KUALA LUMPUR (Nikkei Markets) - Malaysia's convenience store operators are pushing ahead with their expansion plans, betting on resilient private consumption to spur growth in an underserved segment despite signs of fatigue in Southeast Asia's third-largest economy.
QL Resources, which has a 20-year pact with FamilyMart Co Ltd of Japan, will go ahead with its expansion plan under which the company will open 300 stores by fiscal year ending Mar. 31, 2022, its chairman said. In FY2018, QL Resources opened 30 Family Mart Stores.
"We still stick to our plan to open 300 stores in five years," Chia Song Kun told Nikkei Markets. For the year ending Mar. 31, 2019, the company plans to open another 90 stores, he said.
Meanwhile, Mynews Holdings, which runs the Mynews convenience store chain, will open 85 new stores across the country, and add 150 Maru Café stores bringing total outlets to 200 by October-end this year, its managing director said.
The company is building a food preparation and packaging facility, which is slated to start operations in the next five to six months, Dang Tai Luk said. Following the completion of that facility, the company would be able to supply various ready-to-eat food to cater to customers' needs.
"The outlook for the convenience store industry is still very optimistic and the penetration rate remains low," Dang said. Consumers are also changing their spending habits and recognizing that convenience stores deliver swift services to them, he added.
Overall retail sales will likely grow 4.5% this year compared with last year's 4.4%, forecasts Retail Group Malaysia. The trade body expects an increase in minimum wage level to stoke up consumer spending.
7-Eleven Malaysia, the current market leader with over 2,000 stores in the country, plans to open at least another 200 stores in 2019, local media reported citing its major shareholder Vincent Tan. The company declined a request for interview.
The rapid expansion comes as Malaysia is increasingly relying on domestic demand to power economic growth while exports slow amid U.S.-China trade war. Private spending remained steady even as overall economic activity decelerated for four straight quarters, with growth rate moderating at 4.4% in July-to-September.
Apart from expanding their network, operators are also revamping existing stores, adding spaces to offer food and lifestyle products to boost profit margin and increase footfalls. Analysts said such offerings are gaining popularity as urban consumers, often strapped for time, are seeking to grab a bite on the go.
"We note that Malaysia's convenience store penetration ratio of 9,000 is still much lower than many other countries," said Hong Leong Investment Bank analyst Gan Huan Wen. "I expect the convenience store business to grow at around mid-teens at the expense of hypermarkets and supermarkets."
Penetration ratio, a measure of market penetration, is calculated by number of people divided by number of conveniences stores. Both Thailand and Japan have a convenience store penetration ratio of little over 2,000, Gan noted.
For Kenanga Investment Bank analyst Wan Mustaqim Wan Ab Aziz, growth of the convenience store industry has likely reached its "optimum" level, with most of the high same-store-sales-growth outlets clustered in Kuala Lumpur and the immediate surrounding area known as Klang Valley.
Stores within the urban rail stations have limited space to compete, prompting operators to venture into fresh food business to cater to fast-moving consumers, he added.
Shares in QL Resources, which have gained 42% over the past 12 months, ended 0.4% lower at 6.78 ringgit apiece, while Mynews Holdings, which has shed 9.7% over the past 12 months, closed 0.7% higher at 1.4 ringgit apiece. 7-Eleven Malaysia shares closed 0.7% higher at 1.41 ringgit apiece after losing 4.7% through the past year.
--Gho Chee Yuan