Foreign Supermarkets Hand over Register Keys to Domestic Rivals; CP Lotus and Tesco are heading for the door, leaving Chinese companies with bigger operations – and even bigger questions on handling them

10.25.2013 19:35

Foreign Supermarkets Hand over Register Keys to Domestic Rivals

CP Lotus and Tesco are heading for the door, leaving Chinese companies with bigger operations – and even bigger questions on handling them

By staff reporters Qu Yunxu and Yu Ning, and Hong Kong correspondent Dai Tian

(Beijing) – Mergers and acquisitions have never been rare among supermarket operators in China. There have been frequent deals involving domestic and foreign companies, as well as private and state-owned players. Now, an increasing number of foreign supermarket owners have shown they intend to quit the market, selling their assets to Chinese operators. On October 14, domestic supermarket operator Wumart Stores Inc. said it would buy 36 CP Lotus stores in northern and eastern China from Thailand’s Charoen Pokphand Group (CP Group). The transaction is worth HK$ 2.89 billion.CP Lotus entered China in 1997. It was one of the earliest foreign players in China’s retail market, and is owned by the Thai conglomerate founded by a family of Chinese descent named Chia.

In recent years, the company has been through management reshuffles and a business slump. After the deal with Wumart, CP Lotus will have only 19 stores, all in the southern province of Guangdong.

Not long before the Wumart-Lotus deal, Britain’s largest retailer, Tesco, announced a joint venture with China Resources Enterprise Ltd., the parent of the rapidly growing retail chain China Resources Vanguard Shop. The JV will operate 134 Tesco supermarkets in the country and 2,986 Vanguard stores.

Tesco owns 20 percent of the venture, and Vanguard the remainder. The arrangement is seen by analysts as a way for Tesco to gradually reduce its business in the country.

In addition, ParknShop, a supermarket chain owned by Hong Kong tycoon Li Ka-shing, is reportedly seeking a buyer for its mainland operations. More than 10 investors including, China Resources Enterprise, have shown interest.

Analysts said foreign companies are feeling the effects of a business slowdown and increased competition from domestic rivals. This does not exactly mean victory for the domestic companies, analysts say, because there are major questions as to how well they handle their new assets.

Go East, Young Man

Wumart, based in Beijing, is one of the largest chain stores in the capital, but its business has slowed in recent years. Meanwhile, the company’s efforts to expand through mergers and acquisitions have encountered several setbacks.

In 2004, Wumart acquired one-quarter of Beijing CSF Markets, but other CSF shareholders later refused to let it have more control. Six years later, Wumart lost out to French retail giant Carrefour in an attempt to buy a chain based in Hebei Province. Then the company’s bid to buy a stake in Jian Mart also failed.

The deal with Lotus gets Wumart back on the expansion trail.

“The deal was in a share swap, not cash, because both sides believe the value of the stake in larger than cash,” said Xu Ying, the president of Wumart.

Under the agreement, Wumart gets 9.99 percent of CP Lotus for HK$ 548 million and five of CP Lotus’ wholly owned subsidiaries for HK$ 2.345 billion. Meanwhile, CP Lotus bought 13.77 percent of Wumart for HK$ 2.893 billion. Wumart and CP Lotus will become each other’s second-largest shareholder.

Wumart operates 541 stores in Beijing, Tianjin and Hebei, making the region its main market. Wumart controls 34 percent of the retail chain store market in the capital. Despite this, its presence in the rich eastern provinces like Zhejiang and Jiangsu is weak.

The deal with CP Lotus is expected to help Wumart’s business in just this region. In an email to Caixin, Wumart said: “Acquiring tens of stores with a good location at one time will help Wumart expand in Shanghai and the neighboring region, while strengthening Wumart’s leading presence in northern China.”

Wumart says the stores it acquired had total sales revenue of 7.1 billion yuan in 2012.