Tencent teams up with ParknShop, Yonghui Superstores in latest bid to shake up China’s bricks-and-mortar retail market

Chinese internet giant Tencent has teamed up with supermarket chain operators ParknShop and Yonghui Superstores in its latest effort to shake up the country’s vast offline retail market.

The three companies have formed a joint-venture company called ParknShop Yonghui, valued at 1.2 billion yuan (US$170 million), Yonghui said in a statement released by Shanghai’s stock exchange on Wednesday.

The partnership would help Shanghai-listed Yonghui expand its business further in the southern province of Guangdong, according to the statement, as well as consolidating Yonghui and ParknShop’s businesses in the province.

The joint venture, with more than 70 shops combined, aimed to become the largest supermarket chain in Guangdong province, with targets to achieve 10 billion yuan in annual sales and eventually reach US$10 billion in the future, said Zhang Xuaning, founder of Yonghui, on Thursday in a press conference. He did not provide a timeline.

The combined revenue from shops ran by ParknShop and Yonghui in Guangdong amounted to 4.1 billion yuan last year, based on figures from Wednesday’s statement.

“Tencent and Yonghui have been very close partners and have together explored opportunities in retail,” said Tian Jiangxue, vice general manager of Tencent’s smart retail strategic cooperation department.

“We hope to work with any partner who’s strongly motivated to undergo digital transformation, to help the traditional and dynamic retail industry embrace technology.”

Tencent will enhance and digitise the business through its social media and mobile payment solutions, such as through features on the ubiquitous messaging app WeChat that allow users to make online orders, and its cloud and big data services, according to Tian.

The joint venture comes after Tencent spent 5.2 billion yuan on a 5 per cent stake in Yonghui in December, an investment widely seen as a reflection of the internet juggernaut’s ambitions to shake up the bricks-and-mortar shopping market and compete with rival Alibaba Group. Alibaba is the owner of the South China Morning Post.

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Yonghui operates a network of more than 830 supermarkets in 24 provinces, 21 of them in Guangdong. ParknShop has more than 50 shops in the southern province.

Yonghui will make an equity contribution worth 622 million yuan to gain half of the joint venture, while ParknShop (China) Investments, a unit of one of the largest supermarket chains in Hong Kong, will hold a 40 per cent stake with cash and equity contributions amounting to 501 million yuan.

Tencent Mobility, an investment and music app-operating arm of the gaming and social media giant, will pay 124 million yuan in cash for a 10 per cent stake.

Offline shopping still accounted for more than 80 per cent of China’s 36 trillion yuan retail market last year, according to official figures and a recent report by Goldman Sachs, even though the rise of e-commerce has completely transformed people’s shopping habits over the past decade.

At the same time, China’s traditional retailers are fast evolving and adopting online strategies to stay competitive. About 86 per cent of Chinese retailers have engaged in online-to-offline, or O2O, strategies within the last year to lure customers from online platforms to shop at physical stores.

That figure is up from just 45 per cent a year earlier, according to a report by Fung Business Intelligence Centre.

A number of old-school department store operators have joined hands with internet companies in the last few years, including high-end retailer Yintai Group, which was acquired last year by Alibaba, a champion of the “new retail” concept that envisions a future of integrated online and offline shopping.

ParknShop is a member of the AS Watson Group, the world’s largest health and beauty retail group and the retail arm of Hong Kong conglomerate CK Hutchison, which was formerly chaired by tycoon Li Ka-shing.