No-frills retail experience

  • SME
  • Saturday, 19 Sep 2020

Low cost model: Each store only needs an average of two workers compared with other conventional grocers which require about six.

WALK into a Baloy store and one will notice the no-frills set-up of what is supposed to be a grocery outlet. But it is this void of fancy fittings, yet functional stores that form the core of Baloy Sdn Bhd’s business model, bringing a new grocery shopping experience to Malaysians by going back to basics.

“Cutting out unnecessary costs and being efficient in our operation are the fundamental elements that help make our business model unique, and we are able to pass on these savings to our customers in the form of cheaper than average market prices for daily essentials and basic food products, ” says co-founder and director Dan Lim.

Tech help: Lim intends to use technology to help customers make informed decisions when shopping or looking for daily necessities.Tech help: Lim intends to use technology to help customers make informed decisions when shopping or looking for daily necessities.

The retail sector is a dynamic space and the landscape has seen many changes in the past few years. While some formats are slowing down, others, such as technology-driven retail and hybrid stores are emerging trends that are taking root.

Baloy’s bare-bones stores are merely a mix of such new trends.

Lim sees Baloy more as a retail and financial technology company rather than a bona fide grocery store operator.

For one, its retail stores are not meant to be the main point of sale. Instead, they mainly serve as the pickup points and avenue to increase the footprint of its member recruitment centres.

Lim says its online portal for grocery shopping will be the main platform for the company to reach out to customers. The retailer also offers its members cheaper prices of at least 20% and incorporates loads of incentives akin to a digital marketing and e-commerce mix on its online platform.

Baloy, which is a play on the local term baloi (value for money), started operations just last year.

Lim, who ran a local frozen food distribution business before setting up Baloy, says the idea for a new retail model came about when he realised the difficulties and exorbitant costs involved in bringing a new product to the market.

He hopes to make Baloy a platform that provides people access and convenience to daily essentials and personal needs at truly affordable prices.

“Besides, we also make it a point to support local manufacturers and suppliers, with more than 40% of our products currently sourced from local manufacturers, while majority of the foreign brands are those which have local manufacturing operations, meaning the products are produced here in Malaysia, ” he says.

AI-powered retail

Keeping costs low is key for Baloy. This means cutting down wherever possible. For example, each store only needs an average of two workers, compared to an average of six in some of the bigger conventional neighbourhood store operators.

The company will mainly rely on technology to fill in the gaps of its operations as it angles to be a pioneering retail tech firm in Malaysia. Most of its efforts to grow revenue and customer reach will be done through artificial intelligence (AI) aided marketing and customer relation management (CRM).

“That is why most of our future capex will be channelled towards IT and software developments. Our plan is to use technology and AI to help customers make informed decisions when shopping or looking for daily necessities to buy.

“The projects that we are working on, such as the new AI-powered ‘shopping lens’, are set to make online shopping even smoother. Very soon, we will have AI incorporated into our POS systems and our staff can identify customers by name and even help make suggestions on what they need based on past purchasing trends with the help of algorithms, ” says Lim.

Unlike traditional retailers, Baloy’s business model is designed to operate digitally based on an online-to-offline concept, where members enjoy discounts and low prices of daily essential groceries with purchases made online and collected at the company’s stores, which serve as pick up points.

Baloy makes money from membership payments instead of sales, shares Lim. Members, in turn, enjoy a 20% lower rate for their online purchases. Meanwhile, sales from its discounted merchandise are used to cover its operating costs.Baloy is also enhancing its website, backend systems and logistics support like warehousing to enable delivery services next year. Its target market segments will be the lower- to mid-income households, which form the largest market base with more than 80% of Malaysia’s population.

Its membership currently stands at more than 6,000, but Lim expects the number to increase exponentially once Baloy finalises talks for a strategic tie-up with several cooperatives.

“We are expected to have access to thousands of their members that can provide additional leads for membership recruitments, ” he says.

Growth plans

The company currently has 43 outlets and aims to hit 100 stores by the end of the year. It is targeting up to 500 stores within the next three years, with an average of around seven to eight new store openings per month.

Besides increasing its store count, Baloy’s growth will also be supported by a new franchise system that the company will be rolling out sometime next month, says Lim. He believes Baloy’s unique customer recruitment model will allow new investors to earn a part of its shared revenue.

Going forward, Lim says the plan is to increase Baloy’s stock keeping units (SKUs) to include frozen food items.

Lim acknowledges that attempts to make a difference in the retail industry is not easy given the low margin nature of the business. However, Baloy’s business model appears to be working, he says, noting that it has turned profitable even though the first store was opened less than six months ago.

Online to offline: Baloy's outlets function more as pickup points rather than shopping avenues.Online to offline: Baloy's outlets function more as pickup points rather than shopping avenues.As part of its expansion plan, Baloy is looking to raise up to RM25mil in an ongoing Series A round. Talks with investors started in April and are ongoing.

The funds will be raised mainly via new share placements to new investors. Lim and two other partners are currently the majority shareholders.

A majority of the funds will be used to develop its backend systems and software to enable better customer database management to increase targeted marketing efficiency and inventory management, says Lim.

Although it is expanding rather quickly, Lim says Baloy still has a long way to go in order to carve a niche in the retail industry.

Currently, much of the grocery segment is operated by established brands. For example, the hypermarket scene in Malaysia is dominated by foreign-owned brands, namely, Tesco, Giant and Aeon Big.

While large hypermarket operators like Tesco and Aeon Big do operate using softwares and offer online purchases, Baloy’s more direct local competitors are neighbourhood grocery stores, which target households looking for easy access to daily essentials within their vicinity.

However, the business model and cost structures of these conventional retailers are not designed to operate as low-priced pick up points, says Lim.

The group’s ultimate goal is for its online platform to be a super app or a one-stop grocery retail solution. Like a group of hackers constantly trying to look for loopholes that can be exploited, Lim and his team believe there are many areas within the age old grocery store business that are ripe for change, improvisation or modernisation.

In short, it is a mission to bring a relatively boring business into the fancy, tech-driven operation that fits customers’ expectations and needs in the digital age.

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