February 6, 2017 9:25 pm JST

Competitors to 7-Eleven Malaysia are catching up

Rivals gain ground offering different business models and product line-up

CK TAN, Nikkei staff writer

Malaysia's myNEWS.com convenience store is taking on market leader 7-Eleven.

KUALA LUMPUR -- Competition is heating up in Malaysia's convenience store market. Store expansion by existing players and the entry of at least one foreign player recently have posed a challenge to 7-Eleven Malaysia, which has about 80% of the market.

"We have met the target for 2016 and we have the same target this year," said Dang Tai Luk, chief executive of Bison Consolidated, the company that runs rival convenience store myNEWS.com.

Dang told the Nikkei Asian Review in a recent interview that Bison is on track with its plan to add 70 new stores a year, a promise it made to shareholders during the company's initial public offering last March. While it intends to open the same number this year, it will aim for over 70 stores in 2018.

Such a bullish strategy comes from the low penetration rate of retail convenience stores in the country, according to Dang. Based on a study by market research company Smith Zander, there are 135 stores per million people in Malaysia, lower than in Singapore where the figure is 162.

Dang said this is partly due to the thousands of so-called "mom and pop" shops -- usually independent, family-run stores -- that still serve the working classes in the suburbs. But as economic growth brings lifestyle changes, these traditional retailers will be replaced by "bigger players like 7-Eleven and Bison," he added.

Even so, weaker market sentiment and higher operating costs have affected the earnings at market leader 7-Eleven. Net profit in the quarter ended Sept. 30 fell 30% to 11.6 million ringgit ($2.6 million) on revenue of 547 million ringgit. The company's annual expansion plan of 200 new stores fell short of its target in 2016. It managed to open 113 stores by the end of September, according to Maybank Investment Research, which has a "sell" recommendation on the stock.

Since its local listing in May 2014, 7-Eleven has been revamping offerings at the roughly 2,000 stores it operates in Malaysia, enticing customers with brighter layout, ready-to-eat meals and a wider range of payment services.

But competitors like Bison, which has 315 stores currently, are also trying to provide similar offering and services. Bison acquired local bakery Otaru Fine Food last year to beef up its food selections. In 2018, it plans to roll out more ready-to-eat products to capture growing demand from the younger population in urban areas where most of its stores are concentrated.

Bison started in 1996 as a newspaper stand on the outskirts of Kuala Lumpur. Unlike 7-Eleven which uses a franchise model, Bison owns 100% of all its stores. Apart from newspapers and fresh food which are delivered directly to stores, 88% of its products are sent from central distribution centers to keep costs low. Only 15% of its stores operate 24 hours, which reduces labor overheads.

The Malaysian convenience store market got more crowded with the entry of Japan's FamilyMart last year. It has so far opened two stores in partnership with local agro-food company QL Resources but is looking to have up to 1,000 outlets by 2025. FamilyMart introduced the Japanese concept of the "konbini" convenience store by offering own-brand products such as fresh oden steamed fishcakes, onigiri rice and breads.

Malaysia's retail convenience store market has been the fastest growing sub-segment in the country, according to Smith Zander. Sales have swelled from 1.2 billion ringgit in 2007 to reach an estimated 3.3 billion ringgit in 2015. The market research group expects sales to grow to 4.4 billion ringgit in 2017.

Asia300

QL Resources Bhd.

Malaysia

Market(Ticker): KLS(7084)
Sector:
Industry:
Process Industries
Agricultural Commodities/Milling
Market cap(USD): 1,319.24M
Shares: 1,248.03M

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