Dairy Farm cat can enjoy blob of cream
DAIRY Farm is clearly on a roll, as illustrated by the encouraging interim results released yesterday and the positive remarks made by analysts about the merger of its wholesale food operations with Jardine Consumer Products.
After struggling to turn around its Spanish retail operations, it appears Dairy Farm is on the right track.
The business, which operates 59 Simago variety stores and 37 Superdescuento discount outlets, reduced pre-tax losses by nearly 50 per cent by closing stores and making 200 employees redundant. It was an impressive feat in a difficult economic environment.
There was more good news from the Taiwan unit, which has established itself as a profitable entity after five years of losses.
Analysts now expect the Taiwanese operation to be Dairy Farm's best performer for the next couple of years.
Impressive results were also posted by the Kwik Save discount chain in the United Kingdom, in which Dairy Farm owns a 29 per cent stake, and 50 per cent-owned Maxim's, which operates fast-food restaurants in China and Hong Kong.
Despite these positive developments, there are growing indications that Dairy Farm's business in Hong Kong could face a troubled future.
The main concern is sharp rises in rental costs, which are hitting all the territory's big retailers.
Fairwood Holdings, for example, said the cost of many of its leases that had come up for renewal had jumped 25 to 30 per cent.
As a result, retailers have two options: raise prices or relieve pressure on margins by using other tools such as opening smaller stores or cutting the number of staff.
Raising prices is the greater of the two evils because of the intense competition between retailers.
A problem for Dairy Farm's 181-store Wellcome chain is the growth of Dah Chong Hong Foodmart, which has joined Park'N Shop as a major threat.
These disturbing signals mean that Dairy Farm has little time to rest on its laurels.
However, if the positive developments in Taiwan and Spain are any indication, management is more than up to the challenge.
