This article first appeared in The Edge Malaysia Weekly on March 13, 2023 - March 19, 2023

THE Giant grocery stores Malaysians are familiar with are about to have a new feel. They will be refreshed to offer a different product mix and better price point as their new owner, Macrovalue Sdn Bhd, looks to shed their “hypermarket” tag and reposition them as Giant Malls.

Macrovalue — which is also taking over Mercato, Cold Storage, TMC and Giant Mini in Malaysia — will initiate changes at the stores to improve profit margins and revenue per sq ft (psf).

These changes are part of Macrovalue’s 12-month business transformation plan to attract more shopper traffic and turn around the loss-making business within 24 months, sources say.

On Feb 23, 2023, DFI Retail Group, which entered the Malaysian market 24 years ago, announced that it was divesting its food business operated by GCH Retail (M) Sdn Bhd. DFI entered into an agreement with Macrovalue to sell the grocery business for an undisclosed sum. It is understood that Affin Bank Bhd is the financier for the deal while Affin Hwang Investment Bank Bhd is the adviser.

Industry sources say Macrovalue, a special purpose vehicle led by local businessman and entrepreneur Datuk Andrew Lim Tatt Keong, is expected to complete the takeover by the end of the month. Currently, there are 40 Giants, eight Mercatos, two Cold Storages, one TMC and 40 Giant Mini stores in the country.

Lim declined to speak about the sale pending its completion.

News of the sale by DFI Retail caught some in the industry — especially rival grocery players — off guard, given that many had thought that the company’s Malaysian business was on the mend, having undergone a multiyear store transformation plan.

Macrovalue is equally owned by Lim and Datuk Gary Yap Keng Fatt, the man behind RDS Marketing Malaysia Sdn Bhd, which specialises in retail design and fitout.

Following the takeover, Lim is expected to take on the role of deputy chairman at Macrovalue while Datuk Mohamed Khadar Merican will be made chairman. Mohamed Khadar is also the chairman of Sogo Group. Yap, meanwhile, will be the managing director while the role of CEO will be assumed by Cheah Yong Hock, former CEO of Asia Brands Bhd. Yap and Cheah are expected to be in charge of the day-to-day running of the business.

The new team, which addressed the staff at a town hall session on Feb 23, is understood to be making its rounds to speak to other stakeholders, including suppliers. The new owners have told the 2,500 staff members that all of them will be retained.

In a nutshell, the new team plans to include a larger portion of general merchandise in the Giant stores as this offers much better margins than that of groceries.

“The larger-sized stores will morph into GAMA-like stores,” a source familiar with the plans of the new owner tells The Edge. He is referring to the Gama Supermarket & Departmental Store in Penang, a 56-year-old establishment owned and operated by Lim, who is also the executive chairman of GAMA Group (see sidebar).

This move appears to be one in the right direction given the stiff competition in the hypermarket scene and change in consumer behaviour in the past decade. Recall that in the late 1990s and 2000s — when wholesalers such as Makro Cash & Carry Distribution and hypermarket operators like Carrefour, Giant and Tesco entered the country and expanded their chains — consumers began to patronise them as things were generally cheaper. But in the 2010s, consumers began to gravitate to Eco-Shop, Mr DIY and similar stores because their goods were even cheaper.

Meanwhile, the source explains that Macrovalue wants to retain and capitalise on the long-established Giant brand name as it has top-of-mind recall. “Lim wants to bring the ‘Gama magic’ to Giant and gain back customers that were lost over the years. He believes that after the success of Gama, the formula will also work at the revamped outlets.”

He adds that Lim will build a niche in offering high-quality goods at affordable prices, in both food and clothing, to the masses. Lim also aims to provide a better customer experience.

The Edge has learnt that the current 80:20 split between food and non-food items at the stores will be changed to 60:40. In essence, there will be more general merchandise. It is worth noting that the net profit margin for general merchandise can be as high as 16%, unlike the razor-thin ones for food and beverage.

The new team also plans to address issues related to shrinkage, which is believed to be over 1%. This means, based on GCH Retail’s RM2.3 billion annual revenue in 2021, it could be costing the company over RM23 million annually. Shrinkage at grocers typically include wastage of fresh food items, theft by internal staff, customer pilferage and short supply (that is, fresh food weighing less than it is supposed to due to water or ice).

“Macrovalue plans to narrow the losses in 12 months’ time and turn the company profitable in 24 months,” the source says.

It is learnt that once the local company takes over the business, it will no longer be burdened by overseas costs and commitments, thus reducing its cost of sales. And as it manages cost more prudently and efficiently, it will also be able to provide better value deals and improve psf sales revenue by 10% to 20% with a new product mix.

On plans for the smaller stores where general merchandise cannot be added due to space constraints, Macrovalue will focus on offering more food, daily necessities and household items.

Its goal, the source adds, is to make Giant’s shopping baskets cheaper than its competitors’ by selling value-for-money items. It will also retain the in-house Giant and Meadows brands.

How much did Macrovalue pay DFI Retail? This appears to be a very well-guarded secret. Industry sources are quoting “several hundred million” to “a couple of billion” ringgit, depending on the mechanics of the deal. One source says Macrovalue is “taking over a clean company with working capital coming from Affin Bank to carry on the business”.

Based on the latest available financials for the year ended Dec 31, 2021, GCH Retail posted a net loss of RM106.17 million on the back of RM2.38 billion in revenue. Total assets were RM1.23 billion while total liabilities were RM2.71 billion.

Between 2014 and 2019, GCH Retail was in the red. It returned to the black in 2020, posting RM12.23 million in net profit. However, it slipped back into the red in FY2021. Accumulated losses in FY2021 were RM2.64 billion. Financials for FY2022 have yet to be filed.

To cut losses, GCH Retail started to aggressively shut stores in 2019; by 2021, it had closed more than half of them. It undertook a revamping, resizing and repositioning exercise to return to the black and opened Giant Mini stores.

GCH Retail entered the country in 1999 via the purchase of a 90% stake in the Giant business, which was then operated by the Teng family. At the time, there were seven stores — five supermarkets and two hypermarkets. By 2001, Hong Kong-based DFI Retail owned the entire business and continued to operate without a local partner — as per the requirement of local rules — until 2015, when a 30% stake was sold to Syarikat Pesaka Antah Sdn Bhd, a company linked to Negeri Sembilan royalty.

With the entry of Macrovalue, the business established by the Teng family is back in the hands of Malaysians.

This is, in fact, the first time that a foreign hypermarket business has been taken over by a Malaysian company. Recall that when Dutch-based Makro Cash and Carry Distribution exited in 2006, the business was bought by the UK’s Tesco Plc. When France’s Carrefour exited the country in 2012, the business was bought by Japan’s AEON and renamed AEON BiG.

In 2020, Tesco’s Malaysian business was purchased by Thailand’s Charoen Pokphand Group’s (CP Group) CP Retail Development Co Ltd and renamed Lotus’s. More recently in December 2021, Singapore-based private equity firm KV Asia Capital Pte Ltd exited the TF Value-Mart business through a management buyout by a group of Malaysians funded by the UK’s Intermediate Capital Group plc.

Following the announcement of the acquisition of GCH Retail by Macrovalue, some suppliers were said to be worried about prompt payment. The Edge understands that Lim and Yap have since met up with most of them to allay their concerns. “If there is any amount due, it shouldn’t be an issue as Macrovalue has the facility [from Affin Bank] to back it up,” the source close to the management tells The Edge.

Moving forward, Macrovalue wants to open more shophouse-based stores. It is worth noting that while foreign-owned grocers must obtain their licence to operate from the Ministry of Domestic Trade and Cost of Living — the smaller the store, the stricter the rules — locally-owned retailers have less stringent expansion rules. For example, there will be no limit on the number of Giant Mini stores that Macrovalue can open.

It is understood that Macrovalue will open a total of four stores this year, which had already been planned for by GCH Retail, and will include a Mercato at The Exchange TRX in Kuala Lumpur.

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