Supermarket Giant Yonghui Bulks Up Stake in Regional Peer

National supermarket chain Yonghui Superstores Co. Ltd. has agreed to pay 700 million yuan ($107.6 million) to boost its stake in regional peer Hongqi, extending consolidation within the supermarket industry.

The deal will see Yonghui’s stake in Chengdu Hongqi Chain Co. Ltd. more than double to 21% from its previous 9%. As part of a boosted alliance, the pair, together with Hongqi’s community service partner, CMIG Futurelife, will partner in store improvement and logistics, Yonghui said in a filing to the Shanghai Stock Exchange on Wednesday.

Hongqi is a top supermarket operator in populous interior Sichuan province, which could help Yonghui strengthen its coverage in the area. Yonghui, China’s fourth-largest supermarket operator, had only 42 stores in Sichuan by the end of June, while Hongqi had about 2,700, according to company sources.

China’s retail industry has entered a phase of consolidation, with the largest stores leading a charge to boost efficiency, according to a report by Haitong Securities that commented on the Yonghui-Hongqi deal.

Yonghui is already the second-largest shareholder in retailer Zhongbai Holdings Group Co. Ltd., which also runs Lawson convenience stores in Central China’s Hubei province.

As a major regional company, Hongqi is looking to larger peers that can help its development, according to Guotai Junan Securities.

The tie-up marks the latest such move in a broader wave of integration within China’s fragmented grocery industry.

U.K. supermarket group Tesco PLC has set up a joint venture with China’s top retailer China Resources Enterprise, and Wal-Mart Stores Inc. has pooled its China online assets with local peer JD.com Inc. France’s Auchan and Taiwan’s RT-Mart China operations are operated by a single company, Sun Art Retail. Sun Art itself is now 36.2% owned by Alibaba Group Holding Ltd., after the e-commerce giant announced in November it would buy the stake for nearly $3 billion.

Shares of Shanghai-listed Yonghui edged up 0.49% on Thursday, while Shenzhen-listed Hongqi rose 5.27%.

Contact reporter Coco Feng (renkefeng@caixin.com)