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Supermarket chain ParknShop will push ahead with plans to open 36 stores in Hong Kong this year despite a strategic review of the HK$22 billion business that investors expect to see it ejected from Li Ka-shing's empire.
Analysts, however, question the wisdom of ramping up the store opening programme that they estimate could cost the company HK$1 billion.
"Hong Kong is a very mature market. Sales should be grown not by store openings, but by increasing productivity per store," Yeo Zhi Bin, a retail analyst at CIMB-GK Securities, told the South China Morning Post.
"Unlike Southeast Asia, where supermarket operators are subject to fierce competition, the competition landscape in Hong Kong has achieved a balance through a quasi-oligopoly."
Yeo said the optimal number of net new store openings for ParknShop was nine to 10 a year, given the slow population growth in Hong Kong .
The HK$1 billion commitment to new stores may not sit easily with potential buyers of the supermarket chain either.
Market sources say Hutchison Whampoa, Li's flagship conglomerate that includes ParknShop in its portfolio, has given bidders until the close of business today to submit their offers.
Nine firms are thought to be in the running to buy the chain, including China Resources Enterprise, Aeon Stores, Walmart, Sun Art Retail from the mainland, Wesfarmers and Woolworths from Australia, Blackstone and some private equity firms.
ParknShop opened more than 30 shops last year, delivering a net increase of 21 stores. That is a stark contrast to the net increase of five to six stores per year over the five years to 2011. In the first half of this year, it added 16.
New outlets, which normally range from 3,000 to 70,000 square feet, cost HK$4 million to HK$30 million each, according to an industry veteran.
Analysts are also critical of increasing store numbers as a way to push up sales as they point out that the number of stores does not necessarily translate into market share.
Wellcome, which operates 302 stores, has 15 per cent of the city's fast-moving consumer goods and fresh products market, according to Nielsen Homescan.
Parknshop, which operates 280 stores, has 19 per cent.
"For the five years to 2011, we were focusing on upgrading and renovating our stores at a rate of 30 to 50 stores a year," said Malina Ngai, a spokeswoman for AS Watson that operates ParknShop, underlining the broad change in policy for the coming years.
Whoever bids successfully for ParknShop has to factor in the rent factor. Many of the ParknShop stores are situated in Li's properties.
Last year, ParknShop generated HK$21.7 billion in sales but net profit margin was lower than 6 per cent.
The supermarket chain has been actively expanding on the mainland. It entered the market as early as in 1984, in Guangdong.
After initial setbacks in its attempt to expand across the border, the retailer has consolidated its mainland operations and closed loss-making outlets.
It currently operates more than 50 shops in Guangdong, where customer preferences are similar to those in Hong Kong.
ParknShop's Guangdong operations reported 4 billion yuan (HK$5 billion) in sales last year, ranking it 15th among chain retailers in the province and the third among food retailers, according to the Guangdong Chain Operations Association.
China Resources Vanguard, a supermarket brand owned by China Resources, led the league table with 94.1 billion yuan in sales, while Walmart came in second with 61.3 billion yuan, the association said.


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ParknShop

ParknShop to remain on expansion course

ParknShop booked HK$21.7 billion in sales last year but the supermarket chain's net profit margin was less than 6 per cent. Photo: Dickson Lee

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Analysts raise questions over the supermarket chain's HK$1 billion plan to open 36 new stores in the city this year pending a takeover deal


Supermarket chain ParknShop will push ahead with plans to open 36 stores in Hong Kong this year despite a strategic review of the HK$22 billion business that investors expect to see it ejected from Li Ka-shing's empire.


ParknShop to remain on expansion course

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Analysts raise questions over the supermarket chain's HK$1 billion plan to open 36 new stores in the city this year pending a takeover deal

Analysts raise questions over the supermarket chain's HK$1 billion plan to open 36 new stores in the city this year pending a takeover deal