Lay Hong eyes ‘eggs-pansion’
E-grocery and same-day delivery business to be game changer
Lay Hong already has the end consumers. We want a wider range of users... It’s the B2B link that we are targeting. Yap Chor How
E-GROCERY is no longer seen as just a trend. Bit by bit, grocery patterns are changing. Amazon’s US$13.7bil deal to buy specialty grocer Whole Foods Market Inc in the United States was perhaps the biggest sign that grocery habits are no longer carried out the traditional way, Even in Asia, time-pressed urbanites are abandoning their neighbourhood stores and the crowded supermarkets in favour of buying daily staples and produce online. This has been increasingly evident in Malaysia over the last two years. Thus, not so surprisingly, Innofarm Sdn Bhd, which is the single largest shareholder of egg and poultry producer Lay Hong Bhd, bought 39.61 million shares or a 14.41% stake in logistics and courier service provider company MMAG Holdings Bhd. Via Innofarm, Yap Hoong Chai, the managing director of Lay Hong, bought 25.31 million shares of MMAG in the open market. Innofarm, which is the Yap family vehicle, owns 31.05% of Lay Hong. Lay Hong is looking to enter e-grocery and same-day delivery business in Malaysia, and MMAG is part of the jigsaw needed to solve the puzzle, says Lay Hong executive director Yap Chor How. MMAG, which was previously in the information and communications technology business, diversified into the courier and logistics business in 2015 when it set up Line Clear Express & Logistics Sdn Bhd. In November 2016, MMAG announced that it was constructing a new office and warehouse to enable Line Clear to increase its warehouse capacity from the current 3,000 deliveries per day to the range of 6,000 to 9,000 deliveries per day. Apart from covering a floor space of 200,000 square feet, MMAG would also have a cold room facility. This was perfect for Lay Hong’s e-grocery aspirations. Effectively, Lay Hong is investing in a new food ecosystem, says Chor How “Earlier this year, we bought into PanPages Bhd because we wanted a business-to-business (B2B) platform for food. PanPages also bought a stake in Lay Hong because it saw that we could work together to capitalise on the changing marketplace for food,” says Chor How. In May, PanPages bought a 30% stake in Lay Hong’s grocery unit G-Mart Borneo Retail Sdn Bhd for RM10.75mil. PanPages had said its rationale for buying G-Mart was to build up its online e-commerce business. Lay Hong has 16 retail stores in Sabah. One month later, Innofarm bought a 26.37% stake in PanPages. PanPages is one of the leading small and medium enterprise solutions providers in South-East Asia. It helps customers publish business content on a number of platforms, including that of Alibaba’s global trade portal. PanPages’ online product offerings have been moving to serve industries such as industrial products, health and beauty, and now, food and beverage. “So, PanPages gives us the platform to market our array of food products. Now, we are buying into MMAG to facilitate the logistics requirement for this e-grocery business,” says Chor How. Thus, Lay Hong will be a supplier on PanPages’ network. It will use the network not just for its processed food, but also for its eggs and other new food products. “Right now, Lay Hong already has the end consumers. We want a wider range of users, and want to target the food service business such as the cafes, restaurants and hotels. It’s the B2B link that we are targeting,” says Chor How. Meanwhile, MMAG’s logistics infrastructure is simply to ensure the well-oiled move- ments within this e-grocery ecosystem.
Gaining traction
Lay Hong’s move into the processed food business has become more obvious since Japan’s largest meat-packing company, NH Foods Ltd, took a 21.77% stake in the company back in 2015,
Chor How says its processed and frozen food division will be an important growth driver for Lay Hong moving forward, with the e-grocery channel leading the way.
Presently, the joint venture between NH Foods and Lay Hong via NHF Manufacturing (Malaysia) Sdn Bhd has seen them rolling out five frozen processed food products, branded as Nippon Premium Nutriplus.
Chor How says NHF will be coming out with new products every six months.
Lay Hong’s market share for the processed and ready-to-eat food segments is set to grow to around 10% next year from its current 6%.
Further to that, Lay Hong is in the midst of constructing its food-processing manufacturing plant in Pulau Indah, which is scheduled for completion by next September. Once completed, the plant is expected to produce some 2,000 tonnes of food products, the bulk of which will be exported.
“We are targeting Japan as our first market. Locally, the feedback and response to our new products has been very positive,” says Chor How.
Lay Hong’s growing processed food division was a big contributor to its first-quarter earnings to June 30, 2017.
Earnings jumped significantly to RM4.42mil from RM419,000 previously. Revenue, meanwhile, jumped 15.15% to RM183.03mil. The processed food division, which is housed under retail supermarkets, contributed some 20% to its topline.
For now, the contribution from the products from the collaboration with NHF has yet to be recognised in its first-quarter results. It is purely from its current processed food division business. Some contributions will start to be seen in the second quarter onwards.
On top of that, Lay Hong has also invested some RM8mil in its Thailand manufacturing plant.
Chor How says the construction and set-up of equipment has been completed. What is left is simply the timing to roll out its products.
“We expect to roll out in early financial year 2019. The products from the manufacturing plant are ready-to-eat products that are halal. It currently has one production line with a capacity up to 60 to 70 tonnes a month.”
The total investment is around RM8mil. On the products to be rolled out from this plant, it will be targeted mainly at the Thai market.
Meanwhile, on Lay Hong’s core business, the company is on track with its planned expansion to increase production capacity.
Its egg production now stands at approximately 2.8 million eggs per day from 1.8 million eggs as of December last year.