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Dairy Farm also plans expansion of branches in Hong Kong and Macau

Hong Kong's largest drug-store chain Mannings plans to expand its mainland operations by opening as many as 10 stores this year, despite the closure of an  underperforming branch in Guangzhou.

The retail arm of Singapore-listed Dairy Farm International Holdings also plans to add between 10 and 15 stores to its portfolio of 224 stores in Hong Kong and a further four to the three it has in Macau.

Dairy Farm group health and beauty director Caroline Mak said the company was still exploring the mainland market, where it has 11 stores in Guangzhou, Dongguan and Shenzhen.

'We will spend heavily on expanding our network in the mainland once we finish our exploration,' said Ms Mak, who expects research on the mainland market to finish at the end of the year.

She said early studies indicated that mainland customers were more sensitive to price and to the style of promotion.

'In Hong Kong, we advertise on television. But in the mainland, it doesn't work because the audience won't travel from one city to another just to visit our stores. We mainly distribute flyers for promotion,' she said.

Mannings entered the mainland market in 2004 under the Closer Economic Partnership Arrangement, but restrictions under the agreement meant that expansion by the company had to  be confined to the Pearl River Delta. Ms Mak said the Guangzhou store was closed after sales performed 'far below expectations', a situation she put down to a lack of population traffic in the area.

She said it would take  between seven and eight years for a new mainland store to break even.

Apart from southern China, the Dairy Farm group also operates health and beauty stores under a different brand name in other Asian countries. The segment accounted for 15 per cent of the group's total revenue and about 23 per cent of operating profit last year.

The company, which has undergone rental increases this year, aims to reduce operating costs by spending slightly less on promotions and maintaining, rather than aggressively expanding, market share.

Lily Chan, chief executive of Mannings (Hong Kong and Macau), said: 'We will continue to keep our product prices low. We aim to boost our sales for profit growth.'

Ms Chan added  that Mannings' product prices had dropped  2.4 per cent last year even though Hong Kong's inflation rate was below 1.1 per cent.

Dairy Farm operates retail chains Wellcome, Ikea and 7-Eleven in addition to Mannings and holds 50 per cent stakes in Maxim's and Starbucks in Hong Kong.



Mannings to augment mainland store network