Li & Fung

Convenience Retail to franchise Circle K brand in China

PUBLISHED : Saturday, 16 December, 2006, 12:00am
UPDATED : Saturday, 16 December, 2006, 12:00am


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Convenience Retail Asia, whose stores compete with 7-Eleven outlets in Hong Kong, is for the first time to franchise some mainland outlets under its Circle K brand once its loss-making operation turns around and possibly as soon as next year.

Executive director and chief executive Richard Yeung Lap-bun said CR Asia, which directly operates 250 Hong Kong stores, was expected to profit from its mainland operation next year as it added more outlets to the 58 shops already there.

CR Asia plans to have at least 100 outlets in southern China next year in addition to 300 in Hong Kong. Mr Yeung did not indicate how many of the new mainland stores would be franchised.

'We are still on the learning curve for franchising and in China we have to be careful with the business because any problem associated with that will affect Circle K's image,' he said.

Mr Yeung said CR Asia, a unit of Li & Fung Retailing, had already invested in computer systems and logistics infrastructure to support its retailing in Guangzhou.

The company had started to integrate its 60 per cent-held Dongguan store chain, Sun High, which owns 200 franchised stores, he said.

The company would maintain the Sun High brand because these stores targeted local and migrant workers while the Circle K brand focused on middle-class and white-collar customers.

Second board-listed CR Asia, which aims to list on the main board next year, last month posted a 5.6 per cent increase in net profit to HK$55.6 million for the nine months ended September, as sales rose 13.2 per cent to HK$1.66 billion.

The mainland outlets, which are mostly in Guangzhou and Dongguan, recorded a HK$14.8 million loss for the period. CR Asia also has a 19.5 per cent stake in a joint venture running 21 Circle K stores in Macau and Zhuhai.

CR Asia intends to acquire main board-listed Saint Honore, which has 85 bakery outlets in Hong Kong and Macau. The deal is waiting for shareholders' approval.

Mr Yeung said Saint Honore's expertise in baking would help boost Circle K's sales. All mainland stores and some Hong Kong outlets under the brand already offer freshly baked bread.

Saint Honore, which is facing fierce competition from counterparts such as Maxim's and Tai Pan Bakery, reported a 31 per cent decline in net profit to HK$41 million for the year ended in March.

CR Asia recently bought 2.5 per cent of South Korean's fourth-biggest convenience store chain, Buy The Way, for about HK$30 million from CCMP Capital Asia.

CR Asia aims to buy 33 per cent of the Korean chain over the next two years.