Rangoon’s skyrocketing property prices are putting the squeeze on a young convenience store sector that depends on already-thin profit margins as domestic operators try to establish a footing before the expected entrance of more foreign competition.
In Rangoon, domestic convenience stores began popping up just two years ago, with City Mart Holdings, Myanmar Indo Best and Capital Hypermart serving as the biggest players. The stores are concentrated in the city’s commercial areas, mostly in the downtown townships of Kyauktada, Latha, Pabedan, Lanmadaw, Pazundaung and Botataung.
Currently, Myanmar Indo Best’s ABC Convenience Stores have the furthest reach, with about 50 shops across Rangoon. City Mart’s City Express has opened 30 outlets, and Capital Hypermart’s Grab & Go has nearly 10 stores.
Densely populated and well-trafficked areas are a market requirement for convenience stores, which rely on foot traffic and a steady stream of customers making often small purchases. Unfortunately for convenience store operators, these same areas in Rangoon have seen some of the steepest climbs in real estate prices and rental rates, presenting an overhead expense that is dragging down their bottom line.
Win Win Tint, the director of City Mart Holdings, said that although the company’s City Express convenience stores have been open in Rangoon’s commercial heart since 2012, the venture has yet to turn a profit. With an initial investment of at least 100 million kyats (US$102,000) per store, not including rent, the cost pressures are formidable, she said.
“It’s still hard to look for better locations in crowded areas, because we need to open on ground floors, so rent prices are too expensive downtown. That’s why it has become major issue for us to open more,” she said.
Conveniences stores, which sell hundreds of snacks, beverages, cigarettes and small household goods, have altered the shopping patterns of many Burmese who previously could only get many of the products on offer at supermarkets and shopping malls. The fact that many convenience stores remain open 24 hours a day is an added attraction.
However, a major component of the stores’ “convenience factor” is a ground-level location, limiting the viable options to some of the most expensive property in an already pricey part of town. Rents for a 1,200-square-foot ground floor property in Kyauktada Township, in the heart of Rangoon’s downtown, have reached 3 to 5 million kyats per month, according to one local real estate agent, and tenants are required to agree to a lease of at least one year.
“On small streets, rent prices are half that of main roads. Kyauktada Township has the highest rent prices in Rangoon,” said the Rangoon-based manager of Unity real estate agency, Zaw Zaw.
With annual rent costs of up to $60,000, profitability is far from assured.
In 2012, news reports indicated that 7-Eleven, a convenience store giant with US origins that has made significant inroads into several Southeast Asian countries, would enter the market in Burma. The development has yet to materialize, and local brands have since taken the opportunity to attempt to establish their brands in the long-isolated market.
“I can say that convenience stores will be a successful retail format in future, so we need to prepare for foreign investment in this business now,” Win Win Tint said.
Lin Htike, the business development manager of ABC Convenience Stores, said the company aims to expand despite the real estate situation.
“As a market strategy, we will open as many branches as we can, tracking the market’s competition, because foreign investors might enter the local market soon,” he said, adding that convenience stores would bring job opportunities for young people.
In 2015, plans to implement the Asean Economic Community (AEC) are expected to open up the Burmese market to businesses from the regional grouping’s nine other member states. The AEC envisions regional integration by, among other things, reducing tariffs among the countries to zero. It is expected to bring increased foreign competition from entrepreneurs who, ironically, have been held back from investing in Burma due in part to Rangoon’s soaring real estate prices.