the country.