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Suning.com jimmies restaurants and bars into convenience stores

Subsidiary acquires 60 Circle Ks in Guangzhou as investors grow jittery

Suning Xiaodian might be willing to suffer three years in the red as it buys up convenience stores and puts restaurants inside them.

BEIJING -- The convenience store arm of major Chinese home appliance retailer Suning.com has acquired more than 60 Circle K outlets operated in Guangzhou, Guangdong Province, by Hong Kong-based Convenience Retail Asia.

The long-established Circle K chain in the heart of Guangzhou's commercial district draws heavy customer traffic, and the acquisition is in line with Suning Xiaodian's strategy of expanding in the southern China region.

In April 2018, Suning Xiaodian acquired more than 300 supermarkets that Spanish retailer DIA had been operating in China.

Suning Xiaodian intends to have 20,000 outlets by 2020.

In a manner, Suning Xiaodian emphasizes frugality. It buys existing stores to avoid the high costs of opening new outlets. Establishing a new store requires spending money on locational surveys, acquiring land, negotiating leases and on building interiors. Acquiring an existing store reduces this laundry list and minimizes costs.

But the company has another side to it, one that is unafraid to spend in an effort to maximize convenience store earnings.

A typical new outlet has 300 sq. meters of floor space, more than half of which is dedicated to a restaurant (consisting of a kitchen as well as an eating and drinking section), an ordering counter and a checkout lane. In the kitchen, more than 60 kinds of foods -- noodles, fried rice, steamed Chinese buns -- are cooked.

Across from the ordering counter, customers receive the juice, alcoholic beverages, coffee and other drinks they have ordered. At night, lights over this beverage counter are turned on to help transform it into a bar. It stays open until midnight.

Bringing restaurant and bar services into convenience stores is intended to keep customers around and encourage them to spend more.

But analysts say these are costly transformations and that Suning Xiaodian incurs a 330,000-yuan ($46,726) investment whenever it opens a new store.

This leaves Suning Xiaodian perpetually flirting with losses. Because of this, Suning.com will make it an unconsolidated unit, beginning with the current half year.

By removing the subsidiary from its consolidated financial statements, Suning.com expects to increase its net profit to 3.4 billion yuan this year.

Suning Xiaodian will need at least three more years before it can operate profitably, one source said. Company officials consider this acceptable while they focus on increasing the chain's brand recognition.

But stock market participants are growing jittery. If Suning Xiaodian increases its closures of unprofitable outlets, the market could decide its strategy is ineffective.

36Kr, a Chinese tech news portal founded in Beijing in 2010, has more than 150 million readers worldwide. Nikkei announced a partnership with 36Kr on May 22, 2019.

For the Japanese version of this story, click here.

For the Chinese version, click here.

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