MYDIN Boss : Why KR1M Isn’t A Get Rich Quick Scheme

Source: Malaysian Digest - 17 October 2012

Malaysian Digest KUALA LUMPUR: The Kedai Rakyat 1Malaysia (KR1M) programme is not the 'goldmine' that the Opposition touts it to be.

That is the opinion of Datuk Ameer Ali Mydin, managing director of Mydin Mohamed Holdings Bhd which operates the nationwide programme, in a candid interview with Malaysian Digest recently.

While admitting that it is still a viable business, Ameer equates the programme to something more akin to a corporate social responsibility (CSR) project.

"This isn’t the easy money business that some quarters make it out to be. It is something that we took on simply because we believed in its ideals, which was to make essential goods more affordable to low-income earners.

"The KR1M wasn’t our idea, we didn’t ask for it."

He explained that Mydin was previously heavily involved in the government’s TUKAR (Transformasi Kedai Runcit) programme, where hypermarkets share their knowledge with small time mini-markets on how to upgrade and improve their businesses.

"That was a purely CSR move on our part, there was no money involved. After seeing the success of that, the government asked us to handle the KR1M initiative," he said.

Monopoly Accusation

The company had come under fire from members of the Opposition, such as Petaling Jaya MP Tony Pua, who earlier this week had questioned the advantage given by the government to Mydin’s and the latter’s "monopoly" of the KR1M business.

Ameer however, begged to differ and believed it was Mydin’s position as the leading local hypermarket operator which sealed its position to operate the KR1M programme.

Mydin currently operates 100 outlets nationwide inclusive of 10 hypermarkets, 18 emporiums, 3 bazaars, 54 mini markets (MyMydin), nine convenience stores (MyMart) and six franchise outlets (Mydin Mart).

"We know how to operate this business; we have been doing it for many years. The programme can’t be placed under any government-linked company (GLC), and seeing that our forte is selling everyday items at very competitive prices, I believe that was a big factor in the government asking us to handle this programme," he said.

He explained that when discussing the KR1M project, the government gave a simple condition, which was for the prices to be competitive so that it benefits low-income earners.

"That was our objective. So we sat down and drafted a list of essential items which crucially need to be affordable such as rice, flour, milk, diapers and even washing detergent.

"And the best way to make it affordable was to package it as a generic brand, hence the 1Malaysia logo," he said.

Generic brands, he said, are traditionally difficult to sell, but thanks to the government’s push, it is now recognisable and accepted by the consumers.

KR1M 'Not A Get Rich Quick Scheme'
Malaysia Digest

Ameer said a clear example of how the KR1M programme wasn’t a 'get rich quick scheme' could be seen when they opened up the opportunity for members of the public to set up their own KR1M outlets.

He said they recently invited Malaysians to participate in setting up their own KR1M outlets, provided that each entrepreneur puts up a capital of between RM350,000 to RM400,000 per store.

The likened the system to a 'franchise model' minus the franchise fees.

"There were around 100 people who expressed interest in setting up the KR1M outlets. Upon expressing interest, they were briefed on the primary objective, which was to sell goods at specific prices which are affordable to the rakyat," he said.

Ameer said when the business plan was laid out to the interested parties, complete with the financial gains, an overwhelming majority of the individuals pulled out.

"Out of 100 who were initially keen, only seven followed up on their interest. Out of the four, three have put up the capital.

"This is perhaps the biggest indicator yet that this business isn't one for someone who's out to make a fast buck," he said, adding that the three stores with paid up capital are already currently under renovation.

Why Setting Up KR1M in East Malaysia Is More Expensive

Among the criticism the government received – post Budget 2013 – was the RM386 million allocation to help reduce consumer goods prices in Sabah and Sarawak. From this total, RM299 million will be slotted to offset price reductions.

Tony Pua was previously quoted as saying that with 57 outlets due to open in East Malaysia, this effectively translates to RM1.53 million per KR1M outlet, or close to 100 per cent more than the cost of opening a store in the peninsular.

To this, Ameer said this reflected a simplistic view and clear lack of understanding on how the business works.

"They're not taking in the whole picture, as usual. To understand why it's costly open outlets there, one must first understand that items cost more in East Malaysia due to transportation cost.

"This includes cost of shipping items from the peninsular to East Malaysia, as well as cost of transporting items within Sabah and Sarawak, which is a large landmass.
Malaysia Digest

"This is why a gas tank for cooking, which costs about RM30 in the peninsular, can cost up to RM70 in Sarawak," he said.

Ameer explained that while they can open single-door KR1M shops in the peninsular, the same cannot be done in East Malaysia.

"Let's say a customer buys a tin of Milo from a KR1M shop in KL. The turnaround time for the shop to be resupplied with Milo will be under one day, as distribution centres are nearer, and connectivity isn't a problem. The shop also needs minimum storage space as it supply can be replenished easily.

"However, the same concept doesn't apply in East Malaysia. Shops will be scattered far and wide to accommodate the needs of the low-income earners. Turnaround time for resupplying is bound to take longer. It is essentially a logistical nightmare for any retailer," he said.

Ameer said they have devised a plan where they build several large 'mothership outlets' within Sabah and Sarawak to cater for these stores. These motherships, which will have a minimum 15,000 sq ft build up to store the goods, will then serve as distribution centres, effectively reducing delivery time.

He also said the respective KR1M shops in East Malaysia cannot be the same size as those in the peninsular.

"Because of the remote locations of some of these shops, they need to be three-door outlets at minimum. One door is used for the display area, while the remaining two are used purely for stock. These outlets will need the extra space as turnaround time for supplies still won't compare with that in the peninsular."

He said Pua's calculation of RM1.53 million per outlet is "simplistic."

"This is why you cannot calculate it in that manner. Plus, cost will vary from shop to shop. Some already have tiles, partitions and air-conditioning while others you may have to start from scratch. The cost per shop is subjective and cannot be generalised with a standard figure," he said.

"We Get Into The Government's Good Books"

Ameer candidly admitted that there were benefits to be had in handling the KR1M programme.
Malaysia Digest

Yes, there are benefits. For one, we get into the government's good books. And if the business grows properly, it can benefit us in the long run. By buying more items, we can hopefully negotiate with suppliers for better deals. This can be passed down to our customers as well and keep them happy.

"But it is not the 'goldmine' that some quarters make it out to be. It is still a business which requires effort and persistence and has risk," he said.

Asked if he has any regrets about taking on the KR1M programme, Ameer said he had only one.

"My only regret is that some politicians choose to look at things from only one perspective.

"No government is perfect; this present government has made some horrible decisions as well. But a good initiative, wherever it originates from, deserves credit.

"The Opposition deserves credit too when it offers constructive criticism. But don't run down someone when he tries to do something good."