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30 Oct 2007


Skyrocketing Oil Prices: Prices Edging Up, Adjustment Needed (Business Brief No.2059)

In the midst of spikes in oil prices, KASIKORN RESEARCH CENTER (KResearch) conducted a poll entitled, ;Spending Behavior of Bangkok Residents” using a sampling group of 1,375 respondents on October 15-24, 2007. Nearly 80 percent of the sampling group earn less than THB30,000 a month, and are thus classified as grassroots and middle-class members of the populace. These two groups – hard hit by surging fuel prices – have evidently been adjusting their spending behavior. Most of them seem to have become much more economical than what was revealed from the previous survey conducted last year.
Importantly, the findings showed that higher prices on oil, cooking gas and costs of production were the main causes of increased prices of goods and services. This has prompted those polled to cut their expenses to cope with the situation. Among the curtailed expenses are:
Entertainment This is particularly true in travel expenses. Some Bangkok residents have opted to cancel/cut overseas trips and have turned to domestic trips instead. Some of those polled mentioned that they are definitely shunning or reducing travel abroad. Most respondents also cited that they use beauty salon services less, ‘go out' less frequently and have also cut their spending on movies, concerts and books/newspapers, among other things.
Food and Beverages To cope with the rising prices of food and beverages, most of the respondents have reduced/avoided dining out, opted to buy less expensive ready-to-eat food, are cooking themselves, have shunned/cut carbonated drinks, alcoholic beverages and energy drinks and rely more on instant foods/noodles.
Utilities, i.e., Electricity, Water And Telephone Service According to the survey, most of respondents have tried to reduce their utility expenses by cutting/avoiding unnecessary household appliance use, reducing the use of air conditioners, reduced reception of TV/radio programming or use of mobile phones.
Traveling Expense More Bangkok resident respondents have turned to public transport and a higher number of those who still need to use personal cars have installed gas (LPG, NGV) systems in their vehicles instead of conventional motor fuels.
Health Care Expense Bangkok residents have turned to using medical services at public hospitals instead of private hospitals, and are shifting to consumption of domestically produced supplementary food instead of imported goods as well as using more herbal drugs instead of modern pharmaceuticals.
The result of their adjustments in spending behavior has had both benefits and other impacts on many businesses. Those that are benefiting from these adjustments are those who operate businesses in cooked to order meals, instant food, house brand consumer goods, public bus services, LPG and NGV stations, public hospitals – i.e., special clinics – herbal products, second-hand goods, car-rental services, wholesale clothing & costume jewelry, sales of electrical appliances & energy-saving equipment as well as insurance business.
Businesses that need to adjust to catch up with the changes in behavior are restaurants and food outlets, which must put more emphasis on deliveries, cateringand banquet services.
Production of soft drinks, alcoholic beverages, energy drinks, etc. must now increase the production line of health beverages, i.e., fruit juice, instant and ready to drink teas and coffee.
Beauty salon business will also need to adjust price strategies and offer in-trend services such as hair straightening at more economical prices, etc.
Tourism and service related businesses must focus on popular trends such as home-stay and agro-tourism business, etc.
Movie theaters, organizing concerts and entertainment venues should also focus on extending their business to cover other entertainment services, which offer more fully integrated services, e.g., at department stores, food outlets, etc.
Dietary supplements These entrepreneurs should publicize that their products are made from herbs or from other domestic products. They should also advertise that those who consume their dietary supplements will have good health and not get ill.
Monks' Utensils This business begins to offer delivery services. That is to say, some such businesses now deliver directly to customers or stock necessary items at temples and other religious venues for the faithful to patronize when visiting such sites. Besides this, entrepreneurs should adjust for changing demand, such as selling fluorescent lamps instead of candles on the Buddhist Lent day.
According to the survey, Bangkok residents who were respondents would like to see government measures to assist them, and they want the government to soften the effects of high oil prices. The top-five measures that Bangkok residents are waiting for the government to intervene in are:
First, the government should launch a price control program on products/services.
Second, they should institute severe punishments for those who gouge unreasonably on prices.

Next, the government should limit the cost of public utilities, such as electricity, water and telephone bills and improve/increase mass transit system facilities as needed, and consider income tax deductions/reduced taxes by adjusting the income tax structure to enhance the purchasing power of the people. For example, the government should increase tax deductions, expand the range of tax rates in order to benefit those who have low incomes and help them to pay less tax, and freeze or reduce the VAT. In addition, the government should help entrepreneurs decrease the cost of products by reducing import tariffs on raw materials. The sampling group collectively hoped that the government will undertake all measures earnestly and continuously to reduce the impact of problems on households somewhat.

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