Over 300 stores, still going strong

PHOTO: Over 300 stores, still going strong

It was done with minimum fanfare, just like most things with homegrown healthcare group Eu Yan Sang International (EYS).

But the fact is, EYS now owns 100 per cent of the largest health-food chain in Australia.

The chain, Healthy Life, sells a wide range of products - from vitamins to healthy snacks and organic foods - through its 89 stores across the land Down Under.

Twenty-five of the stores are run directly by the company and 64 by franchisees. The latest outlet opened just two weeks ago in Melbourne.

Healthy Life is EYS's route to a retail brand which resonates better with Westerners, says Richard Eu, CEO of EYS.

He said: "If you want to go very mainstream with the pure EYS brand, it might be more difficult for us. It's hard to shake off our image as a traditional Chinese medicine (TCM) company. "In reality, we are not just about TCM, so this is a signal to the market that we are more than a pure TCM company."

In the acquisition completed in February, EYS took over the chain for just the value of the stocks - $5 million - from Healthzone, which had gone into receivership.

EYS's 16 per cent stake in Healthzone had had to be written off. Going forward, the Singapore company will have to pump working capital into the Healthy Life stores to stabilise and grow them.

Mr Eu said: "The health-food industry in Australia is similar to ours. It's not a very big sector - 700 to 800 stores, very mom-and-pop, and slow. We want to see how we can revitalise it - in a way, do it up with TCM, try out some ideas we have, in terms of presenting our own herbal products there."

Australian consumers are quite receptive to a natural approach to healthcare, he said, adding that EYS has been able to capitalise on the trust and goodwill it had built up among its small base of customers.

"The thing is to try to replicate the trust our existing customers have with us, and bring it across to a broader audience," he said.

EYS aims to have its own products in the Healthy Life chain before the close of its current financial year on June 30 next year.

Besides getting the regulatory approvals to sell the products, it also needs to get the packaging and labelling right, said Mr Eu.

This is EYS's second crack at the Australian market: Back in 2001, it started the YourHealth chain of integrative clinics from scratch and built it up to a turnover of A$12 million (S$15.3 million).

Seven years later, it bailed out because it was in the red from corporate overheads, even though the clinics themselves were profitable.

"There were also some management issues. The way we structured it, it wasn't correct. And we started from scratch. So we were groping in the dark a bit," Mr Eu said.

The lessons learnt from that venture will now be applied in the group's second foray into Australia.

Healthy Life may restart the clinics; the two-week-old Melbourne outlet has a naturapath consultation room, and all store employees are naturapaths, he said.

Healthy Life will also create for EYS the opportunity to learn about the franchising business model, which will give an avenue for expansion into other markets down the road.

Healthy Life will boost EYS's top line this financial year; the chain had a revenue of A$60 million to A$70 million prior to the holding company's receivership.

Mr Eu said he did not expect revenues to get back there so quickly, "but in the medium term - within three years - our target is to exceed that".

EYS also aims to get its Australian business into cash flow-positive territory in the next nine months.

In its financial year ended June 30 this year, the Australian retail chain contributed three months of revenues, making up 4 per cent of the EYS group's turnover of $290 million.

Hong Kong, China and Macau accounted for 41 per cent of group turnover, Malaysia, 28 per cent, and Singapore, 27 per cent.


Besides Australia, China will be EYS's next fastest-growing market.

It added 14 stores there in the last financial year, bringing the total to 17.

Most of the stores are in Guangdong province.

In all, the group has more than 300 stores in Singapore, Malaysia, Hong Kong, Macau, China and, now, Australia.

This year, it is looking to adding 20 or more stores in Australia, Singapore, Malaysia and Hong Kong, but the largest number will likely be opened in China.

Mr Eu adds that the greatest difficulty in China is getting the regulatory approvals to bring EYS products in.

After several years of trying, the group has finally got "enough products - not a lot, but enough" - into China to justify opening up its own stores in a big way.

EYS has also received two pharmacy licences, which allow it to carry its full range of classical formula products.

It is difficult to get the licences in China, and nothing can be done to hasten the process.

Mr Eu said: "It's China. It won't help even with a local partner. Maybe, if we buy an existing chain. . . We are looking. If there are opportunities, we will certainly consider them."

The 14 stores which opened in China in its last financial year are not generating enough cash to cover operating expenses yet, but Mr Eu said the "burn rate" is falling by the month. "We'll cross that line pretty soon."

Meanwhile, in Hong Kong, the problem is getting good locations at a reasonable rent - and good locations invariably come with exorbitant rents.

But at least in Hong Kong, "you pretty much get what you pay for".

He said: "Singapore has high costs, but not the volume of business that Hong Kong has."

Last financial year, the sales per square foot of EYS's stores in Hong Kong amounted to $2,900; in Singapore, the figure was just $1,756.

Vietnam and Indonesia

A new market that the group will enter this year is Vietnam, with a store and clinic in Ho Chi Minh City.

It has taken it three years to get the necessary approvals to set up there.

Indonesia is a potential market as well.

"The issue is having enough people to do all these things. We are busy all over," said Mr Eu.

Organic growth alone will keep EYS quite busy, but if the group comes across opportunities similar to that held out by Healthy Life, it will still consider them, he said.

The business is fairly recession-proof, he said.

Since its listing in 2000, it has never had a negative year in terms of revenue growth.

Operating profit has grown by an annual compounded rate of 9.4 per cent for the last 12 years.


Besides opening up new markets, new products will also add to EYS's top line.

Its latest blockbuster product is Kai Nai Cha, a herbal drink used as a base for formula milk powder to reduce heatiness and constipation in babies.

The sugar-free product, already patented worldwide, is selling well in Hong Kong, but is yet to be launched in Singapore because it has to be given the green light by Singapore's Health Sciences Authority.

Education is a big part of EYS's marketing strategy.

Besides conveying to consumers the efficacy of its products, EYS is also modernising the dosage forms of its products to make consumption convenient for consumers.

Some of its classical formulations, for example, have gone from big-pill to tea-pill format, and from that to capsules.

Mr Eu said: "We still keep the natural part of these products, but we modernise the dosage forms so they are easier for people to take.

"People are willing to try the products if it's convenient to them. In the past, it may not have been that convenient. In its original form, you would have to brew the medicine yourself."

Lamenting the players in the TCM industry who take shortcuts and give the industry a bad name, he said EYS intends to stay true to its ethos.

And it is one that has held for a long time, for Mr Eu is the great grandson of the man who started the company by introducing herbal remedies to tin miners who were dependent on opium to alleviate the pains of their hard labour and poor living conditions.