The operator of 7-Eleven in Singapore, Hong Kong, Macau and Southern China says growth in the ready-to-eat food arena can make up for fall in cigarette sales

 

WITH its top line stubbed by declining cigarette sales, the group chief executive of DFI Retail Group : D01 +2.3%, Scott Price, is eyeing a growing appetite for ready-to-eat food &ndash which he believes can transform its chain of convenience stores into &ldquo quick-service restaurants&rdquo .

 

DFI Retail Group, which operates the 7-Eleven brand in Singapore, Hong Kong, Macau and Southern China, is moving towards driving traffic to its stores for cooked food &ndash which Price says would put the convenience-store chain among players in the quick-service restaurants market.

 

&ldquo We are seeing, in essence, the opportunity for our 7-Eleven (stores) to become convenient quick-service restaurants,&rdquo he said on Friday (Aug 2), after the group posted robust first-half underlying profit driven by its food and convenience segments.

 

He added that this was a &ldquo different strategy for growth&rdquo that would become attractive.

 

He estimates that the quick-service restaurants segment in Hong Kong, which includes fast-food players such as McDonald&rsquo s and KFC, is valued at around US$4 billion. DFI Retail Group already has a finger in the quick-service restaurants pie, operating food brands in Hong Kong such as Maxim&rsquo s MX and Hong Kong Day.

 

His estimate is in line with data from analytics company GlobalData, which showed that the food service market size for quick-service restaurants and fast food in 2022 stood at US$3.3 billion. The figure is projected to reach US$3.9 billion by 2024, said Anuran Dhar, GlobalData practice head for food service.

 

With around 1,000 7-Eleven stores in Hong Kong, DFI Retail Group has &ldquo an enormous footprint&rdquo to offer &ldquo a pretty exciting, convenient proposition of both cold and hot foods&rdquo , said Price.

 

He noted that 7-Eleven is &ldquo powerfully known&rdquo across Asia, and that consumers in Japan were also likely familiar with it.

 

Japan&rsquo s 7-Eleven stores are considered subject-matter experts in the ready-to-eat arena, he said, adding that DFI&rsquo s collaborations with the chain have even put onigiri, a Japanese rice ball, on the menu.

 

DFI Retail Group&rsquo s pivot to ready-to-eat comes as cigarette sales in the stores have fallen. In the group&rsquo s results, it noted that like-for-like sales performance in Hong Kong was hit by reduced cigarette sale volumes following tax increases kicked in at the end of February.

 

In comparison, 7-Eleven in Singapore and Southern China had robust like-for-like sales growth, driven by increased foot traffic and strong performance in non-cigarette categories &ndash led by ready-to-eat.

 

The trend of the ready-to-eat segment gaining while the cigarettes segment declines may be better in the long term. Price said: &ldquo Ready-to-eat is obviously a huge driver of margin expansion, and significantly better than cigarette margins.&rdquo

 

The growth in its ready-to-eat food portfolio would shore up a decline in cigarette sales, he added.

 

&ldquo As cigarettes play less in our portfolio from a revenue base, we have an enormous opportunity to replace that with ready-to-eat,&rdquo he said.

 

On Thursday, the group reported that its underlying profit more than doubled on-year to US$75.6 million for the first half ended Jun 30, from US$33.3 million in the year-ago period.

 

This is despite its revenue dipping 4 per cent to US$4.4 billion year on year, from US$4.6 billion.

 

In the convenience division, which includes ready-to-eat foods, profit rose 73 per cent in H1 FY2023. Sales for ready-to-eat grew 13 per cent over the period, the group noted.

Total H1 profit, which includes non-trading items, stands at US$95.1 million, up from US$8.2 million last year

 

SUPERMARKET and retail store operator DFI Retail Group&rsquo s : D01 -0.57%underlying profit more than doubled year on year to US$75.6 million for H1 ended June, from US$33.3 million in the year before.

 

Its total H1 profit, which includes non-trading items, stood at US$95.1 million, up from US$8.2 million the year prior. This came even as its half-year revenue fell 4 per cent to US$4.4 billion.

 

On the back of this result, DFI declared an interim dividend of 3.5 US cents per share, an increase of 17 per cent compared to the same period last year.

 

The company&rsquo s food division&rsquo s revenue fell marginally to US$1.6 billion, after excluding the impact of the divestment of its Malaysia food business last year. However, thanks to an improved sales mix and cost control, divisional profit increased to US$26 million.

 

&ldquo While Singapore food like-for-like sales performance continued to be affected by challenging consumer sentiment, a better product margin mix and strong cost control significantly improved profitability,&rdquo DFI said in its earnings statement.

 

In the convenience division, profit grew 73 per cent as a &ldquo favourable product mix shift towards non-cigarette categories supported margin accretion and profit growth across all markets&rdquo , it added.

 

Sales for the health and beauty division were relatively stable, with profit up 3 per cent. However, Hong Kong performance in Q2 was hit by factors such as outbound travel during the Easter and Qing Ming Festival holidays, and weaker performance from tourist cluster stores due to bad weather conditions.

 

That said, health and beauty retailer Guardian achieved &ldquo solid&rdquo like-for-like sales growth in H1, driven by &ldquo effective in-store execution and promotions&rdquo , particularly in Indonesia.

 

In the home furnishings division, the challenging residential property market remains an overhang on the sales performance, said DFI.

 

Looking ahead, DFI reiterated its guidance for 2024 underlying profit to be between US$180 million and US$220 million.

 

However, the company expects H2 to &ldquo remain challenging, given macro uncertainties, shifting customer behaviours and increased levels of outbound travel, particularly into the Chinese mainland from Hong Kong&rdquo .

 

In response, DFI plans to tap into larger addressable markets with earnings-accretive opportunities and accelerate monetisation initiatives from its yuu Rewards loyalty programme.