China Consumer

Not enough dough

Troubled times for China’s first ‘listed’ bakery


A cake made by Christine

“Making food requires conscience. We must pour our entire heart and soul into it because the food industry is very high-risk. It requires everyone in the sector to have a strong sense of social responsibility and the ability to navigate through a crisis.”

This was the advice of Lo Tien-an, the founder of Christine Cake, shared in an interview in 2012.

Strangely, Christine has repeatedly failed food safety standards. Just recently, a qingtuan (a mochi-like dumpling with red-bean stuffing) sold at one of its bakeries in Shanghai was discovered to contain dangerously high levels of bacteria during a pathogen test. And it’s not the first time the bakery has failed a pathogen test. Various products came in for scrutiny over the past two years.

In 2016, the acidity scores for one of its snacks also exceeded safety standards and the company was fined.

That’s not great news for customers, so analysts weren’t surprised when the bakery chain announced its (unaudited) sales amounted to only Rmb549 million ($82.3 million) last year, a decrease of 17% from a year before. Christine lost Rmb200 million over the period, and by the end of 2019 had shut 110 stores and reduced its network to 476 bakeries.

A quarter of the workforce was made redundant, reports Lanjinger, a financial news portal.

Christine’s decline has not been sudden. The company was one of the earliest overseas-invested bakeries in China – partially owned by Taiwanese businessman Lo and Marubeni, one of Japan’s top five trading houses. The chain, which controlled over 1,000 outlets, went public in Hong Kong in 2012, becoming the first bakery from the mainland to list on the city’s bourse.

But Christine has bled cash since 2013 and its shares hover around HK$0.17, a fraction of its listing price of HK$1.60. Investors have shied away: on some trading days the transaction volume is zero.

The fall in revenue has much to do with a lack of new products and a decline in brand equity.

“The bakery business has become a bright spot in the retail industry because it is the choice for a lot of urbanites when it comes to breakfast and snacks,” says Zhu Danpeng, a food industry analyst. “However, it has also attracted many competitors. They have a lot of new ideas about product innovation and marketing. They also understand the preferences and needs of their consumers. Christine, on the other hand, lacks production innovation. It also insisted on centralised manufacturing, which means that the goods often lose their freshness by the time they reach the stores. Coupled with an aging brand, it’s no wonder that the company has failed to compete.”

Christine has tried to grow by competing in the middle to high-end market, using the money from the IPO to fund self-owned stores in prime locations. Later it opened more outlets in lower-tier cities, where spending power is lower.

That ambitious growth plan is now being blamed for Christine’s misfortunes.

“With all the prime real estate, it required a lot of cash to fuel the growth. By the time it realised that over-expansion had become a problem for cashflow it was already too late. Worse, rivals have caught up and all of its advantages in areas like product development and efficient management were a thing of the past,” commented Sina Finance. “In other words, the first listed bakery stock has become a penny stock that no one remembers.”

Other bakery chains have shifted strategy to a café approach that combines food with beverages so as to target young consumers. Traditional bubble tea chains like HEYTEA and Naixue Tea are competing for the same customers, combining their specialty beverages such as naigai cha (cheese-tea, see WiC490) with baked goods.

Christine’s founder Lo is not giving up on the bakery chain, however. The businessman is waging a boardroom battle against the current management team as he tries to regain control of the company. “Once the company’s shareholder structure stabilises, we can start discussing the future development and reset strategic goals,” he told Lanjinger confidently.

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