The Lianhua Supermarket group plans to spend 400 million yuan this year to open 400 new outlets on the mainland in a bid to protect its thin profit margin.

The outlets, mainly in East China, will include 15 hypermarkets, 185 supermarkets and 200 convenience stores, Executive Director Liang Wei said yesterday.

Lianhua ran 3,722 stores at the end of 2007. It added 13 hypermarket stores, 249 supermarkets and 235 convenience stores last year.

Meanwhile, the company predicts its stores' sales growth to be 8 to 10 percent this year, compared with 10.5 percent in 2007.

Liang said sales growth in the first quarter has outweighed the GDP growth of 10.6 percent. The sales growth rate will be maintained in the second half of the year.

Same-store sales for hypermarkets, supermarkets and convenience stores were 10.6 percent, 10.8 percent and 7.1 percent in 2007, respectively.

Lianhua reported a 11.05 percent jump in its net profits last year, to 268.3 million yuan.

Its gross profit margin remained steady, rising from 12.05 percent to 12.99 percent.

Its operating profit margin stood at 2.31 percent last year, higher than 1.4 percent in 2006.

The company has been facing stiff competition from both domestic players such as Wumart and Times and international players such as Carrefour and Wal-Mart.

Lianhua has been tapping into the high-end hypermarkets while continuing to expand low-to-middle-end traditional supermarkets.

The 11-year-high inflation this year may further squeeze the retailer's thin profit margin.

Talking about maintaining stable profit margin, Chairman Wang Zhigang said the company will raise prices according to the cost of goods and government policies.

"The purpose of the government's price control mechanism is to avoid volatility of prices," said Wang. "So far I have not seen any major impact to our operation."

Meanwhile, the rising cost of labor is another concern for mainland companies. The company's labor cost increased 10 percent in 2007. Liang said the company will try to keep the growth under 20 percent this year.

Lianhua has been in merger talks with its sister company Hualian for years. Wang, however, declined to give any details.

(HK Edition 04/18/2008 page2)