Today China’s Suning.com has announced that it will buy 80% of Carrefour China.
The deal is structured in a way that The Carrefour Group will sell 80% of its equity interest in Carrefour China to Suning.com. This is a cash transaction valuing Carrefour China at an enterprise value of €1.4 billion. The Carrefour Group will retain a 20% stake in the business and two seats out of seven on Carrefour China’s Supervisory Board. Suning has the right to buy the remaining 20% after a period.
Carrefour was a pioneer in China bring the hypermarket format to an excited Chinese Consumer in 1995.
I remember being at their first store opening and looking at the expressions of delight and amazement on the faces of Chinese consumers as they had not seen anything like this type of format or vast ranges and choice before.
Carrefour were the first western grocery and hypermarket retailer in China to realise the critical importance of trying to re-create the buzz, excitement and feeling of freshness of the Chinese wet market inside the hypermarket.
Today Carrefour has 210 hypermarkets and 24 convenience stores in China. This has generated in 2018 net sales of €3.6 billion (RMB 28.5 billion) and EBITDA of €66 million (RMB 516 million). It has had negative like for like sales – -5.9% in 2018 following -5.5 in 2017.
Other than generating needed cash for Carrefour and a China exit they were looking for, what does this transaction tell us about retail in China and globally?
Well much…
Suning.com is one of China’s leading physical and ecommerce retailers.
It has a network of over 8,881 physical stores in more than 700 cities across China from tier one’s to tier 4 and 5’s and runs the country’s 3rd largest B2C e-commerce platform.
One of the shareholder’s of Suning.com is Alibaba and this where it potentially gets really interesting…
Alibaba Group will soon have (when this deal closes after going through regulatory approval by Chinese the competition authorities (expected by December 2019) holdings in Auchan, RT-Mart and Carrefour in China as well as Suning. Alibaba invested some $4.6 Billion US Dollars for a 19.9% stake in Suning in August 2015. When Suning also agreed to invest 14 billion yuan to acquire 1.1 percent of Alibaba.
This gives Alibaba with its own growing network of physical stores called Hema / Hippo Fresh advantageous access to more physical space in China.
The first Hema store opened its physical doors in January 2016 and now has some 100+ stores across China. Consumers can buy their groceries and fresh products especially sea food both online and offline. Hema’s increasingly middle-class Chinese consumers are ordering their food for the evening on their commute home via their smart phones. Delivery is guaranteed for 30 minutes after an order has been placed if the customer lives within a 3km radius of a Hema store.
This proposition is one of the elements that Jack Mar refers to as “New Retail”.
The combination of physical and virtual retailing is the key to “New Retail’s” success. Alibaba now has even move physical coverage available to rapidly accelerate its “New Retail” concepts and thinking. But whilst having physical and virtual stores is key , it’s useless unless you can digitise the entire supply chain, from growers, manufactures and every single element along the way , including the store…And that is where Alibaba “New Retail” really excels. It has a commanding lead in, thinking, technology and capability in digitising the entire supply chain and linking this to the consumer. The world outside of China should take note and learn. Whoever said physical retail is dead…