This article first appeared in The Edge Financial Daily on July 16, 2018

KUALA LUMPUR: For myNEWS Holdings Bhd, the short-term pain is worth the longer-term gain.

In a push to expand its presence in the local convenience store market, myNEWS is willing to put up with flattish profits and slower revenue growth in the short run as it seeks to gain a bigger foothold in the longer term.

Owing to its expansion mode, the convenience store operator has incurred higher operating and capital expenditure in the past year as it jostles for premium space and better qualified employees.

Consequently, in the first half of financial year 2018 ended April 30, 2018 (1HFY18), it turned in a net profit of RM13.17 million, marginally up from RM12.56 million in 1HFY17 despite a 18.53% jump in revenue to RM184.31 million.

“Higher rental cost was caused by increased competition for premium space, as well as our move towards a slightly larger store format in line with our improved store concept and product offerings,” said chief executive officer Dang Tai Luk in an interview.

“We have also improved our remuneration package for the outlet crew in order to attract more Malaysians, which explains the reduction in our foreign workforce from 42% to 32%. We also increased the number of overall workforce at the headquarters as well as the number of high-level staff to meet the needs of our continuing and upcoming growth.”

He conceded that profit and revenue growth this fiscal year is unlikely to match last year’s 30% jump in earnings, and 20% rise in revenue. But he hopes the transformation the company is undertaking right now will pay off in the longer run, and at the same time revolutionise the convenience store market landscape.

“There will be growth [this year], but we do not know how we are going to fare in the second half yet. I think last year’s performance may not be the same as this year’s.”

For FY18, myNEWS has allocated RM24 million to capital expenditure for new stores, and RM10 million to revamp existing stores.

In line with the outlet expansion, myNEWS is rolling out a new line of products, especially in food and beverages, to give its outlets a better product mix. It invested RM35 million in a joint venture with two Japanese companies to develop, produce, and sell ready-to-eat (RTE) food and bakery products. The manufacturing processing plant for both products will be located in the same premises as its new headquarters in Kota Damansara, where it moved into a month ago. The construction for the processing plants will commence soon and is expected to be completed and operational by year end. He is confident the new plant would propel growth as it will allow for an improvement in the product mix.

“These ventures will be a game changer for convenience stores and for the first time in Malaysia, quality Japanese food will be available widely through our chain of stores. It is time that Malaysians are provided with hygienically prepared quality food that will be conveniently available.”

Dang considers Malaysia’s convenience store market to be still “underdeveloped” and “underserved”, which is an opportunity for operators like myNEWS to capitalise on.

“The terms ‘underdeveloped’ and ‘underserved’ are the key. The penetration rate of convenience store in the country is still lower than neighbouring countries such as Singapore, Thailand, Japan and Taiwan.

“Moreover, in our country there are more mom-and-pop stores than branded chain stores, estimated to be in the ratio of 5:2. As shown in other countries, these individually operated traditional stores will reduce in number with time. The void they leave behind will be filled by chain stores such as myNEWS.com. Therefore, there is room to grow,” he added.

He noted the continual expansion of outlets is one of the main drivers for myNEWS this year, with the opening of 50 stores so far, thus bringing the total number of myNEWS.com outlets to 410, with another 40 added by the end of the year.

“There will be a time when you say it is just [too] saturated, but for Malaysia it is not [yet]. That is why it is important to grow the number of stores, and of course we are actively working very hard to make the stores better with good infrastructure and a reliable back-end supply for RTE which is currently lacking in the market,” said Dang.

Having carved out a 7% market share, it is prepared to face intensifying competition as new players move in.

“We were fortunate that before competition intensified, we had put together plans to transform and innovate our business to bring it up to the level of more advanced countries. When competition intensified, especially with the sudden penetration by a renowned foreign brand, we were not caught off guard as our own forward plans were already underway.”