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Japan's FamilyMart eyes 1,000 Malaysian stores by 2025

Partnering with local group QL Resources to capture urban market

Customers try the new Japanese oden fishcake counter at FamilyMart.

KUALA LUMPUR -- FamilyMart, the world's second-largest convenience store chain, said Friday it is considering an expansion of up to 1,000 stores by 2025 in Malaysia, its newest overseas market.

The growth will be made possible via a franchise business model in partnership with QL Resources, one of Malaysia's largest agro-food companies, at a time when economic uncertainty has resulted in a sluggish retail market.

"The offer of fresh food is our main differentiation," said Chia Li Khai, QL's executive director, during a press conference. Through its wholly-owned Maxincome Resources it is starting by opening its second local branch of FamilyMart in the Mid Valley megamall to the south of Kuala Lumpur.

With its first store just opened, FamilyMart is setting itself apart from competitors by bringing the "konbini" convenience store concept from Japan. Of the nearly 2,000 items on sale in each store, about 5% are developed by FamilyMart using locally-sourced ingredients from QL, the largest surimi, or fish paste, maker in Asia.

One typical feature, a new offering in Malaysia, is a counter of oden steamed fishcakes, served on a stick in tasty broth, such as original Japanese fish-based flavor or spicy tom yum.

"I like the spicy taste. It fits Malaysian [style]," said Nurul Aquidah, an office worker, as she ate her oden at a seating area within the store.

Other hot snacks on offer include fried karaage chicken, frankfurters and bento lunchboxes. There are also triangular balls of onigiri rice wrapped in seaweed and a selection of puddings, mousses and ice-creams.

"We want to learn from Japan by even offering amenities such as recycle bins and toilets equipped with bidet," said Chia, who is the son of Chia Song Kun, QL's founder and group managing director. "People said I am crazy but I believe Malaysians too can practice good hygiene like the Japanese."

Going forward, stores in Malaysia will offer courier services, including delivery and collection, as well as bill payments, said Chia, who added that the group has earmarked up to 20 million ringgit ($4.5 million) annually for the store expansion.

The convenience store business gives QL a new source of earnings apart from its traditional core of marine products and livestock farming, which accounts for over two thirds of revenue.

"With the expansion, QL completes our agro-food supply value chain from source to consumer," explained Chia.

The convenience store unit is in the process of applying for halal certification in order to cater to a wider Muslim audience, although all current food items on offer are made from ingredients free of pork and alcohol.

"Partnering with QL in developing halal products will be our biggest advantage," said Takashi Sawada, president of FamilyMart. The chain is also present in China, Indonesia, the Philippines, Taiwan, Thailand and Vietnam.

Sawada said the group is constantly studying emerging markets in the region, including Cambodia and Myanmar, for future expansion.

In Malaysia, FamilyMart is looking at locations with high levels of foot-traffic in commercial business districts as well as malls. The group believes the consumer market in Malaysia has evolved like it has in other developed countries; from shopping for daily needs in department stores, to general merchandise stores and now increasingly to convenience stores.

"Opening up to 1,000 stores by 2025 is not impossible," said Masaaki Kosaka, director of international business at FamilyMart. With the expansion planned through the franchise model, the group currently has no intention of taking a stake in the local unit due to strict Malaysian regulations on foreign shareholdings.

FamilyMart's expansion comes at a time of slowing economic growth in Malaysia, due to the commodity prices rout.

7-Eleven is the largest convenience store operator in Malaysia with about 2,000 outlets nationwide. It announced during an initial public offering in 2014 plans to open 200 stores annually over the following three years. By the end of September, it had only managed to open 113 stores in 2016. The group's earnings in the quarter ended Sept. 30 were below expectations on higher operating costs, according to Maybank Investment Research.

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