Pemandu finds different results from AG on ETP project

KUALA LUMPUR: Some 78% of stores under the Small Retailer Transformation Programme (Tukar) reported a 6% or higher increase in revenue after 12 months, according to a study commissioned by the Performance Management and Delivery Unit (Pemandu) and the Ministry of Domestic Trade, Cooperatives and Consumerism.

Tukar, which aims to modernise mom-and-pop stores, is one of the larger projects under the Economic Transformation Programme (ETP) in terms of contribution to national income and jobs.

The study’s findings, finalised at the end of last year and released last week to the press, seem to paint a more positive picture than those of the Auditor-General’s (AG) report two weeks ago, which found that a smaller 56% of stores audited managed to improve sales by at least 1%.

However, it is worth noting that the AG’s findings are not limited to stores that have been in the programme for at least 12 months. The AG also found that 14% of stores audited were not in operation, whereas none of the stores in the study’s results were said to have closed down.

About 18% of stores surveyed in the study recorded more than a 100% revenue increase. Some 12% saw lower revenue compared with 9% in the AG’s report.

The study also showed that the average most-current-month revenue of Tukar participants that have been with the programme for at least a year is RM43,108 — 36% higher than that of the non-participant (RM31,720) and 22% higher than the average monthly revenue of Tukar stores prior to joining the programme (RM35,257).

It is not known how much an increase in revenue non-participating stores have seen as the study only recorded their current revenues. The study also found that 84% of the stores surveyed had complied with at least 70% of the programme’s requirements.

“When the AG launched their audit in the middle of last year, there were already 1,349 Tukar stores. They decided to go with 70 [or 5% of the stores] as a sample,” said Pemandu wholesale and retail director Ravindran Devagunam.

In contrast, the study — conducted by Taylor Nelson Sofres Malaysia, a market research firm — surveyed 806 or 69% of Tukar stores out of the 1,167 stores that had been in the programme for at least three months.

Ravindran said the reason some stores see a decrease in revenue is not because of competition with hypermarkets, as suggested by the AG report, but with other similar-sized chain stores such as 99 Speedmart and KK Super Mart. Poor cash flow management is another reason, with some store owners using their revenue for other reasons than reinvesting in their business.

Some Tukar participants have also managed to reduce costs by acting on arbitrage opportunities.

“The hypermarkets that are helping Tukar stores to modernise are not allowed to force the stores to buy from them, but what typically happens is that … the storeowners see the hypermarkets’ terms and pricing and compare them with their traditional suppliers,” said Ravindran.

Price decreases, however, have generally not been seen in these shops, although Ravindran said that a critical mass of about 3,000 to 5,000 Tukar stores is first needed for that to happen.

Tesco Stores (M) Sdn Bhd’s corporate and legal affairs director Azlam Shah Alias said most of its participants do not buy from Tesco as they are not located close to its hypermarkets.

“Most of our Tukar shops prefer to buy from their traditional suppliers and wholesalers because the biggest advantage quoted is delivery right to their shops … even though at times the cost is a little higher than the hypermarkets.”

The RM80,000 loan participants receive is not usually sufficient, Azlam added.

Other challenges faced in transforming the stores include difficulty in changing their mindsets and the fact that some participants are only renting their stores for the short term. It also takes one to two months to convert the stores, during which participants receive no income.

Tesco, along with Aeon Big, advises the most Tukar shops among all the major retailers. To date, Tesco has transformed 258 shops across 10 states in Peninsular Malaysia. It has a dedicated team of 12 people running the programme, which costs Tesco about RM2.5 million per year. Azlam said the shops under Tesco’s guidance have seen an average 30% to 40% sustained increase in revenue.

Meanwhile, according to Ravindran, although key performance indicators (KPIs) for the programme have been output-based thus far — targeting 500 stores modernised per year — Pemandu will most likely start using outcome-based KPIs from next year onwards, given that it will have more data about the programme’s outcomes for shops in various districts and proximities to competition.

The lack of such detailed information was a reason Pemandu “consciously” chose output-based KPIs for the first few years of the programme.

This article first appeared in The Edge Financial Daily, on April 21, 2014.


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