"We in fact don't want to shut down any branches in China. We will give them a chance to improve. If they cannot do so, we will have to shut them down. However, we have to ponder whether it is worth shutting them down. We expect to know their fate by the end of the year," head of finance Kriengchai Boonpoapichart said yesterday.

CP Seven-Eleven - part of the Charoen Pokphand (CP) group - holds a 30-per-cent stake in Yangtzi Supermarket Investment, which operates the Lotus chain in China.

"Normally, branch closures carry high costs because depreciation has to be booked on a one-off basis and we have to lose our investment. We hold a 30-per-cent stake [through Yangtzi Supermarket Investment] in branches in central China, which represents a US$30-million [Bt1.13 billion] investment," Kriengchai said.

At the moment, there are 43 Lotus branches in central China.

The company reported a Bt1.2-billion net loss from its investment in China in the first half of the year, with 28 branches having proved to be unprofitable operations.

Kriengchai explained that the loss was due to the intensified competition following the authorities granting permission for new foreign investors to enter the retail business in China, subject to certain restrictions.

Each branch typically needs two years to break even, but Kriengchai said CP7-11 would extend this period by a year because of the tougher competition.

As a result of the competitive environment, the company has lowered its target of opening 10 to 15 new branches in Shanghai this year, which would have required an investment of Bt1.25 billion to Bt2.5 billion. Its new target is five to 10 branches, he said.

"China's economic growth is still robust and we believe we will get attractive returns from our investment over the next one to two years," he said.

As to the company's business expansion in Thailand, Kriengchai said it planned to open 400 to 450 new 7-11 outlets per year - half of them franchise operations. It currently has more than 3,000 branches around the Kingdom.

The company has already spent Bt1.9 billion of its 2006 Bt3-billion budget for new outlets.

Of the new branches to be opened this year, 40 per cent will be located in Bangkok.

The company expects to have about 5,000 7-11 outlets around the country by 2010, he said.

CP Seven-Eleven's net profit in the first six months of the year amounted to Bt877 million.

The company has maintained a 20-per-cent revenue growth target this year from the Bt98.95 billion achieved in 2005, on the anticipation of higher sales from existing branches in addition to the opening of new stores.

Thanakorn Seriburi, chairman of ECI Group - the CP group's holding company for all its activities in China - recently said its retail business in China, the Lotus Supercentre chain, had been expanding rapidly, reaching 74 branches ranging from small stores with 5,000 square metres of space to large units measuring up to 20,000sqm.

"It's an interesting business, with each Lotus ringing up an average of 500,000 yuan or Bt2.5 million per day in sales," he said.

CP's interests in China include agriculture, retailing, motorcycles, heavy-equipment dealerships and shopping malls, and generate revenues of $6 billion per year.

Siriporn Chanjindamanee

The Nation