Lianhua Supermarkets Plans Huge Expansion After Hong
Kong Offering
China's leading supermarket chain,Shanghai's Friendship
Group's (Q.SFO) Lianhua Supermarket Holdings, plans to
open 1,000 stores this year following its June 27 IPO
in Hong Kong. By 2007, it plans to have 8,000 stores throughout
China.
Chairman Wang Zongnan said that 500 of the stores would
be opened by the chain, while the other half would be
owned by franchisees. This move would raise the number
of Lianhua supermarkets in China to about 2,900. Currently,
most of the stores are concentrated in the Shanghai region.
China's reforms have created an expanding retail market
that is attracting big-name foreign
players from the US and Europe to take on local chain
stores. Consumer preferences have shifted quickly from
traditional wet markets and state-run department stores
to the new players, which are considered by the Chinese
to be much cleaner and more professionally managed. At
the end of 2002, Lianhua operated 11 hypermarkets, 504
supermarkets and 740 convenience stores.
Lianhua Supermarket Holdings will offer H shares in Hong
Kong on June 27. It posted a net operating profit of RMB128.13
yuan in 2002, up 49.36 percent from 2001. The overall
operating margin rose to 2.1 percent from 1.1 percent.
The operating margin for its hypermarkets fell to 1.5
percent from 2.6 percent as startup costs went up with
the opening of 10 more outlets.
In the hypermarket field, Lianhua is the Chinese joint
venture partner of France's Carrefour (F.CAR). Recently,
it signed an agreement to open discount stores in partnership
with Distribuidora Internacional de Alimentacion SA of
Spain, which is another unit of Carrefour.
With the Hong Kong offering, Friendship Group's stake
in Lianhua Supermarket is expected to fall to 40 percent
from 51 percent. This will cause a sizeable erosion of
Friendship Group's sales and profits.
China's second largest supermarket chain is Hualian Supermarkets.
Sales grew 13 percent in 2002 to RMB 3.67 billion yuan,
and net profit jumped 34 percent to RMB66.93 yuan. It
has a reputation as one of China's most efficient and
cost conscious retailers.
The Chinese government is wary of foreign competition,
and even though China joined the World Trade Organization
in 2001, has capped foreign ownership of retail outlets
at 65 percent.
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