CP ALL: Retail

The Company

CP ALL is the sole operator of the convenience store chain 7-Eleven and the cash-and-carry stores Makro in Thailand. The company, established in 1988 by the Charoen Pokphand Group under the name of CP Seven Eleven, has been granted the exclusive right by 7-Eleven in the US to conduct convenience store chain business. It became a listed company in 2003 and later changed its name to CP ALL in 2007. As of the end of 2013, CP ALL had 7429 convenience stores throughout Thailand, representing the third-largest 7-Eleven store network in the world behind Japan and the US, and capturing a market share of about 60% among Thai convenience stores. Around 46% of the stores are in Bangkok and its suburbs, and 54% are in the provinces. In regard to ownership, 44% of the stores are corporate stores, 48% are franchises and 8% are sub-area licence stores. The company has about 9.6m customers visiting its 7-Eleven stores each day.

In 2013, CP ALL acquired a 98% stake in the cash-and-carry wholesaler Siam Makro, making this the country’s biggest takeover ever at a value of $6.1bn. A tender offer price at a 35% premium to Makro’s market price prior to the takeover announcement and the 43x price to earnings of Makro’s 2013 earnings per share (EPS) has turned CP ALL from a debt-free entity to a heavily debt-loaded one, with net debt-to-equity of 4.9x at the end of 2013. The company aims to use Makro to expand its retail business in ASEAN. At the end of 2013, Makro had 64 cash-and-carry stores nationwide. It added seven new stores during the year, up from four to five per year previously. Makro’s revenue, contributing about one-third of CP ALL’s total revenue, is derived from the following: 40% from grocery retailers; 22% from hotels, restaurants and catering; and 20% from household customers. The latter two are key segments, with sales compound annual growth rate (CAGR) of 24% and 42%, respectively, over the past seven years. CP ALL consolidated Makro’s performance for six months (July to December) in 2013 and reported a 2013 net profit of BT10.54bn ($344.66m), down 4.6% y-o-y. The decrease in profit, vs. net profit CAGR of 30% during 2010-12, resulted from an increase in costs and expenses relating to the Makro acquisition.

Development Strategy

We forecast CP ALL’s EPS CAGR at 28% during 2014-15, driven by store expansion and promotions, as well as an improving product mix that will push same-store-sales growth to around 6%. Its net debt-to-equity should decrease to 3.4x in 2015. CP ALL now plans for around 600 new store roll-outs per year, after it unexpectedly accelerated expansion in the fourth quarter of 2013, raising the target from 500-550 stores per year during 2007-12. The company targets 10,000 outlets by FY2018. Makro’s expansion could amount to seven to 10 new stores this year, as the company revealed that six new stores had already obtained construction licences at the end of February 2014.

CP ALL’s successful strategy should continue to focus on raising bill size and being a convenience food store, as 7-Eleven customers tend to shop for convenience and small items – mostly processed food, beverages and snacks. The company has continued to upgrade stores and offer a greater variety of products: chilled foods, ready-made meals and fresh-baked goods. It has also improved the product mix and rolled out new promotions to bolster sales. CP ALL’s chilled food products have gained increasing market acceptance in recent years.

The company has continued to increase the coverage of stores with open chillers (around 40% of total stores currently) by 600-700 stores per year, and aims to raise the proportion of revenue from this segment from 21% to 25% in the next three to five years. CP ALL’s advantages from having larger economies of scale, an efficient distribution system and its integrated business in food-related products with support from its parent will make it difficult for key rivals such as Family Mart or Lawson to compete.