Thai oil giant PTT to take on Starbucks with $1.3bn investment plan

PTT Oil and Retail, a unit of the Thai oil and gas company, has ambitions to turn its Amazon Cafe chain into a rival of global brands like Starbucks: an artist’s rendering of an Cafe Amazon.

Thai oil giant PTT to take on Starbucks with $1.3bn investment plan

PTT prepares for retail spinoff with coffee chain expansion

28 November 2018

Thailand’s biggest oil company, PTT, is planning a $1.3 billion investment over five years to build its coffee shop franchise into a global brand rivaling U.S. giant Starbucks, as it prepares to spin off the retail business.

Jiraporn Khaosawas, chief executive of PTT Oil and Retail, which is due to be floated early next year, said the group aimed to open 20,000 branches around the world. “We aim to build the Cafe Amazon into a top-10 global brand over the next five years,” she said. Cafe Amazon already operates 2,300 branches in Thailand, Laos, Cambodia, the Philippines, Myanmar and Japan.

The group now plans to take the Cafe Amazon brand into the Middle East and China, as well as other countries in the regions, through franchise partnerships

PTT has since 2016 been planning to spin off the retail division in a bid to offset declining revenue from its oil business as global crude prices stagnate. However the IPO has taken much longer than initially expected.

The group earlier this year said it planned to sell at least 50% of the retail arm, which includes PTT’s 1,500 gas stations nationwide, jet fuel sales, as well as consumer-oriented businesses like coffee shops and convenience stores. Those operations generate about 20% of the majority state-owned group’s net profit. Cafe Amazon alone had sales of 10 billion baht, or $303 million in 2017.

Analysts estimate the retail unit is valued at about 120 billion baht, or $3.6 billion, excluding any funds raised in the initial public offering. PTT has refused to disclose how much it wants to raise in the flotation, expected in the first half of 2019.

The listing will fire the starting gun for the unit’s ambitious expansion plans. “We will not only expand Cafe Amazon, but we will also expand our petrol stations and our lube oil retail business. However, Cafe Amazon will be the highlight, with strong potential to grow,” said Suchat Ramarch, PTT’s executive vice president in charge of the company’s retail oil business.

The company refused to quantify the cost of its expansion, However, sources close to the group confirmed that it would cost about 2.3 million baht ($70,000) to open a Cafe Amazon shop in a PTT gas station. A stand-alone outlet costs between $100,000 and $300,000. The cost varies widely from place to place, depending on the exchange rate the cost of living in different markets. But based on these rough estimates, PTT’s unit will have to spend at least $1.3 billion to open the 17,700 branches new branches needed to reach its 20,000 target.

The company plans to pursue a franchise strategy to drive expansion, according to Auttapol Rerkpiboon, executive vice president for commercial and international marketing. He said PTT oil and retail aimed to sell Cafe Amazon franchises to a master franchisee, which could help to extend the brand via smaller franchisees in specific countries.

Oman would be the chain’s hub in the Middle East, he said. Another target market was China, whose market of a billion or so potential customers the company was keen to tap.

Another option is to expand Cafe Amazon rapidly through partners abroad, said Chansin Treenuchagron, president and CEO of PTT Group.

“We have already [established] a strong presence in some countries in the Middle East, such as Oman, where we have been dealing with business partners for years. We will pair up with those partners to expand Cafe Amazon via our partners there and… into the whole Middle East in the future,” said Chansin.

Source: https://asia.nikkei.com/Business/Companies/Thai-oil-giant-to-take-on-Starbucks-with-1.3bn-investment-plan