Delfi Ltd (DELFI SP) is a Singapore-listed chocolate producer with a major presence in Indonesia as well as other Southeast Asian countries such as the Philippines and Malaysia. Delfi’s market share in Indonesia is 45%, far ahead of competitor Mayorah Indah’s 25%. Its brand names SilverQueen, Ceres, Delfi, and Goya have been consumed by 4 generations of Indonesians over six decades, building up significant consumer mindshare in the process. Indonesians have grown accustomed to the typically less-sweet and less-milky type of chocolate that Delfi is offering. In addition, the company controls a distribution system with access to 400,000 points-of-sale across a country that does not have proper cold-storage logistics. A manager at Nestlé said the following about Delfi:
Hi Michael - i was trying to access your original deep dive presentation / thesis - the link no longer works (at least for me) - would you mind double checking it and fixing it if it is indeed broken? thanks very much (i am a subscriber!)
Thanks for the write up. Just to chip in a bit of situation in Indonesia. I believe that there are a lot of fundamental shift in the distribution system in Indonesia. This has weakened a lot of FMCG's distribution. While existing brand works well when put side-by-side with weaker brand, there are places where there is not much option for brand. And a lot of the distribution network's owner will want to carry local brand that gives them higher margin. That is why, the return that they get will be lower in future.
Good write up and summary of the main thesis. Have you considered why the Brand value or the distribution strength doesn't show up in the Return on Capital metrics? How are you thinking about the erosion of market share over the last 5-6 years?
Great report, do you know JB FOOD? Malaysian but listed in SIN.
Hi Michael, Delfi does look interesting as a buy-out target. I am just surprised why this opportunity would exist if this is quite well known and well written about? And looking historically the business has not been able to produce a lot of FCF, given the valuation, I would think it should be able to consistently produce ample free-cash yielding double digits. Margins also seem so low, is that just the fact of the big share of Agency brands, with cost pressure and inability to take price and being more mass market orientated?