Dough is fast rising in China for BreadTalk

Dough is fast rising in China for BreadTalk

SINGAPORE - IF BreadTalk can survive the cost challenges in highly saturated and competitive markets such as Singapore and Hong Kong, it will be able to tackle similar problems in China, founder George Quek said yesterday.

He made the comments when asked about the group's ambitious plans announced in September to have 1,000 bakery outlets worldwide by 2014, with more than half in China.

This year alone, nearly 100 outlets have been opened across all three BreadTalk divisions - its core bakery business that contributes over half of revenue, food atrium segment, and its restaurants segment. This boosted the total number of outlets including franchises to about 630.

In China, its bakery outlets, mostly run by franchisees, will double to more than 500 by 2014. Some 120 new outlets will open there next year.

"Consumers there are accepting our brand," Mr Quek told BT in Mandarin yesterday.

"Singapore and Hong Kong are both saturated markets, both advanced economies, where the standards of living are high, personnel costs, rentals, investment costs, materials costs are all very high. I feel that our challenges in China aren't as heavy as in Singapore and Hong Kong. We have been in China for over 10 years and understand the business climate there."

BreadTalk shares closed trading at 67.5 cents, close to their record high of 72 cents in January last year.

The stock is up 27 per cent year to date and up 45 per cent from an intra-year low of 46.5 cents in May.

Rising costs have hit BreadTalk's bottom line. Its latest results for the three months to end-September show a 7.7 per cent fall in net profit to $3.4 million compared to a year ago.

On the back of a 26.9 per cent increase in group cost of sales versus a 21.5 per cent revenue increase, gross profit margin declined from 54.4 per cent to 52.3 per cent for the third quarter.

Profit contribution from its bakery segment was weaker than last year due to higher food, labour and rental costs. Labour costs also increased due to higher foreign worker levies and employer contributions, and an increase in mandatory minimum wages in China.

To cope, BreadTalk raised prices for its bakery products two months ago. Its signature pork floss bun now costs $1.70, up 20 cents from $1.50 at the beginning of the year.

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