STORE OPERATORS IN ‘SPACE RACE’

7-Eleven, MyNews, FamilyMart on aggressive expansion mode

THERE is growing competition among Malaysian convenience store operators for viable retail spaces to expand their operation, despite a slowdown in the country’s economy.

Analysts said the penetration rate of convenience stores in Malaysia was relatively low compared with more mature markets such as Thailand and Japan.

This had led to three major players — 7-Eleven, MyNews and QL Resources Bhd’s FamilyMart — aggressively expanding their store count, they said.

However, the analysts said the government’s plan to raise workers’ minimum wage could affect the operators’ earnings.

Affin Hwang Capital said although rising competition for retail spaces was a major concern, this would be mitigated by an ample supply of commercial spaces in urban areas and a relatively low penetration rate of convenience stores in Malaysia.

“The Malaysian market has a long way to go to reach saturation as our estimates show an urban population density of close to 9,000 per convenience store,” said Affin Hwang.

Thailand, Japan and Taiwan have urban population densities of 2,226, 2,171 and 1,653 per store, respectively.

Affin Hwang said FamilyMart’s ready-to-eat (RTE) food and beverage (F&B) made up a significant portion of convenience store sales, commanding higher margins compared with other items such as cigarettes and general sundries.

This was supported by FamilyMart’s continuous introduction of innovative F&B offerings that received overwhelming response from customers.

“We estimate daily revenue per FamilyMart store will outstrip that of MyNews and 7-Eleven.”

Nonetheless, the research firm said competition could intensify in the medium term, with MyNews and 7-Eleven stores also offering RTE food items.

“MyNews has introduced new offerings, such as coffee and softserve ice cream under its new ‘Maru Kafe’ brand,” it said.

Meanwhile, Maybank Investment Bank Bhd (Maybank IB) said the country’s minimum wage, which was expected to increase next year or in 2020, would raise convenience store operators’ overheads, while a decision to maintain product prices despite the Sales and Services Tax might dampen their margins.

It said MyNews’ overall staff cost, however, might increase by only about RM600,000 per year as most of its 1,600 to 1,700 em- ployees were already receiving higher than the minimum wage.

Foreign workers make up about 32 per cent of its workforce, it added.

“Factoring in higher wage costs, offset by better revenue contributions from our store opening estimates of 85 stores (from 75) for this year, our earnings forecasts in the financial years 2018 to 2020 are largely unchanged,” said Maybank IB, which has maintained a “hold” call on MyNews.

The investment bank has a “sell” call on 7-Eleven, due to expected headwinds ahead.

It said 7-Eleven intended to maintain prices at the retail level in the near term.

“7-Eleven shared that an estimated 80 to 90 per cent of its workforce (13,000-14,000) are on the current minimum wage,” it added.