7-Eleven Malaysia ups its game

ALTHOUGH 7-Eleven Malaysia Holdings Bhd is the largest 24-hour convenience store operator in the country, it is not in an enviable position.

Besides competing with the mushrooming of convenience stores, it is also facing rising operational costs, which have impacted profitability. In 2023, 7-Eleven closed 36 underperforming stores.

For the third quarter ended Sept 30, 2024 (3Q24), its net profit fell 24% to RM10.93mil from RM14.38mil mainly due operating expenses, which rose 8.6% versus revenue growth of 5.5% to RM744.05mil.

For the nine months just ended, net profit declined 20% to RM44.27mil versus RM55.42mil a year ago following the sale of its pharmacy business under the Caring brand at the end of 2023 as well as an 8.5% increase in expenditure on store rental costs, depreciation and maintenance.

Revenue was 4.3% higher year-on-year for the nine-month period at RM2.18bil.

The company, however, is unperturbed as it expects stronger performance in the final quarter mainly due to festivities and better spending power of civil servants following a salary increase.

Tan U-Ming, 7-Eleven Malaysia executive director cum co-chief executive officer, tells StarBiz 7 that its convenience store business has been growing after the Covid pandemic.

“Our convenience store business has over the last three years seen higher sales and profitability. The business is growing. If you’re just looking at reported numbers, it has taken a hit because of the disposal of the Caring business in 2023,” he explains.

Tan admits operating expenses have outpaced revenue, but it will be able to manage the costs.

Tan is the son of Berjaya Group founder Tan Sri Vincent Tan, who has a 28.07% stake in 7-Eleven.

“It’s a matter of being able to build sales and optimise costs. February will be interesting because we will be hit with minimum wage increases. I think everyone’s affected by this. We have to manage, and we have been managing,” he says.

Malaysia has raised the minimum wage from RM1,500 to RM1,700 from next month.

Dealing with competition

While costs are within its control, 7-Eleven has to step up to stay ahead of competition.

“We started 7-CAFé in November 2021, which has helped us introduce more food products into our stores and also improved traffic, gross margins, and stability to our stores. We now have over 570 outlets. So we’ve grown quite fast.

“We have our own commissary or central kitchen that prepares the bulk of the food products. We also work with supplier partners to provide a wider range of products,” Tan says.

The food commissary, launched in 2023 and known as QVI, can cater for 1,000 stores in the Klang Valley. It has advanced equipment and is automated to streamline key processes such as prepping, cooking and packing.

In 3Q24, 7-Eleven opened 79 new stores, bringing the total to 2,611 stores. By the end of September, the number of 7-CAFé stores had increased to 471.

Although 99 Speed Mart Retail Holdings Bhd is not operating 24/7, it has been giving 7-Eleven a run for its money. Speed Mart had 2,697 outlets in Malaysia at end-September last year. It plans to have 3,000 by end-2025.

Meanwhile, privately-owned KK Super Mart has 928 outlets in Malaysia.

Also growing rapidly is MyNews Holdings Bhd, which operates a total of 644 stores in Malaysia as at December last year.

This includes 482 outlets comprising 34 SUPERVALUE branches, 141 CU stores, 20 WHSmith stores, and one Maru Coffee outlet.

There is probably nothing much to differentiate these convenience stores as most of them offer fresh food as well.

What would probably help in improving store sales is the unique range of products and services.

For 7-Eleven, although not unique, it sees a two-fold benefit from the installation of its own cash recycling machines (CRMs) at its outlets.

The footfall to the company’s stores with ATMs is higher than those without, according to co-CEO Wong Wai Keong.

Its basket size increases at stores with ATMs because customers who come in for ATM service are more likely to buy items.

As part of the CRM, which will be known as Reachful, ATMs and cash deposit machines will be available, with more services to come in the future.

The company was formerly known as Abadi Tambah Mulia International Malaysia Sdn Bhd and is held by Seven Bank (50.1%), 7-Eleven Services Sdn Bhd (24.9%), HQZ Credit Sdn Bhd (20%), and SMRT Holdings Sdn Bhd (5%) as of December 2017.

The Seven Bank is a subsidiary of 7&I Holdings Co Ltd (owner of the 7-11 franchise globally) and a leading ATM operator in Japan. Malaysia is its fourth market outside of its home country.

Having deployed its first overseas ATM in the United States in 2017, Seven Bank has expanded its business in the United States, Indonesia and the Philippines with more than 21,000 ATM installations by the end of 2024.

Wong says Seven Bank, a bank in Japan, does not plan to apply for a banking licence in Malaysia. This is because the bank focuses on deploying CRMs and expanding services.

He adds that the company doesn’t need any licence from Bank Negara for a non-bank ATM business.

“In order to ensure compliance and security, we will need to work with PayNet,” Wong explains.

Payments Network Malaysia Sdn Bhd (PayNet) is the national payments network and shared central infrastructure for Malaysia’s financial markets.