Shopping stimulus boosts Thai consumers' spending

Despite the political and economic turmoil over the last few years, Thailand continues to show enormous growth opportunities across many areas. Thailand’s economy expanded by 4% in Q4 2017, continuing the strong momentum shown throughout the year.

Such expansion came from government investment, a growth of private consumption (+3.5%) in tourism-related sectors, durable goods and passenger cars; as well as robust export growth (+11.6%). Inflation remained low despite a slight increase to 0.9% this quarter mainly driven by the higher prices of food and beverages as well as energy.

Thai consumers remain increasingly optimistic throughout 2017 compared to 2016, with the government’s recent tax-break campaign 'Shop for the Nation' occurring in November 2017 in an attempt to boost domestic consumption nationwide.  While consumers remain optimistic, the uncertainty surrounding the global and local economy continues to be the biggest concern of Thai consumers followed by job security and debt.

Thailand’s FMCG industry is yet to see a turnaround as a result of the 'Shop for the Nation' initiative with value declining by 2% this quarter mainly due to a continuous decline of alcoholic beverages and cigarettes with the increasing excise tax as well as a new sugar tax on specific non-alcoholic beverages.

Impulse and personal care categories however showed favourable growth year-on-year driven by new product launches.  Across retail channels, traditional trade continued to lose  momentum, while the convenience store channel has been the only format to show positive growth at 6% this year. 

Continuing urbanisation, on-the-go lifestyles as well as increasing growing ageing population are the driving forces behind the growth in proximity shopping and convenience format demand. The convenience channel still faces its challenges within lower sales per store due to aggressive store expansion continuing at 7% growth compared to last year.  Given the current challenge with shoppers’ lower spending, retailers and suppliers executed fewer campaigns and in-store promotions compared to last year in an attempt to drive efficiency and better margins.

Looking ahead, the government’s recent approval to raise the daily minimum wage across the country effective April 1, 2018 will not only help ease the hardships of workers burdened by a high cost of living, but also bolster household spending.

However, it is important to keep in mind that the hike will also increase labour costs to business, likely forcing them to pass on costs increasing the price of their goods and services. As a result, it is expected the government will need to control domestic prices throughout 2018.

Given the current income disparity between higher income consumers and the evolving middle class, it is likely that categories and innovations that focus on indulgence and experiential offering will see stronger growth appealing to the rising affluence of Thai consumers.  The continued government investment in public infrastructure will be welcomed by companies looking to expand their footprint across Thailand’s regions as improved distribution and logistics will improve supply chain efficiencies and open access to broader consumer groups.