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UPDATE 2-Sinopec to restructure convenience store assets in non-fuel push

BEIJING/HONG KONG, March 18 (Reuters) - Asia's top oil

refiner Sinopec Corp will set up a

company to run its vast network of convenience stores across the world's largest auto market China to boost non-fuel sales at its petrol stations ahead of a potential sale.

The announcement comes after Sinopec, which operates the world's largest network of fuel stations, unveiled a plan last month to sell up to 30 percent of its massive marketing business which includes the convenience stores, petrol stations, as well as oil-products pipelines and storage facilities.

The sale can raise $10-$20 billion and boost the value of the low-margin marketing business, shore up the group's deteriorating finances and reinforce investment in exploration and production, analysts say.

The refiner said on Tuesday it was looking to reduce procurement costs for its convenience stores and that it had also launched fast-food services in partnership with some foreign companies at about one percent of its 30,000 petrol stations.

Sinopec launched its first convenience stores under the 'Easy Joy' brand more than five years ago. The Hong Kong and Shanghai-listed company now has 23,000 such stores, with sales totalling 13.3 billion yuan ($2.15 billion) in 2013, it said.

Sinopec relies on petrol for most of its marketing arm's operating income and sales at the 'Easy Joy' stores have struggled due to a lack of expertise in management and logistics, analysts say. The potential, however, is huge in the world's second largest fuel market and where car sales are expected to see a second year of double-digit growth in 2014.

In developed markets, fuel retailers derive over half of their income from non-fuel products with higher margins such as chocolate bars and chewing gum.

Non-fuel retail will be "the killer app within Sinopec's retail network and the major opportunity for investors," Neil Beveridge, analyst at Bernstein Research, said in a recent note to clients.

DOMESTIC BUYERS

Sinopec chairman Fu Chengyu believes boosting non-fuel sales are key to improve the profitability of its petrol stations, and is likely to bring in a major retailer or e-commerce company as a strategic investor, a person familiar with the refiner's strategy told Reuters.

"Fu Chengyu is keen to bring in a strategic investor such as an e-commerce company who can help squeeze more value out of the vast retail network," the person said, declining to be identified as he was not authorised to speak to the media.

Sinopec's marketing business has a gross margin of just 3 percent, analysts say.

Deep-pocketed domestic financial investors would be the most likely buyers of Sinopec's marketing business, industry specialists said, partly because these institutions would be content with a minority stake.

Global oil majors such as Royal Dutch Shell, Exxon Mobil and BP, however, are unlikely to put money into a business they are unable to control, analysts said.

Most of these companies are also shrinking their own downstream operations to focus on high-margin exploration and production activities.

"They all have a similar strategy of divesting their downstream asset and focusing on the upstream," said Gordon Kwan, energy analyst at Nomura in Hong Kong. "China is a big fuel market but it is a low margin business."

Sinopec could not immediately be reached for details about the likely buyer of its marketing business.