Thailand’s Big C, the retailing arm of Berli Jucker (a vertically integrated company that also has its nose in manufacturing and distribution of consumer products and packaging) talked up its bottom line rather than its top one when it presented its third-quarter results to investors on November 18.
It’s getting to be a habit. Still, it’s understandable given that Thai consumers continue to balk at spending while many of them are still heavily in debt. Sales growth is coming mostly now from store expansion rather than productivity improvement, and profit growth from cost control and efficiency improvements.
It has become a familiar theme among most Thai retail chains over the past year, with many reporting little or no same-store sales growth and poor results in departments like home appliances, furniture and DIY. Spare a thought for the home-improvement players especially.
Big C contributes 65 per cent of Berli Jucker’s company-wide sales and services revenue. Apart from its more than 1800 hypermarkets, supermarkets and convenience stores, Big C’s retail business also encompasses a network of 155 pharmacies, nearly 70 book stores and 45 coffee shops. Over the past 12 months, the company added a net 130 new stores, including 115 Big C Mini and one hypermarket. It is an extremely important operator in the Southeast Asian retail landscape. Those store counts don’t include the 9667 mom-and-pop stores belonging to its Donjai network, which, in essence, if not in name, is an attempt to turn the independents into Big C retail outlets.
In the third quarter, Big C’s sales increased by 3.2 per cent on the same quarter a year ago, to 25.4 billion Thai baht (US$769 million), with the help of the new stores. Gross margin held steady at 17.5 per cent. Net profit was 715 million baht (US$21.7 million), an increase of 13.9 per cent in the third quarter of 2023. Same-store sales were virtually flat, which is at least an improvement on the 1.9 per cent dip in the second quarter. But even the flat line would not have been possible without a double-digit percentage increase in same-store sales of fresh food. To Big C’s credit, upping the standards of its fresh food departments has been an area of emphasis as the company tries to go head-to-head with its major competitors, including CP Axtra’s Lotus’s and Makro, and Central Retail’s Tops supermarkets, whose supermarkets and hypermarkets are ahead of Big C’s in the quality and presentation of fresh food. Big C’s small format, Big C Mini, is also struggling to match its peers in the large convenience/small supermarket space, where 7-Eleven has a distinct edge.
For the first nine months of the year, sales at Big C reached 76.6 billion baht (US$2.3 billion), an increase of 2.1 per cent. Gross margin grew strongly, to 18.1 per cent. Big C has delivered a net profit of 2.7 billion baht (US$81 million), up 1.4 per cent from the first nine months of 2023. The company has suffered from ongoing sluggishness in sales of discretionary, particularly big-ticket, items. The third quarter of last year was the last time Big C achieved any meaningful same-store sales growth at all.
Meanwhile, the company’s efforts to increase online sales are bearing fruit: e-commerce sales grew 30 per cent, year-on-year, in the third quarter but from a low base. Omnichannel has only just edged up to about 6 per cent of sales. Compared with its peers, there is a lot of ground to be made up.
A little under 10 per cent of Big C’s retail business consists of rental and service income from the 1.1 million square metres of space it rents out, primarily within its hypermarket-anchored malls, which, for perspective, is only slightly less than the total sales floorspace in its own stores. Revenue from this source actually fell by 1.6 per cent, year-over-year, in the third quarter and by 1.3 per cent for the first nine months, which the company attributed to temporary vacancies while renovations were occurring. The occupancy rate now sits well adrift of 90 per cent, which is nowhere near the level Big C would like it to be.
Big C has a lot of ideas about how to keep its results improving. Apart from adding stores and renovating existing ones, it is targeting tourists with its merchandise assortment in tourism-oriented locations, including its flagship on Ratchadamri in downtown Bangkok. It is also increasing private label penetration (now almost 14 per cent of sales), importing new dry food SKUs from Europe, fine-tuning Japanese and Korean assortments, reducing delivery lead times and adopting other measures to improve efficiency. It is also pursuing its massive collaboration with the independent mom-and-pop sector.
This latter refers to Donjai, Big C’s campaign to increase control of the country’s independent ‘mom and pop’ retail sector. (Big C puts it rather differently, wanting to claim that it is rescuing the independent sector rather than swallowing it up, bit by bit.) Big C has already signed up 9667 traditional shops to the program. Under this system, the mom-and-pop shares with Big C an investment of around 250,000 baht (about US$7000), which gets it a technology upgrade such as a modern POS system. The store owner has to commit to purchase about 50 per cent of its inventory from Big C. The company is well on its way to meeting its goal of a 30,000-strong Donjai network within a few years.
The Thai economy is growing at a 2-3 per cent annual rate and it is forecast to be about the same next year, which, by the way, is resting rather heavily on optimistic assumptions about tourist growth. Thai households and businesses are debt-ridden from bad habits they got into during Covid-19, and the government has been guilt-tripping the central bank for months to cut interest rates. Finally, the Bank of Thailand gave in, cutting its benchmark rate by a quarter point in October. The government has also launched its digital cash handout stimulus program, which could benefit Big C, particularly through its Donjai program.
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