Asian retail giant Dairy Farm has revealed that sales were up 5% on a constant currency basis for the financial year ending December 2015, but the challenging operating environment across Asia resulted in a 17% fall in profit.
Performance impacted by difficult regional conditions
Despite sales improvement across all formats in constant currency, the group’s like-for-like sales remained subdued at US$13.1bn in FY2015, a marginal uplift from the previous year in US dollar term due to the fluctuating exchange rate.
The company’s performance was impacted across many Asian countries; headwinds came from the economic slowdown in China, a sharp drop in the number of Mainland visitors to HK, soft consumer sentiment in Singapore, as well as the introduction of a Goods and Services Tax (GST) in Malaysia.
Meanwhile, sales including 100% associates and joint ventures were up 37% to US$17.9bn, contributed by Yonghui China and San Miu from the respective dates of acquisition.
Subdued results in supermarkets and hypermarkets
Dairy Farm’s supermarket and hypermarket operations reported US$8.1bn in sales, up 2% from the previous year, while operating profit declined by 22%, driven by weak performance and margin compression in Malaysia and Singapore.
The group has a strong position in most of the markets it operates in and it looks to drive growth in “fresh participation” through a combination of range and quality enhancement, with more direct sourcing to reduce costs. The nascent collaboration with Yonghui China and the successful integration of San Miu in Macau are expected to contribute positively to the group’s overall strategy.
Convenience stores: China drives the growth
With 40 net new 7-Eleven stores opening in the reporting period, Dairy Farm saw a 3% increase in sales in its convenience store business, but its profit contracted by 12%.
7-Eleven showed improved sales and profitability in China, therefore Dairy Farm will continue to expand in the market. However in Singapore, sales were hit by the restriction on alcohol sales after 10:30pm, higher labour costs and rents, as well as intense competition in the supermarket sector.
The group aims to continue the momentum to grow its ready-to-eat business, which has proven to be successful across Asia. It has also worked on store optimisation, including opening 61 new stores in China, closing 35 underperforming stores in Singapore and divesting its struggling Starmart business in Indonesia.
Robust performance in health and beauty
Owners of the drugstore banners Mannings and Guardian, Dairy Farm’s health and beauty division delivered an 8% uplift in sales, driven by the positive performance in HK, Singapore and Indonesia. Sales in China were disappointing due to the fierce domestic competition.
The company will continue to focus on developing its private label brands, which creates strong point of difference for the retailers, as well as further expands its e-commerce operation.