Hong Kong conglomerate Swire eyes market leadership in China’s bakery market

Swire Pacific plans to almost double the size of the retail outlets of its bakery business by 2020, making it one of the biggest bakery chains in China.

As the demand for better quality food products grows in China, Swire will increase the number of its bakery shops in Chongqing, Chengdu and Guiyang to 1,000 within three years, through Swire Foods – a wholly owned subsidiary of the group launched in 2010 and encompassing the Taikoo brand.

The conglomerate sees long term stable growth in the food industry even though the business scale is small when compared with its aviation and property businesses. Swire’s Cathay Pacific Airways, has been facing pressure on passenger yields amid competition and the retail property market in Hong Kong is still challenging as fewer mainland tourists are coming to Hong Kong.

“People only buy pastries at nearby shops so we expand the number of outlets to increase market share,” said Steven Yuen, chief executive officer of Chongqing New Qinyuan Bakery.

The planned business scale will be comparable to other brands such as Holiland Bakery.

Last year, Swire Foods completed a HK$1.39 billion deal to take full ownership of Qinyuan, a leading bakery chain selling Chinese and Western-style pastries, with over 500 retail outlets in Southwest China. Qinyuan also has a 65,000 square-metre factory producing bakery goods in Chongqing.

“Bakery is a very market fragmented market in China . We have not yet seen any player dominating the market [so] there a a big opportunity there,” said Max Lau, managing director of Swire Foods.

Lau believes that the demand will rise in coming years due to the fact that per capita consumption is currently very low.

The average spend on bakery goods in China is only around 140 yuan (HK$160) per person per year, according to Swire. In Singapore, it is double that, Hong Kong three times and Japan is close to seven times as much.

He said the company’s current strategy is to improve the systems and quality of products. Swire also plans to expand premium items like Mövenpick Coffee into the bakery stores. It has opened its first premium bakery shop under a new brand name, Bakerland, and will launch another brand, Moment, later in the wake of the positive outlook in the food industry.

“Food still serves a basic need for everyone despite the economic slowdown in China. You may not buy a car amid an economic slowdown, but you will still buy yourself a cup of nice coffee,” said Lau, adding that the group is also optimistic about the dessert market in China as the younger generation enjoys bakery products.

“The young generation is not price sensitive, they are happy to spend 40 yuan for a piece of nice cake,” said Yuen of Qinyuan Bakery.

“The retail business is being challenged by the rise of e-commerce in China these days, but food retail cannot be replaced by e-commerce just yet,” he said.

Apart from food, Swire announced in November the acquisition of the Coca-Cola bottling assets in China for 5.87 billion yuan, betting on growing consumption in the mainland of non-alcoholic ready-to-drink beverages.