Cover Story: Is small better?

This article first appeared in The Edge Malaysia Weekly, on March 26, 2018 - April 01, 2018.
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A noticeable development in Malaysia’s retail sector over the past few years has been the closure and downsizing of large format stores, particularly among the foreign players, and the spurt in smaller format stores such as supermarkets, mini markets and convenience stores.

Japan’s AEON Co Ltd, which entered the country in 2012 after buying over 26 Carrefour stores and rebranding them as AEON BiG, has only opened three stores since. It closed down eight stores from 2015 to 2017.

UK’s Tesco Stores (M) Sdn Bhd, meanwhile, is reducing the retail space at many of its stores as it introduces its New Generation Stores.

Singapore-listed Dairy Farm International Holdings Ltd’s (DFI) local operations under GCH Retail (M) Sdn Bhd, which operates hypermarkets and supermarkets, shut six stores last year and one this year. In April 2016, GCH told The Edge that it operated 146 stores. By end-2017, the store count was down to 135.

Early this month, DFI, in its preliminary results announcement for the financial year ended Dec 31, 2017, said the sales and profit of its food division were significantly lower than in 2016 due to the poor performance of the supermarket and hypermarket business in Malaysia, Singapore and Indonesia. Group chief executive Ian McLeod said its operations in Malaysia have been experiencing declining sales and significantly lower profit. He added that consumer spending is generally weak and consumers are highly sensitive to pricing.

Explaining the recent developments, a GCH spokesperson tells The Edge, “In 2017, we started undertaking a strategic review to reorganise our business to drive sustainable growth, greater cost efficiencies and productivity to better service the needs of our customers. As part of that review, we closed six stores that we felt were not operating at an optimal level due to changing demographics and consumer demand.”

“As at Dec 31, 2017, we had 135 stores in Malaysia comprising Giant, Cold Storage, Jason’s and Mercato.”

GCH points out that consumer shopping behaviour has shifted from large format stores. “We have noted an increasing shift in consumer preference towards convenience, so we are looking at redesigning some of our large formats to better meet the needs and demands of our customers,” the spokesperson says.

In this regard, GCH says it is working with a strategic partner to develop hyper-local convenience store G-Ekspress, which will mimic some of the attributes of its larger format operations in select neighbourhoods but with a smaller footprint. There are currently six G-Ekspress outlets in Malaysia.

Tesco Plc, in its 2017 annual report, said top-line sales growth in Malaysia had been held back by weak consumer spending across the market and a trend away from large stores towards convenience shopping, where it is currently under-represented.

So, are the smaller stores benefitting? Data from Euromonitor International shows a steady growth in supermarket and convenience store revenue between 2012 and 2017. However, there was a dip in hypermarket revenue (see bar chart). Euromonitor International is an independent provider of market research on retail and consumer behaviour.

“In 2017, consumers in Malaysia tended to prefer stores that offer a more convenient experience when shopping for groceries. Stores with layouts that are easy to navigate and provide a comprehensive product offering are popular in urban areas as they allow consumers to spend less time browsing for goods and therefore enable them to reduce time spent on grocery shopping,” Euromonitor International tells The Edge.

It is noteworthy that a couple of small store players are planning to open a large number of stores — as many as 100 to 200 — this year.

KK Group of Companies group chief executive Datuk KK Chai tells The Edge, “We have been enjoying constant growth with existing stores and we will continue to expand.”

His KK Super Mart chain did not just enjoy growth from adding new stores but also saw same store sales growth. “Depending on the area a store is located, our average like-for-like growth was between 5% and 12% in 2017 compared with 2016,” he says.

Even as most retailers found 2016 a tough year, Chai continued to expand the chain — comprising convenience stores, mini markets and supermarkets — but at a slower pace. Only two stores were shut in 2016 and 2017 — and that was because the leases had expired and the stores were relocated. In 2017, the company added 60 stores. In January, KK Mart opened its 300th store, to make it a total of 306 to date. Chai plans to add as many as 80 to 100 stores this year.

Meanwhile, 99 Speed Mart Sdn Bhd aims to open 200 more stores this year. It operated 1,073 stores as at end-2017, and now has 1,116 branches. The retailer, which mainly serves the Klang Valley, opened 188 stores and shut three stores last year. In 2016, it opened 153 stores and closed one.

A Speed Mart official says revenue rose 18% last year compared with 2016, but same store sales growth was only 1%. “Spending power is declining,” the official sums up.



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