TESCO sets to emerge as top FMCG retailer

This information is collected with the assistance of article published on 16-07-2007 under the heading “Tesco set to emerge as top FMCG retailer “by Mr. Kelvin Tan.
The Tesco hypermarkets are set to emerge as the leading retail chain in terms of fast moving consumer goods (FMCG) market share of sales in Malaysia by mid-2008, according to an international retail consultancy. TNS World panel Malaysia general manager Michael Hawkins said Tesco posted the biggest jump in FMCG sales among the major retailers here when it grew 37% as of May this year from a year earlier. He said Tesco would soon overtake Giant retail chain, the current market leader, which only chalked up a 10% rise against the industry sales growth of 5%. Giant’s share in FMCG sales was also eroded by intense competition from other hypermarket operators such as Mydin and Jusco, he added.
The leading retailer in the UK and the third largest grocery retailer in the world, the Tesco chain here is operated by Tesco Stores (Malaysia) Sdn Bhd, a 70:30 joint venture between Tesco plc and Sime Darby Bhd. Giant is operated by GCH Retail (Malaysia) Sdn Bhd, a unit of Hong Kong-based Dairy Farm International Holdings Ltd (DFI). Besides Giant, DFI also controls the Guardian pharmacy and Cold Storage supermarket chains in Malaysia. According to TNS Worldpanel Malaysia’s latest report on retailers’ FMCG market share as at May 21, 2007, Giant’s total FMCG sales only grew by 0.4 percentage points to 9.8% from 9.4% a year ago. For Tesco, its market share rose 1.7 percentage points to 7.1% from 5.4% a year earlier. Even Mydin, which is a local chain, is growing faster than Giant as it has raised its market share by 1.4 percentage points to 2.9%. “Tesco is growing very fast because of its store openings and conversions of Makro stores (which Tesco acquired last year),” Hawkins said.

What are the features that the hypermarket should have for maximizing the customer satisfaction and be the number one in the retail world?

Market shares of some of the hypermarkets.

This information is collected with the help of the article published on 23-07-2007 under the heading “Giant: We will maintain our number 1 position” by Mr. Tan.

GCH Retail (Malaysia) Sdn. Bhd, which operates the Giant retail chain, is calm with a survey finding that it will lose market leadership in grocery sales to Tesco by mid-2008. “Through the sales figure alone, normal logic will tell you who the market leader is,” Coyle said. He was commenting on a report by international retail consulting firm TNS World panel Malaysia that the Tesco supermarkets were set to emerge as the leading retail chain in terms of fast-moving consumer goods (FMCG) market share of sales in Malaysia by mid-2008. Sales, as it would be easier for those coming from a lower base to have a higher growth rate. GCH Retail’s sales amounted to almost RM3.5 billion in its financial year ended Dec 31, 2006, while filings to the Companies Commission of Malaysia showed that Tesco had operating revenue of RM1.28 billion in its financial year ended Feb 28, 2006. Coyle also highlighted that Giant actually had a 23.9% market share of the FMCG sales among different categories of retailers and 29.1% share among supermarkets and hypermarkets in Malaysia

These market share figures, which were based on the latest report by AC Nielsen, contrasted against TNS World panel’s survey that suggested Giant’s market share was only 9.8% while Tesco was trailing not far behind at 7.1%.

According to TNS World panel, Giant’s FMCG sales only grew by 10% against Tesco’s growth of 37%, while the whole FMCG industry grew by only 5%.

However, AC Nielsen reported that Giant’s FMCG sales had grown by 12.5% while the total growth of all other hypermarkets and supermarkets was 12.3%.
Market share plays a great role in implicating marketing and business strategy for business success. The most important factor to gain its value is because of the great link between the profitability and the relative market share. What do you think the roles of market share?

What are the challenges ahead in the retail trade industry of Malaysia?

Globalisation

Most local retailers in Malaysia are not prepared for this new wave of globalisation in Asian countries. They have limited resources and little knowledge on how to compete head-on with these foreign powerhouses. The lack of financial resources and the inability to withstand the deflationary pressure of the market now put the local retail operators in a quandary as to whether to downsize, to merge or to exit the industry altogether

Trade Liberalisation

AFTA allows local retailers to source for merchandises from countries such as Thailand and Indonesia. They do not have to rely on local distributors who have been imposing strict credit terms and trading conditions on them since the Asian financial crisis. On the other hand, regional trade liberalisation poses great threats to small- and medium-size retailers in Malaysia. They include provision shops, sundry shops and mini-markets. Without the resources and bargaining power to source for cheaper food products in the region, these retailers will not be able to withstand the full impact of AFTA. They may be forced to close down eventually.

Bumiputra Participation in Retailing

Bumiputra participation rate in the Malaysia wholesale and retail trade is about 15%. This is a low figure as compared to most of other business sectors. Bumiputra retail businesses are mainly found in hawkers, F&B outlets services, provision shops and sundry shops in Malay-dominated residential areas and rural areas. In the market centres, Bumiputra retailers are mainly selling batik and handicraft items, and even that the number is insignificant. 

Dealing with SARS

Recently, SARS have adversely affected sales of most retailers in the country, much more than the effect of the Iraq war.  This problem has affected consumer confidence, ad the fear of the disease has shunned shoppers from visiting crowded shopping complexes, and ultimately retailers suffer declining sales to a large degree.

Frequency of Sales

Sales are synonymous with the retail industry.  There are many reasons why retailers conduct sales.  Some of these reasons are to clear stocks from retailers’ premises, to celebrate anniversary month of the company, to encourage spending by customers during low sale months, and so on so forth

Human Resource Development 

Currently, the retail industry employs approximately 700,000 workers.  This is close to 7% of the total work force of the country. The reasons are many, but most common are the long hours and the perceived low salary. 

Is price reduction the best strategy?

The growth of the retail industry during the last few years has been dependent on constant price war and cost-cutting measures employed by retailers. Price reduction is not the best strategy, as it will only deplete the profit margin of retailers. Similarly, cost-cutting measures are not long-term solution to retail survival. Better measures are required to promote healthy long-term growth of the retail industry. The retail industry needs reform to leap into the next lap. We need to develop the retail industry of Malaysia to have world-class standard and sophistication. It will be a sector with high professional standard. The retail industry will be able to meet shopping needs and wants in the most effective and efficient manner. We need to have a new vision for the retail industry in Malaysia!

Descriptions of some of the Hypermarkets

Carrefour 

Carrefour is the number one retailer in Europe and the second-largest retailer in the world. In Malaysia, Carrefour is a leading hypermarket chain selling a wide range of household grocery products ranging from frozen goods and fresh products to textiles, garments and shoes, as well as electrical goods such as home kitchen items and audio-visual appliances. Carrefour brands are comparable in quality of perhaps better-known market leaders, yet they boast of innovative, value-added features that enhances the quality of life.

Giant Hypermarket

Giant Hypermarket is a major supermarket and retailer chain in Malaysia, Singapore and Indonesia. It is a subsidiary of Dairy Farm International Holdings (DFI). The Giant store brand was founded by the Teng family as a simple grocery store in one of the suburbs of Kuala Lumpur in 1944.. Its mission was to offer a wide variety of products at the lowest possible prices. As its reputation grew, so did its business.In 1999, the first Giant Hypermarket store opened in Shah Alam, Selangor. By 2006, the company had grown to operate a total of 73 hypermarkets/supermarkets in Malaysiawith outlet size ranging from the 350,000 sq. ft hypermarket in Shah Alam to the 11,000 sq. ft supermarket in Bangsar, Kuala Lumpur.

TESCO Malaysia

Tesco is one of the UK’s leading supermarket chain, employing over 190,000 staff in UKand offering an impressive range of quality products. TESCO is committed to providing Malaysian shoppers a totally new experience in supermarket shopping.The first Tesco store in Malaysiawas officially opened in May 2002 in Puchong. The opening of Tesco changed the consumer demand as well as brought new standards in retailing.

Malaysia introduces measures to heed international hypermarket onslaught – Food Retailing –

This is the  brief article by Euro Food on May, 2009

Foreign-based firms wishing to set up shop in Malaysia must have at least RM 50m (14.6m Euro) in capital. Recent reports from Malaysia suggested that the government was preparing a series of measures to reduce the rapid expansion of large foreign food retailers in the country. Foreign retailers will now have to apply for a license to operate hypermarkets and large scale supermarkets in Malaysia, and to obtain the license, firms will have to have at least RM50m in capital. An additional measure is that such food retail outlets will not be allowed to operate with a 3.5km radius of a housing area of town centre. The guidelines are effective immediately.

If you are going to set up foreign based firms in Malaysia, what do you consider?

24-hour hypermarket plans unsuccessful

The review period saw Tesco begin 24-hour hypermarket opening in Malaysia in the Klang Valley region, in what it claimed to be an effort to meet consumer demand for round-the-clock opening. However, the Malaysian Government forced the company to slip back to standard trading hours, fearing an adverse effect on smaller establishments. While there was fierce debate regarding the possible negative impact of 24-hour hypermarket opening in Malaysia, there is no indication that it will return in the near future. In 2005, only 7-Eleven convenience stores opened on a 24-hour basis in the country.

How would you comment on the opening of 24-hour hypermarket opening in Malaysia?

What are the barriers to the growth of retail industry of Malaysia?

n 2002, retail industry grew moderately at 3.0%. The weaker-than-expected retail sales performance was due to weak consumer spending, external factors such as the slow recovery of US and Japan economies, the weak Singapore economy, the Bali bombings in October and the US’s announcement of military attack in Iraq contributed to the wise spending of Malaysian consumers. 

The retail industry contracted by 20% in 1998. The retail industry was valued at Rm 37.2 billion as compared to RM 46.5 billion in 1997. The Asian financial and economic crisis started in 1997 has damaged the retail industry structure.

The Severe Acute Respiratory Syndrome (SARS) has affected retail sales too in the growth of retail industry. On the other hand, foreign hypermarkets have been making aggressive entry into the retail industry over the last few years. The entry of foreign hypermarkets into this country, not only has been aggressive in terms of number of outlets opened, but also in terms of advertising and promotion, and also in terms of lower prices. The objective is basically to get large market share of the Malaysian shopping expenditure.

What do you think are the other barriers that might have affected the retail trade industry of Malaysia? Do you support these barriers really affect the retail industry of Malaysia?

 

Why do you think Asia’s success is good for the rest of the world?

Asia’s success has also been good for the rest of the world. The developing and emerging economies of Asia have not just been major exporters; they have been an increasingly important market for other countries’ exports. For example, these countries bought about 19 percent of US exports in 1996, up from 15 percent in 1990. In the same way, the dynamism of these economies helped reduce the successive downturns in industrial economies on the world economy during 1991-93. In recent years, they have also been a source of attractive investment returns. For all these reasons, the developing and emerging market economies of Asia have been a major engine of growth in the world economy.” (“The Asian Crisis. A View from the IMF,” address by Stanley Fischer, First Deputy Managing Director of the IMF at the Mid-Winter Conference of the Bankers’ Association for Foreign Trade, Washington, D.C., January 22, 1998)

Malaysia Freezes Hypermarket Construction

This view is extracted with the assistance of the post published in Nov. 1, 2003 in Malaysian Magazines.

Malaysian consumers are increasingly making their everyday purchases through hypermarkets, attracted by their wide range of products at low prices.Malaysia has placed a five-year ban on the construction of hypermarkets in Klang Valley, which includes Kuala Lumpur, and the states of Johor and Penang. New guidelines also lengthen the approval time for developers seeking to build hypermarkets in other areas from four months to two years.

Hypermarkets are stores larger than 8,000 square meters (86,000 square feet) that sell both department store merchandise and groceries, similar to Wal-Mart super centers. The global chains Carrefour, Tesco, Makro, and Giant operate hypermarkets in Malaysia.

In announcing the new policy, Minister of Domestic Trade and Consumer Affairs Tan Sri Muhyiddin Yassin said that the three regions are saturated with hypermarkets and additional development of large stores would adversely impact thousands of small businesses. The government is observing the situation, and may take further action to prevent hypermarkets becoming dominant. For example, in recent years the Malaysian Government revised its foreign ownership laws to moderate the rapid growth of supermarkets and hypermarkets in the country.

Klang Valley has 18 hypermarkets, or one for every 278,000 people. Planning guidelines suggest no more than one per 350,000 people. The U.S. has one super center for every 158,000 people.

Is political influence necessary? Should more hypermarkets be built or they should be controlled in order to protect the small retailers and street vendors? How does it affect on the society and the economy as the whole? As a business student, do you see the growth of hypermarkets positively or negatively?