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Saturday, 24 June 2017

(The Star) Online grocery sales in Malaysia seen growing slowly

The grocery business the world over has been given a wake-up call after American e-commerce and cloud computing giant Amazon made a bid to buy organic supermarket chain Whole Foods Market Inc in the United States.

The deal signifies that the sale of groceries online is going to be big.

So, what is the scene in Malaysia like and will the Amazon deal spur on a new series of mergers and acquisitions in the grocery space?

Perhaps not so fast, as the sale of groceries online in Malaysia remains very small.

According to the past president of the Malaysian Association for Shopping and High-Rise Complex Management Richard Chan, a mere 2% of total grocery sales currently is transacted online.

But will that figure grow?

Chan says that the adoption of e-commerce in the grocery retail space in Malaysia will take some time to develop, despite there being a nascent e-commerce presence with grocery delivery service Happy Fresh and in-house grocery delivery offered by Tesco, Jaya Grocer and SAM’s Groceria.

“Malaysians prioritise factors such as the freshness of goods and convenience.

“Unlike countries like China or the US where grocery store chains and hypermarkets are quite a distance away, Malaysians can easily procure their groceries from the neighbourhood shopping malls, or even wet markets.

“In fact, the wet markets are doing well, despite the higher prices that certain fresh goods can fetch.

“This is due to the ‘personalised service’ that buyers are able to seek from the wet market merchants, where they can ask about the freshness and source of the products.

“Sometimes, they even get recipe ideas and cooking tips!” Chan explains.

Chan’s sentiment resonates with Tesco Stores (Malaysia) Sdn Bhd Paul Ritchie’s thoughts on online grocery shopping.

In an earlier news article, Ritchie said online grocery shopping in Malaysia is growing at a relatively slow pace, adding that Malaysians still want the physical aspect of grocery shopping, to touch, see, smell, and pick groceries by hand.

Tesco was the first grocery chain in Malaysia to introduce grocery shopping two years ago.

Since 2014, Tesco Malaysia’s online sales have amounted to RM179mil, with more than a million orders.

As of 2016, online sales contributed only 2% to the company’s total turnover.

Meanwhile, Mydin Mohamed Holdings Bhd IT director Malik Murad Ali says that global statistics for bricks and clicks companies generally sees a 1% or lower contribution from online sales, though the more successful ones have seen a 3% contribution.

Bricks and clicks companies are companies that integrate both offline and online presence.

Mydin Mohamed Holdings is the unlisted owner of home-grown MYDIN supermarkets, as well as the upmarket SAM’s Groceria.

“Even though SAM’s Groceria is still contributing below 1% to our sales, the journey into e-commerce has enabled us to be more prepared for Mydin’s upcoming e-commerce launch,” says Malik.

In Malaysia, the grocery market scene is made up of the large supermarket chains operated by foreign companies such as Tesco and Giant, a hypermarket chain owned by Hong Kong listed Dairy Farm International Holdings Ltd, that cater to the mass market.

In addition, there are grocery stores that cater to a more discerning clientele, such as Jaya Grocer and Village Grocer, majority-owned by private-equity (PE) firm Navis Capital Partners, which had also recently acquired the entire equity stake in grocery chain Ben’s Independent Grocer Sdn Bhd (B.I.G.).

PE firms have taken note of the growing demand from an increasingly affluent and worldly Malaysian middle-class for imported food stuffs.

While it may seem like there are many players in the local grocery retail industry, Chan opines that there are actually few players.

“There are new grocery retail brands, but not many players.

“It is brand differentiation in the works.

“Take for example Cold Storage, Mercato, and Giant, which are under GCH Retail Sdn Bhd,” says Chan.

According to the Malaysia Retail Industry Report for June 2017, the supermarket and hypermarket sub-sector reported a worse-than-expected growth of -4.8% during the first quarter of 2017.

Supermarket and hypermarket operators are the revamping their stores, by looking at ways to maximise space in stores, or for some, shutting down non-performing outlets.

For example, Tesco intends to offer a wider and improved range of products in a smaller floor space, known as next generation stores.

Japanese retail giant Aeon Co Ltd, which took over French-based Carrefour’s operations in Malaysia, closed three of its Aeon BiG stores in Rivercity, Bangsar South, and Kota Damansara, during the first quarter of this year, as part of its cost-cutting measures.

However, Chan says that the move did not indicate that Aeon was downsizing.

“In reality, it is the family-run stores, or kedai runcit, that are dwindling in numbers.

“Stores like KK Mart and Speedmart 99 are the ones that are taking over family run stores,” he adds.

Aeon BiG (M) Sdn Bhd managing director Masayoshi Masuda was quoted saying that those stores were not viable due to the changing climate in customer behaviour and wider economic changes.

The store closures were in line with the Aeon BiG’s long term strategy to rebrand and reorganise the chain to ensure higher returns, while keeping daily operational costs at a manageable level.

Malik observes that the supermarket and hypermarket industry is competitive at present.

“Consumers’ purchasing power has partly reduced due to the weakening of the ringgit as well as the current domestic and global economic situation.

“Competition is very stiff in the retail industry.

“In order to sustain oneself, retailers will need to be competitive in terms of pricing, and have attractive promotions and good customer service.

“Besides that, social media plays an important role in influencing customers’ decision making,” he says.

A total of four new Mydin stores will be rolled out this year, namely Mydin Vista Tunku Kuching in Sarawak, Mydin Jengka in Pahang, Mydin Mutiara Rini in Johor Bahru, and Mydin Masjid India.