DFI Retail Group

[dzwm87]

My opinion is that Dairy Farm is poorly managed. First off, they are not a pure play grocery retailer in Singapore. While diversified across Asia, there are too many moving parts and you really need all of it to work well in order to see a meaningful profit recovery. 

Just some observations:

1. In Singapore, Giant and CS have been cutting down stores from a peak of 123 in 2013 to around 100 in recent years. Downsizing leads to negative operating leverage. 
   
2. Anecdotally, I also noticed that DFI's fresh food quality isn't that good. Something is just not optimal about their supply chain - at least in Singapore. 
   
3. In Indonesia, Hero Supermarket's big box hypermarkets lost market share to minimarts as consumer behavior changed. It's almost close to a decade and they are still in the midst of optimizing their real estate mix. 
   
4. In Hong Kong, the new 'tripping north' trend could potentially lead to sales pressure for Wellcome. 
   
5. China's Yonghui Superstore is also losing out to community group buy as Meituan and Pinduoduo compete in this space. 
   
6. Philippines' RRHI is decent but again too diversified across too many different retail formats. 
   
7. Lastly, all that talk about its private label Meadows and they have yet to see a meaningful margin expansion. I find this the most puzzling as Meadows is already dominating most of the shelf space.
   

[weijian]

hi weijian,

Sheng Shiong is quite unusual to have improving margins these few years. The other companies that I follow (and unfortunately own) tend to have worsened margins due to increased material and labor costs.
Good point about the benefits of the free float!

Do you know why Dairy Farm and Sheng Shiong have such different results over the last several years? Dairy Farm should have similar strengths such as negative working capital and economies of scale.

Hi gzbkel,

Assuming both would behave the same, is like assuming me and you, stepping into a ferrari each, will both perform the same on Spore GP. As VB dzwm87 has graciously shared, SSG and DFI (Dairy Farm International) are very different animals and that results will be different since SSG (grocery) is a subset of DFI (who has grocery of different formats, restaurants, IKEA franchise, convenience stalls and health/beauty outlets).

However to answer your "actual" question of why DFI's grocery business had degraded in the later half of 2010s, it would be good to read the AR of DFI between 2018-2020 to understand their transformation plan that started in 2017. And inverting it might suggest where they went wrong after the earlier part of 2010s.

Finally, we can also look at the "line-up" for DFI in 2014 vs 2019. And maybe the difference gives us some clues as to what DFI's BOD thought went wrong?

FY14 line up (pg38 of AR14):

Graham Allan Group Chief Executive
Prior to joining Dairy Farm, Mr Allan was President and CEO at Yum! Restaurant International and was responsible for global brands KFC, Pizza Hut and Taco Bell in all markets except the US and China. Since 1989, he has held various senior positions in multinational food and beverage companies with operations across the globe and has lived and worked in Australia, the US and Europe. Mr Allan began his career in law before moving to leading management consultancy, McKinsey & Co. Inc., where he spent five years as a consultant working extensively in consumer goods

Poh Seng Pol Group Business Development Director
He joined Dairy Farm in 1998 as Finance and Business Development Director for the Group’s retail businesses in Singapore, Malaysia, Indonesia and India. Prior to that, he held senior finance positions in various multinational corporations based in Singapore. Mr Poh began his career in finance and accounting in 1981.

Alex Tay Regional Director, South Asia (Food)
Mr Tay has more than 30 years' experience in the retail business, including various key management positions in Fitzpatrick’s Singapore, Cold Storage Singapore and overseas assignments in Papua New Guinea, Indonesia, India, Taiwan and Hong Kong. Mr Tay joined Dairy Farm in 1989. He was appointed CEO of Wellcome Taiwan in 2001 and subsequently CEO of Wellcome Hong Kong in 2006

AR14: https://links.sgx.com/FileOpen/DFIH%2020...J4OC75A66S

FY19 new line up (pg43 of AR19):

Ian McLeod Group Chief Executive
Ian was named Group Chief Executive of Dairy Farm in September 2017, having spent the previous two years as CEO of Southeastern Grocers, the fifth largest supermarket chain in the United States. With over 30 year’s retail experience, Ian began his career with Asda (subsequently Wal-Mart) in 1981, where he spent 20 years working in the United Kingdom and Germany. Following this, he moved to Halfords where he became CEO in 2005. In 2008, he moved to Australia as Managing Director of Coles, overseeing 2,200 outlets and 100,000 employees

Chris Bush Chief Executive Officer – South East Asia Food
Chris Bush was appointed CEO – South East Asia Food in August 2019. Chris is a highly experienced senior food retailer with an impressive track record in leadership roles in Tesco for over 30 years, including CEO roles in Malaysia, Thailand, Korea and the U.K. After a period of time in a consultancy role for a major retailer in the United States, Chris joined Dairy Farm in 2018 to lead the transformation of the food business in Indonesia

Edward Hunter Group Supply Chain Director
Edward joined Dairy Farm as the Group Supply Chain Director in September 2018. Prior to this, Edward has held several leadership roles within P&G around the world including most recently as Vice President for Product Supply Chain for Asia responsible for supply chain delivery of all P&G categories across Asian markets including China, Hong Kong, Taiwan, Japan, India, Vietnam, Indonesia, Thailand, Australia, Korea, the Philippines and Myanmar. Edward graduated in Chemical Engineering

AR19: https://links.sgx.com/FileOpen/DFIH%20An...eID=605423

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Finally, a peek at SSG Lims' background and history below:
Lim’s growing years were spent at his family’s Cheng Siong Pig Farm, where his parents reared pigs for sale. After the mandatory National Service, Lim worked on his father’s pig farm. In 1984, the farm faced a glut of unsold meat amidst the government’s plans to phase out the pig-rearing sector. Having come across the Savewell supermarket outlet in Ang Mo Kio, which was not selling pork at the time, Lim seized the opportunity and set up a pork counter at the outlet, paying the store owner 20% of sales revenue as rental. 

The following year, the Savewell chain of provision stores met with financial difficulties and its outlets were listed for sale. With capital borrowed from his father, Lim bought over the outlet in Ang Mo Kio, despite having no experience in running a provision store. Together with his family members and 5 employees, he ran the first Sheng Siong store, focusing on providing a wide variety of no-frills products at lower profit margins.

https://reference.nlb.gov.sg/launch/stor...eng-siong/

P.S. Personally, I will choose butchers, retailers and engineers any time over Mckinsey consultants, accountants and management associates to run the business.

[Big Toe]

Local retail do not require very high qualificaion or experience in multinational companies. It needs horse sense and on the ground knowledge. Giant/Cold storage has too many layers and far too bureaucratic to be nimble and effective.

But DFI has it own strengths, they have greater purchasing power(Last check this is true even for the sub set of groceries segment) They are able to get it at a very low cost and sell at 7-11 for a premium price. Notice how 7-11 is still relatively well patronized even though they are priced so much higher and not the only ones that open 24hours.

[gzbkel]

My opinion is that Dairy Farm is poorly managed. First off, they are not a pure play grocery retailer in Singapore. While diversified across Asia, there are too many moving parts and you really need all of it to work well in order to see a meaningful profit recovery. 

Just some observations:

1. In Singapore, Giant and CS have been cutting down stores from a peak of 123 in 2013 to around 100 in recent years. Downsizing leads to negative operating leverage. 
   
2. Anecdotally, I also noticed that DFI's fresh food quality isn't that good. Something is just not optimal about their supply chain - at least in Singapore. 
   
3. In Indonesia, Hero Supermarket's big box hypermarkets lost market share to minimarts as consumer behavior changed. It's almost close to a decade and they are still in the midst of optimizing their real estate mix. 
   
4. In Hong Kong, the new 'tripping north' trend could potentially lead to sales pressure for Wellcome. 
   
5. China's Yonghui Superstore is also losing out to community group buy as Meituan and Pinduoduo compete in this space. 
   
6. Philippines' RRHI is decent but again too diversified across too many different retail formats. 
   
7. Lastly, all that talk about its private label Meadows and they have yet to see a meaningful margin expansion. I find this the most puzzling as Meadows is already dominating most of the shelf space.
   

Hi dzwm87, 
Thanks for sharing your insights!
I guess its inherently difficult to manage a multinational empire unless you have good set of country managers.

[dzwm87]

They are able to get it at a very low cost and sell at 7-11 for a premium price. Notice how 7-11 is still relatively well patronized even though they are priced so much higher and not the only ones that open 24hours.

The biggest profit generator for convenience stores is to cross-sell different services (i.e. convenience) and win on the volume game since the potential for operating leverage is huge. DFI has indeed tried to do something by selling ready-to-eat food (7-Select) but the pace is slow which makes me think that somehow the consumers in SG & HK are not well-suited for such behavior.

[gzbkel]

Hi weijian
Thanks for the hint about management changes. Things are looking clearer for me now.

[Big Toe]

They are able to get it at a very low cost and sell at 7-11 for a premium price. Notice how 7-11 is still relatively well patronized even though they are priced so much higher and not the only ones that open 24hours.

The biggest profit generator for convenience stores is to cross-sell different services (i.e. convenience) and win on the volume game since the potential for operating leverage is huge. DFI has indeed tried to do something by selling ready-to-eat food (7-Select) but the pace is slow which makes me think that somehow the consumers in SG & HK are not well-suited for such behavior.

Yes, you are right to say that  convenience stores sell differentiated products/services. But there is a big overlap of poducts that supermarkets sell, and some supermarkets open 24hrs. 

The ready to eat section is an imporrtant segment and 7-11s in Taiwan is extremely successful at ready to eat. You can get tasty breakfast, lunch and dinner at 7-11 in taiwan at a much lower price. So for ready to eat to take off here, it needs to taste better and sell for much less. Don Don Donki is very successful at ready to eat from the day they opened their doors in SG.

A large part of revenue for 7-11 is cigarette sales but that is on the decline due to strict laws and increasing government taxes, so they probably figure something out to make up for this.

[weijian]

Similar to JCC throwing the towel at Siam City Cement, DFI has now thrown in the towel on Yonghui after first acquiring a stake in 2015-2016 (conspicuously similar to the timeframe that JCC acquired SCC). Maybe the Chinese are better suited to help each other.

The net proceeds of ~640mil USD is about 25% of DFI Retail Grp's market cap - This goes on to show how much DFI has been underappreciated by the market (whether rightly so or not, is another question). Will they pay the money upwards to JMH or use it to reduce debt instead?

DFI RETAIL GROUP HOLDINGS LIMITED DISPOSAL OF 1,913,135,376 SHARES IN YONGHUI SUPERSTORES CO., LTD

The Transaction will result in the Company receiving gross cash proceeds of approximately RMB4,496 million upon completion.

Following the completion of the Transaction, DFI Retail will cease to hold any interest in Yonghui directly or indirectly through its subsidiaries.

https://links.sgx.com/FileOpen/DFI.ashx?...eID=819430

[ksir]

Similar to JCC throwing the towel at Siam City Cement, DFI has now thrown in the towel on Yonghui after first acquiring a stake in 2015-2016 (conspicuously similar to the timeframe that JCC acquired SCC). Maybe the Chinese are better suited to help each other.

The net proceeds of ~640mil USD is about 25% of DFI Retail Grp's market cap - This goes on to show how much DFI has been underappreciated by the market (whether rightly so or not, is another question). Will they pay the money upwards to JMH or use it to reduce debt instead?

DFI RETAIL GROUP HOLDINGS LIMITED DISPOSAL OF 1,913,135,376 SHARES IN YONGHUI SUPERSTORES CO., LTD

The Transaction will result in the Company receiving gross cash proceeds of approximately RMB4,496 million upon completion.

Following the completion of the Transaction, DFI Retail will cease to hold any interest in Yonghui directly or indirectly through its subsidiaries.

https://links.sgx.com/FileOpen/DFI.ashx?...eID=819430

Interesting, the buyer turns out to be Miniso?
https://www.reuters.com/business/retail-...024-09-23/

Tons of cash looking for cheap assets or diworsification? 
Only times will tell.
Meanwhile its share price plunged by more than 15%.

[Big Toe]

DFI made a significant loss in Yong Hui. Sale price was lower than what they paid for about 10years ago and that is before factoring inflation. Let us put things in perspective and try to roughly gauge if market is right. What I present is not the complete picture but enough info for me.

1. Lost out in the supermarket space both in SG and MY.
2. Made a bad investment in Young Hui.
3. Relatively short tenure(5-6years) of CEOs
4. Red Tape/Tall Organization Chart, Hands-off CEO.

The size/purchasing powerr/ diversified offerings in different sectors, store formats have kept them profitable for a long time.But are they a well oiled machine? Your guess is as good as mine.