The CP Group of Thailand was the first foreign investor in China after Beijing opened its doors to overseas investment in 1978. Today, the conglomerate is the largest overseas Chinese investor in the country, having put nearly US$6 billion in 200 companies that employ over 80,000 people.
Given this, its announcement that it is selling all its CP Lotus supermarkets, except those in Guangdong and Hunan provinces, to Wumart Stores, a leading domestic retailer, came as a surprise – and reveals a rare misstep by the giant.
The sale is a result of heavy losses due to intense competition and razor-thin profits in the retail sector, with the group having to contend with global giants like Wal-Mart and Carrefour, local companies like China Resources and Wumart, as well as online stores. Due to the headwinds, the Thai group has decided to focus its efforts on its core activities.
When China first announced the reform and open-door policy thirty-five years ago, foreign firms were initially hesitant to take the plunge. Not CP, which received in 1979 the ’001′ license to build a feedgrain and chicken-raising venture in the small fishing village that was Shenzhen.
Now it has companies in every province and region of China, except Qinghai and Tibet, and annual revenue of over 50 billion yuan, covering fields such as agriculture, food, retail, pharmaceuticals, machinery, real estate, foreign trade, finance and the media. It is the largest shareholder in Ping An Insurance, China’s second largest life insurer, and owns Dayang Motors, the country’s third largest motorcycle manufacturer. By 1996, its investment in China had exceeded that in its native Thailand.
Its chairman and CEO is Dhanin Chearavanont, whose Chinese name is Xie Ming-guo. In its list of world billionaires in 2013, Forbes placed him 58th with a net worth of US$14.3 billion, the richest man in Southeast Asia.
CP Lotus is the group’s retail flagship. It entered the mainland with its first branch in Pudong, Shanghai in June 1997. The business model was a spacious, clean and well-lit supermarket with up to 30,000 kinds of merchandise; it was the forerunner of the megastore. Dhanin chose his second son Soopakij to be in charge of Lotus; its model was Wal-Mart.
The Pudong store prospered, recording sales of up to five million yuan on its best days. The company expanded rapidly. By the end of 2005, it had 64 stores in 25 cities across the mainland, of which 44 had opened in 2004 and 2005.
Its growth began to slow after 2005, with the development of strong domestic retailers and Internet shopping. After it posted losses, Dhanin sent Hanren to run agriculture businesses and replaced him with executives hired from Wal-Mart. In October that year, it closed a store in Tongxiang, Zhejiang; it was the first closure of a Lotus branch in China.
But the two corporate cultures, American and Chinese, did not work well together. In 2008, Dhanin sent his eldest son to take over Lotus. But these changes did not turn around the company. In 2012, it announced losses of 392 million yuan on its Chinese operations.
Like other foreign retailers, Lotus found it hard to compete with local companies like Wumart, China Resources and Sun Art Retail group, as well as foreign giants like Wal-Mart and Carrefour. In the deal with Wumart, Lotus parted with 36 of its 57 stores, including those in Beijing and Shanghai, keeping only those in Guangdong and Hunan.
In August this year, British supermarket chain Tesco decided to fold its unprofitable retail operations in China into state-run China Resources Enterprise Ltd. and become a minority partner.
Dhanin named the Lotus supermarket chain after his father Yi Chu (Ek Chor in Shantou dialect), the founder of the dynasty. Chia Ek Chor and his brother arrived in Thailand in 1919 after the family land near Shantou had been inundated by floods; they began importing high-quality seeds from China to grow cabbage, turnips, radishes and cauliflower. In 1921, they set up a small shop in Bangkok’s Chinatown. They worked 16 hours a day, with no weekends. Next they imported vegetables to meet the demands of the city’s growing Chinese population.
During the Japanese occupation from 1941-45, the company closed its business in Thailand and Ek Chor took refuge in Singapore, where he did fishing.
After they returned to Bangkok after 1945, they began to export pigs and eggs to Hong Kong. In 1949, the new government nationalized his trading business in China. In 1954, it set up a feed mill in Thailand, which was to become a major product line. Dhanin was his fourth son but it was he who showed the greatest prowess at business; he became president in 1970.
Ek Chor died in 1983, at the age of 87. He had created a global food empire, extending across 13 countries.