The outskirts of Bangkok are an unlikely place to find inspiration for the future of Britain’s supermarkets. But the Tesco Lotus Plus shopping mall at Srinakarin provides a glimpse into the future.
The mall sits in a wealthy district next to one of Bangkok’s many chaotic main roads. The ground floor includes shops from Thailand’s best-known consumer names, such as clothing retailer Bossini, as well as a range of family restaurants and a food hall with a KFC, McDonald’s and Starbucks. On the upper level sits a multiplex cinema run by one of the country’s biggest cinema chains, Major Cineplex Group. Next door to the cinema, there is a large Tesco selling a range of food and non-food items including mobile phones and televisions.
It is approaching lunchtime on a weekday, but with the temperature hitting 40 degrees Celsius outside, the air-conditioned mall is buzzing with activity.
As well as visiting the shops and cinema, families are attending the doctors and dropping their children off at the theatre and music schools within the mall. And, despite the range of attractions among the 170 units, four out every five people visiting the mall are expected go into Tesco and spend money.
The supermarket is not just somewhere that customers visit to pick up food, but benefits from being part of a wider family destination. This is not accidental Tesco built the shopping mall itself.
The company has repeated this strategy of building supermarkets within shopping malls encouraged by the cheap price of land across Thailand. It has helped Tesco to become the biggest supermarket group in Thailand and the second largest shopping centre owner.
Now the company, led by chief executive Philip Clarke, is exploring whether parts of this model can work in the UK.
Tesco is not planning to become the new Westfield and build shopping centres across Britain, but the retailer wants to boost footfall in its supermarkets, which are under pressure as customers shop online and in convenience stores.
Clarke (Toronto: CKI.TO - news) is exploring how Tesco supermarkets can become more attractive destinations. He has already opened Harris + Hoole coffee shops and Euphorium bakeries within stores and , last month, bought family restaurant chain Giraffe.
At the time of the Giraffe deal, Kevin Grace, Tesco’s commercial director: “We’ve been doing a lot of thinking about retail destinations and how our stores might become somewhere that people spend more time in, as well as shop.
“Lots of our larger stores in Asia have restaurants used by customers to meet friends and spend time together. People like being able to take a break and relax after their shopping trip.”
Tesco’s two largest businesses outside the UK are South Korea and Thailand, both of which use the mini-mall model. In Thailand, the company operates as Tesco Lotus and earns more than £3bn in revenues. It has more than 1,400 shops, including Tesco Express convenience stores, and has plans to open 350 more this year. “Most of the stores have a mall of some sort,” says John Christie, chief executive of Tesco’s Thai business. “One of the reasons to come [to the stores] is the mall.”
Tesco only entered Thailand in 1998 but has become one of the company’s best performing businesses. In the first half of Tesco’s financial year, like-for-like sales in Thailand rose 1.7pc on the back of a 4.7pc increase the previous year.
The company has bounced back from the devastating floods in Thailand in 2011. Tesco’s response to the disaster won praise as it built temporary bridges and provided rowing boats to help customers buy their food from affected stores. Chris Bush, the head of Tesco Lotus during the crisis, is now the chief executive of Tesco’s UK business.
Trevor Master, the head of Tesco in Asia, says the shopping mall model has been key to the success and will become “even more important to customers in Asia”. He added: “We’re creating 'destination malls’ that cater to the growing and changing needs of customers. They are anchored on a Tesco store so they meet the shopping needs of customers, whether that is their weekly shop or to stock up on essentials. They also meet leisure needs like eating out, entertainment or education .
“When we developed the malls in Thailand, we asked the customers using the stores what was important to them and we build those into the development plan. The appeal is the simplicity of being able to go to one location and fulfil a range of needs .
“Creating retail destinations is something we have been doing for some time in Asia . In the UK we are working on creating retail destinations and Asia gives us valuable experience to learn from. Every market is different and one size won’t fit all but it means we have insight which may help .”
However, Tesco’s success in Thailand where it is the largest British investor is not simply down to the shopping mall model. As the company’s struggles in the US have shown, the in-store offering has to appeal and resonate with customers, who can have very different preferences to British shoppers.
In Thailand, some of the fiercest competition comes from the local wet markets. These markets include dozens of stalls selling every fresh meat, fish, fruit and vegetable imaginable from dusk to dawn, producing some of the most pungent smells, eye-opening sights and bustling streets in Bangkok.
Tesco aims to compete with the fresh food offer at the wet markets. So, the fresh section within the Tesco Lotus stores is larger than in their UK counterparts and tries to create a sense of theatre around the food much like Morrisons is attempting to do in the UK. For example, the meat counter is square with staff in the middle preparing the food.
A fresh fish counter boasts of cut price goods at one of Tesco's Thai stores
However, Tesco has also focused on introducing Thai shoppers to prepared food and ready meals.
“We saw the opportunity at the right time,” Masters says of Tesco’s entrance to Thailand. “Thailand was relatively under-served by modern retail but customers’ lifestyles were changing and that was driving demand for modern retail. We entered at a good time and build up our business using the best of our experience in the UK .”
As well as leading the way in food, Tesco has built a formidable non-food business in Thailand. The store at Srinakarin dedicates 60pc of its space to non-food items, including clothing brand F&F, which is one of the biggest clothing brands in Thailand. A fashion show held by F&F last month in Bangkok attracted five of the country’s biggest celebrities and was more akin to a Burberry show at London Fashion Week than a Tesco event.
“We work hard on what are the two to three emerging categories where we can lead the way,” says Christie, who is from Stirling in Scotland and has been with Tesco almost 30 years.
Christie is now preparing for the next stage of the Tesco’s expansion in Thailand selling food online.
The company will officially launch its online business in Bangkok this week with orders picked from a specially selected existing store. Tesco (LSE: TSCO.L - news) eventually hopes to roll out the online business across the country.
Frans Falize, the international dotcom director, said: “In Thailand we need to educate people about what the system can do.”
The launch of online retailing in Bangkok is an example of how Tesco’s international business benefits from retailer’s business in the UK, which leads the way on many retail innovations.
However, standing in the Srinakarin store, with family restaurants outside and a fresh food section that UK supermarkets aspire to, it is also clear what Tesco in the UK can learn from the company’s international success.
With searing heat in March, these are alien conditions for a Brit. Yet, Tesco has found a way to attract customers.
The FTSE 100 company has had its problems in the last couple of years, at home and in the US, but the Srinakarin store is also a reminder that in less than two decades Tesco has built a global empire that few British businesses can match.