Yesterday (23 Sept 2024), Miniso, a leading Chinese value retailer focused on trendy lifestyle and with global presence, announced that it would buy 29.4% shares of Yonghui Superstores for total RMB6.3 billion (US$890 million) cash.This is not a new investment into Yonghui. Rather, Miniso, through a subsidiary it controls, bought shares from Hong Kong’s Dairy Farm and Chinese ecommerce firm JD.com.A typical Miniso storeFounded in 1998, Yonghui grew to become China’s 2nd largest supermarket chain (after China Resources Vanguard), currently operating about 850 stores nationwide.In the craze for ‘new retail’ in the 2nd half of 2010s, China’s leading ecommerce platforms invested into a number of offline retail groups. Alibaba launched Freshippo (Hema) and bought control of Sun Art Retail; whilst JD.com, in addition to its own offline retail efforts, invested RMB4 billion into Yonghui in 2016.A lot has happened then. Despite multiple efforts to digitise offline retail business and integrate online-offline, most of the anticipated benefits of new retail did not materialise. To make matters worse, ecommerce landscape itself has been disrupted in the last 5-6 years, with Alibaba and JD losing market share to challenges including Pinduoduo and Douyin.Ambitious Yonghui also suffered heavily. Since its peak in 2018, Yonghui’s share price has dropped almost 80%.Whilst some of the old retail concepts (that persisted) are doing very well – read this article that argues that after 8 years of China’s new retail war, the winner is actually Walmart’s Sam’s Club.“New retail” is now in retreat. Alibaba Chairman Joe Tsai said last year that the group would work to exit physical retail businesses. JD undoubtedly has shifted its focus as well.However, why would Miniso, which runs small lifestyle retail concepts, buy into Yonghui? When the announcement was first released, many retail experts were puzzled. “I do not see the logic,” one told Momentum Works.The market did not understand either, sending Miniso’s share price down by more than 16%.Ye Guofu, founder and chairman of Miniso, posted a cryptic message on social media after the announcement:“It is right that everyone struggles to understand this move; if everyone would understand, that means I have made a mistake.”Ye Guofu, Founder & Chairman of MinisoMiniso hosted an investor zoom call explaining the move. During the call, Ye mentioned that there is now a “once every 20 years” structural opportunity in China’s offline supermarket market.Ye was apparently inspired by the recent revamp of some Yonghui stores. Pangdonglai, a much smaller but profitable supermarket chain from Henan province (with only 12 stores), is helping Yonghui with the revamp.Pangdonglai is very popular in Xuchang, Henan provinceOne of revamped stores achieved 8 times sales and 10 times foot traffic in the two weeks after reopening.Consumers flock into revamped Yonghui storeEncouraged by the success, Yonghui decided to expand the revamp to 10 cities.“On 30th July, I visited the first Yonghui store revamped by Pangdonglai in Henan,” Ye said. “I was thinking, it would be very nice if I could own this store.”Ye went on to explain that after studying the models of Costco and Sam’s Club, he concluded that Pangdonglai’s model is better for the Chinese market: packaging size suits Chinese family sizes, focus on customer experience, and equally focus on the employees.Miniso believes that they can work together with Yonghui to build “China’s version of Sam’s Club membership stores”. Miniso will be able to export its expertise in supply chain and brand building, while Yonghui complements Miniso with its expertise in fresh and other daily categories.Later into the evening, Ye posted another message on WeChat:“Continue to be optimistic about China, invest in China, and in the retail industry, as long as we keep innovating, there will always be great opportunities!” This time the text in the red background reads “With a brave heart, start a new world!”He might be quite right.Related —Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].
