Caixin
Dec 26, 2016 07:27 PM
BUSINESS & TECH

Leading Grocer Sells Stake in Supermarket Chain to E-Commerce Firm

(Beijing) — China’s leading grocery chain has sold its shares in a supermarket brand to an e-commerce firm just two years after investing in it, raising questions about the future of both offline and online retail.

Yonghui Superstores Co. Ltd. announced over the weekend that it has agreed to transfer all its shares in Shanghai-based Lianhua Supermarket Holdings Co. Ltd. to Shanghai Yiguo E-Commerce Co. Ltd. in transactions worth HK$950 million ($122.4 million).

Yonghui, a leading operator of fresh-food stores, said in a filing on the Shanghai Stock Exchange that it made the decision because of an overlap in businesses, and that while the two parties would no longer have equity connections, there would still be potential for cooperation over store operations and purchasing.

Since becoming the second-largest shareholder of Lianhua in April 2015 with 21% of its shares, Yonghui has been involved in improving Lianhua’s branch-level retail management, according to Yonghui’s statement.

But Lianhua has been losing money since 2015. In the first nine months of 2016, it lost 188 million yuan ($27.1 million).

The challenges facing supermarkets are a direct result of the growing popularity of e-commerce in China, according to Hong Tao, an analyst at GF Securities.

“Supermarkets in general are being influenced by e-commerce,” Hong said.

Thanks to its fresh food supplies and a network of 580 stores nationwide, Yonghui made a net profit of 806 million yuan in the first three quarters of the year, up 35% from a year earlier.

As Yonghui specializes in fresh food supplies, which requires high-quality cold-chain logistics that e-commerce companies are weak in, it has barely been affected by the online shopping boom, Hong said.

Yonghui’s positive balance-sheet results are also a result of inflation in the food market, said Tang Jiarui, an analyst at Everbright Securities.

Shanghai Yiguo has been selling fresh food online for almost 10 years, and in November it secured investments from several large internet companies, including Alibaba Group Holding Ltd. and Suning Holdings Group Co. Ltd.

This is expected to improve Lianhua’s online-to-offline operations, Hong said.

The failure of e-commerce firms to make significant inroads into the fresh-food sector has seen some online shopping giants start to expand offline. Key deals include U.S. e-commerce giant Amazon.com’s plans to open physical stores and top Chinese online shopping firm Alibaba Group Holding Ltd. investing in supermarket chain Sanjiang Shopping Club.

This combination of online and offline operations will be the trend in the retail sector in the future, said Wang Liting, an analyst with Haitong Securities.

Contact reporter Coco Feng (renkefeng@caixin.com)

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