Under franchise business, the franchisor will authorize a franchisee to have a right to operate a restaurant under the franchisor’s trademark in assigned territory, exclusivity period, and management system. Part of MM’s business is operated under franchise agreement from international franchisor, under the terms and conditions as indicated in franchise agreement. The key terms and conditions are summarized as followed:
|Brand||Period of Contract|
|DUNKIN' DONUTS||On December 15, 2021, each branch has the right to operate Dunkin’ Donuts for 20 years, and has the right to renew the contract for another 20 years|
|Au Bon Pain||April1, 2034 or ending / termination date of the last contract of the opened store, where the contract period of each store is nine years, whichever is earlier|
|Baskin-Robbins||On December 15, 2022, each branch has the right to operate Baskin Robbins for 10 years, and has the right to renew the contract for another 10 years|
With limited period of contract, the franchise agreements are susceptible to possible changes in terms and conditions as indicated in the franchise agreements. For example, the company stops operation more than one week, excepting for the force majeure, war, chaos, government announcement, or misuse of the authorized trademark.
Coupled with MM’s growth in food and beverage business under franchise agreement, MM diversifies its business portfolio to food and beverage business under own brand to boundlessly thrive its business. Not only securing food and beverage business under franchisee agreement and own brand, MM aims to expand its portfolio to other businesses in the future as well.
Under ever-rising competition, both in food and beverage business and lifestyle business, from local as well as foreign entrants, MM’s performance can be adversely affected.
Nevertheless, MM is considered as a strong player with well-recognized brands and good relationship with the franchisors. The well-cultivated expertise has empowered the Company to optimize its business portfolio, as well as location to cover its target customers. Moreover, its management team has developed strong experience in the businesses for over 10 years. The team has immense industry knowledge and customer insight, leading to the Company’s effective risk management. The Company also encompassed the comprehensive set of growth plan in Thailand and oversea, securing the sustainable growth in food and beverage business. This can be evidenced by consistent organic growth of total revenue of food and beverage business under franchise agreement, and significant in-organic growth from acquisition of businesses under own brands (GHC and GHF) in 2014 which is a key driver to boost growth in domestic and international markets.
Location selection is important to business growth of operations in food and beverage business, as well as in lifestyle business. Majority of rental contracts are in short-term, at 1-3 years on average. Moreover, the high competition in food and beverage, and lifestyle industries, coupled with ever-rising number of new entrants, have intensified the competition to secure key locations and lifted the rental cost significantly both in Bangkok and other provinces. Hence, MM and its subsidiaries can be adversely affected by the risk of obtaining reasonable terms and conditions in current and new rental contracts.
Nevertheless, MM and its subsidiaries are experienced players with well-recognized brands and strong brand awareness in local and foreign markets. They own popular products which contributed significantly in attracting customers for repeating services. They also have good rental payment record, whilst strictly conforming to the terms and conditions in the rental contracts over the past. Moreover, MM and its subsidiaries ally with several landlords, and own an experienced business development team that assists on securing new locations. These factors have facilitated MM and its subsidiaries in renewing existing rental contracts and securing new rental contracts.
Majority of MM and its subsidiaries’ branches, e.g. Dunkin’ Donuts Au Bon Pain Baskin Robbins Greyhound Café and Greyhound Fashion, are located in department stores, community malls, and/or hypermarkets. The branches are under rental contracts with rental period of no more than 3 years and renewal right after maturity of contracts. Therefore, MM may encounter risk of discontinuation of rental contracts, as well as change in terms and conditions of the rental contracts e.g. increase in rental and service payment. The aforementioned risk may adversely affect the financial and operational performance of the Company.
However, MM forms strong business alliance with several department stores, community malls, and shopping centers. The Company also maintains good relationship with the landlords over the past, and has strictly and consistently complies with the rental contract. The franchise businesses of MM are considered as magnet stores, with the popular products that draw customers to visit the department stores, community malls, and shopping centers where they are located. Moreover, similar to rental contracts of other tenants, the rental contracts between MM and its landlords assign rental cost on market price, and are formed on Arm’s Length Basis. Hence, MM and its subsidiaries are confident that under adverse situation, they will ably secure new locations with market terms and conditions.
Since January 1, 2013, the government has effectively imposed the regulation to increases wage to THB 300 per day, applicable nationwide (Based on Committee Announcement of Minimum Wage No. 7 dated 17 October 2011). The lift of minimum wage has considerably affected companies those heavily rely on human resource, buoying companies’ personnel cost related to branch employees, waiters/waitresses, employees in central kitchen, and employees in branches’ kitchens. Therefore, the business performance of MM and its subsidiaries can be adversely affected by this regulatory change.
Nevertheless, MM has increased wage of its employees to be competitive to the market rate and competitors’ rates in order to effectively cope with the regulatory change and maintain its competitiveness in the labor market. The average minimum wage of MM’s employees is higher than minimum wage by law. Supported by effective wage management scheme, the Company is determined to increase the proportion of full-time employees to part-time employees. This is due to 2 reasons. Firstly, the cost of full-time employees is more consistent and predictable. Secondly, the Company has better control on personnel cost of full-time employees, than that of part-time employees. Although the rise in proportion of full-time employees has financial implication on MM’s personnel cost, MM deems the rise in proportion of full-time employees necessary for its growth. The Company firmly believes that the retention of its personnel, through increasing proportion of full-time employees, shall enhance the potentiality of its employees while reducing employees’ overall turnover rate. To diminish the financial implication of this plan and maintain profitability, the Company focuses on controlling its personnel cost in the best manner.
Raw materials in food and beverage business are mainly agricultural products, such as meat, vegetable, and fruit etc., accounting for 95% of total raw materials. The costs of the raw materials fluctuate by seasonal effect, climate variability, natural disaster, and market demand at a particular point of time. The fluctuation of raw material costs is uncontrollable. This risk can adversely affect food and beverage businesses, inevitably affecting MM’s operation.
Nevertheless, the Company concentrates on controlling and managing its costs effectively, and attempts to reduce the effect from fluctuation of raw material costs by closely monitoring the market situation, conducting risk assessment on 33 shortage of raw materials and possible increase in raw material costs, and managing risk from fluctuation of raw material costs by adjusting production process to respond to higher raw material costs. Moreover, the Company may consider increasing prices of its products. However, the prices will be reflected by market price and competitors’ prices in order to minimize the downside to sales and overall customer base of the Company.
Economic slowdown and economy fluctuation, politic situation, and natural disaster events are the factors that directly affect to the spending power because the consumers are uncertain on their income. In additional, the uncertainty will lower the future spending and increase the current saving amount. Therefore, there is a risk from such events which will affect the Company’s performance, financial position, and business opportunities.
However, with well-established experiences of management team, the Company truly understands the industry movement and consumer behavior and carefully crates strategic plan including risk assessments and business strategies, cost management, brand equity enhancement, and business continuity plan in order to ensure business operation in such events.
The Company has foreign-currency transactions in three parts: (1) Franchise fee of DD and ABP, (2) Imported ice-cream from the USA of BR, and (3) Royalty fee of GHC. Therefore, there is an exchange rate risk which adversely affects the Company’s performance if they do not implement proper management.
However, since foreign income and expense are in US dollar, the Company has implemented some natural hedge mechanism without forward contract. In addition, the Company is studying the optimal mechanism to carefully manage the exchange rate risk at minimum cost.
ASEAN Economic Community (AEC) consists of 10 countries including Thailand, Malaysia, Singapore, Philippine, Indonesia, Brunei, Vietnam, Laos, Burma, and Cambodia with objective to integrate ASEAN as single market and production. ASEAN will be characterized by free movement of goods, services, and investments as well as freer flow of capital and skills. Therefore, there are many improvements in such countries. For example, economic reform in Burma, the increase of minimum wage for alien labor in Laos, Vietnam, and Cambodia to attract them to move and work in such countries. In addition, the increased wage in other countries might affect the labor in Thailand to move and work in such countries. Moreover, labor is a key factor to operate food and beverage business in many functions such as central kitchen and store level. The Company always provides professional training to create skilled labor to support the future growth. Hence, there is an employment risk that the skilled labor might move to work in other places.
However, the Company always continuously supports people management and development to ensure the smooth business expansion in long term. Also, the Company carefully provides optimal staff benefits and remuneration with open-door policy to welcome comments to create sustainable growth platform.
At April 7, 2017, the major shareholder of the Company is Sub Sri Thai PCL (“SST” or “Sub Sri Thai”) with 677,939,000 shares or 64.3% of the total issued share capital. As a result, SST is able to control the vote on almost every resolutions at the meeting of shareholders. Thus, other shareholders of the Company may face the risk of being unable to gather enough votes in order to examine and to balance the power of major shareholders in respect of the matters presented by the major shareholders to the shareholders’ meeting for consideration.
However, the Company always supports check-and-balance policy and good corporate governance through transparent company structure. The structure consists of audit committee, executive committee, and risk management committee with written power and responsibility of each committee. In addition, the Company has set related-party transaction policy with connected parties (i.e. director, shareholders, and connected person). For example, the connected person cannot vote in the agenda that related to such connected person with approval and consideration of independent directors. Such structure and policies are to ensure the shareholder that the Company is well-established check-and-balance, transparent, and effective management.
File size: 209 KB.