Chinese internet giant Tencent is forming a RMB 1.2 billion (US$170 million) grocery joint venture with Shanghai-listed supermarket operator Yonghui Superstores and Hong Kong’s ParknShop, according to a joint statement by the three companies.
The move will further boost Tecent’s offline commerce operations as fellow online giant and rival Alibaba, trumpeting its New Retail concept, rapidly enlarges its own footprint in the space.
The new company, under the brand ParknShop Yonghui, is valued at RMB1.2 billion ($170 million), according to a Shanghai Stock Exchange filing.
Tencent Takes 10 Percent of Retail Deal
Tencent’s 10 percent stake in the joint venture, following a $748.98 million investment in the hi-tech retailer Yonghui last December, will be paid for by its investment and music app arm Tencent Mobility for $17.85 million.
Yonghui’s equity contribution of $89.57 million will secure half of the joint venture. ParknShop, part of Li Ka-shing’s AS Watson personal care chain under the tycoon’s Hong Kong conglomerate CK Hutchison, is contributing cash and equity totaling $72.14 million in return for its 40 percent stake in the deal.
The partnership plans to capitalize on the complementary strengths of Fuzhou-based Yonghui, together with Hong Kong-based ParknShop to accelerate growth and expand the business further in the southern province of Guangdong, according to the statement. Meanwhile, Tencent will bring in additional technology such as online features on the ubiquitous messaging app WeChat and big data analytical capabilities to enable the digital transformation of the new company.
The initial goal of the joint venture, which already operates a combined total of more than 70 shops and counts some 2.2 million members, is to become the largest supermarket chain in Guangdong province. To do this, the partners are aiming to achieve RMB 10 billion in annual sales and hope to reach sales of $10 billion in the future as it taps into the 110 million population in the region, said Zhang Xuaning, founder of Yonghui.
As of June 2018, Fujian-based Yonghui operates a network of more than 950 supermarkets in around 22 provinces, 21 of them in Guangdong. ParknShop has more than 50 shops in the southern province. The combined revenue of the 17-year-old chain’s operations in Guangdong amounted to RMB 4.1 billion last year, based on figures from the statement.
Hong Kong and Mainland Food Sellers Seek Grocery Hegemony
Dominic Lai, group managing director of AS Watson Group commented: “We have been looking at ways to accelerate our expansion and there is no better partner than Yonghui to achieve that mission. I am very excited about this joint venture which enables us to combine the power of two retail brands, thus giving birth to a powerful contender in grocery retail in Southern China to the ultimate benefits of consumers.”
Yonghui has been adopting online strategies to stay competitive as it expands from a traditional supermarket chain into the technology-led “new retail” model and financial services. The company counts Hong Kong’s Dairy Farm Group, part of the Jardine Matheson Group, with 19.99 percent shares, as its single largest shareholder. Dairy Farm owns ParknShop’s closest rival in Hong Kong, the Wellcome supermarket chain. China’s leading e-commerce operator JD.com also holds a 6.43 percent stake in the tech-savvy retailer.
For Tencent, the joint venture is a follow up deal, after the producer of China’s ubiquitous WeChat app last December bought five percent of Yonghui for $748.98 million. At the same time that Tencent made that investment, the Chinese tech giant also increased its interest in Yonghui’s fresh food market unit, Super Species, to 15 percent. Both moves were seen as just the latest steps in Tencent’s war with Alibaba to control the future of the “new retail” battleground in Greater China.
Launched on January 1 this year, Super Species employs a hybrid operation model of “high-end supermarket + fresh food restaurant + O2O (online to offline)”, Yonghui said in an earlier announcement, with the hybrid chain now having established 46 physical stores in 10 mainland China cities.
The investment in Super Species put Tencent in direct confrontation with Alibaba, which has opened 60 of its Hema Supermarkets within the past year.
Tencent Expands O2O Deals
Yonghui opened 160 supermarkets in the first half of 2018 alone, of which 115 were new retail stores that connect customers from online platforms with physical stores. The company’s latest interim report shows, it generated revenue RMB 34.39 billion in the first half of 2018, representing a year on year increase of 21.47 percent. The company’s net profit, however, slid to RMB 933 million, an 11.54 percent decrease year on year as sales and marketing expenses, as well as management costs climbed 43.97 percent and 75.91 percent to RMB 5.47 billion and RMB 1.39 billion respectively due to its fast growing O2O business.
Tencent has been investing in a number of O2O retail deals including teamed with Hillhouse Capital to invest RMB1 billion ($145.6 million) in the Japanese-style retailer Miniso earlier this month. In May, Tencent also partnered with Carrefour to open a smart supermarket, Le Marche, four months after it bought a stake in the French retailer.