DFI Retail Group (SGX: D01), or DFI, announced the sale of its Singapore food business to Macrovalue, a Southeast Asian retail conglomerate.

The agreed-upon initial sale price is S$125 million, subject to adjustments, and is expected to close in the second half of 2025 (2H 2025).

Macrovalue will fully acquire DFI’s Singapore Food division which comprises 48 Cold Storage stores (branded under Cold Storage, CS Fresh, and Jason’s Deli) along with 41 Giant stores and two distribution centres.

With this sale, DFI will now focus its time and resources on its Singapore Health and Beauty and Convenience store segments, represented by Guardian and 7-Eleven, respectively.

What are the implications of this move and how should investors interpret this sale?

A sprawling network of stores

DFI operates a sprawling network of stores in numerous countries within Asia.

The graphic below shows DFI’s presence in 13 Asian markets with around 11,000 outlets as of the end of 2023.

Source: DFI Retail Group’s 2023 Annual Report

If we zoom into the “Food” segment, it should be noted that DFI has a presence in China, Hong Kong, the Philippines, Cambodia, Indonesia, and Singapore.

DFI sold off its Hero Supermarket business in Indonesia in June 2024 and fully divested its Yonghui Supermarket to Miniso Group (NYSE: MNSO) for around S$823.6 million.

These moves seem to imply that the group is slowly shedding its supermarkets and hypermarkets in various countries to pivot towards CVS (convenience stores) and health and beauty.

The sale of its Singapore food segment is in line with what management has done last year for its China and Indonesian food segments.

Sharpening its focus

Scott Price, group CEO of DFI, said that the group plans to sharpen its focus on Singapore’s Guardian and 7-Eleven as these businesses hold “significant potential for growth”.

There are more than 120 Guardian stores and over 450 7-Eleven stores in Singapore.

DFI intends to offer personalised assessments and product recommendations at its Guardian stores to drive higher spending.

The group is also exploring opportunities for service expansion within these stores.

As for 7-Eleven, DFI believes it has a strong competitive edge and will continue to expand its store network while innovating its ready-to-eat offerings and accelerating its digital growth.

These two divisions generate a “very strong return on capital” and it makes sense for management to redirect time and resources to these profitable segments.

A tough Food environment

Looking at DFI’s recent 2024 financial statements, it’s apparent that the Food segment is facing challenges.

The Food division made up 35.3% of total group revenue but just 16.8% of the group’s operating profit.

The group’s commentary stated that Southeast Asia food sales were adversely impacted by intense competition and soft consumer sentiment because of inflationary pressures.

Its Singapore Food segment only turned profitable in the fourth quarter of 2024.

The food division’s segment operating margin was just 1.8% for 2024.

In contrast, health and beauty and convenience segments reported a segment operating margin of 8.6% and 4.3%, respectively, for the same year.

In light of this commentary and financial numbers, it’s no wonder that DFI is slowly shedding off its Food segments in various countries and refocusing its attention on health and beauty and convenience instead.

Get Smart: More divestments coming up?

With the ongoing tough environment in the Food segment, DFI may be on the verge of divesting its Food division in other countries.

After the sales of its Indonesian, Singapore, and China Food segments, DFI still has a substantial Food presence in Hong Kong (Market Place and Wellcome), Macau (San Miu), Cambodia (Lucky Supermarket), and the Philippines (Robinsons).

Investors could be hearing of more divestments in the months to come if DFI’s strategy is to refocus its resources on non-Food segments in the longer term.

The good news is that with the proceeds from these divestments, management could be gearing up to pay a special dividend to shareholders.

For 2024, DFI raised its total dividend by 31% year on year to US$0.105 from US$0.08 a year ago as its underlying net profit shot up 30% year on year to US$201 million.

With these divestments, DFI could see its financials improve further along with its total dividend payout.