What Are We Doing After Gifore

2010-06-07

Why we invest: Jiuding Capital believed that community markets like Hongqi Chain, the typical sales channel, will become the priority for Jiuding Capital to invest. Sales channels have become one of the crucial links in the value chain of consumer goods. Great scale economy effect will be produced if the sales networks reached a certain quorum. Famous sales network enterprises will have huge bargaining power to their customers.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Jiuding Capital has targeted well-known Sichuan enterprises such as Gifore, GEEYA Technology and Juntong Communications recently. Now, we keep our eyes on Sichuan’s Hongqi Chain, the chained community markets with an investment of 150 million yuan. Hongqi Chain Co., Ltd. was formally set up after introducing the strategic investment plans.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In fact, we have noticed the company since 2008 when my team was working on Gifore project. As we drove through Chengdu, the plaque of Hongqi Chain jumped into our sights many times. What’s more, Chinese people have special feelings about the characters Hongqi, and the things related to red flag, such as Five-starred Red Flag and Hongqi sedan have special meanings in China, so we are impressed by the chain supermarkets named by Hongqi. After that, we found many supermarkets of Hongqi Chain in the city, which made us very curious.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Cao Shiru, the chain stores’ leader, is very famous in Chengdu. Born in 1952 in Chengdu, she once worked as businessman, team leader, business head and branch manager of Redflag Shopping Center, and then began to start her own business by reconstructing the old mall with over 40 coworkers and a loan of more than 10 million yuan in June 2000 when she was 48.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Her company has developed into the biggest commercial chain store enterprise integrating chain business, logistics and e-commerce in Western China in ten years. More than 1,000 chain stores have been set up, creating more than 10,000 jobs and paying taxes over 600 million yuan. Two modern logistics centers have been set up, providing logistics services for its 200 stores. In addition, the company has established good cooperative relationships with thousands of suppliers.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Hongqi Chain are mostly established in Chengdu urban areas, which are very recognized among the local people. In 2002, Hongqi Trademark passed the approval of the State Administration for Industry and Commerce Trademark Bureau and was registered successfully, which has been awarded Chengdu Famous Trademark and Sichuan Famous Trademark successively. Meanwhile, the company has been rated as Top 500 Service Enterprises in China, Top 100 Commercial Enterprises in China, Top 100 Retail Enterprises in China, etc.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In the very beginning, Hongqi Chain selected community chain store businesses instead of those traditional competitive sectors after investigating the markets to meet local residents’ demands on daily consumer goods. Usually, its stores in different sizes (20~1,000 m2) were set up according to community maturity and visitor flow rate so as to offer daily necessaries including tobacco, wines, snack foods and household care products.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Jiuding Capital believed that community markets like Hongqi Chain, the typical sales channels, will become the priority for Jiuding Capital to invest. Sales channels have become one of the crucial links in the value chain of consumer goods. Great scale economy effect will be produced if the sales networks reached a certain quorum. Famous sales network enterprises will have huge bargaining power to their customers.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The company experienced a tough time during 2000 and 2006 because no size effect took on at that time. However, Cao Shiru acquired the state-owned Redflag Shopping Center then, unifying the Red Flag brands finally. In 2007, Red Flag’s market position was established due to enlarged store sizes, and Red Flag became No.1 Brand in Chengdu’s chain store industry. The company realized a high compound growth rate and chain store business’s advantages have presented.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

During the investigation, Jiuding Capital found that the evolution of retail business has extended from Japan to Hong Kong, Taiwan, Shanghai and eastern coastal cities. Among developed commercial areas, community markets have become the first choice for consumers when shopping. Sichuan’s retail business was reproducing that of eastern coastal cities and Hongqi Chain model was correspondent with the development trends of commercial retail industry. 17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In the due diligent investigation, we visited and invested its upstream suppliers, administrative departments, end users and counterparts besides site communications and review about Red Flag’s operation and business modes.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

To master its competition pattern and consumers’ assessments, we hired almost 100 university students to complete questionnaires which contain more than 20 questions. The result displayed that Red Flag went beyond its counterparts in customer relationships, store site, commodity variety, service attitude, brand reputation and customer satisfaction, and so on, and performed well in net profit and gross profit.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Cao Shiru, a very charming female entrepreneur, has extraordinary courage and ability, which has been testified in her venture history. In fact, we appreciate President Cao and her team’s strong market controlling ability among the valiant market fluctuation.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

But then again, Jiuding Capital has invested in many projects in Sichuan, the most developed area in Western China, with rich resources and investment environment, and gained a lot.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

During investment, the growth potential of an enterprise is what we think highly. Chengdu, famous for its comfort living style, is a typical consumption city with a higher consuming intention. As the fast development of urbanization, Red Flag, as the leading retail business company, will increase higher than other companies among the industry, which is one of the reasons why we decide to invest in it.17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 (The above article was presented orally by Jiuding Capital Partner Lei CAI and Investment Director Chen Liumin and edited by reporter Zhongbin HU)17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


17j九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

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