DFI Retail Group expects decreased performance but pushes on with digital investments

DFI Retail Group's business in Hong Kong in Q1 2022 was impacted by the surge in COVID-19 cases and it expected the annual results will be worse than that of last year. However, the company is still confident in the long-term business across the region as it is planning to invest in its advancement of digital capacity and capital investments in stores.

In a statement, the group said its overall performance for the subsidiaries in Q1 was impacted by a number of factors. In North Asia, the surge in COVID-19 cases and the subsequent movement restrictions saw panic buying of core grocery products in the quarter, as well as a rush to buy COVID-19 protection items and anti-bacterial products. The trading performance of both grocery retail and health and beauty benefited from these factors, which offset heavy reductions in foot traffic that negatively impacted convenience performance.

The group’s grocery retail business in the first quarter was ahead of the same period last year. In the North Asian market, Wellcome reported robust growth which was driven by pantry-stocking behaviours and strong in-store execution in the face of challenging external conditions and supply chain constraints. The group's overall grocery retail profitability for the quarter was broadly in line with the previous year, adding that its sales performance, particularly in Hong Kong, was offset by higher pandemic-related store expenses.

Moreover, sales and profit for the group’s convenience business in Hong Kong and South China were both affected by government-imposed restrictions arising from the spread of the Omicron variant in Q1.

On its health and beauty front, Mannings’ revenue in Hong Kong was driven by in-store execution and a surge in demand for COVID-19-related products and over-the-counter medicines.

The group also operates IKEA in the city. According to the group, revenue for the Home Furnishings division increased thanks to a combination of the annualisation impact of newly-opened stores in the prior year and strong eCommerce sales. However, like-for-like sales reduced as the surge in Omicron cases impacted store visits in Hong Kong and store operating capacity continued to be limited in Indonesia for most of the quarter. In China, government-imposed movement restrictions exacerbated IKEA’s supply chain constraints further. The group expected that it is likely to delay a return to normalised levels of availability.

Moving forward, DFI Retail Group said it will continue to make operating expense investments to drive the advancement of digital capacity and capital investments in stores, as it seeks to catch up on planned investments, compromised over the previous two years as a result of the pandemic. It added that these investments will be important to drive the long-term sustainable growth of the business.

For example, in Hong Kong, loyalty programme yuu has extended its eCommerce service offerings recently, enabling its users to shop products from its brands through the yuu app and enjoy delivery. The group said its online shopping platform "yuu to me" builds on the diversity of its brands and variety of products. By using the yuu app, members can shop at supermarkets Wellcome and Market Place, personal care product chain Mannings, and convenience store chain 7-Eleven, to name a few. More than 30,000 items are available at launch, while "yuu to me" will also expand the number of categories and items available in the future.

In addition, "yuu to me" is directly connected to the eCommerce platforms of IKEA, KFC, Pizza Hut, Maxim’s Cakes and Arome Bakery. Lastly, the group believed that its annual results will be lower than that of 2021 due to prolonged border closures between Hong Kong and China and continued supply-chain disruptions.

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