The Philippine retailing business of FamilyMart, partly owned by the Ayala and Tantoco groups, is on the auction block, signaling a shakeout in the highly competitive local convenience store business.
Several industry sources confirmed to the Inquirer that the local network of FamilyMart—which has around 72 stores to date—has been offered to prospective new investors in recent months.
In 2012, Ayala Land Inc. and the Rustans group via their equally owned joint venture firm SIAL CVS Retailers Inc. signed a deal with FamilyMart Co. Ltd. and Itochu Corp. for the development and operation of FamilyMart convenience stores in the Philippines.
Asked about the rationale for the potential divestment, a source from the Ayala group said the conglomerate was only evaluating its options, adding that 24/7 retailing—a business that required scale—was not really part of Ayala Land’s core business. It’s also possible that Ayala Land may keep its stake but the composition of the partnership behind FamilyMart may change, the source added.
Other sources said foreign investment houses Credit Suisse and UBS had pitched the local FamilyMart business to prospective new investors in recent months.
Last year, Ayala Land and Tantoco-led SSI Group Inc. also announced that their joint venture firm Sial Specialty Retailers Inc. (SIAL) had sold the retail assets of Wellworth department store in Fairview Terraces Mall and UP Town Center Mall to Gaisano-led Metro Retail Stores Group Inc.
In the 24/7 retailing business, competition heated up in the last six years with the entry of new brands that sought to challenge the two leading players 7-Eleven and Mini-Stop, respectively run by Philippine Seven Corp. (PSC) and Robinsons Retail Holdings Inc. (RRHI).
Aside from Family Mart, the Puregold group also brought another foreign brand—Lawson—into the local market while the SM group brought in Indonesian brand Alfamart. Real estate magnate Manuel Villar, for his part, has also built his own convenience store network using his own brand “All Day.”
To date, 7-Eleven and Mini-Stop remain the leading market players. 7-Eleven has breached the 2,000-store network while Mini-Stop has at least 500 stores.
Elsewhere in the Asian region, only the top two players in the convenience store chains tend to be profitable due to the intensity of the logistics requirements that drive returns to scale.
“All retailers were expanding at the same time, so the growth in selling space just outstripped the growth in consumer demand in this retail segment—a classic case of oversupply and fragmentation of the convenience store market resulting in expected returns failing to materialize,” said Jose Mari Lacson, head of research at ATR Asset Management.
FamilyMart has been shutting down unprofitable stores in the past 12 months, Lacson noted.
It will be hard for existing players to buy FamilyMart because each had a foreign franchise already in place—unless the buyer won’t be required to maintain this franchise, Lacson said.
Industry sources said it was possible that only the retailing business, without the franchise, would be sold, similar to how only the fixed assets of Wellworth were sold to the Gaisanos.
Meanwhile, SSI is undertaking its own rationalization program for its specialty stores and is seen conserving capital otherwise demanded to scale up the FamilyMart venture in an intensely competitive convenience store business.