99 Speed Mart Retail Holdings Bhd’s foray into China – with the opening of its maiden store in Fuzhou, Fujian Province, last week – is not without risks.
While China’s vast consumer market offers immense opportunities, competing with local players on scale and pricing will be a challenge.
A number of Malaysian companies that have attempted to venture into China over the years have struggled in their efforts. For instance, after 31 years of operations, Parkson Holdings Bhd ended its tenancy at the China National Arts and Crafts Museum in Beijing.
This move came as Parkson attempted to cut losses and reduce financial strain.
The group continues to flag a challenging economic environment for its China operations, which it attributes to the “slower-than-expected economic recovery that led to consumers being more cautious in their spending”.
Sime Darby Bhd also suffered losses from its China venture, particularly in its motor division, due to fierce price competition.
CIMB Research acknowledged that “execution risks exist in China’s competitive retail landscape”.
However, the research house said the move is positive as it marks the group’s first step abroad – diversifying beyond Malaysia and alleviating long-term saturation risks.
CIMB Research also pointed out that with a net cash balance of RM836mil, 99 Speed Mart has the financial muscle to make such investments.
RHB Research, in a recent report, provided insight into the mini-market landscape in Fujian.
Its channel checks revealed the absence of major mini-market chains there.
The research house opines this presents significant opportunities for 99 Speed Mart, especially given Fujian’s population of over 40 million.
However, the research house did flag a concern: “It remains to be seen how the group can commit to its ethos of ‘near and save’, as it may not be able to leverage much on its existing scale of operations to secure competitive unit costs with grocery products typically sourced locally.”