But these days, Villa Market is having to do some really hard yards.
Throughout the Covid-19 pandemic, the chain had a rough ride. Tourism dried up and in some locations, there weren’t enough expats and affluent Thais to expand into the gap. In recent months, the country has been opening up, slowly, but Covid turned out to have a sting in its tail. Inflation is stalking the supermarket and restaurant sectors, and for upscale players like Villa Market, many of its bread-and-butter customers are trading in their trolley for a hand-held basket, substituting away from items that have become too pricey and sourcing what they can from lower-end sources.
Some countries play beggar thy neighbour
Recent inflation trends in the food and energy sectors might seem muted by US standards and analysts have been talking inflation down, but there is an unmistakable sense of unease about it all across Asia – and growing pressure on governments to try to look after their own with beggar-thy-neighbour protectionism. A number of Asian countries have moved to limit exports of key food products in an attempt to shield their consumers from price increases. The latest to clamp down is Malaysia, which halted the export of poultry from 1 June, a move that will affect shelf prices in other Southeast Asian countries, particularly Singapore, which sources a third of its chickens from its northern neighbour.
Malaysia’s move follows the example of Indonesia, which banned palm oil exports, and India which is curbing exports of both sugar and wheat, the latter a response to jitters over Ukrainian and Russian wheat coming off the world market.
In Thailand, where Villa Market trades, and indeed throughout Asia, many business economists were initially quite cocky about how inflation-proofed they were, while developed countries were reeling from higher prices. Certainly, much of the supply-chain problem in late 2021 had less impact on Asia. That has now changed abruptly.
Thai government figures show the Consumer Price Index rising by just 1.23 per cent in 2021 and food prices actually falling slightly – by 0.13 per cent. Enter supply-chain chaos, a war in Eastern Europe, and a weaker Thai baht. From January to April this year, the CPI is up 4.71 per cent, with meats rising by a whopping 15.54 per cent. And eggs and dairy products, along with poultry, are up in the mid-single digits and set to rise further.
The price of foods that are locally sourced and not animal-based is still roughly at the same level so far, which means the wet markets at which most Asians still do at least part of their food shopping have been only moderately affected.
Local sourcing will not be enough to keep prices down
The ability of supermarkets to source locally has been critically important. For the upscale internationals, it is more difficult because of the higher percentage of products they normally bring in from outside the country. It is also more difficult in geographically constrained countries like Singapore, where approximately 90 per cent of the food is imported. Food prices in Singapore are showing signs of breaking out, with year-on-year price growth creeping up to 4.1 per cent in April. No surprise then that Singapore – along with the Philippines, which is also a significant importer of food – is especially vulnerable to the protectionist race among its international suppliers.
Eventually, local sourcing will not be enough to keep the lid on supermarket prices. Although supermarkets like the Thai Villa Market chain that source so many items from overseas were first in the firing line, the problem of rising costs is set to become far more generalised as higher energy, fertiliser and materials costs work through the entire food production ecosystem. (The Thai energy CPI, for example, is up more than 25 per cent, year on year, in the January-April period.)
One of Villa Market’s biggest competitors is Tops, a brand that Central Retail operates in both Thailand and Vietnam. Central is beset by supply-chain challenges wrought particularly by the tail-end of Covid lockdown disruptions, China’s zero-Covid strategy, and the war in Ukraine.
Eating out is also getting expensive. In April, year-on-year prices for food away from home had ballooned more than 6 per cent in Thailand. They are pushing up right across the continent at all levels – from street stalls to high-end restaurants. Street vendors and restaurants alike are responding partly by reducing portion sizes and, therefore, disguising some of the inflation.
Not everyone is unhappy
The move toward protectionism is likely to be self-defeating but in the short term, it isn’t bad news for everyone. Neither is the weakening of currencies in developing Asia against the US dollar as the US Federal Reserve moves more rapidly into its interest-rate tightening cycle. In Thailand, exporters of items in short supply elsewhere are ready to step into the breach food shortages in neighbouring countries have left, and a weaker baht doesn’t hurt their cause.
Still, it looks like the peak in inflation at the checkout at supermarkets like Villa Market and Tops is some distance away, particularly if the price of food production inputs remains elevated. Economists are now expecting pressures to ease toward the end of this year, but the supermarket operators won’t be counting their chickens just yet.