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Dhanin Chearavanont

Dhanin Chearavanont (23): A start in logistics through personal connections

I attended the opening ceremony of the first 7-Eleven outlet in Bangkok. (Courtesy of the company)

It was the smell that convinced me something had to be done.

The average temperature in Thailand is around 30 C year-round, but the market where distributors sold our fresh chicken and pork each morning had no refrigeration equipment. The result was an unpleasant odor that hung over the market.

We knew that if our products spoiled, consumers would lose confidence in Charoen Pokphand Group, so we asked retailers to put the fresh meat in refrigerators we provided. But Thai logistics networks in those days moved so slowly that even this was not enough to guarantee the quality of our products. To complete the vertical integration of our food operations, we needed to set up our own distribution channels.

The opportunity to do this came from an unexpected quarter. In the early 1980s, executives of SHV Holdings, a large Dutch energy company, approached me and said they would like to get into the coal business in China. They wanted CP Group to mediate a deal, because in those days we were practically the only foreign company operating extensively in China.

SHV wanted to buy coal from China and in return sell port facilities in the country. I broached the subject with the energy department of the Chinese government, but just when the deal seemed about to go through, talks broke down -- the Dutch government had decided to sell submarines to Taiwan, damaging relations between China and Holland.

Though the planned coal business fell through, I became friendly with the management of SHV. One of the companies under SHV's umbrella was Makro, a major logistics company that supplied food products to restaurants and retailers in return for cash payment. I wanted to bring this business format, known as cash-and-carry, to Thailand.

The executive responsible for Makro's operations at SHV was reluctant, saying it was "too early" to introduce such a business in Thailand. But I would not be dissuaded. I talked directly to the top management at the Dutch headquarters and persuaded them to go along with me. In 1988, we set up a joint venture, and CP Group was on its way to building its own distribution system.

The following year, we opened the first branch of the joint venture in Thailand. Restaurants and retailers who signed up as members could purchase CP Foods' products at special prices.

Next came convenience stores. Here, again, we were helped by Chase Manhattan Bank (now JPMorgan Chase). The U.S. bank, which had helped us get our start in the broiler business, kindly continued making arrangements whenever there was something I wanted to see or someone I wanted to meet in the U.S.

In the 1980s, before 7-Eleven was part of Japan's Seven & i Holdings group, its parent company was Southland Corp., a U.S. company. Around that time, Thailand's per capita gross domestic product was $1,000. Many people said it was too early for convenience stores to succeed in Thailand, but my intuition was that the time was ripe. That is because even if the amount of each purchase was small, the number of customers per store should be around 15 times that of the U.S. Moreover, rent and labor costs were low.

I invited John P. Thompson and his brother Jere W. Thompson, the chairman and president of Southland, respectively, to Thailand to see the situation for themselves, and they agreed to sign a license agreement with CP Group. When the first 7-Eleven store opened in Patpong, in the heart of Bangkok, a location quite popular among foreign tourists, it remained busy both day and night.

Lastly came supermarkets. We named our chain Lotus and from the mid-1990s expanded the network of stores. The CP Group set up distribution centers throughout Thailand, making it possible to ship not just frozen but also chilled products. Unpleasant odors became a thing of the past, and our products reached consumers at peak freshness.

 

Dhanin Chearavanont is chairman of the Charoen Pokphand Group.

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