Wumart buys Lotus stores for HK$2.3b

Supermarket chain operator hopes to gain access to prime locations in Shanghai and Beijing through the share-swap deal with Thai partner

PUBLISHED : Tuesday, 15 October, 2013, 1:35pm
UPDATED : Thursday, 17 October, 2013, 2:50pm

Wumart Stores, which operates a supermarket chain on the mainland, will acquire most of the Lotus supermarkets on the mainland in a share-swap deal worth HK$2.3 billion, it said yesterday.

The Lotus chain, operated by Charoen Pokphand Group, is owned by Thailand's richest man, Dhanin Chearavanont. After the acquisition, Wumart will own all the Lotus supermarkets on the mainland except for branches in Guangdong and Hunan provinces, which will remain under Lotus management.

CP Lotus would acquire a 13.77 per cent interest in Wumart and in exchange give a 9.99 per cent stake to Wumart, the two companies said at a press conference yesterday.

"Through this partnership, we will gain prime locations in Shanghai and Beijing that would be hard to achieve organically," Wumart president Xu Ying said, adding the choice of a share swap, rather than cash, was not due to reservations about the viability of the stores. "On the contrary, we have confidence in the partnership and see growth prospects."

Although the deal does not signify a complete exit from the mainland for CP Lotus, it exemplifies the highly challenging and fragmented environment facing supermarket retailers there.

Lotus is the second foreign supermarket operator to join hands with a domestic chain this year. Tesco, the world's third-largest retailer by revenue, formed a joint venture with state-backed China Resources Enterprise after struggling for nearly a decade to crack the market.

Lotus reported a loss of 392 million yuan (HK$497 million) last year, according to its annual report. But vice-chairman Ed Chan said it planned to grow its remaining 19 stores and look into expanding in neighbouring provinces.

"We've been performing well in that region," Chan said. "We opened two stores [in Guangzhou and Hunan] last year and this year we will open three more hypermarkets."

Xu said the strategy was to be a national retailer but with a regional strategy. "Even though we are two companies, we will be working together," she said.

CP Lotus is the retail flagship of CP Group on the mainland, into which it entered in 1997. Chearavanont has been in the headlines a great deal this year after his purchase of HSBC's 15 per cent stake in Ping An Insurance and acquisition of Thai discount wholesaler Siam Makro. Together, the two deals are worth more than US$15 billion and are largely financed by debt.

Despite the hiccups in mainland supermarket operations, Chearavanont has expressed interest in more retail acquisitions in the near future. CP Group is still in talks to buy ParknShop and Chearavanont said last month that he was on the lookout to buy a company with a food network or a retailer with a supermarket chain in the United States.