Ayala Land-SSI Group’s FamilyMart For Sale? Media Expert Utters an Economic Taboo: OVERSUPPLY!

Last May, the Inquirer regaled us with “Vacant space troubles malls in Metro Manila”

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????

The Beauty and Perils of Narratives (Reasoning from Fait Accompli/Ticker Tape)

Pedro and Juan went to the Jockey Club to attend the biggest stake race of the year.

After the event, the conversation ensued.

Pedro: Horse A was a very deserving winner having won this highly prestigious international thoroughbred race in a dominant fashion. Horse A took the lead by a head at the halfway mark and gradually widened this margin to a length at the far turn. At the finish line, Horse A was totally unleashed! The champion blew the field wide open to win by a stunning 6 lengths distance from the nearest competitor, the crowd favorite Horse C!

Pedro: Like a well-oiled machine, Jockey B and Horse A run the race in gracious symmetry. They seemed joined at the hip with hardly any signs of friction.  Having won in 3 of the 4 outings prior to this race, Jockey B has definitely mastered the horse.  The champ hasn’t fared well with the previous two other jockeys. 

Pedro: Additionally, Horse A just loves the turf. Most of its victories came from the same grassy surface stadiums.

Pedro: Besides, even prior to the race, the champ was in tiptop condition.  Just days before the race, it clocked in the best workout record among its peers on this track. Unfortunately, the betting public was not as convinced. The champion came in as the third favorite with 7 to 1 odds.

Juan: I am astounded by your gushing over the champion. While I share your view - and as a matter of fact - the winner won convincingly, but here is my question to you, knowing all these, why did you bet on the two other horses, and not this winner????

Quote Of The Day: What will Ruin Us? Is it What we Love or What we Hate?

Contrary to common belief even among the educated, Huxley and Orwell did not prophesy the same thing. Orwell warns that we will be overcome by an externally imposed oppression. But in Huxley's vision, no Big Brother is required to deprive people of their autonomy, maturity and history. As he saw it, people will come to love their oppression, to adore the technologies that undo their capacities to think. What Orwell feared were those who would ban books.

What Huxley feared was that there would be no reason to ban a book, for there would be no one who wanted to read one. Orwell feared those who would deprive us of information. Huxley feared those who would give us so much that we would be reduced to passivity and egoism. Orwell feared that the truth would be concealed from us. Huxley feared the truth would be drowned in a sea of irrelevance. Orwell feared we would become a captive culture.

Huxley feared we would become a trivial culture, preoccupied with some equivalent of the feelies, the orgy porgy, and the centrifugal bumblepuppy. As Huxley remarked in Brave New World Revisited, the civil libertarians and rationalists who are ever on the alert to oppose tyranny "failed to take into account man's almost infinite appetite for distractions." In 1984, Huxley added, people are controlled by inflicting pain. In Brave New World, they are controlled by inflicting pleasure. In short, Orwell feared that what we hate will ruin us. Huxley feared that what we love will ruin us.

This is from author and media theorist the late Neil Postman in his book Amusing Ourselves to Death Public Discourse in the Age of Show Business 1985

Have we become zombies? (hat tip zero hedge)

Ted Talk: Journalist Sharyl Attkisson: Beware of the Manipulation of Media through Astroturfing!

Beware of the manipulation of media by interest groups, warns multi-awarded investigative journalist Sharyl Attkisson at her fabulous Ted Talk!

Much of what you read or see out there has signified an "increasingly artificial paid for reality" through the use of "surreptitious Astroturfing". Astroturfing has become a huge industry according to Ms. Attkisson "than the traditional lobbying of Congress"

Ms Attkisson defines Astroturf [2:00]

What is Astroturf? It is the perversion of grassroots, as in fake grassroots. Astroturf is when political, corporate or other special interest disguise themselves and published blogs, start facebook and twitter accounts, publish ads, letters to the editor or simply post comments online. To try to fool you into thinking an independent or grassroots movement is speaking. The whole point of Astroturf is to try to get an impression there is a widespread for or against an agenda when there is not. Astroturf seeks to manipulate you into changing your opinion by making you feel that you are an outlier when you're not 

So beware of surveys, of news or articles which are in reality press releases, or when applied to economic developments, information based economic sophistry.

Ms Attkisson provides several insights as how to defend against astroturfing by spotting signs of them. 

I would add a more important trait which she has missed: develop critical thinking.

Headlines of the Day: Bullish or Bearish 6% Philippine 3Q GDP?

Expectations and biases counts alot in the framing of reports

From Nikkei Asia

From Wall Street Journal Asia

Domestic Media’s Reports on Philippine Banks: Did You Two Visit the Same Country?

In a fact finding mission on South Vietnam, two diametric reports from his underlings prompted the late US President John F, Kennedy President to sardonically ask: The two of you did visit the same country, didn't you?

We apply this to the today’s divergent headlines and reports on Philippine banks:

Excerpted from the Inquirer

Now headlines and summary reports from the Businessworld…

On Metrobank

 

On BPI

 

Updated to add: It may be technically true that indeed banks made profits as of September, but the intent of this post has been to show of the stark difference in the framing of the said reports. The Inquirer report was wildly optimistic to basically omit the negative aspects while Businessworld report took on a more balance stance.