This article first appeared in The Edge Financial Daily, on December 14, 2015.

KUALA LUMPUR: A general economic slowdown provides an opportunity for well-positioned players to grow inorganically by snapping up choice assets.

But Berjaya Food Bhd (BFood), the country’s largest-listed food and beverage (F&B) company by market capitalisation, will tread cautiously when it comes to acquisitions.

While there is no lack of acquisition offers for the operator of Kenny Rogers Roasters (KRR), Starbucks and Jollibean chains in Malaysia, BFood chief executive officer Datuk Francis Lee Kok Chuan said the shortage of labour in the retail sector, particularly the F&B business, is the main issue.

“Being the largest F&B player in the country, we are always approached by parties for M&As,” he told The Edge Financial Daily in an interview recently.

“However, before we decide to acquire another franchise [at the current time], it must be able to make money from day one or else we are not interested.

“If the franchise is making money, we don't mind paying a little bit more for it, as we can expand it and realise its profits faster,” said Lee.

Nevertheless, he said the group is taking a cautious stance when buying into a new franchise as it recognises that much input is needed to make it a success, including financial and human capital investments.

“Nowadays, it is not easy to get people. As an F&B player, we have to hire a lot of people. People are now looking for an easy job, and they think [working in] the F&B [sector] is tiring,” he said.

On potential injection of other F&B businesses under the Berjaya Corp Bhd (BCorp) stable such as Wendy’s, Papa John’s and Krispy Kreme, Lee said BFood has no such intention at present.

“[It will] not [be] so soon. I mean, currently these assets are not making money. So, why should we buy assets that are not making money? By acquiring these assets, the group's cash flow will be affected.

“Right now, our focus is to pare down our debt,” he added.

BFood saw its net profit drop 92.7% to RM12.31 million for the six months ended Oct 31, 2015 (1HFY16) from RM169.6 million a year ago, while revenue more than doubled to RM267.83 million from RM114.95 million in 1HFY15.

The group attributed the lower earnings to a remeasurement gain of RM158.6 million last year and foreign exchange loss. Stripping that off, BFood's pre-tax profit was 36% higher year-on-year mainly due to the full effect of consolidating Berjaya Starbucks Coffee Co Sdn Bhd (BStarbucks), which became a subsidiary of the group in the middle of 2QFY15.

The retail sector is hurting as consumers have become cautious about their spending in view of the slowing economy, as well as rising costs of living partly due to the weakened and weakening ringgit.

BFood is not spared by the slowdown in the retail sector, and has lowered the expansion of its KRR restaurants. “Instead of opening 10 to 12 KRR outlets a year, we will probably just open seven to eight outlets now,” said Lee.

However, the group expects its Starbucks operations to maintain its revenue growth momentum and drive the group's financial performance going forward.

The group will continue to open at least 25 new stores for the next five financial years based on the sale and purchase agreement with Starbucks Corp.

Lee said BStarbucks will be the “star performer” of the group, expecting its top line to grow by double digits, given the strong sales recorded by BStarbucks, which registered a same store sales growth of 12% in the rolling six-month period through October.

Meanwhile, Lee said Berjaya Group has no plans to venture into the apparel retail industry in the short term after its failed fashion ventures several years ago, citing a highly competitive industry and a talent shortage to manage such fast-changing businesses.

BCorp, via its unit Berjaya Retail Sdn Bhd, introduced two Italian brands namely Motivi and Caractere, as well as Oxbow from France, in April 2005, with the opening of Berjaya Times Square in Jalan Imbi here. However, the labels failed to catch on with shoppers.

“This [apparel retailing] is a business that is not easy to do. We have to deal with the latest [fashion trends]. [Hence,] you have to be a big player and have many brands for you to shift focus [and] survive,” said Lee.

He said another challenge is that some of the fashion brands may lack regional support in terms of logistics to minimise the franchisee's cost.

“[This is unlike] H&M and Uniqlo which have regional centres [to] directly send [the merchandise to the franchisees] from manufacturing [plants]. But the brands that we introduced in the past did not have a regional support centre,” he added.

BFood (valuation: 1.5; fundamental: 0.65) has been trading in a 52-week range of RM1.96 to RM3.15 to close up two sen or 0.87% at RM2.32 last Friday. Its market capitalisation stood at RM871.86 million.

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