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ธนาคารไทยพาณิชย จำกัด (มหาชน) ศูนยวิจัยเศรษฐกิจและธุรกิจ เลขที่ 9 ถนนรัชดาภิเษก แขวงจตุจักร เขตจตุจักร กรุงเทพมหานคร 10900 Email : [email protected]

EIC | Economic Intelligence CenterMay - June 2011

How will the retail landscape change?

EIC Online : http://www.scbeic.comEconomic and business intelligence for effective decision making

In line with global trends, Thailand’s retail business is changing rapidly. Notable growth is observed in the internet channel, which is expected to expand at a Compound Annual Growth Rate (CAGR) of 8% per year over the next 5 years, consistent with the growing number of internet users. Large retailers are therefore placing emphasis on online sales. At the same time, the quantum leap in the growth of social network membership has boosted marketing and customer communication through the internet.

How will demand for products change? The demand will depend on the new groups of consumerswith high purchasing power: (1) the elderly, (2) small households, and (3) middle-and high-income earners (over 15,000 baht per month). The number of small households with single dwellers or couples without children has increased substantially over the years. Although they make up only 15% of the population, their share of spending was as high as one fourth of total spending in 2009.

The new groups of customers have higher demand for luxury items. According to spending profiles,there has been no significant change in the share of spending on consumer products. However, the category of products purchased has shown a different pattern, especially the demand for luxury goods by new groups of consumers, which is sharply on the rise. Vitamins, supplementary nutrients, leisure / recreational goods, and entertainment products are notable examples of such luxury items. Middle- and high-income earners spend almost four times more on entertainment items, such as computersand magazines than the low-income earners.

Where should retail businesses be located? We have developed the SCB EIC Wealth Index and combine with other relevant factors to construct a model for locating new retail branches. The Wealth Index has 3 main components: 1) bank deposits, 2) vehicle ownership, and 3) appraised land values. Our study finds that SCB EIC Wealth Index is a better indicator for people’s purchasing power in each province than the Gross Provincial Product per capita. In addition, other factors such as population density and number of hotel rooms could indicate the location of new retail branches. Population density is a critical factor for branch opening for all types of retail business, especially hypermarkets. The number of hotel rooms is a supplementary factor in the expansion of department store branches.

The branch expansion of hypermarkets tends to take place in provinces, which already have one. Even with a comprehensive coverage throughout the country. Some provinces with high level of population density and wealth still have potential for hypermarket branch expansion. Those provinces include Phuket, Chiang Mai, Trang, Chantaburi, Rayong, Songkhla, Chonburi, Satun, Khon Kaen, and Ayutthaya.

For department stores and stores dealing in construction materials and home furnishings, branch openings normally take place in provinces with no existing store. In addition to population density and wealth factors, the number of hotel rooms and electricity usage are supplementaryfactors to determine branch openings. Provinces with good prospects for department store branch expansion are Rayong, Surat Thani, Krabi, Prachuab Khiri Khan, and Phitsanulok. For construction materials and home furnishings, Chanthaburi, Trang, Lopburi, Cha Choeng Sao, and Chiang Rai are provinces with high potential for branch expansion.

Other factors should also be for considered in finding the right location for retail branch expansion,such as cost of land, public utilities, and a suitable location for logistical management in terms of transportation and inventory, and analysis on the right type of products to be sold in each area to meet different consumer demands and strengthen profitability.

How will the retail landscape change?

How will Thai and global retailbusiness trends change?1Global retail trends vary greatly and are in constant changes. Notable trends expected to catch on in Thailand are (1) internet sales, (2) house brands, and (3) social networks.1 In addition to these trends, the more traditional channels such as (4) sales through television or catalog and direct sales still have good growth prospects.

1.1 Internet sales have high growth potential

Although internet sales have yet to replace sales through stores, it is the channel with high growth potential, especially in the US. Although the share of internet sales to total retail sales was below 5% during 2001-2010, the Compound Annual Growth Rate (CAGR) was as high as 20%, compared with growth of total retail sales at 3% per year. Moreover, since over 40% of American consumers conduct internet searches before making a purchase, retail stores use the internet as an additional sales channel. In fact, the world’s top 10 largest retailers have their own websites for online sales.

In Thailand, internet use grew at a rate of 20% per year during 2001-2010, and internet shopping has now become widespread. According to the National Electronics and Computer Technology Center, internet users rose dramatically from 3.6 million in 2001 to 24 million in 2010. The number is expected to reach 36 million within the next 5 years from the National Broadband Policy, which is expected to further boost internet shopping. According to a survey conducted by Master Card Worldwide, the share of internet buyers to total internet users increased from around 40% in 2008 to 70% in 2010. The majority ofshoppers are women and those between the ages of 25-34. The top 5 bestselling items are airline tickets,garments and fashion accessories, VCDs and DVDs, hotel and resort accommodations, and cosmetics.Should the share of internet sales to total internet users remain close to the survey result at about 70%, in the next 5 years the number of internet buyers in Thailand is expected to reach 24 million, or an 8% increase per year.

1 According to the Thailand Knowledge Center, “Social networks are communities of internet users which can be alternatively called virtual communities. Members of the group do not necessarily have to have close relations, but they share a common interest or subject and converse through the internet. For example, a subject that has been posted on the web board can create a chain of comments from people who may not know each other.”

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EIC l Economic Intelligence Center

1.2 House brands have great potential

House brands tend to grow rapidly especially during recessions. Moreover, they are also improved in both product quality and design to become premium brands internationally. The share of house brands is quite large during economic slowdown, e.g. in Europe, that share is up to 30% of total sales. According to the latest survey conducted in the third quarter of 2010 by Nielsen, a leading marketresearch organization, over 60% of consumers in 55 countries worldwide buy more house brands during an economic crisis, and over 90% intend to purchase further. Marketing strategies for house brands do not rely solely on price but also product quality and design, which are critical factors for their success. An example is President’s Choice, the house brand of food product by Loblaw, one of the largest retail food companies in Canada, with over 1,400 supermarket chains. This brand has become so popular that other supermarket chains started to put the products on their shelves.

In Thailand, house brands have a high growth potential. Despite their share of only 2% of total sales, their growth rate was over 25% in 2009. The market for house brands looks promising owing mainly to their price advantage, luring low-and middle-income consumers which account for 96% of the total labor force in 2009. Although the share of high-income consumers is expected to increase from 4% in 2009 to 14% of the total labor force in 2020, improvement in product quality, design, and diversity can also help

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The most popular items purchased online aretourism services and products for women

Airline tickets

Clothes andjewelry

CD/DVD/VCD

Hotel and resort accommodations

Cosmetics

33

32

29

27

25

Top 5 bestselling goods and services through the internet

Unit: %

1

Note: The total can add up to over 100% since there can be more than one answer. Source: Master Card Worldwide (survey conducted during 3 Sept.-1 Oct. 2010 on 8,500 consumers in 15 countries. For Thailand, 500 consumers took part in the survey. They were between the ages of 18-64, had bank accounts, and used the internet at least once a week.)

1.3 Social Networks: the new communications channel with consumers

The quantum leap in the growth of social network members has been phenomenal. In 2010, socialnetwork members grew 20% from the previous year, compared to 5% growth during 2006-2007. Becausesocial network members share a common interest, targeting a consumer group is easier and moreeffective than ever before. When Facebook first started in 2004 until the beginning of 2011, Facebook members reached more than 600 million. In fact, over 40% of Americans are Facebook members. As a result, retail businesses have used the social network as part of their marketing strategy since 2009. This is two-way communication, an exchange of ideas without the hard sell, which makes it more appealingand effective than newspapers or television, which are an example of one-way communication withcommercials or advertisements. Seven out of ten top retailers in the world use Facebook pages tocommunicate with their customers. The majority of them are US retailers such as Target and Walmart, which have the largest number of Facebook page visitors (over 4 million).

attract more high-income consumers to house brands. The starting point can be daily necessities, and after a brand is well known, it can move to products which require more sophisticated decision making, such as mobile phones. I-mobile by Samart Corporation PLC, is a notable success story as the number one house brand for mobile phones.

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Share of house brand sales in Asia is much smaller than in Europe and North America2

Source: The Nielsen Company

Share of house brand sold in 2009

Asia

Unit: %46

43

3228

2522

2018

17 1512

73 3 3 2 2 1

Swit

zerla

nd UK

Ger

man

y

Fran

ce

Net

herla

nds

Swed

en

Hun

gary

Cana

da

USA

Ital

y

Turk

ey

Hon

g Ko

ng

Taiw

an

Sing

apor

e

Kore

a

Mal

aysi

a

Thai

land

Indo

nesi

a

Thailand’s social networks have also expanded sharply, with an almost four-fold increase in Facebook users that reached approximately 8 million members in 2010. A Nielsen survey finds that regular internetusers visit Facebook 19 times per month and spend almost 6 hours per month, compared to an average of 7 visits per month to department stores. Retailers therefore have far more opportunities to communicatewith their consumers through social networks such as Facebook.

1.4 Other sales channels (not through stores)

Sales through satellite and cable TV: Since Thailand’s satellite TV viewership has increased markedly by 40% per year during 2006-2010, it has become an alternative channel to reach target consumers. Viewers of cable and local satellite TV totaled over 11 million persons, or around 4.5 million households, the majority of whom are city dwellers in the provinces. Competition for commercials at free TV channels has been very intense due to a cap on commercials of less than 240 minutes per day and the rather limited number of channels. Sales through satellite and cable TV have therefore become a logical choice. The cost of commercials for satellite TV is half as much as free TV, at approximately 3,000-5,000 baht per second. With a very specific group of viewers, product owners can select their target group and market their products more effectively.

Direct sales: During the past decade, the top 10 direct sales items experienced a growth rate of over 20% per year, compared with other types of retail growth recording only 4-5% per year. Sales totaleda hefty 30,000 million baht, with millions of direct sales members. Amway, the number one in its league with over one million members, had 14,370 million baht in sales in 2010, with 10% growth per year during the past 5 years. Mistine, a leading direct sale cosmetics brand of Thailand, has over 700,000 saleswomen and over 7.6 billion baht in sales.

Catalog orders: Large retail businesses have begun to emphasize catalog orders. CP ALL's 7-catalog, for example, expanded by 50% in 2010, mainly due to the variety of products offered, which differ from those found on 7-11 shelves. Bestselling items include beauty products and home appliances and equipment.Even Mistine's major cosmetic direct sales company, Better Way (Thailand), added a new line of catalog order called Friday, with over 10,000 products. Meanwhile, some traditional retailers have been successful through catalog orders and managed to be listed on the Stock Exchange. One example is Officemate, which used to rely on traditional sales channels for their stationery products but later turned to catalog orders and registered over 1 billion baht in sales.

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BOX: Thailand's Retail Businesses Structure

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Source: SCB EIC analysis based on data from the International Monetary Fund (IMF) and government agencies of relevant countries

Source: SCB EIC analysis based on data from the Office of the National Economic and Social Development Board (NESDB), the National Statistical Office (NSO), and Bank of Thailand

Retail sales per capita in 2009

Number of branch by type of modern trade

Convenience store

1,722

5,790

CAGR

2001 2010

Hypermarket

79200

Cash and carry20 46

Home furnishings andconstruction material store

10

47

Share of retail business to...

Share of household spending

Spending on food bycategory

VietnamMalaysia

South Korea

Hong Kong

Singapore

Japan

Taiwan

ChinaThailand

GDP per capita

Unit: USD per capita

Unit: branch

Unit: %

Unit: % of total spending

Unit: baht per month

12,000

10,000

8,000

6,000

4,000

2,000

0 2001

20012001

2001 20012010

20092009

2010 2010

others

others

Prepared food (taken home)

Food eatenaway from home

GDP Employment FDI

Retail

FoodFood cook

at home

10,000 20,000 30,000 40,0000

17

33

14 2113

32

68

16 9

* CAGR means compound annual growth rate Source: SCB EIC analysis based on data from the Ministry of Commerce and profile of listed companies

Source: SCB EIC analysis based on data from Household Socio-Economic Survey by NSO

14%

11%

19%

10% 2,600 3,200

500 800

900 1,2004,000 5,200

67

Thailand’s retail sector is on par with the region’s outlook

Modern retail stores continue to expand, with over 10 % growth in branch opening

Despite a lower share of GDP, retail business plays an increasing role in total employment

While the share of spending on food remainsunchanged, the category of food spending changes.

3

5

4

6

Over the past decade, while the share of consumer products to total spending by household remains relatively unchanged at about 35-40%, the categories of products purchased have shown a different pattern. According to the Household Socio-Economic Survey conducted by the National Statistical Office, the factors determining change in consumer behavior are age, type of household, and income level. One notable example is the significant increase in the number of households with single dwellers and marriedcouples without kids, resulting in a change in spending behavior on food and necessities. Consumers, therefore tend to spend more on prepared food or eating out rather than spending on fresh food to cook at home. They also reduce spending on clothes but buy more on furniture and home furnishings. With such changes in spending behavior, which group will become the dominant consumers in the future?

The profile of new consumer groups with high purchasing power in the next decade (2009-2020) is: (1) the elderly (over 60 years old) who are expected to increase from 8 million to 12 million (1.5 times); (2) small households or single dwellers and married couples without kids, whose share to total population is expected to increase from 15% to 20%. Small households have high purchasing power. Despite their small share relative to total population, their spending share to total spending is as high as 23%; and (3) middle- and high-income earners, or a monthly income of 15,000 baht or above. Although the rise in Thailand’s income levels is much slower than that of other emerging economies, the upward trend is likely to continue. The number of those with middle- and high-income is expected to increase from 17% to 40% of total income earners, or more than double. What kind of products, then, will those groups be buying?

What productswill be in demand?2

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Dominant consumer groups will spend more onhealth and recreational products7

* Recreational products include toys, pet supplies, garden supplies, and items relating to religious activities ** Entertainment products include TV, radio, VCDs and DVDs, magazines, computer equipment, and fitness equipment *** Fashion products include clothes, jewelry, and cosmetics Source: SCB EIC analysis based on data from the Household Socio-Economic Survey by NSO

The dominant consumer groupsin the next 10 years

ElderlyOver 60 years

Small householdssingle dwellers and marriedcouples without kids

Middle income and highermonthly income of15,000 baht or above

What products will be in demand?

Vitamins and supplements

Recreational products*

Prepared food

Entertainment Products**

Fashion products***

The elderly spend twice as much on vitamins, stimulants, and recreational products than other groups. Since the majority of those 60 years of age and above are financially secured, they are able to spend more on health products, such as vitamins, supplements, or stimulants. They also are keen to spend more on recreational products such as garden supplies, pet supplies, and items relating to religious activities.

Small households spend 1.5 times more on recreational products such as garden supplies, petsupplies, and prepared food than other groups. Since they have no children, small households’ share of spending is actually larger than other groups. Thus their spending pattern is quite similar to that of the elderly, e.g. recreational products such as garden and pet supplies. Moreover, because they have few family members, they tend to buy prepared food rather than fresh food to cook at home.

Regarding those with middle-and high-income, they spend 2-3 times more on entertainment,luxury clothes, and vitamins and supplements than the low-income group. The increase in income level leads to a corresponding change in consumer spending behavior, especially for luxury goods. When comparedwith the low-income group (monthly income of below 15,000 baht), middle-income and high-group spend more on entertainment (2 times), computer equipment and magazines (4 times), cosmetics and jewelry (2.5 times), clothes and shoes (1.2 times). Moreover, spending on health products also increasesmarkedly, especially vitamins and supplements with over 3 times —or 20 times in value. It should be noted however that no major difference is observed in the share of spending on other medication.

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Source: SCB EIC analysis based on data from Household Socio-Economic Survey in 2009 by NSO and data from NESDB

Share of consumer spending bymajor consumer groups compared with others8

The major consumer groups in all 3 dimensions are expected to show significant increase in both number and share in 2020

The elderly and the middle-and high-income spend 2-3 times more on vitamins and supplements

Age Share of spending on vitamins and stimulants to total retail spending

2009 2009 20092020F 2020F 2020F

Household IncomeUnit: Million persons Unit: % Unit: %

The elderly Small households Middle-andhigh-income

OthersOthers

+4millions +5pp* +24pp*

815 1712 20 41

58 85 8358 80 59

Others

Unit: %

Low income Middle income High income

0.7 1.13.4

under 20 yr 20-39 yr 40-59 yr above 60 yr0.9 1.1 1.7

2.4

2 times

3 times

The elderly and small households spend 1.3 times more on recreational products

Small households, especially single dweller, spend 1.5 times more on average on prepared foods

Share of spending on recreational products to total retail spending Share of spending on prepared foods to total foodUnit: % Unit: %

under 20 yr 20-39 yr 40-59 yr above 60 yr

12.3 12.9 14.416.7

Married couple

with kids

Non-nuclearfamily

Singleparent

Married couple

without kids

Living alone

13.2 12.8 13.216.0 15.8

Married couple

with kids

Non-nuclearfamily

Singleparent

Married couple

without kids

Living alone

13.4 12.917.6 17.8

25.9

The middle-and high-income spend twice more on entertainment

The middle-and high-income spend 2.5 times more on cosmetics and jewelry

Share of spending on entertainment products to total retail spending Share of spending on cosmetics and jewelry to total retail spendingUnit: %Unit: %


1.93.0

4.3


2.84.5

8.6

* percentage points

3 times

3 times

1.5 times

2 times 2.5 times

Where should new branchbe located?3The characteristic of the appropriate location for a retail business hinges crucially not only on the number of customers, but also on their purchasing power. One of the major considerations for an appropriate location is the number of customers, represented by population density. Purchasing power is also an important factor as it has implications on sales growth and access to target group customersin each area. We have therefore analyzed the key drivers that determine purchasing power of a consumer in each province in order to assess where new branches should be located.

Gross Provincial Product per capita does not accurately reflect income and purchasing power of a consumer. One indicator which has been used to roughly assess purchasing power is the Gross ProvincialProduct per capita (GPP per capita). However, only a 50% correlation is observed when running GPP per capita against monthly average income per capita. Moreover, if we were to rank GPP per capita forevery province, we would expect the purchasing power of Bangkok residents to top the list. But it turns out Bangkok ranks 6th, while the top 3 are Rayong, Samut Sakon, and Ayutthaya. The GPP per capita of the latter three is high because many industrial estates are located in these provinces. With theseshortcomings, GPP per capita cannot be used to reflect income and purchasing power accurately.

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GPP per capita does not accurately reflectpeople’s purchasing power9

* per capita income calculates from total population, not limited to those in the labor force, to be consistent with calculation for GPP per capita Source: SCB EIC analysis based on data from Household Socio-Economic Survey in 2009 by NSO and data from NESDB

GPP per capita and income per capita

1,000,000

800,000

600,000

400,000

200,000

0

Rayong

Samut Sakhon

AyutthayaSamut Prakarn

Pathum ThaniChonburi

Cha Choeng Sao

Income per capita* (Baht/month/person)

Phuket

Nonthaburi

BangkokSaraburi

4,000 6,000 8,000 10,000 12,000

2009

GPP

per

cap

ita

(Bah

t/ye

ar/p

erso

n)

Correlation = 50%

Provinces with industrial estates have high GPP but does notreflect income

Average income by itself is not sufficient to define the right location for retail businesses. Estimated from the production side, GPP per capita does not adequately reflect a province’s purchasing power. We have therefore analyzed the average income per month per head from the National Statistical Office’s Household Socio-Economic Survey. Yet, this does not fully capture people’s purchasing power because there are other sources of income, such as land, rent and bank deposit interest. The Wealth Index has therefore been developed to take these elements into account. Details are further discussed in Box: SCB EIC Wealth Index.

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BOX: SCB EIC Wealth Index

Wealth Index is a better indicator than GPP per capita

Source: SCB EIC analysis based on data from the Bank of Thailand, the Department of Land Transport, and the Treasury Department

Province SCB EICWealth Index

GPP per capitaranking

We have developed the SCB EIC Wealth Indexto gauge the wealth of the population of each province other than income so that we could find the right location for retail businesses. Such an approach has not been publicly applied in Thailand.

What factors are indications for wealth of a province? There can be many factors, both monetary and non-monetary assets, which indicate household wealth of populationin a province. In this study, we estimate the Wealth Index from the three components:

• Bank deposits. Data on bank deposits is from the Bank of Thailand. Total savings and current account deposits per capita of each province should be a good indicator of financial status and disposable income since part of earned income is normally channeled into deposits at financial institutions.

• Possession of vehicles. Data on personal car registration is from the Department of Land Transport. For statistical purposes, car registrations are per 1,000 people. This data not only indicates wealth of people but also indicates the level of convenience for people in conducting daily activities.

• Appraised value of land. Our study uses the average of the top 20 highest appraised land values per block in Bangkok and the city district of each province. The appraised land value reflects wealth in the form of assets. Data is from the Treasury Department.

The Wealth Index is a better indicator of the wealth of a province than GPP. The Wealth Index indicates that Bangkok is the wealthiest city of all components, followed by key tourist destinations such as Phuket and Chiang Mai.

Bangkok

Phuket

Chiang Mai

Chonburi

Nonthaburi

Rayong

Samut Prakarn

Pathum Thani

Nakhon Pathom

Songkhla

Surat Thani

Chantaburi

Trang

Khon Kaen

Ratchaburi

Yala

Samut Sakhon

Phitsanulok

LopburiNakhon SiThammarat

100.0

39.8

27.1

23.4

22.4

19.6

19.6

16.0

15.0

14.9

14.7

13.1

12.9

12.7

12.6

12.5

12.1

12.0

11.6

11.5

6

10

34

5

20

1

4

7

13

22

17

39

29

35

14

32

2

40

30

41

The Wealth Index can help explain factors other than salaries. It can also better explain the overall wealth aspects for a province than GPP per capita, which tends to place high weight on the production side.

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The Wealth Index and other relevant factors which can influence retail branch opening have been used to develop a model for modern trade branches to find out where new branches should belocated. A factor analysis has been adopted to assess the characteristics of potential retail business locations.In this study, modern trade includes 1) hypermarkets, 2) department stores, and; 3) home furnishing and construction material stores. Our study finds that population density and wealth of the people are important considerations for branch openings of all types. Furthermore, some factors have a specific impact on certain retail business, e.g. number of hotel rooms and residential sector electricity usage.2

Population density is more relevant to hypermarket branch opening than other types of retail business.This is because its key products are everyday necessities which cater to every group of customers, e.g. fresh food, prepared food, and home appliances. As a result, the right location for a new branch should be one with high population density. Population density in this study is calculated from the ratio of the number of people in the province to non-agricultural and forested areas. Surin and Si Saket, for instance, have as many as 4-5 hypermarket branches because they rank among the top 15 provinces with highest population density even though their purchasing power is relatively low. Population density accounts for 25% of all variables in explaining the number of hypermarket branches.

The number of hotel rooms is a supplementary factor helping explain the growth of department store branches. The number of hotel rooms is one of the variables used to explain the number ofdepartment store branches. In fact, it accounts for 30% of all variables. Since department store customersare mostly middle-and high-income earners and, or tourists who buy relatively expensive items such as clothes, cosmetics, and jewelry, population density and wealth of a province still do not sufficiently capture all department store spending. The number of hotel rooms is therefore used as an additional variable to capture other groups of customers visiting the province. See, for example, a calculation for the model on the number of department store branches in Figure 10.

Residential sector electricity usage has an impact on the growth of construction material and home furnishing store branches because their main products are home furniture and electrical appliances. Thus, in addition to population density and wealth, which can partially explain spending behavior on homefurnishings, electricity usage also helps shed light on overall spending on home products, especially electricalappliances in each province. The weight of electricity usage to branch opening is around 15%, the same as population density. Bank deposits, however, have a high weight of 40%.

2 The number of branches of each type of business consists of the following: (1) Hypermarkets: Big C, Tesco, Carrefour, and cash and carry, i.e. Makro (2) Department stores: Central, Robinson, and the Mall Group, and (3) Construction materials and home furnishings: HomePro, Homework, and Siam Global House.

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Our study concludes that there is room for further branch opening for every type of retail business in Bangkok and its vicinity (which includes Nonthaburi, Pathum Thani, Samut Prakarn, Samut Sakon, and Nakon Pathom). All variables point to Bangkok and its vicinity as most fitting for more branch openings,in terms of the highest population density, wealth factors measured within a province, and number of local and overseas tourists. All these factors reflect the fact that retail branch opening can continue to expand. Nevertheless, despite its growth potential, Bangkok and its vicinity have some limitations in terms of availability of vacant land in suitable areas and relatively high rent.

The provinces with potential for more hypermarket branch openings are Phuket, Chiang Mai, Trang, Chantaburi, Rayong, Songkhla, Chonburi, Satun, Khon Kaen, and Ayutthaya. The supporting factors are population density and high purchasing power. Moreover, some provinces are major tourist destinations,which generate additional demand for goods and services. Of the 10 provinces, Chantaburi and Trang have the highest potential for hypermarket branch opening due to their currently small number of 2-3 branches, compared with other provinces at average of around 7 branches, and their relatively highpurchasing power. Branch expansion in those provinces is therefore an opportunity to improve their market share.

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Department store branches show an increasingtrend according to wealth and number of hotel rooms10

* The coefficient of the variable is estimated and adjusted in the form of a ratio to reflect the weight of the variable for determining the number of branches Source: SCB EIC analysis based on data from the Ministry of Interior, the Bank of Thailand, the Department of Land Transport, the Ministry of Natural Resources and Environment, and the Treasury Department

Department store branches

1 215% 55%

Populationdensity

are calculated by

SCB EIC Wealth Index

share* share*

represent demand from local customers

...consists of

bank deposit 35%10%

10%

possession ofvehicles

appraisedvalue of land

330%

Number of hotel rooms

share*

represents demand from international and Thai tourists

Hypermarket branch expansion is expected to take place mostly in provinces in which they already have some hypermarkets. Currently, hypermarket branch coverage is already comprehensive--almost throughout the country, lacking only 10 provinces. However, for department stores and home furnishing and construction material stores, branch openings will be in provinces which do not already have the presence of these stores because their coverage is relatively low. Which provinces, then, will have the potential to expand these branches?

Rayong, Surat Thani, Krabi, Prachuap Khiri Khan, and Phitsanulok are the provinces with thepotential for more department store branches. This is attributed to high purchasing power and tourism prospects. They are key tourist destinations with plenty of accommodation facilities for local and oversea tourists and nearby airports.

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Branch openings for modern retail businesses are expected to expand to every region,with Bangkok and its vicinity to receive new branches for every type of retail business11

Source: SCB EIC analysis based on data from Ministry of Interior, Bank of Thailand, Department of Land Transport, Provincial Electricity Authority, Metropolitan Electricity Authority, Ministry of Natural Resources and Environment, and Treasury Department

For construction material and home furnishings stores, opportunities for more branches lie inChantaburi, Trang, Lopburi, Cha Cheong Sao, and Chiang Rai. Households in these provinces use more electricity than the country’s average of 1,600 kilowatts hour per electricity user, reflecting a high demand for electrical appliances. These provinces also have strong purchasing power, as all indicators of bank deposits,car registrations, and appraised land values point them toward the top 20 of Thailand’s wealthiest provinces.In particular, Chantaburi is among the top 15 in both categories.

Consideration of the right location for retail branch opening from our analysis is only one factor in determining overall business opportunities. Ability to generate profit is beyond the scope of this study since there are many other factors to be considered, such as location cost, transportation hub areas, and public utilities for easy access to services and to target customer groups in nearbyprovinces. Moreover, the right location should also be near a distribution center to reduce logistic costs and manage inventory efficiently. Lastly, specific product placement in each particular area must be taken into account in order to best correspond with the demand and consumption behavior of the local population.

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Contributors

Pranida [email protected](662)544-2705

Ekasit [email protected](662)544-3085

Paradee [email protected](662)544-2475

Pranida received her Bachelor of Economics with honors fromChulalongkorn University and MA in Economics from University of Texas at Arlington.

Prior to joining Siam Commercial Bank, Pranida has previously held positions with the Bank of Thailand (Monetary Policy Group) for more than 7 years.

Ekasit received his Bachelor of Economics with honors and MA in International Economics and Finance (international program) from Chulalongkorn University.

Paradee received her B.Eng. with honors from ChulalongkornUniversity, M.Eng. from Georgia Institute of Technology and ExecutiveMBA from Sasin Graduate Institute of Business Administration.

Prior to joining Siam Commercial Bank, Paradee worked with Proctor & Gamble for more than 7 years.

Research

Pornthep [email protected](662)544-3066

Pranida [email protected](662)544-2705

Vithan [email protected](662)544-2478

Paradee [email protected](662)544-2475

Witchuda [email protected](662)544-1644

Kampon [email protected](662)544-1463

Akarapat [email protected](662)544-5602

Ekasit [email protected](662)544-3085

Mantana [email protected](662)544-6760

Tanakorn [email protected](662)544-6103

Disclaimer : The information contained in this report has been obtained from sources believed to be reliable. However, neither we nor any of our respective affiliates, employees or representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of any of the information contained in this report, and we and each of such persons expressly disclaims any and all liability relating to or resulting from the use of this report or such information by the receipt and persons in whatever manner.

Any opinions presented herein represent the subjective views of ours and our current estimated and judgments which are based on various assumptions that may be subject to change without notice, and may not prove to be correct.

This report is for the recipient’s information only. It does not represent or constitutes an advice, offer, recommendation, or solicitation by us and should not be relied as such. We or any of our associates may also have an interest in the companies mentioned herein.

SCB Economic Intelligence CenterResearch Networking

Darakorn [email protected](662)544-4006

Pinattha [email protected](662)544-2953

Vipasara [email protected](662)544-6566

Jiraporn [email protected](662)544-6759

Bunyanuch NiltakochExecutive [email protected](662)544-5644

Insight

Template Book InsightSize 21 cm. (W) x 29.5 cm. (H)

ธนาคารไทยพาณิชย จำกัด (มหาชน) ศูนยวิจัยเศรษฐกิจและธุรกิจ เลขที่ 9 ถนนรัชดาภิเษก แขวงจตุจักร เขตจตุจักร กรุงเทพมหานคร 10900 Email : [email protected]

EIC | Economic Intelligence CenterMay - June 2011

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