Here’s What Dairy Farm International Holdings Ltd is Doing to Turnaround its Business

Dairy Farm International Holdings Ltd  (SGX: D01) has been in a funk lately.

For 2015, the pan-Asian retailer’s top-line had stalled while underlying net profit fell by 14% amidst tough operating conditions. Likely as a result, shares of Dairy Farm have fallen by more than a third over the last 12 months.

Let’s dig a little deeper to find out what happened. As a brief background, Dairy Farm has four main business segments: Food, Health and Beauty, Home Furnishings, and Restaurants. The presentation slide from Dairy Farm below shows how each segment performed for the year, in terms of sales.

2016-03-08 Dairy Farm Presentation
Source: Dairy Farm’s earnings presentation

As it turns out, it was the Supermarket and Hypermarket sub-segment within the Food segment that had struggled to grow. In a recent earnings briefing for Dairy Farm’s 2015 fourth-quarter results, Graham Allan, the company’s chief executive, gave his take on the current situation and what Dairy Farm is planning to do:

“In terms of what we are trying to do, with our supermarkets and hypermarkets business, we have a strong position in the markets in which we compete.

We are specifically driving against a couple of key strategies; One is to improve our differentiation through increased fresh participation. We doing that through a combination range enhancements and quality enhancements and doing a lot more on the cost side by doing direct sourcing. Essentially, cutting out middle-men and sourcing, where we can, directly from farmers or direct from the source

We are increasing our corporate brand penetration. In 2015, in both fresh and brand, we saw a material improvement in terms of our position, versus 2014. We are also investing in improving the shopper experience as we described a few moments ago. We have started our collaboration process with Yonghui, it’s early days. Some of our businesses are generating benefit from that, Yonghui are also generating some benefit – we are hoping to take that a whole lot further.

And we are very happy with the San Mui, Macau business. That business has been very well integrated. Notwithstanding the apparent collapse in the Macau economy, I read somewhere last night, I think something like a 20% decline. Actually, our business has been very resilient. Our business is essentially based upon local customers, local residents, rather than visitors to Macau. So, it has performed pretty strongly. We are pleased with how that acquisition has gone.”

Essentially, Dairy Farm will be focusing on increasing its fresh produce offerings through a collaboration with its associate, China-based grocery retailer Yonghui Superstores, as well as increasing the penetration of its own branded products. Both actions appear to be still in the early stages of implementation, so it could take a while before the benefits show up on the financials for Dairy Farm.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Dairy Farm International Holdings.