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August 11, 2013 5:35 pm
Pick an international supermarket chain or private equity group and scan the Hong Kong press. The chances are it will have been linked with ParknShop, the supermarket business that Li Ka-shing has put up for sale. On the face of it, the deal looks like a bit-part tweak for Mr Li’s Hutchison Whampoa, a trading conglomerate that has spent more than $4bn on acquisitions already this year. But ParknShop’s new owner, and the price paid, will say a lot about sentiment towards China’s supermarket potential.
ParknShop is ubiquitous in Hong Kong where its 290 stores, ranging from its name brand to the high-end Great, operate in a near duopoly with Dairy Farm’s Wellcome, a chain ultimately owned by Hutchison’s rival hong, Jardine’s. Strip out local wet markets, which have about two-fifths of Hong Kong’s grocery market according to Nielsen, and Hutchison has two-fifths of the rest to Jardine’s one-third. But Hutchison has held ParknShop since its beginnings in 1973, so why sell now? Ostensibly, it wants to focus on its fast-growing pharmacies, which is smart enough.
Another reason for dumping a steady cash generator after 40 years would be if its market had peaked. Hong Kong looks mature, although the supermarkets can still fight the wet markets for share. China is another matter. ParknShop has about 60 stores in Guangdong province that are said to be profitable, although data are not public. But reports that Carrefour is mulling pulling out of the country, together with Tesco’s plans to cut exposure by forming a joint venture show that other operators doubt they can profit from China. That newsflow will not help ParknShop fetch its rumoured price tag of up to $4bn, or 1.5 times 2012 sales. Hutchison’s shares have risen a tenth since it admitted it was considering a sale. Investors can only hope they like the eventual price as much as they have the idea of getting out of the business.
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