At first glance, a new retail law approved by Thailand's army-backed government appears to be a victory for small shopowners in their bid to rein in fast-expanding foreign retailers.

But the real winners may be Thai suppliers who have seen their margins squeezed by supermarket giants such as Britain's Tesco Lotus and French-owned Carrefour.

"Once discount stores have less negotiating power, major producers and suppliers will have massive power to control prices," economics Professor Sompob Manarangsun of Bangkok's Chulalongkorn University said.

Under the draft law endorsed by the cabinet last week, a new independent oversight body -- the Retail and Wholesale Supervision Committee -- will have the power to restrict the number and locations of new stores.

That responsibility will eventually pass to local committees in each of Thailand's 76 provinces which will assess the impact of proposed new stores on affected communities.

"The draft law appears well intentioned in terms of creating limits and transparent rules," said Wattaipun Ekataksin of CIMB-GK Securities.

"But measures to control major suppliers after the superstores are reined in appear to be missing."

Suppliers declined to comment on what impact the new law would have on their pricing strategies.
Until the draft legislation becomes law, two existing laws will govern the retail sector.

These laws require stores larger than 1,000 square metres (10,760 sq ft) to be located at least 15km from town centres. The draft, likely to be implemented within the next two months, is to make actual and potential foreign investors even more wary of Thailand, analysts say.

Investors are already leery of Thailand after it proposed new foreign ownership rules which could force some to divest and the central bank imposed tough capital controls in December in a so far unsuccessful bid to halt the rise of the baht.

"This new retail law may cause foreign retail investors to think twice about parking their money in the country. It could have a domino effect," Thai Retailers Association (TRA) president Thanapon Tangkananan said.

The uncertainty has already hit Thailand's US$35 billion (RM retail industry, which accounts for 14% of the country's Gross Domestic Product (GDP).

The sector is expected to see zero growth this year compared to 4% in 2006 and an average of 9-10% in previous years, Thanapon said.

It grew only 3% in the first quarter this year compared to 6% in the same period a year ago, TRA data showed.

"The act would make modern store expansions more difficult," said DBS Vickers Securities analyst Chanpen Sirithanarattanakul. "This means sentiment towards the sector should weaken when the law is introduced."

Tesco, the world's third-biggest retailer behind Carrefour and Wal-Mart of the United States, said last month it planned to add 60 smaller Express outlets this year to its existing 260 stores in Thailand, including 56 hypermarkets.

The British firm says it is only providing what most Thai shoppers want -- large, modern stores offering cheap prices.

"First of all, consumers love us," said Darmp Sukontasap, a spokesman for Tesco, which accounts for 30,000 of the 400,000 people working at Thai and foreign-owned superstores.

"Second of all, we create countless job opportunities along with benefits to small-to-large parties in the value chain ranging from producers to farmers to suppliers," he said.

"Even small shop owners buy our cheaper products to sell at their shops," Darmp said.

But that is not enough to draw Apinun Sae-Khow, 50, back to his neighbourhood shops in Bangkok.
"I usually do my shopping once a week and every time I would choose to shop at a larger store with free air conditioning," Apinun said.

"Sometimes you go to a small shop and they give you this 'God-knows-how-old' toothpaste," Apinun said. - Reuters