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SUPERPLUS FOOD STORES What does Michael Lee Chin have to do with the future of the Supermarket Chain controlled by this brother Wayne Chen?
“Are you closing down or what, how the shelves dem so empty?” remarked an irate shopper in the Superplus Liguanea branch, confronting one of the store attendants walking through the supermarket. “Is the same way the one down half way tree look” remarked another shopper passing by. A casual stroll through the Kingston located Superplus stores by this writer, revealed much truth in the comments and observations by the two shoppers.
According to one industry watcher, there are unconfirmed reports that the privately held and controlled Wayne Chen led Superplus chain is having problems making payments to suppliers who have now apparently cut off supplies hence the scanty shelves. But how this could be, with reported annual sales of over JA$11B Superplus should be awash in cash. “That how it appears on the surface, the supermarket business is a very thin margin business, ranging from 2-3% and so they may be generating a lot of cash, but very little profit” was how one financial analyst summed up the situation.
This begged the question. Is the supermarket business a good business to be in at this time or quite frankly at anytime? Which led us to ask a very obvious question? Would Michael Lee-Chin invest in the supermarket business?
Given his publicly stated investment views and posture the answer would and should be a resounding NO.
Michael Lee-Chin established investment philosophy is “buying few excellent businesses in long-term growth sectors and holding these businesses for the long term in order to help investors prosper by preserving and growing their capital and minimizing taxes.”
Lee Chins Investment Philosophy
• Use other people’s money
• Find a role model
• Invest in a few businesses you understand
• Stay committed to your investment philosophy
Given this posture would he have advised his siblings to invest in the supermarket business.
More questions. To what extent if he is, is Michael advising his brother Wayne on the merits of investing in the supermarket business? Is he telling Wayne to cut and run or hold for the long term?
Or better still does Lee Chin view the supermarket business as a good investment and is putting his money where his mouth is.
If you were a billionaire and a savvy successful investor with brothers and other family members in the supermarket business and they were having a hard time making money would you bail them out, would you put your own money in, but then you don’t use your own money, you use other people’s money. What would you do?
There are cynics who would suggest that Michael and companies under his control are already major investors or backers of the supermarket group. But would Michael really throw good money after bad or is it that he sees it as a good investment.
These are all relevant questions, as the answer will give a clearer picture on the way forward for Wayne Chen and the SuperPlus Chain of supermarkets.
If you don’t already know Wayne Chen is the younger brother of billionaire Michael Lee-Chen and while heading and running the Super Plus chain, overseas a number of his bigger brother business. He is the Chairman of NCB Insurance Company Limited, West Indies Trust Company Limited and CVM Communications Group, a Director of National Commercial Bank Jamaica, NCB (Cayman) Limited, AIC (Barbados) Limited and the Christiana Town Centre Limited.
Chen stripping the group
Wayne Chen
Wayne Chen announced in October last year that He was contracting the supermarket chain and would close a fifth store in Montego Bay but would expand others. Chen has been stripping the group of its loss-making stores indicating that the business was attempting to grow revenues by concentrating more on services like its cambio operations. Chen said that grocery had become the “loss leader” for the supermarket chain, but gave no specifics on the other business segments that were underperforming. Five stores have been culled from the group, and of the remaining 25, the majority, 22, are controlled by brothers Wayne and Richard Chen, while the others are held by other family members.
More than a decade ago, supermarket owners, hurting from market fragmentation and weak consumer spending, began a process of conglomeration with the hope of restoring profitability to their operations.
Progressive Grocers leads the charge
Back in 2003 there was a merging and acquisition frenzy going on in the supermarket sector with the consortium, Progressive Grocers acquiring four supermarkets in rural Jamaica, bringing to 18 the number in the chain, and helping to reinforce the oligopolistic market that has been developing within this industry.
The five-member grouping acquired a number of Jamaica’s independent supermarkets to become the second largest chain after SuperPlus Foods Stores, which operated at the time 27 outlets. GraceKennedy’s Hi-Lo had 15 shops. Together the three groupings controlled the lion’s share of the Jamaican market.
The acquisitions would give the Progressive Grocers even greater critical mass in procurement, to go up against SuperPlus, the industry’s behemoth that had also been on an expansion binge. The concept of the Progressive Grocers is to create an alliance that could jointly purchase goods to spread administrative cost in the management of this process, as well as marketing, and to create bargaining clout in procurement. Sources say, for example, that the group was also seeking to set up a central warehouse, a move that would allow it to further spread overhead cost.
At the time Hi-Lo had acquired six groceries and wholesales to control a total of 15 stores with plans to open another five stores later that year – one in Mandeville and Spanish Town, with the other three were supposed to be under construction. John Mahfood, former GraceKennedy chief operating officer in charge of retailing and projects at the time said that Hi-Lo would be adding between 5 and 6 stores per year over the next five years, bringing the total number to about 40. This has not materialised.
Not to be undone, Super Plus, with 27 stores at the time, also announced plans to open three more in Kingston.
Come 2006 Supermarket operators were crying out “We’re not making any money”. The tide had turned and the future looked dim.
So what went wrong?
Operating within an oligopolistic market – dominated by four major groups – Jamaica’s supermarkets were now bleeding red ink. This, the owners said, was the result of skyrocketing utility and other operating costs, interest burden on the debt associated with expansion, weak demand, and their inability to pass on costs to the increasingly price-sensitive consumer.
“Right now it is murder,” was how Wayne Chen characterised the business environment. “We are making a small profit, but we now have to be looking at liquidating non-core assets to cut our finance charges.”
In 2005/06 SuperPlus is reported to have recorded gross sales of $11 billion – making the group by far Jamaica’s largest retailer. Such critical mass was part of the business plan – to better spread overhead, give the group procurement clout, and improve its gross profit margin – all of which have been achieved. However, according to Chen, the steep increases in fixed and semi-fixed costs over the last two years have eaten away at the group’s net profit.
For example, there has been about a seventy per cent increase in the cost of electricity across the group over the past year. “Light bill at our Trafalgar Road location has moved from 800,000 to $1.4 million per month,” Chen told the Business Observer. In a business where red ink is all around, SuperPlus with its very small profit was, relatively speaking, holding its own.
GraceKennedy’s supermarket subsidiary, Hi-Lo, was reported to have lost $80 million that year. Hi-Lo’s electricity bill soared to $10 million per month, a 66 per cent increase on the $6 million previously. Security costs jumped by 20 per cent to $60 million. “Increase in costs, lower level in disposable income, compounded with a more competitive market make it challenging for companies,” noted Mahfood.
Hi-Lo by this time closed down two of its Kingston supermarkets – its branch at Tropical Plaza in 2004, and its Hagley Park Road store in 2005 reducing the Kingston branches to four, and the total number of stores islandwide to 13.
Ken Loshusan, operator of John R Wong Supermarket in New Kingston and Loshusan Supermarket Barbican Circle in Kingston, said his supermarkets were also not making any money. “How can you make money when light bill, rent etc. are all over a million dollars? We’re barely breaking even right now. We’re just creating employment, that’s it,” said Loshusan.
According to published reports, on average, the pre-taxation margin of supermarkets in the Progressive Group was about 20 per cent. However, increasing operational costs had eaten away at their margins, thus forcing most of the members into at best, break-even performance. “By the time we pay expenses, pay taxes we are left with nothing,” he complains. “If we raise (margins) half per cent, people will raise hell. All the expenses have skyrocketed. By the time we pay (expenses) we are left with nothing.”
In 2007 Progressive Grocers 28-member consortium comprised the second largest grouping of local supermarkets,
Chen commenting on the situation said that given the constraints faced by the industry in passing on costs to customers, there will be fallout within the industry.”We are gonna see some shakeout in the industry,” he declared.
“Sooner or later, some companies will have to drop out. By the end of the year, I expect some players to drop out.” Commented one operator.
Gassan Azan, the operator of MegaMart store and supermarket, said he too was experiencing sluggishness in the supermarket business, but that other non-supermarket items sold by his chain were helping to counter the fallout.
Like the other supermarkets, a major challenge at MegaMart was coping with the high electricity costs. For example, at MegaMart’s Waterloo Road, Kingston location, electricity cost had jumped from $1.1 million per month last year, to $1.7 million per month that year. At the other MegaMart store in Portmore, St Catherine, electricity cost had moved from $1.1 million per month to $1.8 million.
“Do you know how much more goods you have to sell to pay for the increase in light bill?” asked Azan. The two MegaMart stores had combined sales of $3.5 billion, but so far that year, sales have been flat, said Azan.
Moreover, according to Azan, the profit was generated mainly from the non-supermarket items which earned a much higher gross margin, and primarily at the Kingston store. “As a strategy, to achieve profitability what we have been doing is to push our non-food items,” he explained.
Chen cited several factors which he said accounted for the sluggishness in consumer spend at the island’s supermarkets. Among them: the tens of billions being spent each year on cellular phone usage. “The source of the money is not finite and it has to come from somewhere,” he said.
He also cited the increase in consumer electricity and fuel costs which divert consumer spending away from supermarket items, the slow-down in construction and its impact on purchasing power among working class Jamaicans. Chen also noted that the anti-crime measure ‘Operation King Fish’ had also curtailed criminal activities and their ability to fund consumption in the way they once did.
The SuperPlus boss says his stores have felt the impact of these factors.”Most stores in the chain are flat in Jamaican dollar terms, and some stores are down,” he told the Business Observer. “Some of the new ones continue to grow but at the expense at the older stores.”
But according to Chen, SuperPlus has been taking steps to improve its cash flow and financial position in light of the soft market.
“In some instances we are cutting back on wholesaling because of the margins,” he said. “We are looking at all of our resources that are not being utilized with a view to liquidating them to cut our bank finance cost. We are seeking to share the cost of running the business over a wider revenue base.”
A victim of its own success
Wayne Chen is obviously doing everything he can to diversify income streams and squeeze more margins out of the operation; these include building more money transfer facilities, ATMs, cambios, and pharmacies in its stores of which it now had five.
“The main push is to look at fixed cost. We have no control over rent so we need to offer more within the stores to defray them.”
It’s clear that the aggressive investment in new locations has not produced the desired results. SuperPlus’ success at growing into the largest retailer in Jamaica – in 2003, surpassing furniture retailer Courts – less than 10 years after the chain, which was started by Gloria Chen in the 1960s, and had been anchored in southern Jamaica, morphed into the well-organised corporate structure is today a victim of its own success.
Wayne Chen had declared his intention to aggressively grow the firm’s store count and roll out up to 400 additional items under the SuperPlus brand – moving the range to about 700 and, importantly, giving SuperPlus greater control over stocks and the ability to squeeze more profit in a business famous for its thin margins.
In recently published press reports Wayne Chen said he would not refuse a good offer for the islandwide family-owned supermarket chain, but says he has not put the company up for sale. Asked outright whether that meant SuperPlus was hunting a buyer, Chen dismissed it, but did not discount it as a future possibility. “Not at all,” he told the Financial Gleaner. “Not in the short term. We are right-sizing the company now,” he added.
Rumours however persist that Wayne is actively looking for a buyer for the reportedly money losing supermarket chain. But denials are in order until the ink has dried on the contract and the cheque handed over. Plans for an IPO must now be off the table given the current state of affairs and from all indications 2009 is going to be a very challenging one. Margins will be put under far more pressure and more red ink will flow throughout the sector.
And so we are back to Michael Lee Chin. Why? Well if we know for certain Michael’s views and investments in SuperPlus then we will know where it’s going.
Additional sources: Jamaica Observer
https://businessuiteonline.com/index.php/2018/10/09/the-walkbout-homestay-experience-coming-january-2019/
Jamaica is being hailed as “exceptional” for achieving sustained reduction in the public-debt-to-gross-domestic-product ratio (GDP) despite global financial crises, pandemics, and other emergencies.
In a paper titled ‘Sustained Debt Reduction: The Jamaica Exception’, authors Serkan Arslanalp, Barry Eichengreen and Professor Peter Blair Henry, noted that the sharp, sustained reductions in public debt are outstanding “because public-debt-to-GDP ratios have been trending up in advanced countries, emerging markets, and developing countries alike”.
The paper was presented at the Brookings Institute in Washington on Thursday (March 28).
“Governments have borrowed in response to financial crises, pandemics, wars and other emergencies, resulting in higher debt ratios. But only in rare instances have they succeeded in bringing those higher debt ratios back down once the emergency passed,” the paper pointed out.
In the case of Jamaica, the Government was able to cut its debt ratio in half from 144 per cent of GDP at the end of 2012 to 72 per cent in 2023.
The economists said the achievement was despite vulnerability to hurricanes, floods, droughts, earthquakes, storm surges and landslides, noting that Jamaica is ranked as the third most disaster-prone country in the world according to the Global Facility for Disaster Reduction and Recovery.
“It did so despite a COVID-19 pandemic that disrupted tourism and mandated exceptional increases in public spending. Yet, despite this exogenously prompted deviation from plan, the IMF’s baseline projection, in its 2023 Article IV report, forecasts a further fall in debt-GDP to less than 60 per cent over the next four years,” the paper said further.
The paper highlighted the fact that the Fiscal Responsibility Framework, introduced in 2010, required the Minister of Finance to take measures to reduce, by the end of fiscal year 2016, the fiscal balance to nil, the debt-GDP ratio to 100 per cent, and public-sector wages as a share of GDP to nine per cent.
“The framework was augmented in 2014 to require the Minister, by the end of fiscal year 2018, to specify a multi-year fiscal trajectory to bring the debt-GDP ratio down to 60 per cent by 2026. The framework included an escape clause to be invoked in the event of large shocks.
“This prevented the rule from being so rigid, in a volatile macroeconomic environment, as to lack credibility. At the same time, it included clear criteria and independent oversight to prevent opportunistic use,” the paper said.
The paper further pointed to the consensus building exercise entered into by the Government, which was key to the achievement.
“In 2013, a series of ongoing discussions in the National Partnership Council, a social dialogue collaboration involving the Government, parliamentary Opposition, and social partners, culminated in the Partnership for Jamaica Agreement on consensus policies in four areas, first of which was fiscal reform and consolidation,” the paper noted.
“The Partnership for Jamaica Agreement fostered a common belief that the burden of fiscal adjustment would be widely and fairly shared. It supported the creation and ensured broad national acceptance of the Economic Programme Oversight Committee (EPOC) to monitor and publicly report on fiscal policies and outcomes, and to provide independent verification that all parties kept to the terms of their agreement,” the research said.
“By creating a sense of fair burden sharing, Jamaica’s organised process of consultation thus sustained public support for the operation of the country’s fiscal rules, culminating in March 2023 with the establishment of a permanent, independent Fiscal Commission,” the economists declared.
“Jamaica managed its financial system well in this period. It adeptly managed the term structure of the debt, by way of a well-designed fiscal rule, and a partnership agreement creating confidence that the burden of adjustment would be widely and fairly shared.
The fiscal responsibility and the partnership agreement were key, as neither element would have worked to achieve sustained debt reduction in the absence of the other.
Both were needed the authors declared.
Tourism Minister, Hon. Edmund Bartlett, has emphasised the importance of Jamaica’s Tourism Strategy and Action Plan (TSAP) in generating the stakeholder capacity to respond to the industry’s new architecture.
The TSAP, being executed through a partnership with the Inter-American Development Bank (IDB), is geared towards boosting socio-economic development and investment, building the local tourism industry’s resilience to climate change and reducing the sector’s contribution to climate change.
It also aims to diversify Jamaica’s inbound tourism and promote the industry’s knowledge-based and technology-enabled development.
Mr. Bartlett also highlighted the TSAP’s importance in making tourism more inclusive and more of an enabler of economic growth and development in Jamaica.
“So, the strategies have to look at not just the physical areas but it has to start with human capital. The most important element within our tourism realisation is with people. Jamaica’s wealth is not in minerals, as you know; but what we really have are our people, and our people are the wealth of this country,” the Minister said.
“And so, our strategy has to deal, very strongly, with building, training, building intellectual capacity, building innovative capacities, building creative capacities, [and] building a new sense of how people can convert knowledge into material goods and services which will have a value and a price,” Mr. Bartlett added.
He was speaking during the opening session of the Tourism Strategy and Action Plan Consultation Workshop for Kingston and St. Andrew, at the Spanish Court Hotel in New Kingston on Thursday (April 4).
Meanwhile, Mr. Bartlett underscored the need to increase local production, which is critical in enabling Jamaica to retain a larger ratio of the tourist dollar.
“The consumption pattern of the visitor is three to five times that of the locals. Some people don’t understand why revenue to government has increased significantly without increasing/or new taxes being imposed. They don’t understand that what tourism has done is to increase the consumption pattern in Jamaica exponentially over the last two and a half years in particular, as we started from zero and grew to what is now 4.2 million visitors,” he stated.
“So, whose food are they eating? That is our job, to make sure that it is Jamaican food… our farmers must step up to the plate. The strategy in tourism must drive the linkages in the various areas, so as to stop the leakages from all the other areas,” Minister Bartlett added.
The workshop marks the final in a series of engagements aimed at highlighting relevant components of the Tourism Strategy and gathering as much input as possible from key stakeholders.
By: LATONYA LINTON, JIS
Businessuite News24
Statement by Bank of Jamaica Concerning Previous Regulatory Actions Involving Alliance Financial Services Limited
Bank of Jamaica (BOJ) takes note of the recent Court Decision in the matter involving Alliance Investment Management Limited (AIML), which is not a licensee of the Bank, and public commentary related to the actions taken by the Bank in December 2021 to suspend the cambio and remittance operating licences issued to then AIML-affiliated company Alliance Financial Services Limited (AFSL) effective 3 December 2021. The Bank’s actions also included the revocation of the authorisation granted to AFSL to operate in the Bank of Jamaica Fintech Regulatory Sandbox as a payment service provider effective 3 December 2021.
As stated by the Bank at the time, the regulatory actions became necessary after the Financial Investigations Division (FID) on 2 December 2021 charged AFSL’s principals and two AFSL-affiliated companies at the time (AIML and Alliance Finance Limited (AFL)) with several offences under the Bank of Jamaica Act and the Banking Services Act. Bank of Jamaica is aware that investigations by the FID into the Alliance Group began around 2018. However, it was only after formal charges were laid against the entities and their principals by the FID following the requisite ruling by the Office of the Director of Public Prosecutions, that BOJ took the regulatory action of the suspension of licences to safeguard the financial system. The formal charging of the entities and their principals raised serious “fit and proper” considerations for their continued operation of financial services under the Bank of Jamaica Act and the Banking Services Act.
Alliance Finance Limited subsequently pleaded guilty in the St. Andrew Parish Court to several breaches of the Bank of Jamaica Act and the Banking Services Act and was fined. These breaches for which AFL was convicted related to “Carrying on the Business of Lending in Foreign Currency in breach of the Bank of Jamaica Act” and “Accepting Deposits Without the Requisite Licence in breach of the Banking Services Act.” The breaches involved engaging in economic activities which are regulated and which require an extensive application process, extensive due diligence checks and continuous monitoring throughout the life of the licence in the case of the Banking Services Act. The breaches also involved engaging in the business of lending in foreign currency without the requisite authorisation that allows for review, due diligence and monitoring mechanisms being applied to ensure continued order in the foreign Exchange market. These represent breaches of the substantive framework of financial services regulated by Bank of Jamaica. One consequence of such breaches is being rendered unfit to own and operate financial services in the financial system.
Bank of Jamaica is also aware of legal action initiated in the Supreme Court by the FID related to criminal forfeiture regarding the offences for which AFL was convicted in relation to the Bank of Jamaica Act and the Banking Services Act.
Bank of Jamaica maintains that its actions taken in December 2021 to suspend the cambio and remittance operating licence of AFSL and to revoke the authorisation granted to AFSL to operate in the BOJ Fintech Regulatory Sandbox as a payment service provider, were necessary as the allegations at the time threatened the good order in the foreign exchange market and payment systems as well as the reputation and good standing of the Jamaican financial system internationally. It is important to note that BOJ’s regulatory actions were the subject of judicial review, and finding in the Bank’s favour, the Court of Appeal noted in its 2022 judgment in the matter of Alliance Financial Services Limited v Bank of Jamaica that, “the risk to the financial sector outweighed the economic loss and inconvenience AFSL may suffer as a result of the continuation of the suspension.”
Bank of Jamaica remains committed to fulfilling its mandate to ensure the stability of the Jamaican financial system and the effective and impartial supervision of its licensees.
It is also to be noted that Alliance’s divestment of business was a strategy and activity pursued by the principals of Alliance as their own business decision.
It is also to be noted that Alliance’s divestment of business was a strategy and activity pursued by the principals of Alliance as their own business decision. Bank of Jamaica had no part in that decision or transaction. On 1 April 2022, BOJ publicly advised that AFSL, under a new ownership structure, applied for a cambio and remittance licence, and having satisfied the Bank’s due diligence requirements, was licenced to offer cambio and remittance services at approved locations effective 23 March 2022.
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