Will B2B plan revive the fortunes of Hong Kong liquor distributor Silver Base?

PUBLISHED : Wednesday, 28 June, 2017, 8:01am
UPDATED : Wednesday, 28 June, 2017, 8:00am

Silver Base Group, a Hong Kong-based distributor of high-end liquors, is shifting its business model towards operating a business-to-business (B2B) platform in a bid to reverse falling profits.

The company’s profits plunged last year, because of surging expenses – including those incurred by setting up the B2B liquor trading platform. Net profit tumbled to HK$6.2 million in the financial year ended March 2017, down 95.2 per cent from HK$130.4 million in the previous year.

The establishment of a B2B platform, providing a channel between liquor makers and retail stores, “brought a significant negative impact on the group last year,” said Liang Guoxing, the chairman and chief executive of Silver Base on Tuesday.

It seems that the company has been abandoned by investors. And I do not expect a profit rise unless we see the platform really contribute to its performance
Victor Au, Delta Asia Securities

It drove sales and distribution expenses up 63.1 per cent to HK$294.9 million last year. The company’s revenue, however, added 19 per cent to HK$1.5 billion.

“[Launching the B2B platform] is a one-off expense and will be substantially reduced upon the completion of the platform,” Liang said. The company has launched the B2B model in over 260 cities, and had around 130,000 registered members from liquor and tobacco speciality stores by March 2017. It expects to cover 330 cities and 280,000 members this year.

On the back of the new business model, Silver Base expects its market share in China’s liquor market to rise to 3 per cent in the coming five years.

Yan Jun, president of the group, said once the B2B platform is complete, “it is highly possible that the revenue from providing a platform for trading will surpass its sales of liquor products.”

However, industry watchers have their doubts about the business model transformation. “The traditional distributing model in the liquor industry is very strong and involves complex so-called Chinese relationships,” said Victor Au, chief operating officer at Delta Asia Securities. “And it is not easy to change that model.”

The share price of Silver Base has been sliding, and is down almost 60 per cent in the past year.

“It seems that the company has been abandoned by investors,” said Au. “And I do not expect a profit rise unless we see the platform really contribute to its performance.”

On Tuesday, the share price jumped 2 per cent to close at HK$0.53.