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Wumart sets sights on growth

By Lillian Liu and Zhang Jin (China Daily)
Updated: 2006-08-11 08:58

HONG KONG: Wumart Stores Inc, Beijing's largest supermarket chain, said yesterday it has earmarked 500 million yuan (US$62.5 million) to open more hypermarkets and take over competitors in 2006.

The move, announced after it posted strong first-half earnings yesterday, aims to fend off foreign rivals and consolidate its leadership of the mainland's highly competitive retail market, analysts said.

But the war chest does not include the 550 million yuan (US$68.75 million) spent on its two latest acquisitions this year.

Wumart announced the acquisitions of Beijing rival MerryMart in February, while it took over Southwest China-based Xinhua Co in April.

"We will continue to expand and acquire," said Xu Ying, Wumart's director of finance.

"Our goal is to become a leading hypermarket operator," she told reporters yesterday. About 70 per cent of Wumart's turnover comes from its hypermarket stores.

Despite that ambition, the retailer, which trades its shares in Hong Kong's secondary stock market, the Growth Enterprise Market, will open 20 to 30 new community-based mini-marts in 2006, in a move to diversify its store portfolio. It now operates 478 mini-marts.

Running a total of 524 stores, the retailer has been basking in the mainland's consumption boom in recent years.

Wumart, Shanghai-based Brilliance and Dalian-based Dashang Group, are regarded as the local giants that can compete with foreign players such as US retail behemoth Wal-Mart, France's Carrefour and Germany's Metro.

It used to expand through organic growth, becoming one of the few Chinese retailers to have a cross-province influence.

However, strong penetration by foreign retailers has forced Wumart to conduct mergers and acquisitions, a quicker but more capital-intensive way to grab a bigger market share.

It also seems to be an effective way to enter smaller cities, where small-scale, local retailers have already occupied prime areas for supermarkets, analysts said.

"I don't think Wumart will only focus on Beijing," said Lai Wai-shing, an analyst at Hong Kong-based Hantec Investment. "It's still hunting for acquisitions," he said.

Wumart yesterday posted a year-on-year 44.2 per cent jump in its net profit from January to June, to reach 108.9 million yuan (US$13.6 million), slightly beating an earlier estimate made by investment bank DBS.

With a "buy" recommendation on Wumart's shares, DBS predicted its earnings would be 1.06 million yuan (US$13.25 million).

The retailer's turnover also experienced a sharp rise of 43.5 per cent, on a yearly basis, to 2.62 billion yuan (US$327.5 million), thanks to the "opening of new stores and robust same-store increases," it said in a statement.

Wumart's Hong Kong-traded shares were under pressure in the past couple of weeks after the company delayed its acquisition process with MerryMart.

Its shares sank 1.79 per cent to HK$27.5 (US$3.5) yesterday but are expected to rise today on handsome half-year results, which were announced after the stock market's close.