“It seems like every third person goes to Japan twice a year. They go to 7-Eleven in Japan where they love the ready-to-eat meals, of which a lot is cold food, sandwiches and onigiri,” says Price at the company’s recent results briefing. “But when they go home to Guangdong, they want a hot meal,” he adds.
Although Price won’t be drawn into giving any firm numbers, he is “very optimistic” that DFI Retail’s network of 7-Eleven stores in southern China, which includes Guangdong province, will expand by the “thousands” in future.
“We have to pivot our assortment. The food bar is basically the Chinese version of 7-Eleven Japan with a much stronger hot food proposition. That has taken off and we are seeing significant growth mainly because it is perceived as a value meal versus all the other options in China, where consumers are very careful with their money. As we grow new stores, we see that as an important point of differentiation with the competition,” he adds.
The bet on hot food in 7-Eleven is part of Hong Kong-based, Singapore-listed DFI Retail’s ongoing strategy to adopt a “flight to value” approach in its overall offerings.
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This is in contrast to many consumer-facing sectors in China that are trying to “premiumise” their product range to eke out better margins by convincing consumers to pay more for better quality or differentiated products. Such patterns are seen across alcohol, sporting apparel, bubble tea and many other major consumer product categories, which, because of price competition, have compressed margins to the point that they are not sustainable.
Either way, all these companies have been reacting to softer consumer sentiment in Greater China, no thanks to the property cooling measures, followed by the pandemic and trade war.
For decades, the mighty US consumer has been seen as the key decision maker whether the US economy grows or flounders. China’s government has decided that with export-driven growth facing uncertainty, making sure its 1.4 billion people spend merrily is the way to meet its GDP growth target of 5%.
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But not all consumers are ready to play along, at least not in Hong Kong. According to DFI Retail, the “basket” of items in its “food” segment has remained the same, but the value has dipped by 3% between FY2024 ended Dec 31, 2024 and FY2023. The company saw a 6% y-o-y dip in revenue to US$24.9 billion ($33.2 billion). Underlying earnings, however, improved 30% y-o-y to US$201 million.
Investors have made it clear they like what they are seeing. Following the earnings announcement on March 10, DFI Retail’s share price has gained around 10% to close at US$2.33 on March 19, valuing the company at US$3.1 billion. Despite the recent gain, its share price remains far from the peak of more than US$13 in 2013.
Nonetheless, DFI Retail has made moves to put its balance sheet and income statement into a more favourable position. After struggling for a decade, it sold its 21.1% share in loss-making China supermarket chain Yonghui last September for RMB4.5 billion ($830 million). Since February, the company has been in a net cash position after paying off debt with the proceeds.
Following the divestment, Price has worked up an appetite to make acquisitions, although he can only reveal the targets will be in the same markets and industries DFI Retail is already in.
Also, he wants control. “We are pivoting from a portfolio company to an operating company. I don’t see minority shareholding as an important part of our proposition moving forward. In general, you don’t put your TSR (total shareholder returns) in someone else’s hands,” says Price without making direct reference to Yonghui.
In the near term, the company, like the rest of the world, has to observe and react to the impact of tariffs on global supply chains. Before the pandemic, DFI Retail imports from 25 countries. It now buys from 53 countries. “If American apples become too expensive for our customers, we can pivot to China or New Zealand apples, which will be of greater value,” says Price. He acknowledges that the current macro environment can be “a bit extreme”. “We should just keep calm and carry on,” says Price.
Nonetheless, he seems quietly upbeat. “The great thing about our business is that customers have to eat, they still have to shower, they still drink coffee and they still want to have a new pillow every couple of years — not forgetting the home furnishing — and love our value meals in our Chinese restaurants,” says Price. “Consumers’ confidence will decide if we will pivot towards higher-value items,” he adds.
