Li & Fung Retail Unit Sells Hong Kong Circle K Stores for $360M

After resetting itself as a private corporation last year, Hong Kong trading firm Li & Fung’s restructuring continues, this time with the sale of its Hong Kong and Macau Circle K stores to Quebec-based convenience store operator and brand owner Alimentation Couche-Tard.

Hong Kong-listed Li & Fung subsidiary Convenience Retail Asia announced on 5 November that it had agreed to sell its 340 Circle K convenience stores in Hong Kong, along with 33 franchised outlets in Macau, to Couche-Tard for HK$2.79 billion ($360 million) in cash.

“This is a win-win for both companies,” Convenience Retail chair Victor Fung said in a statement. “Our investors will gain from a good return on their investment and Couche-Tard will benefit from a first-class organisation of dedicated and loyal team members who have contributed to the success of Circle K in Hong Kong.”

The deal allows Li & Fung to continue a transformation that began with the HK$7.2 billion GLP-backed privatisation last year, while giving Couche-Tard possession of Hong Kong’s second largest convenience store player, as the Canadian firm ramps up its presence in Asia Pacific.

Regional Growth Ambitions

In a statement, Couche-Tard hailed the acquisition as its entry into Asia, with the move putting the company behind only 7-Eleven among convenience store operators in Hong Kong. Calling the deal a significant milestone, the Quebec-based firm said the Hong Kong acquisition “provides the Company with a platform in Asia from which to launch its regional growth ambitions”.

In an interim financial report issued in August, Convenience Retail recorded a net asset value of HK$622 million, although the company indicated that Circle K’s profits were stagnating due to a lack of tourist traffic in key transit and commercial hubs stemming from 2019’s protests and continuing through the COVID-19 pandemic. With traffic down due to the ongoing crisis, the company cut operation of its Circle K network by 10,000 hours during the first half of 2020.

After disposing of its corner market business, Convenience Retail will remain in control of the more resilient Saint Honore cake shop chain, Mon Cher bakery and Zoff eyewear outlets in Hong Kong and southern China. Shareholders will receive a special HK$3.85 dividend as a result of the sale.

New Li & Fung Emerging

The sale of its convenience store business comes as Li & Fung, a century-old sourcing and distribution firm, continues to restructure its empire in the face of challenges from online shopping and a shifting economic environment.

According to September data from Hong Kong’s Census and Statistics Department, overall retail sales in the city remain down 28.7 percent for the year to date, although supermarket sales (which include convenience store figures) were up 11.2 percent from the same month in 2019.

Li & Fung had already shed its mainland convenience store arm last year for an undisclosed sum, selling 61 Circle K stores, mostly in Guangdong province, to Nanjing-based retail giant Suning as the group sought to cut losses it had been racking up since its 2002 entry into China.

In March of this year, Li & Fung completed a privatisation led by the Fung family together with GLP, after the Singapore-based logistics giant agreed to pay HK$7.2 billion to buy out the publicly traded shares in the company.

At the time of the GLP agreement, Li & Fung CEO Spencer Fung explained in a statement to the stock exchange that the buyout was a way for the company to gain more leeway to restructure its core businesses.

Expanding a Convenience Empire

As Li & Fung steps away from the convenience store sector, Couche-Tard, which owns the Circle K brand globally, is following through on an APAC expansion plan that had been detoured by the COVID-19 crisis earlier this year.

In April, the Canadian firm shelved a $5.6 billion attempt, first launched last year, to buy out the Caltex petrol station retail chain in Australia, citing uncertainty arising from the COVID-19 pandemic.

As of July 2020, Couche-Tard operated a network of over 9,200 convenience stores in North America and 2,700 in Europe, including road transport fuel and convenience products. Globally the company’s retail footprint spans 47 US states, all 10 Canadian provinces, Scandinavia, the Baltics, Russia and Ireland.

In addition to its direct holdings, Couche-Tard has another 2,300 licensed stores operating in 15 other jurisdictions, including Indonesia, Vietnam, the UAE and Mexico, bringing its worldwide total to 14,350 outlets. Aside from its Circle K shops, the retailer’s other brands include Mac’s, Corner Store, Holiday and Ingo.

“Upon closing of this transaction, Couche-Tard will reach a milestone in its strategic ambition of entering the high growth Asia-Pacific market with a first-rate management and operations team, which has the credibility, experience and capabilities to support future expansion in the region,” Couche-Tard president and CEO Brian Hannasch said.

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