Consumer China

Lianhua – supermarket expansion drags on performance

  • Published 20 Oct 2011

Large-scale closures of poorly performing franchise supermarkets and convenience stores damaged recent sales growth.

Lianhua (0980:HKG), the east-coast retail chain, may be more popular than its peers in lower-tier cities, but its higher-tier city hypermarkets are making the biggest contribution to sales growth. Despite supermarkets and convenience stores making up 97% of Lianhua's total store outlets, they account for just 41% of revenues. Meanwhile, rapid expansion in these segments has led to issues of quality control and dragged on performance. However, steady growth among hypermarkets should help total revenues grow around 7% YoY this year. Even so, competition from larger operators such as Walmart (WMT:NYSE), Carrefour (CA:PAR) and Sun Art (6808:HKG) are likely to prove a challenge to Lianhua's longer-term expansion plans, and margins remain far below industry peers.

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