Industry Overview

8. INDUSTRY OVERVIEW 8. INDUSTRY OVERVIEW SMITH ZANDER INTERNATIOI\JAL SDI\J BHD (1058128-V) Suite 23-3, Level 23, Office Suite, Menara 1MK, SMITH ZANDER 1 Jalan Kiara, Mont’ Kiara, 50480 Kuala Lumpur, Malaysia. T +6036211 2121 2 2 FEB 20\6 The Board of Directors BISON CONSOLIDATED BERHAD Unit 07-02, Level 7, Persoft Tower, 6B Persiaran Tropicana, Tropicana Golf & Country Resort, 47410Petaling Jaya, Selangor Darul Ehsan, Malaysia. Dear Sirs/Madam, Executive Summary of the Independent Market Research Report dated February 2016 This Executive Summary of the Independent Market Research Report has been prepared by SMITH ZANDER INTERNATIONAL SDN BHD (“SMITH ZANDER”) for inclusion in the Prospectus in conjunction with the initial public offering and the listing of Bison Consolidated Berhad on the Main Market of Bursa Malaysia Securities Berhad. SMITH ZANDER has prepared this report in an independent and objective manner and has taken adequate care to ensure the accuracy and completeness of the report. We believe that this report presents a true and fair view of the industry within the limitations of, among others, secondary statistics and primary research, and does not purport to be exhaustive. Our research has been conducted with an “overall industry” perspective and may not necessarily reflect the performance of individual companies in the industry. SMITH ZANDER shall not be held responsible for the decisions and/or actions of the readers of this report. This report should also not be considered as a recommendation to buy or not to buy the shares of any company or companies as mentioned in this report or otherwise. We acknowledge that this report will be included in the Prospectus and we further confirm that we are aware of our responsibilities under Section 215 of the Capital Markets and Services Act 2007. We further acknowledge that if we are aware of any significant changes to the adequacy of the information in this report between the date of this report and the issue date of the Prospectus, or after the issue of the Prospectus and before the issue of securities, we have an ongoing obligation to either cause this report to be updated so as to correct any inaccuracies and where applicable, cause Bison Consolidated Berhad to issue a supplemental prospectus, or should they fail to do so, withdraw our consent to the inclusion of this report in the Prospectus. For and on behalf of SMITH ZANDER:
MANAGING PARTNER 8. INDUSTRY OVERVIEW (cont’d)
Table of Contents
1 3Economic Overview 2 4Definitions and Segmentation Segmentation ofthe Retail Market 4 OveNiew ofthe Grocery Retail Market 5 The Convenience Market 6 3 Market Size and Performance 8 The Retail Market and Grocery Retail Market.. 8 The Retail Convenience Store Market 9 Competitive Landscape 11 Product! SeNice Substitution 13 Reliance and Vulnerability to Imports 14 4 Demand and Supply Conditions 15 Key Drivers: Demand and Supply Conditions 15 Supply Dependencies 19 5 Critical Success Factors 21 6 Growth Potential 23 7 Risks and Challenges 25 8 Government Laws and Regulations 28 9 Outlook and Prospects of Bison Consolidated Berhad 30 8. INDUSTRY OVERVIEW (cont’d)
1 ECONOMIC OVERVIEW The Malaysian economy registered a growth of 4.5% in the fourth quarter of 2015 (30 2015: 4.7%), supported mainly by the private sector demand. On the supply side, growth was underpinned by the major economic sectors. On a quarter-on-quarter seasonally adjusted basis, the economy grew by 1.5% (30 2015: 0.7%). For the year 2015, the Malaysian economy expanded by 5.0%. Despite the challenging economic environment during the quarter, the private sector continued to be the key driver of growth. Private consumption grew by 4.9% (30 2015: 4.1 %), supported by stable wage growth and labour market conditions. Private investment expanded by 5.0% (302015: 5.5%), driven by capital spending in the manufacturing and services sectors. Public investment growth moderated in the fourth quarter (0.4%; 30 2015: 1.8%), following lower growth in fixed assets spending by the Federal Government. Meanwhile, public consumption growth registered sustained growth of 3.3% (30 2015: 3.5%) as the stronger growth in emoluments was offset by slower growth in supplies and services expenditure. On the supply side, growth in the fourth quarter was supported by the major economic sectors. Growth in the services sector was underpinned by the consumption and trade-related activities. The manufacturing sector recorded a marginally higher growth, supported mainly by domestic-oriented industries. In the construction sector, growth was supported by the civil engineering and residential subsectors. Meanwhile, growth in the agriculture sector moderated, reflecting lower production of palm oil. The mining sector, however, registered a contraction arising from the lower production of both crude oil and natural gas. Inflation, as measured by the annual change in the Consumer Price Index (UCPIU)1, was lower at 2.6% in the fourth quarter of 2015 due to the lower domestic fuel prices. However, this was partly offset by the higher inflation for food and cigarettes. The RM, along with other regional currencies, did not face significant volatility during the quarter despite uncertainties over global growth prospects and declining global energy prices. Overall, the RM appreciated by 3.6% against the USD during the quarter. The RM also appreciated against the Euro (6.7%), the pound sterling (6.0%), and the Japanese yen (4.0%), but depreciated against the Australian dollar (-0.5%). The RM also appreciated against all regional currencies, by between 2.4% and 5.8%, with the exception of the Indonesian rupiah (-2.4%). Between 1 January and 16 February 2016, the RM appreciated against the US dollar (3.5%). The RM also appreciated against the pound sterling (6.3%), the Australian dollar (5.4%), and the Euro (1.4%), but depreciated against the Japanese yen (-1.3%). The RM appreciated against most regional currencies. The Malaysian economy is expected to face a challenging operating environment in the immediate future. Growth will continue to be driven by domestic demand, with some support from net exports. Nevertheless, the pace of domestic demand expansion is projected to moderate. While the growth in income and employment continues to support private consumption, it is expected to moderate as households continue to adjust to the higher cost of living. Meanwhile, private investment is projected to moderate to below its long term trend but will nevertheless be supported by the capital expenditure in the manufacturing and services sectors, as well as the implementation of infrastructure projects. The downside risks to growth will however remain, given the continued uncertainty in the external environment and the on-going reforms in the domestic economy. Source: Extracted from the Independent Market Research (“IMR’j report by SMITH ZANDER 1 CPI examines the weighted average price changes of a basket of consumer goods and services. It measures the changes in the purchasing power of a currency and the inflation rate. 8. INDUSTRY OVERVIEW (cont’d)

2 DEFINITIONS AND SEGMENTATION Segmentation of the Retail Market The retail market in Malaysia comprises store-based retail and non-store retail. Store-based retail comprises grocery and non-grocery retailers. On the other hand, non-store retail consists of direct selling, internet retailing, home shopping and vending businesses. Grocery retailers include retailers which market and sell food and beverage, and non-food products. Major non-grocery retailers refer to mixed retailers and specialists providing only non-food products such as fashion apparel, electronics and appliance, apparel, health and beauty, and leisure and personal products. There are generally two (2) types of grocery retailers, namely traditional and modern format grocery retailers. Traditional format grocery retailers include independent small grocery retailers and specialist retailers. Modern format grocery retailers include convenience market (which includes retail convenience stores, petrol marts, and grocery convenience stores), discount outlets, forecourt retail market (which includes kiosks or carts), hypermarkets, and supermarkets. Both supermarkets and hypermarkets sell a variety of food and non-food grocery products, particularly household products, though hypermarkets sell a relatively more extensive assortment of consumer products, including apparels. On the other hand, the convenience market has relatively smaller retail spaces as compared to supermarkets and hypermarkets, and these stores sell a selected range of convenience food and non-food products, which are set out in the ensuing sections of this chapter. Retail market in Malaysia -Market segmentation i~-~~–l !\lon-store oased ;
reta1f Grocery retail yon-grocery retail I J –=::_ . 1 Direct seiling Apparel H Home shoppingM_ od_ i1 –J Traditional formatr__ He_rn_f_or_m_at–=g=–roc_ery-=—-re_ta_Electronics and appliance-grocery retail Full grocery L..~r–H-ea-I-th-a-n-d -be-a-ut-y–: l….._,n_te_m_et_r_eta_i_1­….._…… ) r-In-d-ep-e-nd-e-nt-s-m-a-Il”(e.g.: hypermarket and supermarket)
,….. grocer retail —–_ _-,…………..
1 ‘–S-p-ec-ia-Iis-t-re-ta-il—‘I Convenience -‘—1………..~ (e.g.: retail convenience I (e.g.: Foodl drink! I stores, petrol marts and tobacco) l; grocery convenience stores) JI Others ‘—-> (e.g.: forecourt retail and discount retail) —-1’–_v_en_d_ing=–_ Leisure and entertainment mmmm~ Mixed Others Note:C~ ~: Market segment where Bison Consolidated Berhad is principally involved in.
Source: Extracted from the IMR report by SMITH ZANDER The segment within the retail market that is of interest in this IMR report is the convenience market, a sub-segment of the grocery retail market, which is the segment in which Bison Consolidated Berhad is principally involved in. 8. INDUSTRY OVERVIEW (cont’d)
Overview of the Grocery Retail Market Malaysia’s grocery retail market began with traditional format grocery retailers in the past, largely consisting of wet markets and family-owned and operated independent small grocery retail stores, otherwise known colloquially as “sundry shops” or “provision shops”. The wet markets served as a source of fresh meat and produce (i.e. perishable products), while the sundry shops were the primary avenues for non-perishable products, snacks and beverages. These retailers were generally small and independent markets and shops established to serve the surrounding neighborhoods, and as such were common all over the country. Up until around the late 1980s to early 1990s, these wet markets and sundry shops were the mainstay of the grocery retail business in Malaysia. In the mid-1980s, modern format grocery retailers began to emerge, introducing newer and more modern store concepts and layouts. These consisted largely of two (2) types of retailers, the large format supermarkets and hypermarkets, and the modern format retail convenience store industry players. Many of these modern format grocery retailers quickly became chains, with multiple outlets or branches across the cou ntry. Following the removal of certain restrictions on foreign retailers in the grocery retail business in Malaysia in 1995, foreign multinational grocery retailers began to penetrate the Malaysian market. Some of these foreign multinationals acquired local grocery companies and transformed these traditional format independent small grocery retailers into modern format retail chains. Notwithstanding the presence of foreign retailers in the market, there were also local independent small grocery retailers who converted their traditional format retail outlets into modern format retail outlets in order to remain competitive in the market. Almost simultaneously, modern format retail convenience stores also began to emerge to complement the existence of the large, modern format grocery retailers and grocery convenience stores. While consumers patronised the large grocery retailers for their major grocery needs, the retail and grocery convenience stores became the alternative avenue for quick, ad-hoc shopping needs and hassle-free source of small-item purchases, such as snacks, beverages, tobacco products and newspapers. “7­Eleven” was one of the earlier modern format convenience retailers to open their stores in Malaysia, having been granted the rights to develop and operate “7-Eleven” stores in Malaysia and Brunei in 1986. Bison Consolidated Berhad opened its first modern format retail convenience store in 1997. These modern format grocery retailers are able to offer consumers relatively lower prices and fresher products due to the large volumes they sell and the quicker turnover of products. Furthermore, with new modern store concepts and layouts, consumers are also presented with a more comfortable shopping experience. Typically, modern format grocery retailers have inventory management systems which enables cost efficiency and scalability, thus allowing these modern format grocery retailers to expand their network of store chains. As a result, the retail landscape in Malaysia has transformed in the last two (2) decades with modern retail formats increasing in dominance over traditional, family-owned and operated shops. [The rest of this page is intentionally left blank] 8. INDUSTRY OVERVIEW (cant’d)
The Convenience Market The convenience market encompasses modern format stores that offer a range of fast moving consumer goods (“FMCG”) and convenience products and services. The convenience market emerged to complement the large format grocery retailers (Le. hypermarkets and supermarkets), offering food products such as snacks and confectioneries, beverages, tobacco products, magazines and newspapers, stationery, basic over-the-counter pharmaceutical products, bakery products and grocery products as well as offer consumer services such as automated teller machines (“ATM”), money remittance and currency exchange services, photocopying services, pre-paid card top-ups and bill payment services, as a fast, alternative and convenient mode of shopping. Typically, these stores have longer operating hours as compared to the normal operating hours of traditional format stores such as independent small grocery retailers. Stores located in shopping centres, transportation hubs and commercial centres operate during the opening hours of the premises, e.g. 10am to 10pm, while others, especially those located on high streets, may operate 24 hours. The convenience market can be broadly categorised into the following three (3) categories: Convenience market II f”–_ …… _­——“‘”‘1 I Retail convenience stores : 1’—p_e_t_ro_l_m_a_rt_s I Grocery convenience stores I—J11-I Note: C~ ~: Market segment where Bison Consolidated Berhad is principally involved in.
Source: Extracted from the IMR reporl by SMITH ZANDER (i) Retail convenience stores SMITH ZANDER defines retail convenience stores as stores which sell FMCG and convenience products, and have relatively smaller retail spaces (Le. typically not more than 2,500 square feet) as compared to hypermarkets and supermarkets. These outlets typically focus on selling food products such as snacks and confectioneries, beverages (e.g.: packaged or ready-to-go beverages), tobacco products, stationery and basic over-the-counter pharmaceutical products. Some of these stores also sell print published materials (e.g.: magazines and newspapers), as well as offer bakery products (e.g.: pastries, sandwiches and hotdogs) and instant food products (e.g.: instant noodles). In addition, retail convenience stores may also offer consumer services such as ATM, money remittance and currency exchange services, photocopying services, pre-paid card top-ups and bill payment services, as a fast, alternative and convenient mode of shopping. Retail convenience stores are commonly found in convenient and accessible locations such as shopping centres, transportation hubs, high streets, residential and commercial areas. In line with the growing cafe-lifestyle in Malaysia, seating areas are also increasingly provided in some retail convenience stores. Examples of major retail convenience store industry players are set out in Chapter 3 -Market Size and Performance (Competitive Landscape) of this IMR report. 6 8. INDUSTRY OVERVIEW (cont’d)
(ii) Petrol marts Petrol marts are eXclusively located in petrol stations, while retail convenience stores can be located in any public and convenient location. Retail convenience stores and petrol marts have similar product offerings, except that petrol marts also carry automotive products and accessories in their stores. Petrol marts can be operated in three (3) forms, either on a “company-owned, retailer-operated” business model (where the store is owned by the respective oil and gas company but is operated by the designated retailer) or on a “retailer-owned, retailer-operated” business model (where the store is owned and operated by the designated retailer) or a “company-owned, company-operated” business model (where the store is owned and operated by the respective oil and gas company). Among some of the petrol mart industry players include Boustead Petroleum Marketing Sdn Bhd (under the tradename “BHPetrolmart”), Chevron Malaysia Limited (under the tradenames “Star Mart” and “Xpress Point”), Petron Malaysia Refining and Marketing Berhad (under the tradename “Treats”), Petronas Dagangan Berhad (under the tradename “Kedai Mesra”) and Shell Malaysia Trading Sdn Bhd (under the tradename “Select”). (iii) Grocery convenience stores Grocery convenience stores have relatively wider product ranges as compared to retail convenience stores and petrol marts, offering grocery products such as fresh meats and produce (albeit with much smaller selections compared to supermarkets and hypermarkets), dry and canned foods, and household products, as well as similar products types as retail convenience stores and petrol marts such as snacks and confectioneries, beverages, tobacco products, stationery, basic over-the-counter pharmaceutical products, print published materials, bakery products and instant food products. These stores are also usually relatively larger in terms of retail space size as compared to retail convenience stores and petrol marts. Retail space size for grocery convenience stores vary according to its location, though it is typically more than approximately 1,000 square feet. In addition, the locations of grocery convenience stores typically differ from retail convenience stores and petrol marts, as they are largely found in commercial centres and shoplots located close to residential areas. Among some of the major grocery convenience industry players include 99 Speed Mart Sdn Bhd (under the tradename “99 Speed Mart”), KK Supermart & Superstore Sdn Bhd (under the tradename “KK Super Mart”), MRT Retail Sdn Bhd (under the tradename “Kedai Rakyat 1 Malaysia”) and Mydin Mohamed Holdings Bhd (under the tradename “MylVlart” and “MyMydin”). The store category within the convenience market that is of interest in this report is the retail convenience store segment, which is the segment in which Bison Consolidated Berhad is principally involved in. [The rest of this page is intentionally left blank] 8. INDUSTRY OVERVIEW (cont’d)
3 MARKET SIZE AND PERFORMANCE The Retail Market and Grocery Retail Market The retail market in Malaysia, of which the retail convenience store market is a subset, grew from RM 129.8 billion in 2007 to RM 177. ‘I billion in 2014 at a compound annual growth rate (“CAGR”) of 4.5%, based on retail sales value. The grocery retail market comprised about 33.5% of total retail sales in 2014, and is growing faster than other retail sub-segments, having recorded a CAGR of 5.9%, from RM39.8 billion to RM59.3 billion between 2007 and 2014. In comparison, other retail sales, comprising non­grocery retailers and non-store retailers, grew at a relatively slower CAGR of 3.9%, from RM90.0 billion in 2007 to RM117.8 billion in 2014. Retail market and grocery retail market size (Malaysia), 2007-2014 200  180  ‘”  ~  ‘” 160  iii  :IE  .5  140  ]1  :;;~ :lEe  120  :;;~ …. ­GI’c  100  O:::IE  >-0::lU­l”l 0..  80  Cl  “0  60  e  ‘”  iii 1il  40  0::  20  0  2007  2008  2009  2010  2011  2012  2013  2014  L  ~~  • Grocery retail  Ii1 Total retail  ~  _
Note: 2014 is the latest year in which data for the retail and grocery retail markets are available.
Source: Extracted from the IMR report by SMITH ZANDER The grocery retail market in Malaysia is fragmented, with over 167 hypermarkets, 1,298 supermarkets, and 2,547 convenience stores owned by local and foreign companies located nationwide in Malaysia in 2014. 3 Traditional format grocery retail channels such as independent small grocery retailers are largely located in suburban, residential neighbourhoods and rural areas, while modern format grocery retail channels such as retail convenience stores, hypermarkets and supermarkets are more dominant in urban and commercial areas. However, this is gradually changing as a result of urbanisation, with retailers opening modern format grocery retail outlets including retail convenience stores, hypermarkets and supermarkets on the fringes of city centres in a bid to widen their customer reach and respond to the increased demand for convenience by consumers. This is largely a result of globalisation and the liberalised business policies which have brought foreign players, franchises and new retail formats into the grocery retail market in Malaysia. 3 Latest available data is as at 2014. 8. INDUSTRY OVERVIEW (cont’d)
The Retail Convenience Store Market Over the last two (2) decades, the grocery retail landscape in Malaysia has transformed with modern format grocery retail outlets (i.e. retail convenience stores, forecourt retail market, hypermarkets and supermarkets) increasing in dominance over traditional format grocery retail outlets (i.e. wet markets and family-owned and independently operated small grocery retailers). The increasing consumer preference towards modern format grocery retail outlets, particularly in the major urban areas, is evidently illustrated by the strong growth of the modern format grocery retail market over the years. The modern format grocery retail market comprising retail convenience stores, forecourt retail market, hypermarkets and supermarkets grew, in terms of market size, from RM 14.1 billion in 2007 to reach approximately RM24.9 billion in 2014, at a CAGR of 8.5%. On the other hand, the traditional format grocery retail market, comprising largely small, independently-owned businesses, experienced a slower CAGR of 4.2%, in terms of market size, from RM25.6 billion in 2007 to RM34.1 billion in 2014. Traditional and modern format grocery retail market size (Malaysia), 2007-2014 2007  2008  2009  2010  2011  2012  2013  2014  • Retail convenience stores  II Forecourt retail market  I:Sl Hypermarkets  EJ Supermarkets  aTraditional format grocery retail market  o Other grocery retail

Note: 2014 is the latest year in which data for the retail and grocery retail markets are available.
Source: Extracted from the IMR report by SMITH ZANDER The retail convenience store market has been the fastest growing sUb-segment of the grocery retail market in Malaysia, outpacing all other sub-segments. In 2007, the retail convenience store market recorded a market size, in terms of retail sales, of RM1.2 billion, and this more than doubled to reach R1III3.0 billion in 2014, at a CAGR of 14.0%. Taking into account the estimated market size of RM3.3 billion in 2015, the retail convenience store market is then expected to grow at a CAGR of 13.5% between 2007 and 2015. Meanwhile, supermarkets grew at a CAGR of 11.2%, while forecourt retail market and 8. INDUSTRY OVERVIEW (cant’d)
hypermarkets grew at CAGRs of 7.6% and 6.1 % respectively, between 2007 and 2014. Traditional format grocery retail grew at 4.2% during the same period. The retail convenience store market also grew significantly higher as compared to the growth of gross domestic product (“GDP”) from the entire wholesale and retail trade sub-sector, which grew at a CAGR of 6.6% between 2010 and 2014. In line with this growth, the number of retail convenience store outlets has also more than doubled, increasing from 1,054 outlets in 2007 to an estimated 2,776 outlets in 2015, which translates to a CAGR of 12.9%. These 2,776 retail convenience store outlets are mostly made up of several prominent convenience store chains, of which some of the larger convenience store retailers include 7-Eleven Malaysia Holdings Berhad and Bison Consolidated Berhad. Further details of the competitive landscape of the retail convenience store market is illustrated in the ensuing sections of this chapter. Retail convenience store market size and number of outlets (Malaysia), 2007-2015(e)
2007 2008 2009 2010 2011 2012 2013 2014 2015(e) -Market size (RM billion) -III-Number of outlets -,… GDP from wholesale and retail trade sub-sector Notes: GDP from wholesale and retail trade sub-sector for the years 2007 to 2009 are at constant 2005 prices. GDP from wholesale and retail trade sub-sector for the years 2010 to 2014 are at constant 2010 prices. 2014 is the latest year in which data for the retail and grocery retail markets are available.
(e) SMITH ZANDER’s estimate based on historical market performance and research on prevailing market drivers. Source: Extracted from the IMR report by SMITH ZANDER [The rest of this page is intentionally left blank] 8. INDUSTRY OVERVIEW (cant’d)
Competitive Landscape Key industry players The retail convenience store market in Malaysia consists of established industry players and several other smaller industry players. Some of these are foreign brands with operations in multiple countries worldwide, while a majority of industry players are homegrown companies. In the context of this report, homegrown companies refer to companies which originated from Malaysia, and have built and established their market reputation and branding in Malaysia. Retail convenience stores typically focus on selling food products such as snacks and confectioneries, beverages, tobacco products, stationery, basic over-the-counter pharmaceutical products, as well as print published materials, bakery products and instant food products. Retail convenience stores may also offer consumer services. Below are examples of major retail convenience store industry players and their details, listed in alphabetical order: ! Number of I Latest Financial Year Revenue Industry Player Trade Name ! stores Ending1 (RM ‘million) 7-Eleven Malaysia Holdings 7-Eleven 1,8832 31 December 2014 1,893.1Berhad N/AAll Happy Sdn Bhd Happy Mart 31 March 2015 47.5 • myNEWS.com • newsplusBison Consolidated Berhad 2383,4 31 October 2015 217.5• MAGBIT
• THE FRONT

PAGE Circle K (Malaysia) Sdn Bhd N/A N/ACircle K 145 N/APoint Convenience Shop Sdn Bhd Point 31 December 2013 15.2 85TCT Trading Sdn Bhd Orange 31 March 2011 Undisclosed6
Notes: The table above includes key identified retail convenience store industry players, and may not be exhaustive. N/A denotes that information for the company is not publicly available. 1 Latest financial information available from SSM as of 8 January 2016. 2 Number ofstores are as at 30 September 2015. 3 Number ofstores exclude WH Smith stores.
4 Number ofstores are as at 31 December 2015. 5 Number ofstores are based on latest publicly available information as at 8 January 2016. 6 Segmental revenue of the retail convenience business is not publicly available.
Source: Extracted from the IMR report by SMITH ZANDER [The rest of this page is intentionally left blank] 8. INDUSTRY OVERVIEW (cant’d)
Market Share Bison Consolidated Berhad’s positioning within the retail convenience store market in Malaysia can be determined based on revenues and number of outlets. Bison Consolidated Berhad registered a market share of6.1% in the retail convenience store market in 2014, based on its revenue of RM182.4 million in the FYE 31 Oct 2014 as compared to Malaysia’s retail convenience store market size of RM3.0 billion in 2014. Bison Consolidated Berhad’s market share, in terms of revenues, is estimated to have increased to 6.6% in 2015, based on its revenue of RM217.5 million in the FYE 31 Oct 2015 as compared to Malaysia’s estimated retail convenience store market size of RM3.3 billion in 2015. As at 2014, the total number of retail convenience stores in Malaysia was 2,547. Based on Bison Consolidated Berhad’s total number of stores of 205 as at 31 December 2014, Bison Consolidated Berhad garnered a market share of 8.0% in terms of the number of retail convenience store outlets. In 2015, Bison Consolidated Berhad’s market share, in terms of number of retail convenience store outlets, is estimated to have increased to 8.6% based on Bison Consolidated Berhad’s total number of stores of 238 as at 31 December 2015, and an estimated total number of retail convenience stores in Malaysia of 2,776 in 2015. With a market share of 6.1 % in terms of its revenues, and 8.0% in terms of number of outlets in 2014, and an estimated market share of 6.6% in terms of its revenues and 8.6% in terms of number of outlets in 2015, Bison Consolidated Berhad is the second largest retail convenience store industry player in Malaysia, and the largest homegrown retail convenience store industry player in Malaysia. Retail convenience store market -Market share (Malaysia), 2014 Based on revenues Based on number of outlets Bison Consolidated Berhad, Bison Consolidated Berhad, 6.1% 8.0%
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Retail convenience store market -Estimated market share (Malaysia), 2015 Based on revenues Based on number of outlets Bison Consolidated Berhad, Bison Consolidated Berhad, 6.6% 8.6%
Source: Extracted from the IMR reporl by SMITH ZANDER Product! Service Substitution Retail convenience stores emerged to complement the large format grocery retailers such as hypermarkets and supermarkets. Retail convenience stores are typically located in accessible, high foot traffic locations in order to appeal to consumers seeking “on-the-go” or impulse purchases. Thus, while consumers are able to procure the same FMCG (such as snacks and confectioneries, beverages, tobacco products, stationery, basic over-the-counter pharmaceutical products and bakery products) and print media (such as magazines and newspapers) at large format grocery retailers, it is the convenience that appeals to consumers, as these are often small items purchased on an unplanned or impulsive basis. As such, large format grocery retailers are not substitutes to retail convenience stores, as long as convenience is a factor for purchases. However to a certain extent, retail convenience stores can be substituted with grocery convenience stores, petrol marts and traditional format independent small grocery retailers, particularly in locations such as high street, residential and commercial areas, and petrol stations. Nevertheless it is important to note that grocery convenience stores, petrol marts and traditional format independent small grocery retailers are typically only situated in such locations, and thus will not be able to substitute retail convenience stores situated in locations such as shopping centres and commercial centres. [The rest of this page is intentionally left blank] 8. INDUSTRY OVERVIEW (cont’d)
Reliance and Vulnerability to Imports The retail convenience store market in Malaysia, similar to the overall retail market, is made up of both locally-produced and imported products. Products such as snacks and confectioneries, beverages, tobacco products, stationery, basic over-the-counter pharmaceutical products and print published materials comprise both local products as well as imported ones, while bakery products are typically all locally produced as they are supplied on a daily basis. The presence of imported products essentially complement locally-produced products, which offers consumers a greater variety and choice of products. The nature of the retail market is such that local and imported products have different price points and target markets, and thus would cater to a wide range of customer segments. As such, similar to the overall retail market, the retail convenience store market in Malaysia is not reliant nor vulnerable to imports. [The rest of this page is intentionally left blank] 8. INDUSTRY OVERVIEW (cont’d)
4 DEMAND AND SUPPLY CONDITIONS Key Drivers: Demand and Supply Conditions Increasing number of transportation hubs and growth in public transport riderships in Malaysia Transportation hubs have high foot traffic, and consumers in these areas tend to seek convenience in purchasing FMCG and print media as they are typically travelling or commuting. Hence retail convenience stores in Malaysia are expected to benefit from the growth in transportation hubs and increase in public transportation passengers, as this not only indicates the availability of more suitable locations for expansion, it also exposes the retail convenience stores to a larger target market. Through the 11 th Malaysia Plan, Economic Transformation Programme (UETP”) and Budget 2016, initiatives to improve and enhance public transportation in Malaysia in order to increase public transportation ridership have been implemented and are on-going. Some of these initiatives include the implementation of the Urban Public Transport National Key Results Areas which aims to improve city rail network for better connectivity and integration as well as emerging demand lending to opportunities for high density mixed developments and new suburban townships. This includes the development of the Klang Valley Mass Rapid Transit System (“MRT”) which comprises 31 stations, and the extension of the Light Rail Transit lines (ULRT”) comprising 25 new stations. In addition, further developments in public transportation in Malaysia includes the construction of the 56-km Second MRT Line from Sungai Buloh to Putrajaya and the LRT 3 Project which will link Bandar Utama to Klang under the Budget 2016, which will significantly add more stations, and thus more suitable locations for retail convenience stores throughout the Klang Valley. Public transport mode share (Malaysia), 2010-2013, 2015 and 2030 Furthermore, under the Comprehensive Development Plan in Johor, transportation hubs including the rapid transit system linking Johor Bahru to Singapore will also be constructed. The State Government of Penang also intends to implement the Penang Integrated Transport Masterplan, with the aim of developing an integrated public transportation and road system for the whole of Penang. In Kedah, intentions to construct Kulim Airport, an international airport, was also TARGET 40% 25% 21%20% 17% 16%

 

 

2010 2011 2012 2013 2015 2030 announced by the respective Note: Only publicly available data are in 2010-2013,2015 and 2030. state Governments in January 2015. Source: Extracted from the IMR reDort bv SMITH ZANDER In 2013, the public transport mode share was 21%, which indicates that 21% of commuters were using public transportation. The Government expects to have reached 25% of public transport mode share in 2015, whereby a targeted 750,000 daily public transport riderships during peak hours is expected in the same year. The Government has also targeted for 75% of the population to reside within 400 metres of public transportation nodes by 2015. According to the National Land Public Transport Master Plan, the Government aims to reach 40% of public transport mode share by 2030 in urban areas. These national initiatives create opportunities for expansion for retail convenience stores, thus promoting the growth of the retail convenience store market in Malaysia. 15 8. INDUSTRY OVERVIEW (cont’d)
Increasing preference for modern format over traditional format Consumers in Malaysia, particularly in the urban and suburban areas, have established a greater preference for modern format retail outlets. Traditional format grocery retail outlets are losing ground as modern format grocery retail outlets continue to proliferate in the urban and suburban areas. The traditional format retail grocery market size grew at a CAGR of 4.2% between 2007 and 2014, from RM25.6 billion in 2007 to RM34.1 billion in 2014. Meanwhile modern format grocery retail market size grew at a higher CAGR of 8.5% during the same period, from RM14.1 billion in 2007 to reach approximately RM24.9 billion in 2014. The retail convenience store market, in particular, has been the fastest growing sub-segment of the modern format grocery retail market in Malaysia, in terms of its market size, with a CAGR of 14.0% during the same period. Taking into account the estimated market size of RM3.3 billion in 2015, the retail convenience store market is then expected to grow at a CAGR of 13.5% between 2007 and 2015. The evolution in the grocery retail competitive landscape is largely due to consumer preference for a reliable, clean and comfortable shopping environment. With the growing affluence of consumers and their increasing sophistication in shopping behaviour, the store concepts and layouts of retail convenience stores appeal highly to these consumers. The modern store concepts and layouts of retail convenience stores also accords it with the opportunity to be present in shopping centres, transportation hubs and commercial centres. Securing such store locations increases the exposure to consumers seeking convenience-based or impulse purchases as these locations have higher foot traffic. Moreover, some major modern format retail convenience store retailers have multiple outlets or branches, operating as retail convenience store chains. With their scale and size of operations, they often have greater bargaining power with their suppliers, effectively allowing them to negotiate and enjoy better pricing for their products as compared to independently operated outlets. As such, consumers will likewise benefit as they are able to purchase these products at comparatively lower prices, thereby increasing their preference for modern format retail convenience stores over traditional format sundry shops or provision shops. Rise in the number of commercial developments in Malaysia Shopping centres and commercial centres are also strategic locations for retail convenience stores as it allows for accessibility to a Commercial development (Malaysia), 2007 and 2014 large target market of consumers that are 3,000 seeking convenience in <tI .~ 2,500purchasing FMCG and print media. ~ .S 2,000Commercial development lfiin Malaysia, comprising t Q) 1,500shops, shopping e-complexes, purpose-built o.. ‘0 1,000offices and hotels, registered positive growth 2 E :J 500between 2007 and 2014. In Z 2014, there were 904 shopping complexes in o 2014(p)Malaysia, up from 622 in II!! Shopping centres 2007. The number of purpose-built private and Note: government office (p) preliminary buildings in Malaysia also Source: Extracted from the IMR report by SMITH ZANDER 16

8. INDUSTRY OVERVIEW (cont’d)
registered growth from 2,178 buildings in 2007 to 2,408 bUildings in 2014. In particular, commercial development in the Central region (comprising Kuala Lumpur, Selangor and Negeri Sembilan) is expected to be driven by national plans to transform lVIalaysia into a high-income nation by 2020 such as the Greater Kuala Lumpur/Klang Valley module of the ETP. Some of the upcoming commercial development projects in the Central region include the development of three (3) KLCC towers for additional office, hotel and retail space, Bukit Bintang Commercial Centre, and KL118 Tower. Property development in the Southern region (comprising Malacca and Johor) is also expected to grow in line with the implementation of the second phase of the Iskandar Malaysia Masterplan. Development activities in Iskandar Malaysia will continue to be focused within the city centre, Danga Bay and the Nusajaya locality within Flagship A and Flagship B development zones. In 2013, several integrated developments incorporating purpose-built office building space were announced including Medini Empire, Zikay @ Medini, D’Pristine@Medini, Southkey, Vantage Bay, 18@Medini, lVIeridin@Senibong, Sunway Medini, Medini Lakeside and The Suasana. Several of these announced integrated developments in 2013 are also expected to carry retail components. In addition, upcoming commercial property development projects in the North region (comprising Penang, Kedah and Perak) are driven by the Government’s promotion of Kedah and Perak as tourist destinations. Commercial developments in Perak are expected to see a rise in light of the launching of Perak’s transformation plan, Perak Amanjaya, in 2016, with five (5) key economic zones identified, i.e. Hulu Perak, Beriah Valley, Manjung, Ulu Bernam and Lembah Kinta. Perak has already experienced major growth in its commercial developments, where some of the major commercial centres include Taipan @ Ipoh CyberCentre and Taipan Festival Mall in Bandar Meru Raya; Taipan @ Slim River shopping centre in Tanjung Malim; Jelapang Square in Western Ipoh; Movie Animation Park Studios in Meru Raya which is an animation theme park; University Square @ Kampar in Kampar which comprises The Pavilion shop offices and The Disney concept retail shop lots, as well as the anticipated upcoming three-star hotel, a college, an office tower, 24-hour food and beverage outlets and Disneyland Castle. Kedah also sees growth in commercial development with new shopping centres currently under construction, such as Aman Central in Alor Setar (which is an eight (8)-storey development, and is presently the largest shopping centre in Kedah) which is expected to be opened by end of 2015. Commercial developments in Penang are expected to continue, and the Second Penang Bridge which was opened in 2014 is promoting property development in both landing sites of the bridge, i.e. Batu Kawan and Batu Maung. Some of the proposed developments in these areas include a theme park; IKEA store, IKANO Shopping mall and mixed development of offices and residences; and Penang Premium Outlet. These development plans create opportunities for expansion for retail convenience stores, thus promoting the growth of the retail convenience store market in Malaysia. In line with the slower economic growth in 2015, the commercial property development sector is expected to experience a decline in commercial property transactions. Nevertheless, any adverse impact on the commercial property development sector arising from the slower economic growth is expected to be short-term, and the sector is expected to rebound in following years as economic conditions improve in the country. Government-driven initiatives to support the growth of the retail market in Malaysia and boost retail expenditure The wholesale and retail sub-sector is a major contributor to Malaysia’s gross national income (“GI\lI”) and thus has been identified as one (1) of the 12 key economic focus areas under the ETP. The ETP (2011-2020) was launched in 2010 with the goal of promoting Malaysia into an inclusive and sustainable high-income country by the year 2020. The ETP is a comprehensive initiative comprising 131 high impact projects under 12 economic focus areas that have the potential to stimulate economic growth. The retail sector is a key driver of domestic consumption and plays a significant role in promoting economic growth. 17 8. INDUSTRY OVERVIEW (cant’d)
Despite recent developments in the retail market, annual retail expenditure per capita in Malaysia (RM3, 154 or USD8124) is lower compared to that in more developed countries such as South Korea (USD2,995), Taiwan (USD3,115) and Singapore (USD3,423). While this disparity can be partially attributed to differing income levels, the Government of Malaysia intends to drive retail spending in achieving the targets under ETP. In achieving the GNI targets for the retail sector, the Government intends to Iiberalise the retail sector through streamlining set-up and expansion requirements, upgrading transportation infrastructure and growing human capital. These initiatives taken by the Government of Malaysia via various economic plans and policies to boost the retail market in Malaysia will inadvertently contribute to the growth of the retail convenience store market. The growing need for convenience is increasing market preference for retail convenience stores Rapid urbanisation has led to a change in lifestyle of the population in Malaysia. As such, convenience has become essential in the lifestyle of Malaysian society, particularly in the urban and suburban areas, leading to an increasing need for retail formats which promotes convenience. Over the years, the rate of urbanisation grew with Malaysia’s growing economy, rising from 32.4% of total population in 1980 to 73.5% of total population in 2012. 5 This increasing urbanisation rate illustrates that the need for convenience in consumer lifestyle today has been, and will continue to be, a growing trend. The greater need for convenience increases market preferences for retail convenience stores over larger retail formats such as hypermarkets and supermarkets, as retail convenience stores cater for this specific need. As consumers lead a fast-paced lifestyle, they tend to have, or want to spend, less time searching for FMCG and print media while they are travelling or commuting, or while they are purchasing food and beverage products in between meals. This results in consumers seeking FMCG and print media from smaller retail stores where they will save time retrieving these products and queueing for payment. Furthermore, some retail convenience stores also offer additional consumer services. This allows consumers to perform multiple tasks at a single retail convenience store, once again offering consumers greater convenience and helping them save time. In addition, the extended operating hours of retail convenience stores also caters for consumers who work longer hours or have bUsy schedules. The location of retail convenience stores also play an important role in attracting consumers seeking convenience, as these stores are typically located in accessible locations in shopping centres, transportation hubs, high streets, residential and commercial areas. With continuing urbanisation and the prevalence of fast-paced urban living in Malaysia, consumers are expected to increase their acceptance and to develop market preference towards purchasing FIVlCG and print media from retail convenience stores. Increasing disposable income of the population signifies growth potential over the long term Malaysia is an upper-middle income developing economy with aspirations to achieve developed status by the year 2020. GDP per capita increased by 24.8% from approximately RM27,303 in 2007 to an estimated RM34,064 in 2015, indicating the growing disposable income and the improving standard of living of the population. These increases in disposable income and higher standard of living are leading to a rise in a more affluent popUlation that has greater spending power, creating demand for products sold in retail convenience stores. The ETP (2011-2020) will allow Malaysia to be closer to achieving its goal of raising the per capita disposable income of the population to approximately RM48,000 by 2020. In order to achieve a per capita income of RM48,000, the Government intends to attract RM 1.4 trillion investments which is expected to create 3.3 million jobs, of which 60.0% are expected to be in high value sectors under the 12 economic focus areas under the ETP. 3 Converted based on Bank Negara Malaysia’s annual average exchange rate in 2015 of RM1=USDO. 2574 4 Latest publicly available information 18 8. INDUSTRY OVERVIEW (cant’d)
GDP per capita (Malaysia), 2007-2015(e) 35,000 30,000
28,10427,303 27,203 ~ 25,000 ~ ro .’t: Cl. ~ 20,000 iii Cl. 0.. § 15,000 10,000 5,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015(e)
Source: Extracted from the IMR report by SMITH ZANDER The disposable income of the population is expected to continue to increase over the long term, and as such has the potential to contribute to higher retail sales from retail convenience stores in the country. Although products sold in retail convenience stores are generally price inelastic as purchases are typically which are purchased on an impulse basis, the increase in disposable income will encourage consumers to frequent the areas in which retail convenience stores are located such as shopping centres and commercial areas, thereby boosting the retail convenience store sales. Further, the Federal Government of Malaysia announced under the revised BUdget 2016 that employees have an option to reduce their Employees Provident Fund (“EPF”) contribution by 3% from March till December 2017, and that there will be a tax exemption of RM2,000 for Malaysians earning RM8,000 and below for 2015. These initiatives to increase the disposable income of Malaysians may have a positive impact on the retail convenience store market. Supply Dependencies Availability of suitable and strategic locations for retail convenience stores Ability to source suitable and strategic locations is one of the key success factors of a retail convenience store. The three (3) main characteristics of a strategic location for retail convenience stores are store visibility, accessibility, as well as high foot traffic. Visibility and accessibility are essential as FMCG are generally impulse purchases and thus, consumers are less likely to locate these shops if these shops are situated in inaccessible locations or at low foot traffic locations. In Malaysia, strategic locations for retail convenience stores are easily available as growth in commercial development is positive, with shopping centres, transportation hubs and commercial buildings heavily patronised by consumers. Moving forward, private sector and  Government plans  to  develop commercial  centres  and transportation hubs are  expected to continue to create opportuni tie s for retail convenience stores to expand.  19
8. INDUSTRY OVERVIEW (cont’d)
Availability of operations personnel All retail convenience stores require operations staff to manage customers, handle inventory and other operational functions. Thus, these personnel are important for retail convenience stores to operate efficiently. Employment in the wholesale and retail trade sub-sector increased from 1.7 million persons in 2007 to 2.1 million persons in 20126, indicating that there is growth in the supply of labour in this sector. Furthermore, the retail convenience store market also relies on the hiring of foreign labour for operational functions, and there are presently no restrictions to the hiring of foreign labour in the retail market. Availability of products sold in retail convenience stores Retail convenience stores typically carry a mix of local and international brands. These products are available through local distributors which source the products from various FMCG manufacturers, as well as through publishers of newspapers and magazines. As these are common products, they are easily and readily available from a large pool of suppliers. Reliable supply chain network Convenience stores source most of their products from distributors. As products sold in retail convenience stores are FMCG and print media, continuous replenishing of inventory levels are required and important in order to meet market demands for particular products. Failure to maintain inventory levels could cause losses in sales and a decline in customer loyalty to these stores. On the other hand, excessive inventory levels could result in higher cost and lower profit margins, especially for perishable products. Retail convenience store chains are able to benefit most from effective management of their supply chain network as the large quantities of products required by their retail convenience stores or chains will provide them with better price negotiation power with suppliers, and control over their supply chain network, factors which will allow them to achieve greater economies of scale. Effective inventory management is aided through centralised warehouses which are strategically and optimally situated within the network of outlets or branches. As retail convenience stores have smaller retail spaces, the need for efficient delivery of products are essential to these stores to maintain sufficient inventory levels. [The rest of this page is intentionally left blank] 5 Latest pUblicly available information. 8. INDUSTRY OVERVIEW (cont’d)
5 CRITICAL SUCCESS FACTORS It is critical for retail convenience store industry players to maintain consumer recognition of its trade name in order to attract and expand its customer base and consumer loyalty. An industry player’s branding and market reputation is built on the following critical success factors: Extensive store network, and suitable and strategic store locations One of the critical success factor in operating a retail convenience store business is the ability to build an extensive network of stores in suitable and strategic locations. The three (3) main characteristics of a strategic location for retail convenience stores are store visibility, accessibility, as well as high foot traffic. Retail convenience stores appeal to consumers seeking convenience and as such, industry players will be able to build and attain consumer recognition if its stores are constantly visible and accessible to consumers whenever they seek convenience purchases. Successful and cost-effective management of inventory, warehousing and logistics Products sold in retail convenience stores are FMCG and print media, and thus continuous replenishment of inventory is required in order to meet market demands for particular products and latest issues of published materials. The ability to successfully and cost-effectively manage inventory is one of the key critical success factors of a retail convenience store. For retail convenience chain stores, the location of the warehouses which store inventory stocks as well as the management of delivery fleets are essential components in supply chain management. The stores generally have limited storage space in their premises and hence, storage warehouses and delivery fleets play an essential role in supply chain management. The limited storage spaces within retail convenience stores require products to be replenished throughout the store network on a frequent basis, and the timely delivery of products to these stores is essential to ensure that there is no shortfall in inventory levels. Thus it is important for retail convenience store industry players to operate warehouses in different regions in order to be in closer proximity to their stores, or increase their delivery fleet while centralising their warehouse to shorten delivery times. An efficient supply management system is also required to track and monitor inventory levels and sales at each outlet or branch in order to reduce loss in sales from unsold stock, and efficiently manage changes in merchandising or products, where required. It is also essential for retail convenience store industry players to understand the market demands for individual products in order to ensure that there is sufficient stock available for these products. Customers’ demand for products may differ according to the store locations and as such, industry players may need to localise and monitor product mix based on locality and/or demography, as opposed to generalising the type of inventories for products across all stores. Hence, the ability to accurately localise and monitor product mix could prevent stockpiling of low-turnover products or running out-of-stock of high turnover products. In order to do so, industry players must understand and analyse the market demography and demand for products in different store locations. Many industry players have point-of-sale (“POS”) systems which enable these analyses, and the results and outputs from these systems could save industry players from incurring unnecessary carrying and transportation costs. Retail convenience store industry players which are able to effectively manage their supply chain network will not only benefit through better price negotiation power and control over their supply chain network, but also minimise losses arising from insufficient or excessive inventory. 21 8. INDUSTRY OVERVIEW (cont’d)
Attractiveness of the store layout and outlet concept An attractive store layout and outlet concept is also a critical success factor as it not only invites consumers to the store, but also maximises consumers’ exposure to products sold in the store. Consumers are more likely to visit the store if they find the particular store’s layouts and concept to be appealing and attractive. Moreover, an appealing store layout and concept will also invite consumers to spend more time in the store, which would then encourage these customers to purchase more products. The attractiveness of the store layout and outlet concept is also a contributing factor when industry players seek and negotiate suitable and strategic locations for their stores. The management of key shopping centres, transportation hubs and commercial centres with high foot traffic carefully select retail tenants in order to ensure an appealing and attractive image to consumers, as well as to maintain their overall market positioning. As such, it is critical for industry players to project a store image that would appeal to consumers in order to increase their attractiveness as a tenant in such store locations. Responsiveness to market demands and consumer preferences in determining the suitable product mix and range Retail convenience stores sell a variety of FMCG (such as snacks and confectioneries, beverages, tobacco products, stationery, basic over-the-counter pharmaceutical products, bakery products and instant food products) and print published materials, as well as provide a variety of consumer services. In order to maximise revenue and profitability, retail convenience stores must be able to appeal to the market demands of consumers, and this demand could differ between locations. For example, while stores located in shopping centres would have higher demand of food products such as snacks and confectioneries, stores located in transportation hubs such as airports generally have higher demand of print pUblished materials. On the other hand, stores located in transportation hubs with faster-moving commuting traffic such as train and bus stations will have a higher demand for snacks and packaged or ready-to-go beverages. The ability of industry players to understand and analyse these demands, and to react in a timely manner, to offer consumers a suitable product range and mix is critical to maintain growth and sustainability. Maintenance of customer service quality Suitable front-line personnel such as cashiers and store assistants are essential to the success of a retail convenience store as their interaction with customers could impact in-store consumers’ shopping experiences. Inefficient and unfriendly customer service could lead to longer queues and an overall unpleasant shopping experience for customers. This would cause a loss in repeat customers, inevitably leading to a loss in sales. Thus, industry players which are able to hire suitable employees and conduct sufficient training for their staff in this aspect would be able to build a competitive advantage for their businesses. [The rest of this page is intentionally left blank] 8. INDUSTRY OVERVIEW (cont’d)
6 GROWTH POTENTIAL
The retail convenience store market in Malaysia, which began to emerge around the mid-1980s, is a relatively young market as compared to the overall retail market in Malaysia. Thus, in order to identify the growth opportunities for the retail convenience store market, it is important to assess global trends of retail convenience stores worldwide. Based on global trends, SMITH ZANDER notes that the penetration rate of retail convenience stores, in terms of number of retail convenience stores per million persons, is higher amongst more developed countries relative to less developed or developing countries. Developed countries such as Germany, the United Kingdom, South Korea, the United States of America (“United States”), Taiwan and Japan recorded higher penetration rates, in terms of number of convenience store per million persons. Likewise, developing countries including Malaysia, Philippines, China, Indonesia, and Thailand, registered lower penetration rates, in terms of number of convenience store per million persons. Malaysia’s retail convenience store penetration rate in 2014, in terms of number of convenience store per million persons, was ahead of Philippines, China and Indonesia. However, Malaysia’s penetration rate is significantly lower than other more developed countries in the Asian region such as Singapore, Hong Kong, Japan, South Korea and Taiwan, as well as developed countries in other regions such as the United States, the United Kingdom and Germany during the same period. Number of convenience store per million persons (Selected countries, Global), 2014 .—..—-..-…-…..——————————-····-··-····—·······——-·—–r Developing countries ‘ Developed countries1,000.0 ——————-;j.:;;:­0::::–. ….. ·········——········································91″7’:4 900.0 ‘­800.0 Q) 737.8c.. 700.0~ o Ci5
600.0 Q) If) Co) § 478.5 485.4a5 500.0If) 406.9 419.5’c cf. 400.0~ <-) 300.0 ‘0 190.4’-200.0Q) .0
135.1 145.2 162.2 o I E :::l Z I
…….._.._-.1
Source: Extracted from the IMR report by SMITH ZANDER Hence, as Malaysia progresses toward developed nation status, and as long term economic growth prospects in Malaysia continues to be positive with increases in GDP and disposable income, retail expenditure will continue to grow and this will have a positive impact on the growth in the retail convenience store market. Given the higher convenience store penetration rates seen in the developed countries, Malaysia’s retail convenience store penetration rate is expected to increase as overall income rises, in line with global trends. 23 8. INDUSTRY OVERVIEW (cont’d)
Moving forward, SMITH ZANDER forecasts the number of retail convenience stores to grow at a CAGR of 9.5% from an estimated 2,776 outlets in 2015 to 3,327 outlets in 2017. Accordingly, the retail convenience store market size is forecast by SMITH ZANDER to grow, in terms of retail sales, from an estimated RM3.3 billion in 2015 to RM4.2 billion in 2017, registering a CAGR of 12.8%. This is expected to be driven by the increase in transportation hubs and growth in transport riderships, growing need for convenience due to lifestyle changes, increasing preference for modern format grocery retail outlets over traditional format grocery retail outlets, rise in the number of commercial developments in Malaysia, growing disposable income of the population over the long term and Government driven initiatives to boost retail expenditure (Please refer to Chapter 4 -Demand and Supply Conditions (Key Drivers: Demand and Supply Conditions) of this IMR report for further details of market drivers). Retail convenience store market size and number of outlets (Malaysia), 2007-2017(f) 3,5004.5 II)…. QIQI ;:;4.0N :J3,000Cii0 QIQI 0-3.5.:.::r::… QI2,500 ‘r: QI :E ~ 3.0 >r::.Bec02,000 () 0en:: 2.5QI=0.0 ‘fti r:::a: 4l.!!:! 0:: 2.0 0::r::~ 1,500 …QI0>…r:: QI1.50 .0() 1,000 E :JRi 1.0 Z ~ 500 0.5 00
o _ Market size —Number of outlets
Notes: (e) SMITH ZANDER’s estimate based on historical market performance and research on prevailing market drivers.
(f) Forecast

Source: Extracted from the IMR report by SMITH ZANDER [The rest of this page is intentionally left blank] 8. INDUSTRY OVERVIEW (cont’d)
7 RISKS AND CHALLENGES
Retail convenience store industry players not only face competition within the retail convenience store market, but also from other retail format stores The retail convenience store market consists of owners and operators ranging from large corporations to small independently owned businesses. Some of these retail convenience stores have been in operation for more than a decade, and as such are more established than others. With the presence of these established retail convenience store industry players, competition is strong as most of these industry players have the ability to offer competitive pricing and effectively manage their inventories, as a result of their higher stock turnover and larger inventory spaces. Furthermore, the reputation that these established industry players have garnered over many years in operations also enables them to seek and negotiate more suitable and strategic locations for their stores. This is highly important as store visibility and accessibility as well as high foot traffic locations are contributing factors to the success of a particular retail convenience store. The aforementioned factors are key differentiators for industry players, and failure on any industry player’s part to build on these differentiating factors as a competitive advantage for themselves could cause losses in sales and a decline in customer loyalty to their stores, leading to a subsequent loss in market share. Apart from competition within the retail convenience store market, retail convenience store industry players also face competition from other retail format outlets, including traditional format retail outlets (e.g.: independent small grocery retailers, and specialist retailers) and large modern format retail format outlets (e.g.: hypermarkets and supermarkets). In 2014, there were 68,482 traditional format retail outlets while there were 2,547 retail convenience stores. Most of these traditional format retail outlets are still thriving in rural areas and to a certain extent, residential neighbourhoods in suburban areas, where they have built their own loyal customer base through its long years of service to the local community. As such, retail convenience stores face competition from traditional format retail outlets particularly when expanding into suburban and rural areas. Nevertheless, this is expected to change in the future as retail convenience stores are able to offer lower prices and provide a variety of consumer services for the convenience of consumers. Although larger modern format retail outlets such as hypermarkets, supermarkets and grocery convenience stores operate on a different business model as compared to retail convenience stores, with the latter placing focus on providing convenience, large format retail outlets have greater capacity to carry higher volumes of inventories, thus they may offer lower prices. While customers are willing to pay slightly higher prices for products from retail convenience stores in exchange for convenience, there is a possibility that retail convenience store industry players could lose out to large retail formats should there be a huge disparity in pricing. As such, the ability of retail convenience store industry players to negotiate better prices with their suppliers is key in this case to avoid customers from shifting their convenience purchases to large format retail outlets, and the failure to do so could ultimately lead to a loss in sales. [The rest of this page is intentionally left blank] 8. INDUSTRY OVERVIEW (cont’d)
Increased exposure to shoplifting, theft, pilferage and robbery could cause loss in sales Retail convenience stores’ premises are open to the public with majority of the in-store transactions carried out in cash, and some stores may even operate on extended shopping hours, exposing these stores to the risk of robbery and theft. Furthermore, as products sold in retail convenience stores are typically small items, shoplifting and pilferage could occur particularly in locations with higher crime rates, and during peak hours where there is heavy foot traffic. In light of this, many retail convenience stores have taken precautions through the installation of video surveillance systems (i.e. closed-circuit television (“CCTV”)) to deter shoplifting, theft and robberies, as well as effective inventory management systems to detect the loss of products from employee pilferage. Reliance on human resources The retail convenience store market requires the need for human resources, and thus the market is reliant on the employment of efficient personnel. The retail convenience store market is service-oriented, and it is therefore important to ensure that suitable front-line or front-desk personnel are hired as cashiers and store assistants as their interaction with customers has an impact on the customers’ shopping experience. Inefficient and unfriendly customer service could lead to longer queues and an overall unpleasant shopping experience for customers. As customers purchasing from a retail convenience store seek convenience, longer check-out times could lead to a loss in sales or loss in repeat customers. Also, there is an increasing reliance on foreign employees in Malaysia. Some of the foreign employees from countries such as Nepal and Bangladesh may face language and cultural barriers, and it is important for industry players to provide sufficient training to ensure that the quality of customer service is maintained at an acceptable level. Furthermore, while the employment of foreign workers is currently allowed in the retail market, these foreign workers can only be sourced from specific countries as determined by the Government and are not allowed to be front-line workers. In general, approval is granted based on the merits of each case and is subject to conditions imposed by the relevant authorities from time to time. Additionally, the Government may amend policies relating to the employment of foreign workers in the retail market and/or introduce new conditions from time to time. As the retail market is dependent on the supply of foreign workers, any scarcity in supply or change in regulations would adversely affect industry players. Furthermore, any increase in the levy or minimum wages for foreign workers or any other additional costs to be paid to the Government in relation to the employment of foreign workers would increase retail overheads and directly impact the financial performance of industry players. [The rest of this page is intentionally left blank] 8. INDUSTRY OVERVIEW (cont’d)
Adverse economic conditions could have an impact on sales, and this may adversely impact industry players The retail convenience store market is dependent upon the present state of the economy, as a growing economy signifies a population with higher disposable income that has greater spending power, creating demand for products sold in retail convenience stores. A decline in economic conditions in Malaysia may decrease consumer spending power, which will in turn have a negative impact on the retail convenience store market. Overall, the economy in Malaysia experienced a slower growth in 2015 as a result of factors such as the depreciating RM and the falling crude oil prices. The RM further declined against the USD and hit an all-time low in the past five (5) years in September 2015. The weakening RM could accelerate inflation and increase cost of living, which would result in a lower purchasing power. On the other hand, this could also encourage growth in the retail sector as a result of a boost in the tourism sector, indirectly leading to higher retail sales. In addition, crude oil prices had also fallen dramatically since July 2014 from an average of USD100 per barrel to approximately an average of approximately USD30.80 per barrel in January 2016, due to excess in crude oil supply. The fall in crude oil prices had adversely impacted many oil producing countries, including Malaysia, resulting in a cutback in Government spending and an adjustment in the national Budget for 2016. Nevertheless, the fall in crude oil prices had also resulted in a fall in gasoline prices, which benefited consumers. Should any of the above developments persist, this may cause reduced sales volumes, which could have a negative impact on the overall financial condition of industry players who may not be able to successfully achieve their expected results. Nevertheless, products sold in retail convenience stores are generally price inelastic as purchases made are on an impulse basis, as these products are typically low-priced items and are purchased from the retail convenience store as a fast and convenient mode of shopping. This thus lowers the susceptibility of the retail convenience store market to adverse economic conditions. [The rest of this page is intentionally left blank] 8. INDUSTRY OVERVIEW (cont’d)
8 GOVERNMENT LAWS AND REGULATIONS Control of Supplies Act 1961 (with amendments up to 1 January 2006) and Control of Supplies Regulations 1974 This Act stipulates that a valid license issued under this Act is required in order to retail any controlled article. According to the Ministry of Domestic Trade, Co-operatives and Consumerism, controlled articles refer to goods such as bread, milk, sugar and salt. In addition, these goods are also prohibited from being concealed or destroyed in order to withhold the goods from the market. License holders cannot falsely deny the possession of the stock of any controlled article. Any person carrying on retail business in any premises or place, in which a license has been issued, must display the license in a conspicuous position so that it may be read by consumers purchasing the controlled article. Any individual will be liable for a fine not exceeding RM 15,000 and/or an imprisonment term of not more than two (2) years should the individual fail to adhere to this Act for the first instance, and a fine of RM25,000 and/or an imprisonment term of not more than five (5) years for subsequent offences. A corporation will be liable to a fine not exceeding RM25,000 should the corporation fail to adhere to this Act for the first time, and a fine not exceeding RM50,000 for subsequent offences. Business and Signage License Companies intending to set up an office are required to obtain a business premise and signage license from the respective local authority (based on the location of the office or store), under the Local Government Act 1976, Local Authorities Ordinance 1996 of Sarawak, Trades Licensing Ordinance 1949 of Sabah, and the by-laws of the respective local councils and authorities. There are 179 local authorities in Malaysia, and the requirements and fees charged for obtaining a business and signage license may vary according to the respective local authority. Excise Act 1976 The Excise Act 1976 sets out the licensing requirements for the sale by retail, or offer for sale by retail, of any “intoxicating liquor” whether for consumption on or off the premises of the vendor. “Intoxicating liquor”, as defined in the Customs Act 1967, refers to any alcohol, or any liquid containing more than two (2) per centum of proof spirit, which is fit, or intended to be, or which can by any means be converted, for use as a beverage. Money Services Business Act 2011 The Money Services Business Act 2011 governs the licensing, regulation, and supervision of money services business and to provide for related matters. Goods and Services Tax Act 2014 The Goods and Services Tax Act 2014 governs the imposition and collection of goods and services tax and for matters connected therewith. Price Control and Anti-profiteering Act 2011 The Price Control and Anti-profiteering Act 2011 serves to control prices of goods and charges for services and to prohibit profiteering. 28 8. INDUSTRY OVERVIEW (cont’d)
Food Act 1983 and the Control of Tobacco Product Regulations 2004 (and its subsequent amendments) The Control of Tobacco Product Regulation 2004 and its subsequent amendments were issued under the Food Act 1983, regulating amongst others, smoke free environments, tobacco advertising, promotions and sponsorships, packaging and labelling, as well as pricing of tobacco products. [The rest of this page is intentionally left blank] 8. INDUSTRY OVERVIEW (cant’d)
9 OUTLOOK AND PROSPECTS FOR BISON CONSOLIDATED BERHAD The retail convenience store market has been the fastest growing sUb-segment of the grocery retail market in Malaysia, outpacing all other sUb-segments. Its market size, in terms of retail sales, more than doubled from RM1.2 billion in 2007 to reach an estimated RM3.3 billion in 2015, at a CAGR of 13.5%. In line with this growth, the number of retail convenience store outlets has also more than doubled, increasing from 1,054 outlets in 2007 to an estimated 2,776 outlets in 2015, which translates to a CAGR of 12.9%. These 2,776 retail convenience store outlets are mostly made up of several prominent convenience store chains, of which some of the larger convenience store retailers, including 7-Eleven Malaysia Holdings Berhad (under the tradename “7-Eleven”), All Happy Sdn Bhd (under the tradename “Happy Mart”), Bison Consolidated Berhad (under the tradenames “myNEWS.com”, “Newsplus” and “MAGBIT”), Circle K (Malaysia) Sdn Bhd (under the tradename “Circle K”), Point Convenience Shop Sdn Bhd (under the tradename “Point”) and TCT Trading Sdn Bhd (under the tradename “Orange”). Malaysia’s retail convenience store penetration rate, in terms of number of convenience store per million persons, was ahead of Philippines, China and Indonesia. However, Malaysia’s penetration rate is significantly lower than other more developed countries in the Asian region such as Singapore, Hong Kong, Japan, South Korea and Taiwan, as well as other developed countries such as the United States, the United Kingdom and Germany. As Malaysia develops and grows in terms of economic wealth, the local retail convenience store market would inevitably grow in tandem. Greater economic wealth will likely drive consumer preferences for convenience in order to accommodate busier lifestyles and as such, encourages a greater need for retail convenience stores. SMITH ZANDER forecasts the number of retail convenience stores to grow at a CAGR of 9.5% from an estimated 2,776 outlets in 2015 to 3,327 outlets in 2017. In line with the growth in market size, the retail convenience store market size is forecast by SMITH ZANDER to grow, in terms of retail sales, from an estimated R1\I13.3 billion in 2015 to R1\I14.2 billion in 2017, registering a CAGR of 12.8%. This is expected to be driven by the increase in transportation hubs and growth in transport riderships, growing need for convenience due to lifestyle changes, increasing preference for modern format grocery retail outlets over traditional format grocery retail outlets, rise in the number of commercial developments in Malaysia, growing disposable income of the population over the long term and Government driven initiatives to boost retail expenditure. Bison Consolidated Berhad, as one of the key industry players in the retail convenience store market in Malaysia, shows potential to gain from the growth in retail sales from retail convenience stores and number of retail convenience stores. With a market share of 6.1 % in terms of its revenues and 8.0% in terms of number of outlets in 2014, and an estimated market share of 6.6% in terms of its revenues and 8.6% in terms of number of outlets in 2015, Bison Consolidated Berhad is the second largest retail convenience store industry player in Malaysia, and the largest homegrown retail convenience store industry player in Malaysia. [The rest of this page is intentionally left blank]

 

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