Tale of the shrinking Giant

This article first appeared in The Edge Malaysia Weekly, on July 22, 2019 - July 28, 2019.

Giant Bandar Puteri Puchong is holding sales, hinting at a likely shutdown. Photo by Haris Hassan/The Edge

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HONG KONG-based Dairy Farm International Holdings Ltd, the largest supermarket/hypermarket operator in Malaysia by stores, has closed at least six outlets so far this year, adding to the many it has shut down in the country in the past two years.

And more closures are expected, including of those that are well established, sources say.

These closures have reduced the number of stores operated by Dairy Farm’s local subsidiary, GCH Retail (M) Sdn Bhd, to below 100, a check on its website reveals. Just five years ago, GCH Retail operated 147 stores, including 16 Cold Storage, two Mercato and one Jason’s Food Hall.

The Edge was able to identify at least six stores that have put up the shutters this year: Giant Paramount and Giant Shah Alam in Selangor, Cold Storage Subang Parade and Cold Storage at Sunway Pyramid mall in Petaling Jaya, Giant Sungai Petani in Kedah and Giant Wangsa Walk in Kuala Lumpur.

It is understood that a seventh store — Giant Bandar Puteri Puchong — is closing down next month while Cold Storage Jaya One in PJ may be the eighth. Both the stores are holding clearance sales while their shelves are not being restocked.   

When contacted for confirmation of the store closures and if more were expected, a GCH Retail spokesperson tells The Edge that it is in the process of rebalancing its portfolio of stores and repurposing some of them.

“Food retail has seen increasing competition in recent years both in Malaysia and on a global scale, and we have taken decisive action to reset and re-energise Giant. In line with our stated transformation plan, we are reshaping our business to better meet the needs of our customers.

“This involves the rebalancing of the Giant portfolio of stores, while others are being repurposed and remodelled. This is part of regular business practice in examining and rebalancing our portfolio in line with rapidly changing customer preferences,” the spokesperson says in an email response.

“Our ongoing investment in our store base will lead to a stronger, more sustainable business going forward. We remain firmly committed to being a market leader in Malaysia and growing our business for the long term.”

When announcing the group’s performance in the first quarter ended March 31 in May, Dairy Farm chairman Ben Keswick was reported as saying that the challenges for supermarkets and hypermarkets were worsening, and that while this was being felt across all its markets, it was most acute in Southeast Asia.

“Giant’s supermarket and hypermarket results were poor across our key markets in Southeast Asia with lower sales and profits in Singapore, Malaysia and Indonesia.

“Sales in Southeast Asia were impacted by the launch of a store consolidation plan in the region with profits also lower. The plan is designed to improve space productivity and underlying profitability over time,” Keswick was quoted as saying.

Dairy Farm’s annual report for its financial year ended Dec 31, 2018 (FY2018), shows that the group had core issues with its Giant brand hypermarkets in Malaysia, Indonesia and Singapore.

“We had significantly under-invested in these hypermarkets in the past and they now need a course correction to reshape and resize our offerings ... to meet the demands of modern-day consumers and keep pace with the rising middle class,” the group said in the report.

Accordingly, Dairy Farm has started a pilot project in which the general merchandise range is halved and another pilot conversion in which the general merchandise is reduced by a third and fresh space is increased by 70%. Although it is at an early stage, the pilot project’s results have been positive.

This move is likened to that of rival Tesco Store (M) Sdn Bhd, which resized its stores back in 2016 and bounced back to profitability in its financial year ended Feb 28, 2018. Incidentally, Tesco is expected to take over the retail space vacated by Giant in Wangsa Walk.

However, the GCH Retail spokesperson declined to comment on the company’s plans for new store openings. Based on its annual reports, the number of stores it had in Malaysia had dropped to 122, comprising 52 hypermarkets and 70 supermarkets, as at the end of last year from 141 stores, comprising 61 hypermarkets and 80 supermarkets, the previous year.

A store count on its website reveals that GCH Retail, which is 30%-owned by Syarikat Pesaka Antah Sdn Bhd — a company controlled by the Negeri Sembilan royal family — now manages 98 stores, comprising 84 Giant, 11 Cold Storage, one Jason’s Food Hall and two Mercato.

It is not known how many employees were let go following the closures. Typically, hypermarkets employ around 300 people while smaller stores may hire between 50 and 100.

GCH Retail had entered the country through the acquisition of the Giant retail chain from the Teng family in 1999. Over the years, the retailer grew through new store openings as well as acquisitions.

It purchased several established stores, including Tops supermarkets from Dutch company Royal Ahold, Xtra hypermarkets from Lion Group and the Bestmart, Anda and Milimewa retail chain in Sabah and Sarawak. In 2010, GCH Retail bought Bintang Supermarket Group, which included the Bintang outlets and premium supermarket Mercato.

Still, the Giant store closing is not isolated to Malaysia. The Jakarta Post reported that Dairy Farm’s Indonesian venture PT Hero Supermarket will close six Giant Ekstra outlets due to tough competition and changing customer preferences. Hero Supermarket had in January shut down 26 stores due to declining sales.

In Singapore, two Giant stores were closed last year.

In its 2018 annual report, Dairy Farm described the outlook for its hypermarkets and supermarkets in Malaysia as “extremely challenging”.

“Poor market sentiment persists and smaller mini markets are growing to threaten the traditional formats. As a result, sales were lower (in FY2018) than last year (FY2017) and losses increased further due to lower sales, weaker margins and higher store expenses. Significant work will be required to reset and reshape our core Giant supermarket and hypermarket operations if they are to return to profitability,” it said.

Filings with the Companies Commission of Malaysia show that GCH Retail posted a net loss of RM235.11 million on revenue of RM4.61 billion in FY2017 and had total liabilities of RM1.71 billion and total assets of RM2.63 billion. It incurred a total loss of RM243.48 million from 2014 to 2017.

 

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