Dairy Farm International Holdings Ltd Shares 3 Important Milestones for the First-Half Of 2016

Dairy Farm International Holdings Ltd (SGX: D01) released its results for the first-half of 2016 just last week.

During the earnings briefing, the company’s chief executive, Graham Allan, shared three important milestones that Dairy Farm had achieved in the first-half of the year.

As a brief background, the company is a retailer with around 6,500 outlets across Asia. It has four main business segments: Food, Health and Beauty, Home Furnishings, and Restaurants.

Here are the milestones.

Famous for Fresh  

2016-08-02 Dairy Farm Fresh Participation
Source: Dairy Farm earnings presentation

In the earnings briefing, Allan talked about Dairy Farms’ Fresh initiative. The following are his thoughts around the increase in fresh produce within Dairy Farm’s stores:

“We have shared with you previously that we want to be famous for fresh [produce] in our supermarkets and our hypermarkets businesses. And we want to make that a real point of difference versus the competition.

Over the last three years, our fresh participation across the whole company has increased by 200 basis points versus where it was. In the first half alone, we have seen our fresh participation rise by 70 basis points, which across a broad portfolio like ours is actually a very significant move.”

This effort could be important for the future viability of Dairy Farm’s business, both in differentiating its offerings and protecting itself against online competitors. Graham had previously noted that there hasn’t been evidence that online retail players have been able to turn a profit in the food space.

First Singapore and then, Asia

2016-08-02 Dairy Farm Fresh DC
Source: Dairy Farm earnings presentation

Allan also talked about the things Dairy Farm has been doing to support the Fresh initiative. A big one would be the fresh distribution centre that it has built in Singapore:

“In that context, in May this year, we have opened a 75,000 square feet fresh DC [distribution centre] in Singapore. That is now fully operational. The effect of this is to substantially increase our capacity, our fresh throughput through our DC. What it means to consumers is that the fresh products get to the stores faster and fresher.”

Allan noted that the distribution centre serves multiple goals. For one, the supply chain is shortened by half:

“So, the consequence of that is that the supply chain has been shortened by about 50%. It previously took about 48 hours to get the same product into the store. Those products are in the stores within 24 hours.”

There are other benefits that come with the fresh DC:

“Additionally, having a fresh DC with this kind of capability means we have one control point from a QA [quality assurance] point of view. So, we like to think that over time, we can get more consistent quality control and quality execution for our customers. As well as which, quite frankly, just open up our network to some suppliers, new suppliers, who wouldn’t have otherwise have the capability to deliver directly to store.”

Most important, the initiative is not centred on Singapore alone. Dairy Farm will be looking to implement this to all of its significant geographical markets. Allan said:

“We are not just doing it in Singapore. This is a major commitment that we are making across Asia. We have similar initiatives in all of our significant markets to improve our fresh capability.”

Going Online

2016-08-02 Dairy Farm eCommerce Launch
Source: Dairy Farm earnings presentation

Beyond the Fresh initiative, Dairy Farm is also making a major commitment to bring its offerings online. Allan gave an update on home furnishing chain IKEA’s eCommerce efforts:

“eCommerce is now in operation. For those of you who are IKEA customers, feel free to use the Hong Kong and Macau site, which has been available since April.

This week, we have launched an eCommerce offer in Indonesia. At this stage, just in greater Jakarta so that we can manage the fulfillment. Given that we only have one store in Indonesia, we think that is going to open up IKEA to a number of customers who otherwise wouldn’t find the existing store accessible. And we are planning later this year to launch in Taiwan.”

To be sure, the efforts are not limited to IKEA alone. Allan continued:

“The group making a major commitment to eCommerce, not just in the IKEA business. We have had for a while now the Health and Beauty eCommerce offer in Singapore, that continues to grow and we are pleased with the results of that. Other businesses are making a significant effort to strengthen their online presence.”

One concern on Dairy Farm’s push for eCommerce would be the profitability of such efforts. Allan anticipated the question by saying this:

“I just want to assure you that we are doing this in a way that is disciplined from a financial point of view. The way we look at online – yes it is a big opportunity and we are very happy to invest behind it – but we need to see a pathway to profitability for those kind of sales.

We are not going to be chasing sales for the sake of it unless we believe that there is going to be a long term viability to the business model that underpins those brands.”

The above three efforts highlight how Dairy Farm plans to position itself for the future. We will have to check in six months from now and beyond to have a feel of their progress.

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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.