Despite the weak market, Convenience Retail Asia achieved strong comparable store sales growth in Hong Kong in its latest trading year.
Core operating profit slipped by 8.3 per cent, mainly because of escalating rental and labour costs as well as higher running costs for its online outlet.
Full-year profit grew by 31.5 per cent, mainly from a one-off gain of HK$48 million (US$6.18 million) from the sale of Circle K Guangzhou, which had been losing money.
Another challenging year is expected with fierce retail competition and weak consumer sentiment.
As at December 31, the group had 449 Circle K Stores, of which 121 were franchises. The 328 company-owned outlets were in Hong Kong, which the franchised stores were in Guangzhou (76), Macau (27) and Zhuhai (18).
The group also has 138 Saint Honore Cake Shops – 89 in Hong Kong, 40 in Guangzhou, nine in Macau and one in Shenzhen.
Solid performance
Chairman Dr Victor Fung Kwok King says the group achieved turnover of $4728 million during the year, with a core operating profit of $162 million and net profit of $159 million.
Sales growth for the year was about 4.3 per cent, mainly driven by solid performance in comparable store sales. Compared to the previous year, the core operating profit eased 8.3 per cent to $162 million, mainly because of escalating rental and labour costs as well the higher cost of running its eCommerce platform FingerShopping.com, which outweighed the growth in comparable store sales across all markets.
However, the group will continue to invest in the O2O (online to offline) retailing platform that allows customers to pick up their purchases at Circle K stores. The gross merchandise value of FingerShopping.com doubled over the year.
“It was a difficult year for the retail industry in Hong Kong,” says the chairman. “The decline in tourism spending, combined with weak market sentiment, had an inevitable impact on retail.”
However, demand from local customers for daily consumables remained stable.
With unemployment and underemployment in Hong Kong still at low rates (about 3.3 and 1.4 per cent respectively) between October and December, there was keen competition for quality staff across the retail industry. Convenience Retail Asia’s Hearts employee engagement program helped it retain and develop staff. The initiative aims to nurture a happy, healthy workplace where employees feel valued and are rewarded for customer service excellence.
Despite the challenges, the group achieved growth in comparable store sales across its convenience and bakery businesses thanks to promotions and offers, identifying popular and introducing new items, and building customer loyalty.
Increasingly challenging
Over the past few years, the environment for convenience stores on the Chinese mainland has grown increasingly challenging. In August, the group sold its Circle K convenience store business in Guangzhou, which also ended the group’s involvement in a pilot program involving 10 petrol stations and Easy Joy convenience stores in Guangzhou.
For its Saint Honore Cake Shops, the group continued to develop products, devise innovative marketing campaigns and enhance customer service. The enabled it to drive higher comparable store sales across all markets.
This year, the group will seek to open at more locations where it can benefit from Hong Kong’s lower rentals, and renew leases where rental increases become more reasonable.
