CP All Pcl (CPALL), the world’s third- biggest operator of 7-Eleven convenience stores, said it plans to expand its network in Thailand to 10,000 outlets by 2018 to maintain annual profit growth at 15 percent.
“There is vast potential for Thailand’s retail market,” CP All President Piyawat Titasattavorakul, 58, said in an interview yesterday at his office in Bangkok. “We are still in the early stages of a consumer-spending boom.”
CP All and biggest competitor Tesco Plc (TSCO) are adding outlets in the nation of 67 million people after the government raised minimum wages and introduced price guarantees for rice and rubber to boost rural incomes. Piyawat said he also wants to expand outside of Southeast Asia’s second-biggest economy, and may open 7-Eleven stores in southern China and Vietnam to help meet the Bangkok-based company’s long-term profit target.
“CP All has delivered spectacular earnings growth for investors because of its dominance and aggressive store expansion,” Jitra Amornthum, head of research at Finansia Syrus Securities Pcl (FSS) in Bangkok, said by phone. “The company will inevitably face higher risk when expanding in Thailand’s provinces because sales at those stores will be much lower.”
Prime Minister Yingluck Shinawatra has moved to insulate Thailand’s economy from a global slowdown by lifting incomes of farmers and poorer Thais. About 35 percent of Thais make their living growing crops, according to data from the Office of Agricultural Economics.
CP All opened its first 7-Eleven outlet in 1990, and lags behind only its U.S. parent and Tokyo-based Seven & I Holdings Co. (3382) in terms of store numbers, according to its website.
The company, controlled by 73-year-old Thai billionaire Dhanin Chearavanont, plans to add 3,300 stores to its existing 6,700 in the next six years, Piyawat said. About 500 outlets will open each year, more than half outside Bangkok. Stores in provincial cities and rural areas will account for 60 percent of the company’s total, from about 50 percent, he said.
“Expanding urbanization should help boost spending in convenience stores where size and location are matched to people’s lifestyles,” KGI Securities (Thailand) Co. said in a research note last week.
Shares of CP All jumped more than fivefold over the past five years and have rallied 28 percent this year, outstripping the benchmark SET Index’s 19 percent gain, according to data compiled by Bloomberg. Dhanin’s family, the country’s richest, has seen its wealth increase as profits climb at companies they control, including CP All and Charoen Pokphand Foods Pcl (CPF), the nation’s biggest meat and animal-feed producer.
CP All’s profit jumped 20 percent to 2.6 billion baht ($83 million) in the second quarter as consumer spending rebounded after devastating floods receded at the end of last year. Profit has climbed more than fivefold over the past five years.
While higher incomes have helped spur a recovery in consumer spending, they’ve also boosted costs for companies including CP All, which employs 100,000 people in Thailand.
“Rising labor costs are a threat to the company’s profitability,” Sirinattha Techasiriwan, an analyst at Kasikorn Securities Co., said on Aug. 8. “Net profit margin declined as a result of rising wages.”
The government raised minimum daily wages by at least 40 percent in April, and wages nationwide will rise to 300 baht a day in 2013 from as low as 222 baht, according to the labor ministry’s website.
Earnings may also come under pressure after consumer confidence in Thailand fell for the second time in three months in July on concern the deepening debt crisis in Europe may pare demand for exports. The Bank of Thailand last month cut its growth forecast for the year to 5.7 percent from 6 percent.
Piyawat plans to bolster profit margins by increasing sales of ready-to-eat meals such as sandwiches and baked goods, adding products such as over-the-counter medicine and by introducing online shopping, he said. Future revenue growth may come from outside the country, he said.
“China and Vietnam have large populations and strong economies that will offer opportunity for us,” Piyawat said. The company has applied for the rights to operate 7-Eleven stores in China’s southern provinces, he said, declining to name specific cities. Approval may be given within two years, he said.
“For Vietnam, we have been exploring the market for several years,” he said. “The country’s high inflation rate and economic crisis has delayed our plans. We will begin looking at it seriously again after the crisis has subsided and the economy is growing again.”
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