Retail Review. LOTS to learn from the Thai model


June 27, 2019

Thailand is a good bridge for modern retail in India, believes Tanit Chearavanont, MD of LOTS Wholesale Solutions


Balloons and festoons greet shoppers at the three stores of LOTS Wholesale Solutions in the National Capital Region. There are lucky draws, discounts, and a host of exciting offers too.

It is exactly one year since Thailand’s Siam Makro, a part of the $50-billion Charoen Pokphand Group (CPG), launched its first cash and carry store LOTS in India.

It has been a year of learnings for Tanit Chearavanont, the young managing director of LOTS, who was accidentally thrust into the job of leading the Thai group’s charge into India. “I was not the original project leader for LOTS,” he confesses. That person quit and Chearavanont, who is a scion of the family that owns CPG, was made interim MD. Eventually the Hong Kong-schooled, Harvard-educated retailer was told to take charge.

Chearavanont has been in India for over three years, right from the feasibility studies. An additional challenge was that Siam Makro, a well-known name in Asia, could not use its brand in India. The reason, explains Chearavanont, was that Siam Makro, the first modern retail store in Thailand, was formed in 1988 as a JV between CPG and Dutch trading group SHV Holdings. In 1997, when the Asian financial crisis struck, CPG sold its stake to SHV but bought it all back in 2013. However, when it bought it back, the licence to use the Makro name excluded India — it could use it in other parts of South-East Asia.

Brand and retail consultancy Fitch created the name LOTS which was crafted keeping India’s young demographics in mind.

Ask Chearavanont how an Asian retailer will compete against big western players like Metro and Walmart in India and he grins, “Don’t forget Makro has Dutch vibes in its DNA.”

More seriously, he believes that India’s retail journey evolution is quite similar to Thailand’s and this will help LOTS. He points out how, in OECD countries, modern formats are very pervasive, while in Thailand modern retail and kirana have a 50:50 ratio. “India is evolving the same direction as Thailand except for the e-commerce piece, which is bigger here,” he says. He feels the Indian consumer behaviour is also quite similar to Thailand, and trends are same. For instance, Siam Makro had to change its product assortment from apparel to food in Thailand. In just a year, Chearavanont points out how the assortment at the LOTS stores has similarly evolved. The target customers are small and medium-sized retailers, the food service industry, and self-employed professionals.

The last six months, says Chearavanont, LOTS has intensified its focus on understanding its business customer. “I have got our buying merchandising team to meet all our customers to understand what products and what price points are most important to them,” he says. For instance, initially there were 100 sheets of branded paper napkins priced at ₹20 but when that was perceived to be costly, the store started stocking unbranded napkins at lower price points as well.

Despite India’s strong tradition of kirana stores that need wholesale supplies, large-format cash and carry stores have not had an easy journey. Metro, which was the first to open in 2003, took over a decade to turn profitable.

Market dynamics

According to Devangshu Dutta, Chief Executive of Third Eyesight, the challenges for the B2B-focused cash and carry formats are to get the location right, get India’s real estate reality (high land costs and rentals) and consumer reality right as well as learn to negotiate with strong local FMCG suppliers. Several cash and carry stores initially opened in far out locations as they needed the space for their big-box formats. But as Dutta points out, “There is a cost to transportation for the kirana store owner who is often the shopper too.” Sourcing is quite disaggregated in India and products are door-delivered to kiranas.

Chearavanont seems cognizant of these realities. He says LOTS took a conscious punt on location — choosing to put their stores in the heart of the city, close to customers, even if it has had an impact on cost. Plus, he says, store formats have been shrunk, averaging 30,000 sq ft.

As for consumer reality, he has been doing the rounds of retailers and restaurateurs. “At many places we found that kirana stores are selling products below MRP,” he exclaims. That set off thinking within the group as to how they could help the kiranas differentiate themselves. One solution was to give them interesting imported products — flavoured nuts and dried fruits, snacks and confectionery sourced from Thai or Japanese producers with a better value proposition.

“If you want to make imported work, it has to be sold at democratised price,” he says. Also, this would differentiate them from other western cash and carry stores. For example, when Indians think about nut snacks they think of Tong Garden – the premium Singapore brand. “But in Thailand we have a brand called Koh Kae. We could get that in,” he says.

Going forward, Chearavanont says there will be focus on imported food products and leveraging its own private labels. This could also reduce LOTS’ dependence on local suppliers, who have a lot of bargaining power. “We want to be more food focused and the non food focused items will also be geared towards HORECA (hotel/restaurant/cafe) customers with a strong assortment of stationery items and disposables”. Over 7,000 active HORECA members shop daily or weekly at the store and their numbers are rising by 10 per cent every month, he says. To get more footfalls, from 7 am to 10 am there are early morning discounts in the food category.

“If a HORECA customer walks into my store, can she find 80 per cent of her basket in my store? If that is so, there is connect happening,” he says, adding the full focus is on that. Right now present in NCR, the plan is 15 stores in three years in cities in UP, Punjab and Rajasthan. Investment of ₹1,000 crore has been set aside for that.

While lots is happening at LOTS, Dutta cautions that there is an over-expectation of modernisation in India. Also, one approach will not work in the whole of India. So, what may work for LOTS in the North may not work in the South or West, when it expands.

Source: thehindubusinessline