Global interest in Southeast Asian supermarket sector growing

A battle between large supermarket operators to tap into Southeast Asia's growing consumer wealth could trigger more acquisitions, with Indonesia, Vietnam and the Philippines seen as the next hot spots.
The competition is set to pit global giants such as Tesco and Wal-Mart against Asian players like South Korea's Lotte and Japan's Aeon Co Ltd, as they strive to win a bigger share of superstores in the region.
"I think they're here to stay," said Vijay Karwal, head of the consumer industries team in Asia at the Royal Bank of Scotland in Hong Kong, referring to global supermarket firms already operating in Southeast Asia. "There are still several major global operators who are not yet present in the region, who are evaluating strategies to enter."
France's Carrefour kicked off a new phase of consolidation in the region late last year with the sale of its Thai operations to rival Casino Guichard-Perrachon SA for $1.2 billion. Shortly afterwards, Indonesia's Matahari attempted to sell its hypermarket business before scrapping its plan earlier this month. It says it is keen to expand aggressively and dislodge PT Carrefour Indonesia as the country's number one superstore operator.
Southeast Asian economies are forecast to grow between 4 to 6 percent this year and expectations of robust consumer spending mean retailers are likely to step up their presence in the region while new players will enter, say analysts.
Karwal, who was part of the team that advised Casino on the purchase of Carrefour's assets in Thailand, said Carrefour's exit from Thailand was an adjustment of its portfolio, but it has no plans to leave Indonesia, China and India.
Raphael Moreau, a London-based retailing industry analyst at Euromonitor International, said Indonesia and Vietnam are the two markets most likely to be on the radar of international retailers expanding in Southeast Asia. RBS's Karwal adds Philippines to the list.
Lotte, Casino and Wal-Mart had put in bids for Matahari's $1 billion hypermart business in Indonesia, a deal that was scrapped, with sources telling Reuters it did not meet the seller's expectation. "This indicates the likelihood of more global retailers in the near future entering the Indonesian market, which remains fragmented and as a result offers strong growth opportunities," Moreau said, referring to the wide interest seen in Matahari stores.
South Korea's Lotte, the fourth-biggest hypermart player in Indonesia, has in recent years actively snapped up M&A targets across Asia in the face of an increasingly saturated retail market at home. In late 2009, it bought Chinese supermarket operator Times Ltd.
Many Western firms are enthusiastic about China, where economic growth is forecast around 9.3 percent this year, and India. But in practice analysts say it is tough to enter those markets due to regulatory restrictions, limited opportunities and cultural differences.
"India and China face similar issues. Those countries are geographically very big and diverse, where there are very different tastes and preferences," said Jeong Min Pak, Senior Director at Asia Pacific corporates at Fitch Ratings.
"For any retailer in any market you need to build up sufficient economies of scale and establish a supplier or vendor base. In China, we're seeing a lot of developments in tier two and three cities, so it's become a lot more difficult to build up scale and establish supplier or vendor networks." Southeast Asia presents its own opportunities and an alternative to expanding in China or India.