DAIRY FARM EXPANDING IN ASIA

JOSEPHINE J. BOW

HONG KONG (FNS) -- Dairy Farm International here continues to look to Asia for long-term expansion, having earmarked $300 million for investment in existing and new businesses in 1995.

The company, with diversified holdings in Europe, Asia and Australia, has numerous challenges as it embraces Asian nations in very different stages of development. The retailer, which last year posted sales of $5.6 billion (U.S.), has an Asian roster that includes food retail operations in Hong Kong, China, Singapore, Malaysia and Taiwan.

One of the newest and most unusual ventures is in Japan. The company's first Wellsave discount food outlet has opened there in a 60-40 joint venture between Dairy Farm and Japanese group Seiyu. Some 70 stores are projected for the next five years, involving an initial investment of $100 million.

The move represents an apparent deviation from the company's policy of focusing on developing countries. Dairy Farm decided Japan was a worthwhile investment for the company, Graeme Seabrook, group managing director, told SN. The reasoning was based on the specific sector of retailing involved. Seabrook said that although retailing was a mature business in Japan, discount retailing, the focus of the company's new Japan venture, was not a mature business.

After paying hefty premiums for years due to a complex multitiered retail distribution structure, Japanese consumers are turning discount shopping in everything from designer clothing to household goods into a serious national sport. Dairy Farm hopes to cash in on that trend.

The choice of a strong partner in Seiyu, one of Japan's largest supermarket operators, should also help in getting operations off to a running start. Seiyu will be able to offer existing warehousing, sourcing and distribution channels, as well as familiarity with local market conditions and the ability to procure suitable store locations. Wellsaves also will offer imported items, including Dairy Farm-branded products.

Another bright star on Dairy Farm's Asian horizon is Taiwan, where operations have finally reached critical mass after five years of expansion. The 78-store Wellcome chain, two-thirds of whose units are in Taipei, registered operating margins of more than 3% and revenue growth of more than 30% in 1994.

Although competition with other supermarket chains and hypermarket operators is heating up, Seabrook said Dairy Farm has a firm hold on the full-line supermarket business in Taipei and is starting to move into the rest of the island. Some 250 Wellcome outlets are planned by the year 2000. In anticipation, a 250,000-square-foot distribution center and separate frozens and chilled distribution center are scheduled to open this year.

In Singapore, where the company owns the Cold Storage and Jason's supermarket chains, Dairy Farm plans to invest $53 million over the next three years in less-saturated suburban areas. Another $15.5 million is earmarked for Cold Storage expansion in Malaysia, where supermarkets are still in a heavy growth phase.

Little change is forthcoming in Hong Kong, where operators continue to suffer from rising rentals and labor costs, according to observers. As a virtual two-company stranglehold between Wellcome and rival Park-n-Shop continues, shoppers complain regularly about high prices at both chains and the overall dearth of stockkeeping units.

Although Dairy Farm's supermarket operations in China are developing more slowly than originally planned, Seabrook said the company still holds high hopes for growth there. Nestle Dairy Farm, of which Dairy Farm owns 49%, is building two ice cream factories in Qingdao and Tianjin in northern China. The group's catering business in China's rapidly expanding airline industry also is registering substantial growth.