MINISO will become the largest shareholder of Yonghui Supermarket. Is the best era of supermarkets over?

MINISO announced that it would acquire 29.4% of Yonghui Superstores' shares for RMB 6.27 billion, becoming its largest shareholder, sparking heated discussions in the industry about the future prospects of traditional supermarkets.

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The news that Yonghui Supermarket's major shareholder will "change hands" to Miniso has caused an uproar in the industry.

First, it is unbelievable that Yonghui, as a leading supermarket group, is so cheap. Some people even think that China's retail industry is "finished" and that the once most advantageous retail supermarkets in China have finally become a thing of the past.

Second, many people said that they didn’t understand or were not optimistic about it.

On September 23, MINISO announced on the Hong Kong Stock Exchange that it would acquire 29.4% of Yonghui Superstores' equity for 6.27 billion yuan, including 21.1% held by Dairy Farm and 8.3% held by JD.com. After the transaction is completed, MINISO is expected to become the largest shareholder of Yonghui Superstores.

On the same day, at the investor meeting for MINISO's acquisition of Yonghui, MINISO gave the reasons for acquiring Yonghui Supermarket's shares.

Ye Guofu, founder and CEO of MINISO, believes that China's offline supermarkets are facing a structural opportunity that comes once in 20 years, and that the future of retail has only two directions: low-price retail and specialty retail (MINISO, COSTCO).

Trader Joe's is the supermarket with the highest sales per square foot in the world, with a sales per square foot of $1,750, higher than COSTCO and Sam's Club. It has long been the most popular supermarket among consumers in the United States.

He said that over the past decade, after traveling around the world and seeing various retail formats, he found that there is a better model than Sam's Club and COSTCO in China. In China, Pangdonglai is the only way out for Chinese retail.

"They attach great importance to products. Pangdonglai pays more attention to customer experience and employees. It does not have membership. Pangdonglai's sales per square meter and labor efficiency are also the highest among Chinese retailers."

MINISO believes that Pang Donglai is more suitable for China's family sales model and that the "Pang Donglai" model can be replicated to other parts of the country. The performance of Yonghui Supermarket's three restructured stores has improved significantly.

In addition, the adjustment of Yonghui Supermarket will also be helpful to the channel upgrade of MINISO, helping MINISO to obtain better locations, making the layout of MINISO more perfect and dispersing cyclical business risks. MINISO will also assist Yonghui in developing more private brands. In other words, both parties can bring into play the advantages of integration in channels and supply chains.

From the perspective of acquisition timing, Yonghui Supermarket's valuation is very attractive, with a low premium on investment cost and a relatively high safety margin.

At the same time, from the perspective of corporate finance, this investment will increase MINISO's use of debt in its capital structure and optimize its capital structure. If Yonghui can start to make a profit after the adjustment, this investment has the opportunity to create a good return on investment.

At the same time, Ye Guofu said, "I hope everyone will be patient and believe in my vision. I am not only looking at the Chinese market, but also the global retail market. I may make mistakes in other areas, but I will never make mistakes in retail. Yonghui Supermarket's prices are the lowest now, and many people don't understand it. If everyone can understand it, I will definitely have no chance."

On the evening of September 23, Yonghui Superstores also issued an announcement, disclosing that its shareholders had signed a "Share Transfer Agreement" and that the company's largest shareholder would change. According to the announcement, the company's shareholders Dairy Farm, JD World Trade and Suqian Hanbang intend to transfer their Yonghui Superstores shares to Juncai International.

The specific number of transferred shares are 1913135376 shares of Dairy Farm (accounting for 21.08% of the total share capital), 367227196 shares of JD World Trade (accounting for 4.05% of the total share capital), and 387772804 shares of Suqian Hanbang (accounting for 4.27% of the total share capital).

After the completion of this transaction, Juncai International will hold 29.40% of Yonghui Supermarket's shares and become the company's largest shareholder. The controlling shareholder of Juncai International is MINISO (Guangzhou) Co., Ltd.

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Regarding this acquisition, Bailian Consulting founder Zhuang Shuai responded to the media that from a business perspective, there are two possibilities:

First, if MINISO has absolute dominance, it is possible to transform all Yonghui stores into discount stores, thus developing a discount business model; second, the integration of MINISO's own brands and supply chain system with Yonghui will promote the growth of MINISO's own brands. "But these two possible outcomes do not have much advantage and feasibility."

The first doubt is whether MINISO has this ability.

Yonghui Supermarket's nearly 1,000 stores are all large stores covering tens of thousands of square meters, while Miniso is only a small store of a few hundred square meters. The two stores involve huge differences in product category scale, supply chain capabilities, operational management, and organizational processes. It is difficult for Yonghui itself to make specific and effective optimizations and adjustments.

The second possibility is that MINISO's own brand can be differentiated and have advantages when sold in its own system, but in a system where supermarkets mainly sell well-known brands, MINISO's own brand advantage is not that advantageous. Instead, it will weaken the differentiated product advantages of MINISO's existing stores.

Some investors also believe that the renewal and replacement of the retail industry is always cruel. All actions are ultimately for the purpose of optimizing the efficiency of the business chain. The efficient ones crush the inefficient ones. There is no idyll, only a dark forest.

An analysis of acquisitions in the retail industry in recent years reveals that there are few cases of successful transformation.

First, Suning.com acquired 80% of Carrefour’s shares.

On June 23, 2019, Suning.com announced that its wholly-owned subsidiary Suning International plans to invest RMB 4.8 billion to acquire 80% of Carrefour China. After the transaction is completed, Suning.com will become the controlling shareholder of Carrefour China, and Carrefour Group's shareholding ratio will be reduced to 20%.

However, after years of acquisition, Carrefour has not achieved significant development, but has instead fallen into a "vortex" of continuous store closures.

In October 2023, French retailer Carrefour and China's Suning.com went to court over payments related to Suning's acquisition of Carrefour's Chinese stores.

The incident started in 2019 when Suning acquired 80% of the shares of Carrefour's Chinese subsidiary for 4.8 billion yuan. The transaction was completed in the same year.

However, according to the agreement at the time, Carrefour could choose to sell the remaining 20% ​​of the shares of its Chinese subsidiary to Suning within 90 days after two years from the acquisition date, and Suning must purchase it unconditionally; during the same period, if Suning took the initiative to acquire the remaining 20% ​​of the shares, Carrefour must also sell it unconditionally.

Previously, Carrefour initiated arbitration with the Hong Kong International Arbitration Center regarding the equity acquisition dispute between the two parties. According to the arbitration results, Suning must pay Carrefour approximately 1 billion yuan. Suning raised objections and filed a counterclaim.

It is worth mentioning that Carrefour exercised its option in 2021, when Suning had already fallen into a liquidity crisis and was unable to fulfill the agreement. However, Suning believed that when Carrefour exercised its option, the objective environment had changed significantly compared to when the two parties entered into the agreement, so there was a great deal of controversy.

Today, Carrefour has become "invisible" in the retail industry and no longer has any influence.

Second, Wumart acquired Metro China.

On the evening of October 11, 2019, German supermarket chain giant Metro Group and Wumart Technology Group jointly announced that the two parties have reached a final agreement and will establish a joint venture.

According to the agreement, Wumart Group will hold 70% of the shares in the initial stage of the joint venture, while Metro Group will hold 20%. The remaining 10% of the shares are currently held by minority shareholders in Metro China's joint venture, who also intend to sell all 10% of the shares through another independent process.

After the transaction is completed, Metro Group expects to receive more than 1 billion euros in net income. The transaction values ​​Metro China at 1.9 billion euros.

In 2021, Wumart packaged Wumart Supermarket and Metro China into Wumart Technology and submitted it to the Hong Kong Stock Exchange, but failed because it did not pass the hearing period. Subsequently, Wumart placed its hopes on the supply chain and split Metro China's retail and supply chain businesses, and the latter was renamed Metro Supply Chain.

In August this year, Metro Supply Chain submitted an application for listing to the Hong Kong Stock Exchange. According to Metro Supply Chain's prospectus, as a food and fast-moving consumer goods supply chain solution service provider, by the end of 2023, it will provide distribution solutions for Wumart Group's 100 Metro stores, 366 Wumart supermarket stores and 304 Wumart convenience stores.

At present, many Metro stores in China are closed for renovation and are not having an easy time.

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If there is still a "success" to be said, it might be that Walmart sold its shares in JD.com and the two parties "broke up peacefully."

On August 20, local time in the United States, Walmart showed in its documents submitted to the U.S. Securities and Exchange Commission (SEC) that Walmart plans to sell 144.5 million shares of JD.com at a price of US$24.85 to US$25.85 per share. If calculated based on the highest asking price, it can raise US$3.74 billion.

At noon on August 21, JD.com Group issued an announcement on the Hong Kong Stock Exchange stating that it spent approximately US$390 million to repurchase its shares on the 21st and had fully used the repurchase limit of the US$3 billion stock repurchase plan approved in March 2024.

In the evening, JD.com directly announced that Walmart no longer held shares in the group.

As early as 2016, Walmart sold its online supermarket No.1 Store to JD.com for 9.5 billion yuan in exchange for a 5% stake in JD.com. It subsequently increased its stake and started strategic cooperation with JD.com.

In 2016, the domestic e-commerce market was developing rapidly and was in an upward period. Walmart shared the dividends of the Chinese e-commerce era by investing in JD.com.

With the cooperation of JD.com, Walmart has completed its e-commerce layout in China, as well as the supermarket door-to-door delivery service centered on the transformation of its hypermarkets.

In 2018, Sam's Club began to open forward warehouses and launched the "Extreme Speed ​​Delivery" service - selecting 1,000 SKUs with high repurchase and instant consumption, adopting the "store + cloud warehouse" model, and achieving full coverage in many cities.

Correspondingly, JD.com has also successfully expanded its global supply chain capabilities with the help of Walmart. At the same time, providing instant delivery services to Walmart has also enabled Dada to grow rapidly.

Even if they "break up", the cooperation will continue. On August 21, JD.com responded: We are full of confidence in the future cooperation between the two parties.

As for the final effect of MINISO's acquisition of 29.40% of Yonghui Superstores' shares, it will take time to answer. As of August 26, Yonghui Superstores had 864 stores.

Author/Chuwuliuxiang ID/lingshouke
This article is written by the author of Operation Party [Lingshou Media], WeChat public account: [Lingshou]. It is originally created/authorized to be published on Operation Party. Reproduction without permission is prohibited.

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