Today, the same outfit (and reporter) reported that the convenience store chain of retail titan Ayala Land injoint venture with high end retail specialty SSI Group is up for sale:
The Philippine retailing business of FamilyMart, partly owned by the Ayala and Tantoco groups, is on the auction block, signaling a shakeout in the highly competitive local convenience store business.
Several industry sources confirmed to the Inquirer that the local network of FamilyMart—which has around 72 stores to date—has been offered to prospective new investors in recent months.
The first lesson from the article is that it demonstrates of the close ties between media and key establishment organizations. Internal corporate affairs leak into public as news through select media outfits.
Though presented as news, another way to read the article is to construe it as an advertisement in favor of the sellers. Established institutions need not pay for ads space. They need only to whisper into the ears of their most favored reporters and their agenda gets aired for free!
The thing here is that this exhibit why media agencies typically act as megaphones for the mainstream’s interests.
Back to the article.
Both Ayala Land and SSI Group replied to the PSE that in the case of FamilyMart, they are “currently exploring various options intended to strengthen and grow the business” and that “no definite course of action has been finalized”.
In short, neither did they deny nor confirm the report!
Well, that response should be obvious.
A confirmation of interest to sell could have been discerned as an act of desperation. Thus such would only enervate the seller’s pricing power.
The intent has been to insinuate its actions, most possibly meant to generate buying interests. You see, the article was an advertisement!
In anticipation of the PSE’s query, Ayala Land’s template response resonated in the article: (bold mine)
“Asked about the rationale for the potential divestment, a source from the Ayala group said the conglomerate was only evaluating its options, adding that 24/7 retailing—a business that required scale—was not really part of Ayala Land’s core business.
Hasn’t ALI’s business been mostly about consumers? Retail and real estate in specific? What makes 24/7 a non-core business, when it is about consumer retail? Low margins, perhaps?
Or this?
FamilyMart shed 31% or 32 stores from the end of the 2Q 2016 to 2Q 2017. The biggest number of closures (26 stores) occurred in the 1H of 2017.
Almost the same numbers apply to the gross selling area; FamilyMart dropped 37% or 4,971 sq.m. from 13,439 in 2Q 2016 to 8,468 in 2Q 2017. The bulk of the shutdowns (3,163 sqm.) happened in the 1H of 2017!
Naturally, these closings came in response to losses.
From SSI’s 2016 annual report: “The Group’s share in the losses of Philippine FamilyMart CVS, Inc. was ₱145.8 million as compared to ₱80.0 million in 2015.”
From SSI’s 2017 2Q 17Q: “The decline in losses of joint ventures was a result of a 22.1% decline in the Group’s share of FamilyMart losses to ₱37.0 million”
Taken together, FamilyMart was a LOSING venture! And it was hardly because the 24/7 store model was not part of Ayala Land’s core business. People intuitively shun ownership of loses.
Importantly, the shutdown of 32 FamilyMart’s outlets contributed to the retail vacancies! FamilyMart’s numbers may be small, but it has been emblematic of the conditions of marginal players.
The article goes on to explain the likely cause: competition.
“In the 24/7 retailing business, competition heated up in the last six years with the entry of new brands that sought to challenge the two leading players 7-Eleven and Mini-Stop, respectively run by Philippine Seven Corp. (PSC) and Robinsons Retail Holdings Inc. (RRHI).
But the article didn’t mention this…
The market leaders (7-11 and Mini-Stop) have been suffering too!
Yet the frantic race to build supply persists…
“Aside from Family Mart, the Puregold group also brought another foreign brand—Lawson—into the local market while the SM group brought in Indonesian brand Alfamart. Real estate magnate Manuel Villar, for his part, has also built his own convenience store network using his own brand “All Day.”
Need I say more???
Finally, one ‘expert’ seems to get it… (bold mine)
“All retailers were expanding at the same time, so the growth in selling space just outstripped the growth in consumer demand in this retail segment—a classic case of oversupply andfragmentation of the convenience store market resulting in expected returns failing to materialize,” said Jose Mari Lacson, head of research at ATR Asset Management.
I raise the verb ‘seems’ because of the ex-post nature of narrative. Or, the expert explained from what has already happened.
Yet it is hardly about fragmentation, but principally the case of OVERSUPPLY. I wouldn’t know how to define fragmentation on a one-store concept retail chain.
Here’s the thing.
The centerpiece of the race-to-build supply in the retail space has been from the expectations of an endless stream of purchasing power by residents.
Since consumer retail expansion has been occurring in virtually ALL categories, what should stop the convenience store squeeze from spreading to the other retail segments (or periphery to the core transmission)?
Remember, close to 100% of retail transactions have been based on the peso (credit or cash).
And these have transpired even as the BSP and the banking system has been flooding the system with a countless number of pesos!
What more when ‘free money’ hits the proverbial wall????
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