While discounter Aldi has just made its first foray into the Chinese market, Carrefour has become the latest big name retailer to announce a retreat from the Asian country.
On Sunday, Carrefour announced it was selling 80% of its Chinese operations to Suning.con in a deal that values the Carrefour China operation, including debt, at €1.4 billion.
Under the terms of the deal, Suning.com, which is backed by Alibaba, has the option to purchase the remaining 20% stake in the business if Carrefour decides to exit the market entirely.
Tencent Deal
The Suning deal also puts a halt to Carrefour's plans to sell a minority stake in its Chinese operations to Tencent, after the technology firm, along with local retailer Yonghui Superstroes, announced that they were investing in the Carrefour China business last year.
The 'strategic cooperation' between Carrefour, Tencent and Yonghui was announced by Carrefour chief executive Alexandre Bompard as part of the retailer's Carrefour 2022 strategy announcement in January 2018.
Efforts to ramp up that deal appear now to be dead in the water. A Carrefour spokeswoman was quoted by Reuters as saying, “The talks that have started since January 2018 for the sale of a minority stake (in Carrefour China) to Tencent are over."
Enter Suning.com, and the start of a new chapter.
'Good Valuation'
Commenting on the sale of the stake in its Chinese business, analyst Bruno Monteyne of Bernstein Research said that the sale comes at a "great valuation" and will enable Carrefour to focus on turning around its French business.
"This is a good move by Carrefour, allowing them to focus on the core French business, whilst keeping a stake in the Chinese business, keeping some visibility on what is happening in the fastest moving grocery market worldwide," he said.
"It will be further credit to the management team which is held in high regards with respect to rapid cost cutting," he added.
Under the terms of the deal, Carrefour will retain a 20% interest in the business for at least two more years, during which time it will hold two out of the seven supervisory board seats in the business.
Key Learnings
That 20% could come in crucial if Carrefour wants to stay one step ahead of its rivals, not just in far flung markets but also closer to home – China is by far the most dynamic retail market in the world, and a hotbed of retail innovation.
In June of last year, ESM met with the executive director of Carrefour's Asian operations, Thierry Garnier, who described China as a "market that has helped us to learn and to understand the future.
"It's a laboratory for us. I think that the trends we experience in retail in China will happen over time in many other countries, perhaps in a slightly different way."
Carrefour has had a presence in China since 1995, and more recently has used the market to trial new tech concepts, such as the use of facial recognition as a payment mechanism, powered by Tencent's WeChat app, as well as new store formats.
The most impressive of these was arguably the Carrefour Le Marché store, which opened in Shanghai in May 2018 – a store that is around half the size of a regular hypermarket, but marries state of the art technology with the traditional bricks and mortar environment.
"A large number of the technological innovations may be applied across many other countries over time," Garnier said of the Le Marché store. "Things like the connection between the store and the online business, mobile payments, digital and social marketing – this is all part of how we operate here in China."
It may be selling off a large part of its Chinese operations, but Carrefour will be eager to retain at least some of these key learnings.
'Hard And Expensive Lessons'
In cutting back its Chinese operations, Carrefour follows in the footsteps of other retail giants such as Tesco, Walmart and DIA, in what has been an about turn from previously perceived corporate opportunity, analyst Clive Black of Shore Capital noted.
"The rise of the internet has been a key change factor changing the world since, just as has the inability of the prime movers to effectively internationalise whilst retaining a firm focus on their respective motherships," he said. "Additionally, understanding the reality of retailing on the ground in China has proved to be a hard lesson."
Black suggested that "hard and expensive lessons" have been learnt by many retailers "about how to effectively take multi-brand retail propositions to new markets. Accordingly, 25 years since Carrefour and Tesco embarked upon their globetrotting, they now only compete in Poland, where we would not be surprised to see the latter exit in time, geographic operational complementarity that now permits collaboration through their buying agreement.
"In the meantime, there has been much planning, much hope, much capital expenditure but largely derisory returns," he added.
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
