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

Thailand and Malaysia.

Its marriage to Tesco Lotus nearly doubled its importance, making it the operator of nearly 2,700 hypermarkets, supermarkets, convenience stores and shopping malls. It was in October a year ago now. The company has had a full year to get through the initial indigestion struggle that usually takes place when one large retail entity absorbs another. And in this case, to complete a rebranding from the old Tesco Lotus to the new moniker: Lotus’s.

The synergies that led to the merger are now beginning to manifest themselves. Retail and wholesale operations accounted for a roughly equal share of the company’s 219.6 billion baht ($9.4 billion) sales in the first half of the year. Wholesale trade sales increased by nearly 7% in the first half of 2021.

Year-over-year sales growth on the retail side, which is now primarily driven by Lotus, is not available as the reference period predated the Lotus acquisition. More than likely, growth would have stalled or been negative on a same-store basis as rising food production and transportation costs were channeled into shelf prices, putting pressure on Lotus’ largely non-affluent customer base. Quarterly growth, which excludes seasonality and new store openings, was 8.7%.

There is buzz in the malls

Shopping center revenue added another 6.2 billion baht to revenue in the first half and is expected to at least double by the end of the year as the company places greater emphasis on growth leasing and occupancy of shopping centers as a vector of growth. Lotus’ shopping malls, anchored by its own hypermarkets and supermarkets, are somewhat opaquely referred to by the company as “self-managed hybrid shopping malls” and account for 1 million square meters of net leasable area in the area. Occupancy is around 90% in Thailand and Malaysia and has significant growth potential over the next few years, which will drive shopping center revenues with it.

Lotus’ existing shopping centers are configured to allow space to be rented within the hypermarket area itself (e.g. along a straight line past the checkouts at the front of the store) and around the racecourse which includes the main shopping centre. The specialized online space is leased primarily to restaurant chains, banks, telecoms, pharmacies, phone vendors, gold jewelry stores, a food court and a cinema. But that’s not all: the outer perimeter of the mall and the underused parts of the parking lots are also rented to small tenants selling, among other things, food, clothing, shoes and car accessories.

Exploit synergies

The synergies that had investors so excited about coupling Makro’s wholesale business with Lotus’ retail operations are slowly materializing, although inflation has hurt some of Lotus’ less well-off customers and made them to move back.

In Thailand, the Makro-Lotus combination is now the dominant retail player in the large format grocery segment and fiercely competes with market leader 7-Eleven, Central Retail’s Family Mart and smaller Big C formats at the end of the market. market. (Incidentally, 7-Eleven, which is by far the largest convenience store chain, is run by CP All, another branch of Charoen Pokphand Group.). The challenge to 7-Eleven’s preeminence will only grow, however, as Makro and Lotus continue to open smaller-format stores.

During the second half of this year, the company has already opened or plans to open five wholesale units in Thailand, as well as one in Delhi and one in Phnom Penh, Cambodia, which will be the second Makro in the Cambodian capital, where it has virtually no competition in the cash-and-carry space.

On the distribution side, two other Lotus hypermarkets, a supermarket and 45-50 small formats will have been opened in Thailand by the end of 2022, as well as three supermarkets in Malaysia.

Prospects look bright in the longer term. The massive increase in scale resulting from the merger gave the company a much larger and more diverse platform for the existing distribution infrastructure within the larger CP Group. The combined Makro-Lotus entity now has a network of 2,815 stores made up of several complementary formats with their own complementary clienteles.

Lotus alone has 270 hypermarkets which usually anchor its own malls, 220 supermarkets and 2,171 convenience stores.

Makro was able to scale its existing supply chain on the shelves of Lotus stores, improving the quality and range of its food products, especially in the fresh produce section. This is evident in all Lotus formats.

No more reason to be optimistic

The company also has other reasons to be pleased with its growth prospects. On the one hand, it is Southeast Asia, which is by no means a mature market and a market with immense potential to serve a large and growing population which should benefit from a growth rate rising household incomes. This will suit businesses with strong supply chain management capabilities and the ability to operate multiple formats across the hierarchy of locations, from major metropolitan areas to provincial towns and villages, to rural areas.

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

The company is also benefiting from cost savings from the streamlining of 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 bridgehead in Vietnam (since 2012, with Makro Food Service), and others in Singapore, Hong Kong, Dubai (via its acquisition of Indoguna in 2017), Cambodia (since 2018), India (also since 2018), China (2019) and Myanmar (2020).

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


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