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Dairy Farm has released its results for the first quarter of 2019, with sales ahead of the same period last year.

Food: large formats remain a challenge, convenience strong

The Group’s multi-year transformation plan for its Supermarkets and Hypermarkets business is underway, but CEO Ian Mcleod previously estimated it will take the company five years to complete its turnaround plan.  Sales in North Asia were in line with last year, with sales growth in Hong Kong and Macau offset by weakness in Taiwan.

Sales in Southeast Asia were impacted by the launch of a store consolidation plan in the region.  which aims to drive stronger profitability longer term.

Convenience store sales increased in all markets, but store network expansion impacted profits.

Health and beauty: continues to trade strongly

Sales and profits growth continued for the Health and Beauty business in North Asia. Southeast Asia also delivered a solid performance with encouraging sales and profits growth in the quarter, particularly in Malaysia and Indonesia.

Home furnishings: sales up in all markets

Profitability in the Home Furnishings business was lower mainly due to the increased cost of goods compared with last year and the pre-opening costs for new IKEA stores under development.

Joint ventures and associates: sales and profit up

Maxim’s and Yonghui delivered strong sales growth for the period and their like-for-like contributions were also ahead. The Group’s results also benefitted from its 20% stake in Robinsons Retail it acquired in November last year.

Our view

As Dairy Farm looks to reshape the Food business to achieve long-term sustainable growth, performance from key associates Maxim’s, Yonghui and Robinsons Retail will become even more important to support Dairy Farm’s top-line growth.

Want to know more?

Asia subscribers can read more on Dairy Farm's Strategic Outlook here.

Dairy Farm FY18 results here. plans to invest CNY6.5bn (US$965.1m) in Thailand over the next three years to strengthen its fresh food business.

Offering shoppers more choices

In partnership with Yonghui, plans to import large quantities of durian, mangosteens, coconuts and other fruits from Thailand worth CNY5bn (US$742.4m). itself will also source an additional CNY1.5bn (US$222.7m) worth of fruits through Thai trading companies and agents.

Available offline and online will sell the produce at its 7Fresh supermarkets and as it continues to expand its store network, storage of fresh food for the retailer and access to products for customers will improve.

The retailer will also sell the new products on its website, overcoming some of the challenges of selling perishable products by a supply chain that it has developed. Its cold chain keeps products at low temperatures and covers 300 cities across China.

Want to know more?

IGD Asia subscribers can download our 7Fresh report here.

Yonghui has posted another strong set of annual results. Total revenue increased 20.4% to CNY70.5bn (US$10.5bn), with consolidated net profit up 18.5% to CNY1.5bn (US$219.9m).

Fastest growing bricks-and-mortar retailer in China

Despite increasing competition and the market’s slowdown in growth, Yonghui continues to be the fastest growing bricks-and-mortar retailer in China.

To maintain growth, it has developed innovative formats such as Super Species and opened smaller stores such as Yonghui Life. This year, it will develop a new ‘Mini Store’ format with plans to open 150 stores.

Rapid expansion and national coverage

Yonghui has presence in 24 provinces and cities, and full coverage of first to sixth-tier cities. In 2018, it ended the fiscal year with 708 supermarkets with total operating area of 6,123,545 sq m. This increased by 962,524 sq m compared with the same period last year.

Private label another priority

Yonghui continues to develop its own brand strategy in line with market trends. In 2018, sales of self-owned brands were CNY1.6bn (US$237.7m), with quality and supply areas of focus. The retailer is transforming its supply chain around three core principles, “quality, brand and source”.

It Is also committed to embracing new technologies and has established a quality control management system to pilot research on food traceability, smart site selection and customer insights.

Strategic agreement with Hongqi

Yonghui has increased its stake in Chengdu-based Hongqi Chain to 21% for CNY709.9m (US$105.5m). Hongqi operates approx. 3,000 convenience stores and small supermarkets in Sichuan province.

Yonghui to increase stake in Zhongbai

Yonghui is planning to increase its stake in Zhongbai from 30% to 40%. The deal will be worth an estimated CNY559m (US$83.3m). Zhongbai, based in Wuhan, has over 1,200 stores, including supermarkets, convenience (Hao bang and Lawson banners), neighbourhood supermarkets, food markets and a premium grocery store format.

Dairy Farm has reported its 2018 annual results. Performance of its Health and Beauty segment was strong, but its Food business saw further decline.

Annual sales up 4.1%

Dairy Farm posted sales growth of 4.1% to US$11.7bn for the fiscal ending. Consolidated sales including joint ventures and associates increased 0.6% to US$21.9bn. During 2018, the retailer sold its Giant hypermarket store in Vietnam to Auchan. It also acquired the remaining 51% share in Rose Pharmacy and sold Rustan's in exchange for a 18.25% stake in Robinsons in the Philippines.

Food: large formats struggling, convenience remains robust

Sales from supermarkets and hypermarkets (excluding Yonghui) declined -2.1% to US$5.9bn from previous year in constant currency. Performance of its large formats remain a concern, especially in Southeast Asia. Sales and profits from Giant supermarkets and hypermarkets in Singapore, Malaysia and Indonesia declined. While supermarket sales in Hong Kong increased, rising rental and labour costs impacted profitability. Sales and profit were also lower in Taiwan. 

Its 7-Eleven convenience business (Hong Kong, Macau, Singapore and operations in southern China) reported sales of US$2.1bn, up 4% from previous year in constant currency terms. Operating profit increased by 8% to US$92m. Ready-to-eat continued to drive sales in Hong Kong and Macau, while in mainland China, it surpassed 1,000 stores. 7-Eleven Singapore posted a slight fall in total sales after closing a few stores.

In China, the retailer's key associate business, Yonghui, maintained strong sales momentum and continues be one of the fastest growing retailers in the market. For 2018, it posted sales growth of 23% to US$7.4bn, mainly driven by new store openings.

Health and beauty: sales and profit up

Like the last few years, the Health and Beauty (effectively led by Guardian and Mannings) division performed strongly, with sales increasing 16.9% to US$3bn and operating profit rising 59% to US$334m. It continued to perform strongly in Hong Kong, recorded significant sales increase in Southeast Asia and increased penetration of Beauty and Own Brand.

Home furnishing and restaurants: solid sales growth

Home Furnishings (Ikea in Hong Kong, Taiwan and Indonesia) continued to achieve solid sales growth, posting 10.4% growth to US$721m. This was supported by strong ecommerce growth and the opening of a new store in Hong Kong. Further expansion has been outlined, with new stores expected in Indonesia and Taiwan.

Dairy Farm's restaurants business and key associate, Maxim's reported a 15.5% sales increase to US$2.5bn. This was supported by new franchises and mooncake sales surpassing last year's record.

Growing store network

Dairy Farm (including associates and joint ventures) added 2,567 stores to its network, ending 2018 with 9,747 stores. The key growth channels (in store numbers) were convenience (+673), supermarket (+593) and health and beauty (+578).

Future outlook

Looking ahead, the retailer’s multi-year transformation plan is in progress under new leadership. It hopes to see the benefits of restructuring its food business following completion of the strategic review.

Chairman of Dairy Farm, Ben Keswick, said, "With a more customer-focused and market-driven strategy we will stay competitive, improve performance, and achieve long-term sustainable growth. While the group faces significant challenges in the short-term as we reset and reshape the food business as part of the multi-year transformation plan, the group’s other businesses and key associates are performing well and have strong market positions.”

Want to know more?

Asia subscribers can read more on Dairy Farm's Strategic Outlook here.


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