Chobani has upsized its Greek yogurt offering in Malaysia. After introducing the 170g tub, followed by the 140g pouch, the 907g tub has finally arrived. The full spectrum of the made-in-Australia Chobani yogurt is now available in the country. The new Chobani 907g tub shows the company is really confident of the reception of its Greek yogurt in Malaysia. The only equivalent to Chobani in the 900+g tub format is the 900g tub by the local yoghurt maker Sunglo, which uses milk from Australia and New Zealand.
Store check at Village Grocer, One Mont Kiara, 14 May 2014
7-Eleven Malaysia will be joining other regional 7-Eleven listed entities CP All PCL and Philippine Seven Corp to tap the capital market to finance its expansion plans. 7-Eleven Malaysia is expected to raise RM731.85 million from its IPO and its shares will be listed on Bursa Malaysia on 30 May 2014.
Unlike their lost-making peers in China, 7-Eleven in Malaysia, Thailand and the Philippines are all money-making machines. Investors simply love their 7-Elevens and have giving them very high valuation with CP All trading at 36.02 times 2013 net income and Philippine Seven trading at 65.02 times 2013 net earnings. Similarly, 7-Eleven Malaysia historical P/E is 51.1 times based on the IPO price of RM1.38 per share.
CP All (left); Philippine Seven (right), 2009-2013
Realistically speaking, can 7-Eleven Malaysia grow its net income 50% every year to justify for the high P/E? I am afraid, the answer is no. Valuation is all about sentiment and the purpose of the IPO exercise is to pare down its debt to become debt-free post listing. In addition, the company will use 73.8% of the RM250.3 million proceeds for expansion.
The capital expenditure of RM184.79 million includes the opening of new stores, refurbishment of existing stores, construction of a new CDC and upgrade of the IT system.
The new RM40.8 million CDC in Shah Alam, which will become operational at the end of 2015, will be able to distribute up to about 75% of its products by volume in Peninsular Malaysia. It will replace the existing CDC in Shah Alam that is handling 53% of its products by volume in Peninsular Malaysia. The CDC is a good thing as it helps to reduce costs.
The company plans to open 600 stores between 2014 and 2016, equivalent to 200 stores per year. Can 7-Eleven Malaysia open 200 stores per year? Looking at the historical record, the 200 outlet per year objective looks rather lofty. 7-Eleven Malaysia did enter into an agreement with Caltex, which operates 423 petrol stations in Malaysia. But the number of 7-Eleven petro mart in Caltex will not be significant. 7-Eleven has opened two stores in Caltex and plans to open only an additional 23 outlets by June 2015.
7-Eleven Malaysia cannot rely on franchisees to share the cost of store expansion as the company has already terminated the franchise program due to regulatory challenges to comply with Franchise Act 1998. Therefore, the company has to draw on its own resources as well as from the IPO proceeds to fund future expansion and this drains away resources for new store opening.
The other thing the IPO prospectus reveals is 7-Eleven stores are getting old and need a makeover. It will cost RM100,000 to RM150,000 to refurbish a store. 7-Eleven Malaysia will refurbish 600 stores with a target 200 stores for refurbishment each year from 2014 to 2016. The capex for store refurbishment is RM27.3 million over a 36-month period.
Refurbished 7-Eleven at Plaza Mont Kiara
Looking at the financials, reducing costs and focusing on higher-margin products are the key growth drivers as 2012-2013 revenue growths slow to a single-digit. The CDC helps to lower costs but the company is facing two headwinds in the forms of higher wages and electricity costs. The statutory minimum wage rose to RM900 per month in December 2012 from RM750 for Peninsular Malaysia and RM800 per month from RM700 in East Malaysia. The increase in salary resulted in a 1 percentage point increase in selling and distribution expenses in 2013.
The impact from higher electricity costs ranging from 10.6% to 18.4% , which went into effect in January 2014, will only be reflected in the 2014 financial statements.
Another thing in the arsenal to increase margin is private label. However, private label will only be introduced in the final quarter of 2014. The convenience store operator will also be focusing more on food and beverages and commission away from low-margin tobacco products. Commission includes mobile phone and online game reloads and the gross profit margin is 100%.
Food and beverages include confectioneries, snack foods, perishables, food services including sandwiches, fresh brew coffee and bakery items. 7-Eleven has not been very successful in foodservice even though it recently introduced CP frozen food items. The challenge for 7-Eleven is to come up with more interesting fresh food items to generate higher margins.
The final verdict is 7-Eleven Malaysia’s lofty valuation makes the company a risky investment proposition but given the right valuation, 7-Eleven Malaysia is a good company to hold for the long run since it is a monopoly.
The 200 store per year opening goal seems too high and a reduced net addition of stores coupled with the ongoing store refurbishment will impact the bottom line. Same-store sales (SSS) fell to -0.1% in 2013 from 3.4% in 2010, 2.2% in 2011 and 1.6% in 2012. The company blamed the decline in SSS on store refurbishment and on the weak Q1 2013 consumer sentiment. Hence, profit growth may slow in 2014 as consumers are already talking about spending less due to inflationary pressure. It may be a good time for 7-Eleven to raise money but not so for investors who hold the shares.
In Malaysia, Horlicks, the malted milk drink, has finally yielded to the chocolate temptation. The launch of Horlicks in chocolate flavour shows if you can’t beat them [Milo], join them. In a Milo-loving nation, it can be lonely for Horlicks to remain true to its malted milk drink heritage. After all these years, Malaysian consumers have not really acquired a taste for Horlicks and its malted milk drink flavour. On the other hand, consumers have stick with their perennial favourite, the Milo chocolate drink.
Horlicks has tried using nutrition as a selling point but it has ignored the fact that chocolate drink as represented by Milo is what they prefer the most. The new Horlicks chocolate retains the malted milk flavour with but comes with an added chocolatey flavour. Hopefully, this chocolate flavour will improve Horlicks performance in the market.
Price wise, Horlicks is the most expensive malt drink in Malaysia.
RM/Kilogram, 12 May 2014 Aeon Big Hypermarket, Ampang
Ramen Rater has named MyKuali Penang White Curry Noodle as the best instant noodle in the world in his latest 2014 list.
Ramen Rater
This is what he has to say. “The ultimate! The noodles are just the right texture and gauge – not too wide or too narrow with a chewiness that is perfection. The broth is amazing – extremely spicy (hit #7 on the 2013 Spiciest Instant Noodles list), and features a strong curry flavor and a hearty finish. I am truly impressed with this one and would consider it to be the one I would love to eat every day. Bravo!” Link
After the hugely successful Ipoh White Coffee, Malaysia now has another global export item in the making – Penang White Curry Noodle. Sky Thomas Food Industries Sdn Bhd is the company behind the famous MyKuali Penang White Curry Instant Noodle. According to the company, the noodle comes with “natural paste ingredients made with quality imported raw materials.”
Geographical identification (GI) is important for hawker food in Malaysia. It is normal for hawkers to stress their food comes from a certain location famous for a certain dish to attract customers. For example, Klang is famous for bak kut teh (herbal soup concoction with various pork cuts), Penang for its char keow teow (fried flat rice noodles) and Ipoh is famous for its white coffee – Ipoh white coffee, among others. Now Penang, a heaven for street food, has gained fame as the birthplace of Penang white curry instant noodle.
At the moment, Penang white curry instant noodle is popular mainly with ethnic Chinese consumers. However, companies are working to expand its popular to the Malay Muslim market. Dave Dannee Food Industries Sdn Bhd, the maker of the Granny’s Recipe Penang white curry instant noodle, has entered into a joint venture with Zinon Food Industry Sdn Bhd, a Alor Setar-based halal food producer, to target the Muslim market. Zinon Food makes the Iman brand instant noodle.
Consumers are finding it hard to get hold of Penang white curry instant noodles. They are either out of stock or not available at the leading stores such as Giant and Tesco. For example, Granny’s Recipe was seen at NSK Wholesale Supermarket and Uncle Sun at Aeon Supermarket. Surprisingly, both MyKuali and The Bridge was found selling at the high-end supermarket Village Grocer. MyKuali is available at more places as it the most sought after Penang white curry instant noodle. Aroi is available at 99Speedmart and Aeon Supermarket in Malaysia and in Sheng Siong in Singapore.
Penang white curry instant noodle sells at a premium compared to other curry instant noodles with prices ranging from RM6.9 to RM7.99 per four pack.
Mini Me Insights store check, April-May 2014
RM/kg per four pack. Mini Me Insights store check, Aeon Supermarket, Mid Valley, 4 May 2014
Penang white curry instant noodle has the potential to make it big in the instant noodle market, not just in Malaysia but also in other curry-loving countries particularly in Singapore, Hong Kong and Taiwan. At the moment, the key players are SMEs. There is a high chance that Nestle may start launching its own Maggi Penang white curry instant noodle in the future to tap opportunities in the premium market. Penang white curry instant noodle is an ideal product for premiumisation as it now commands a high price.
There is no doubt Greek yogurt is the next big thing for the yogurt category in Malaysia. The minor skirmish in what is known as the yogurt battle between Nestle and Sunglo has grown into a full scale war with the entry of foreign competitors such as Emmi, Chobani, Fage, Tamar Valley and Farmers Union.
The front line can be quiet in some areas. At the Tesco Taman Midah store, only Sunglo has a significant presence. There was no Nestle Greek yogurt when the store check was conducted on 4 May 2014. The Taman Midah store is located in Cheras, a suburb of Kuala Lumpur (KL). In other suburban hypermarkets, the usual Greek yogurt brands are Nestle and Sunglo with Emmi being the new kid in town.
Tesco Taman Midah, Kuala Lumpur, 4 May 2014
At Cold Storage, Mid Valley, KL, this is an area where most of the major players are competing fiercely. Cold Store is more upmarket and usually sells imported goods, making it the place for shoppers to stock up on imported yogurt. Emmi and Chobani are located on the top right, while Nestle Greek yogurt is located below Emmi and Chobani. In the middle is Farmers Union and on the top left is Tamar Valley. Below Tamar Valley are all Farmers Union Greek yogurts.
Cold Storage, Mid Valley, 4 May 2014
Aeon Big is a hypermarket chain similar to Tesco. The four Greek yogurt brands at the Mid Valley store are Nestle, Sunglo, Emmi and Farmers Union. Nestle Greek yogurt occupies the top right and bottom right, while Sunglo occupies the bottom left shelf space and on the middle shelf. The top part is taken by Emmi, while Farmers Union is second on the left. Unfortunately, none of the Greek yogurt takes up the prime eye-level shelf space.
Aeon Big, Mid Valley, 4 May 2014
Greek yogurt at the Aeon Supermarket in Mid Valley is scattered strategically, making them easily spotted on the rack. Nestle Greek yogurt is located on the left, while on the far right and on the bottom is Sunglo. Sunglo, a local brand, does not usually receive the prime spot. Fage is second on the top right and next to Fage on the left is Farmers Union. Below Sunglo on the far right on the second rack is Chobani in the 140g pouch format. Above Sunglo on the second rack from the bottom are Chobani and Emmi in cup.
Aeon Supermarket, Mid Valley, 4 May 2014
Yes, the 140g pouch Chobani has arrived in Malaysia. The product is made in Australia and sells for RM7.50 at Aeon Supermarket, Mid Valley. The normal Chobani in cup is retailed in the same store for RM8.70.
At the moment, the front line of the Greek yogurt war is in high-end supermarkets and in supermarkets and hypermarkets in neighborhoods with affluent consumers, foreign tourists and expats. For ordinary shoppers buying grocery in their suburban hypermarkets, only Nestle and Sunglo are at the front line laying the groundwork to build further acceptance of Greek yogurt. The burden now rests on Nestle and Sunglo. Some of the brands will start thinking about expanding to suburban stores, thanks to rising awareness about Greek yogurt. Switzerland’s Emmi is the latest foreign brand to make available its Greek yogurt in suburban hypermarkets.
Malaysia has a very high car ownership. The latest Nielsen data shows 54% of households in Malaysia have over one car, the highest incidence of multiple car ownership globally. The country is also third worldwide for car ownership at 93%. We need cars. Without cars, it is impossible to travel around the city due to the poor public transport service. With so many cars on the road, it is not surprising KL’s road is congested.
Malaysians spent a lot of time being stuck in traffic. For example, the author spent at least two hours commuting to work and this does not take into account the morning traffic jam. I leave early to work, usually 6.20am and arrive 35min later. But if I were to leave at 6.40am, it will take 50 minutes to reach the office.
If there is flash flood, the traffic will get worse. For example, it took me 2.5 hours just to return home yesterday after flash flood cut access to a number of roads.
Rather than being constantly stuck in traffic jam, some motorists choose to leave early, usually before 6.30am, and use the extra hours to enjoy the morning meal near the office. As many companies do not offer flexi hours, this causes office workers to leave in drove after work, usually between 5pm to 5.30pm, causing unbearable pain to motorists going home.
To avoid getting caught in traffic jam on the way home, some choose to go to the gym for a workout, have a shower and have dinner outside. Once done, it will be already 8pm and the roads will be less congested, making driving home a breeze.
As office workers usually arrive home at 7-8pm, there is little time left to do their own cooking. So many either head out to eat or dine at their parents place. A busy lifestyle means opportunities for convenient food. As Malaysians love to spend time doing grocery shopping after work, Tesco, which opens until 11pm has become a hit. The other competitors close at 10pm.
Since many office workers would not want to kill time sitting in the office to wait for the roads to clear, there is an opportunity for something similar for a home away from home premises. Such as place will have everything needed to wind down before heading home.
Traffic jam is bad for health but is good for products and services that cater to the needs of time-deficient consumers.
What caught my eyes recently is the buy one, get one free promotion for Huiyuan’s Bing Tang Hu Lu 冰糖葫芦 or hawflakes fruit juice at Aeon Big, Mid Valley in Kuala Lumpur, Malaysia. This drink is an adaptation of the popular Chinese snack sugarcoated haws but in the drinkable format. Huiyuan, China’s biggest pure juice and nectar juice maker, launched the drink during 2013 Chinese New Year amidst mixed reception. Some find the drink tastes bad and prefer to eat the actual sugarcoated haws but there are consumers who love it. Yours truly has tasted it in China but agree it is better to eat the real thing.
In Malaysia, the Huiyuan’s Bing Tang Hu Lu drink seems to have met its Waterloo moment. The importer HPG Marketing (M) Sdn Bhd is selling it cheap now. The gift pack, which is likely meant for the 2014 Chinese New Year, is selling for RM19.88 for a pack of 15x250ml. By paying RM19.88, you will take home 2 boxes totaling 30 drinks. Malaysians have no tradition of eating sugarcoated haws. Even if they eat it, they tend to taste it when traveling in China for the photo moment. Moreover, you do need to love the strong hawthorn taste to finish the whole bottle.
Buy one, free one at Mid Valley Aeon Big
Even if Malaysians, mainly referring to ethnic Chinese, do travel to China, high chances they wouldn’t know about this drink. Therefore, this sort of drink should be sold through China food store. There is one outside UCSI University catering to mainland China students wanting to taste something back home. Also, instead of selling it in gift pack, the importer should sell the 250ml drink individually. People will not want to pay for RM20 for a drink they haven’t tasted before. For those who really like liquid hawflakes juice, yes, they are available at Aeon Big at a deep discount. So grab them now.
Aeon Big, formerly Carrefour, has introduced the Topvalu range of private label products in Malaysia. As with all private label products, the aim is to deliver the best price without sacrificing quality. Consumers are feeling the heat over the rising cost of living and this is not helped with the impending introduction of the 6% GST in April 2015. Many are looking for ways to cut their spending such as buying in bulk, dining out less and turning to group buying sites.
Private label seems to be the panacea but private label only represented 2% of dollar share in Malaysia, according to the Nielsen Private Label Global Report, 2011. An earlier Nielsen report valued the private label market at RM240 million or 4.3% of total sales in February-September 2008, up from 3.8% a year ago. The numbers range from 2% to 4.3% but they do show private label share has not exceeded 5% and may in fact falling eg 2% in 2011.
Private label seems to be a Western thing. This concept hasn’t really taken off in Asia including in China despite numerous attempts to try winning the hearts and minds of Asian consumers. According to Nielsen, no countries in Asia has a private label share higher than 6%. Dia, the hard discount blue chip of Carrefour, never seems to be able to use private label as the key pillar of its price image strategy in China. Despite having a total of 954 private label items in China in 2010, private label share stood at a mere 10% lower than other emerging markets such as Brazil and Turkey, each with 35%. Dia announced in 2014 that it was withdrawing from Beijing but is keeping the Shanghai stores running, which shows Dia’s discount model is failing in China.
The key barrier for private label adoption in Asia is consumers are not really convinced of the quality. Nielsen‘s study shows of the bottom 10 countries that do not agree with the statement “Supermarket own brands are a good alternative to other brands”, eight are from Asia with Malaysian and Japanese consumers (35%) in least agreement with the statement.
Malaysian consumers have no qualm buying store-brand tissue, toilet roll, plastic utensil, mineral water, and other products they perceived where the risk is low and there is not much difference in the perceived quality. However, they are more choosy when it comes to products they enjoy. In China, consumers want quality assurance as they are constantly being inundated with food scares. With big brands in China failing to pass the national quality tests, what’s more for private label where the manufacturing of the products are usually outsourced to SMEs.
Tesco Loves Baby
In Malaysia, the low private label penetration in grocery has not deterred Tesco from introducing its new Tesco Loves Baby brand in April 2014. The retailer has set an ambitious target to capture 50% of the baby care and products market share (within Tesco stores or the overall baby care market??) by the end of 2014. Tesco has about 71% market share within key account hypermarkets and 38% within the modern trade category, according to Nielsen’s private label report released in February 2014. Tesco even has a website for the new baby range at http://baby.tesco.com.my, a strong indication that Tesco wants to win.
Back to Aeon Big, the key problem for Topvalu is the design, which exudes the signs of being cheap and low in quality. There is simply too many white spaces in the Topvalu design (left) compared with a more colourful pack design for the Tesco juice (right). So, the key to private label acceptance in Malaysia is simply put extra thought to the pack design and white space does not sell.
Pick a fight with the branded peers by placing the private label product next to the nearest competitor. Tesco is famous for using this approach to highlight the price advantage over the leading brands.
Tesco own brand instant noodles on the right (red and yellow)
Shelve display matters. Tesco is known for populating the entire shelve with its own private label range as shown in the example above.
One of the strangest thing about Malaysian consumers is we are willing to pay more for imported products including private label products. Premium imported private label products such as Waitrose and Marks & Spencer are prized for their quality. Private label sells if they are fully imported. This applies to Topvalu products with Japanese characters imported straight from Japan.
Private label fits the needs of the HoReCa (hotel, restaurant and catering) market. Restaurants buy in bulk and all they care about is low price and reasonable product quality. Packaging does not matter as long as the price is right.
Conclusion, private label does have potentials in Malaysia.
1.) Private label is ideal for HoReCa.
2.) Private label pack design has to look less like private label and resemble more like branded goods with less white spaces.
3.) Private label sells if they are imported eg. Waitrose and Marks & Spencer.
4.) Private label wins by occupying crucial shelve space and placing it next to leading brands to highlight the price advantage over branded goods.
7-Eleven Philippines recently announced it is offering free WiFi to its Every Day! Rewards Card holders. However, it come with a catch. You need to redeem with points. The rule says, you get 15 minutes of Every Day! WiFi with every one point. To accumulate one point, the consumer needs to spend PHP50 (USD1.12) in a single or accumulated purchases.
WiFi does attract more walk-in customers. Without the free WiFi and the seating area, 7-Eleven Indonesia would not be as successful as a place to hangout for Indonesian youths.
So, why not give the customer below free WiFi as “millions of people want it free.” Even the new kid in town FamilyMart Philippines offers free WiFi. The Internet is the future for retailing. Free WiFi can help stores offer personalised coupons and identify products that match the interest of the shoppers. So it remains one point for 15min of WiFi.
We all know breakfast is the most important meal of the day but many Malaysians regularly skip breakfast. The Malaysian Adults Nutrition Survey (MANS), carried out in 2002 and 2003, showed one in 10 (10.8%) did not eat breakfast. A more recent survey on Malaysia published in the American Journal of Food and Nutrition in 2011 revealed a similar finding. When asked if they eat breakfast on the day the survey data was collected, 10% said no.
Even if nine out of 10 consume breakfast, it does not really mean they are eating healthy breakfast. Most of the usual Malaysian breakfast fares including nasi lemak and Chinese oil stick are high in calories and fat. This is where the money lies. Brands want you, the consumer, to eat more nutritious breakfast to start your day. Milo recently organised the annual Milo Breakfast Day on 20 April 2014, an event participated by about 20,000 people. The mission was to “rally the nation in making the right nutritional choices for a balanced breakfast and to encourage an active lifestyle”.
F&N Seasons NutriSoy
However, many brands do not emphasise nutrition in their breakfast marketing. They simply want you to have something pleasant to start your day. Such positioning is taken by F&N, the maker of the Seasons Nutrisoy range of soya bean milk, for its latest F&N Seasons NutriSoy Breakfat Love campaign. The key message is love your breakfast and remember to eat it.
For Lam Soon, the producer of Home Soy, the tagline for its latest instant breakfast soya product is it “warms you up to a great day!” The main unique selling point of this product is it comes in the powder format, ideal for at home/office consumption and easy to carry around. The two variants are original without oat and with oat. Both are priced RM9.90 per pack at Aeon Big.
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But for all Malaysians, we just want something quick, cheap and tasty. It is even better if it comes free. McDonald’s knows it and that is why its National Breakfast Day has been so popular. McDonald’s breakfast campaign has successfully converted many non-users into customers, thanks to the affordable pricing, innovative new products and price promotions (eg. free McMuffin and RM 1 Brekkie Wrap).
Similar to McDonald’s value meal, Oldtown, a coffee chain similar to Starbucks but with affordable price, is using MyBreakfast to drive footfall. The value meal program, launched in 2010, has increased usage during the breakfast daypart as patrons not only can enjoy their local breakfast fares but can also use the WiFi for free.
Breakfast is an important battle ground for brands as they are still many consumers who have yet to be persuaded to eat breakfast. You don’t need to tell people to eat lunch or dinner but you can for breakfast. The challenge is converting more people to consume your products for breakfast.
The good news for breakfast contenders is Nestle is going to increase Milo’s prices in Malaysia by 5-7% in May 2014 due to higher raw material prices However, the impact of the price hike will not be strong as Malaysians have been brought up drinking Milo and still can’t get enough of it.
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