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Cold Storage Singapore margins squeezed

Weak performances by 7-Eleven and Cold Storage Singapore eroded underlying profits in multinational retailer Dairy Farm Group’s food division last year.

But Giant Singapore performed well.

Hong Kong-listed multi-brand retailer Dairy Farm reported a 5 per cent overall increase in sales on a constant currency basis, but a 14 per cent decline in underlying profit due to the “challenging” operating environment across Asia. Sales totalled US$11.137 billion, profit fell from $509 million to $424 million.

Dairy Farm’s interests span convenience stores, hypermarkets, supermarkets, fast food restaurants, cafes, pharmacies, beauty stores and Ikea franchises. While all divisions reported mixed results by markets, it was the core food division where the gaps seemed widest.

CEO Graham Allan said the food division (excluding the Yonghui China business in which Dairy Farm acquired a 19.99 per cent stake during the year) reported US$8.2 billion in sales, a decrease of 2 per cent, while operating profit declined by 21 per cent to US$236 million “principally driven by disappointing results for supermarkets and hypermarkets in Singapore and Indonesia”.

In Singapore, “further margin erosion resulted from higher labour costs and rents, soft consumer sentiment, a weaker Singapore dollar” and intense competition in the supermarket sector.

“Operating profit was significantly lower than in 2014, mainly due to lower margins from Cold Storage’s price campaigns, a store rationalisation program and operational challenges. In a difficult segment, Giant ended the year with improvement in both sales and profits.”

Allan says in 2016, the group will optimise its product offer with improved fresh items and ready-to-eat meals, with the aim of growing market share, boosting stock management capability and fine tuning brand positioning.”

Operating profit in the convenience store division of the broader food business dropped by 12 per cent to US$64 million.

In Singapore, 7-Eleven’s results were impacted by lower sales from the tourist segment, by lower liquor sales partly due to new regulations curtailing late night alcohol sales, and by increased store labour costs and operating costs in the Distribution Centre.

“Major initiatives for the coming year will focus on strengthening the ready-to-eat supply chain.”

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