One year after the Makro-Lotus merger, the synergies are beginning to show

Shortly after Britain’s Tesco abandoned its retail business in Thailand and Malaysia in early 2021, its buyer, Thailand’s Charoen Pokphand Group, merged it with its wholesale arm Siam Makro. Makro, Southeast Asia’s largest cash-and-carry operator, was already something of a beast in wholesale and retail terms: operating 154 warehouse-style units with an average size of just under 5,400 square metres, selling to both retailers and retailers. as end consumers. in major cities and secondary locations, primarily in Thailand and Malaysia.

Its merger with Tesco Lotus almost doubled its importance, making it the operator of almost 2,700 hypermarkets, supermarkets, convenience stores and shopping malls. That was in October a year ago now. The business has had a full year to overcome the initial struggle with indigestion that usually occurs when one large retail entity takes over another. And in this case, to complete a rebrand from the old Tesco Lotus to the new moniker: Lotus’s.

The synergies that fueled the merger are now beginning to show. The retail and wholesale businesses represented a roughly even split of the company’s 219.6 billion baht ($9.4 billion) of sales for the first half of the year. Wholesale business sales grew by almost 7% during the first half of 2021.

Year-over-year sales growth on the retail side, now primarily explained by Lotus, is not available as the base period was prior to the Lotus acquisition. Most likely, growth would have been stagnant or negative in the same store as higher food production and transportation costs were funneled into shelf prices, pressuring customer demographics in large part. Lotus not accommodated. Quarter-on-quarter growth, which does not take into account seasonality and new store openings, was 8.7 percent.

There’s a buzz in the malls

Shopping mall revenue added another 6.2bn baht to the top line during the first half and should at least double by the end of the year as the company focuses more on rent growth and mall occupancy. as a growth vehicle. Lotus’ shopping malls, which are anchored in its own hypermarkets and supermarkets, are somewhat opaquely referred to by the company as “hybrid and self-operated shopping malls”, and represent 1 million square meters of net leasable area throughout the region. . Occupancy is around 90 percent in both Thailand and Malaysia and it has a significant head start in the coming years, dragging down the mall’s revenue with it.

Lotus’s existing shopping malls are configured in a way that allows space to be leased within the hypermarket’s own checkout (for example, along a straight line past the checkouts at the front of the store) and around the race track comprising the main shopping center. Specialized online space is rented primarily to chain restaurants, banks, telecommunications companies, pharmacies, telephone sellers, gold jewelry stores, a food court, and a movie theater. But that’s not all: the mall’s outer perimeter and underutilized sections of the parking lots are also rented out to small tenants who sell food, clothing, footwear and auto accessories, among other things.

take advantage of synergies

The synergies that had investors so excited about merging Makro’s wholesale business with Lotus’s retail operations are slowly materializing, though inflation has hit some of Lotus’s less affluent customers and pushed them back.

In Thailand, the Makro-Lotus combination is now by far the dominant retail player in the large-format grocery segment, competing fiercely with market leader 7-Eleven, Central Retail’s Family Mart and smaller Big C formats in the convenience segment. market. (By the way, 7-Eleven, by far the largest convenience chain, is run by CP All, another offshoot of the Charoen Pokphand Group.) However, the challenge to 7-Eleven’s pre-eminence will only grow as both Makro and Lotus continue to open small-format stores.

In the second half of this year, the company has already opened or plans to open five wholesale units in Thailand, in addition to one in Delhi and one in Phnom Penh, Cambodia, which will be the second Makro in the Cambodian capital, where there are practically no competition in the cash and carry space.

On the retail side, two more Lotus hypermarkets, one supermarket and 45-50 small formats will have opened in Thailand by the end of 2022, along with three supermarkets in Malaysia.

Prospects look promising in the long term. The huge increase in scale resulting from the merger has given the company a much larger and more diverse platform for the existing distribution infrastructure within the broader CP Group. The combined Makro-Lotus entity now has a network of 2,815 stores consisting of multiple complementary formats with their own complementary customer bases.

Lotus itself has 270 hypermarkets that typically anchor their own shopping malls, 220 supermarkets and 2,171 convenience stores.

Makro has been able to expand its existing supply chain on Lotus store shelves, improving the quality and variety of its food products, particularly in the fresh food department. This is evident in all Lotus formats.

More reasons for optimism

The company also has other reasons to be pleased with its growth prospects. For one thing, this is Southeast Asia, by no means a mature market and with immense potential in terms of serving a large and growing population that will enjoy a galloping rate of growth in household income. This will suit companies with strong supply chain management capabilities and the ability to operate multiple formats across the hierarchy of locations, from major metropolitan areas to provincial cities and towns to rural areas.

Siam Makro can also anticipate the growth of its online-to-online business. Currently, it has relatively low online penetration, but that’s another area the company is focused on improving. At the end of the first half of this year, their online business accounted for 13% of sales in wholesale (vs. 11% in 2021) and 4.5% (vs. 2% in 2021) in retail. side.

The company is also enjoying cost savings through streamlining its back office following the merger of operations.

Finally, there are growth prospects outside the main business markets in Thailand and Malaysia. Siam Makro already has a small beachhead in Vietnam (since 2012, with Makro Food Service), and others in Singapore, Hong Kong, Dubai (through its acquisition of Indoguna in 2017), Cambodia (since 2018), India ( also since 2018), China (2019) and Burma (2020).

Given its exceptional supply chain capabilities, strong brand, and diverse retail and wholesale platform, this is a company that will be hard to stop.

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