Retail circle: MINISO will become the largest shareholder of Yonghui Superstores! The author learned that on the evening of September 23, MINISO announced on the Hong Kong Stock Exchange that it would acquire a 29.4% stake in Yonghui Superstores for 6.27 billion yuan, including 21.1% held by Dairy Farm Company and 8.3% held by JD.com. After the transaction is completed, MINISO may become the largest shareholder of Yonghui Superstores, further expanding its offline retail territory.

MINISO Becomes the Largest Shareholder of Yonghui

On the evening of September 23, Yonghui Superstores Co., Ltd. (Yonghui Superstores, 601933.SH) announced that its shareholders Dairy Farm Company (hereinafter referred to as "Dairy Farm"), Beijing JD Century Trading Co., Ltd. (hereinafter referred to as "JD Trading"), and Suqian Hanbang Investment Management Co., Ltd. (hereinafter referred to as "Suqian Hanbang", a person acting in concert with JD Trading) intend to transfer 1.913 billion shares, 367 million shares, and 388 million shares of the company respectively to Guangdong Juncai International Trading Co., Ltd. (hereinafter referred to as "Juncai International") through agreement transfer, accounting for 21.08%, 4.05%, and 4.27% of the company's total share capital respectively.

After the completion of this transaction, the company's largest shareholder will change to Juncai International, holding a total of 29.40% of the company's shares. Juncai International and its actual controller MINISO will join hands with Yonghui Superstores to transform towards a quality retail model. According to the announcement, the funds for this equity change come from the自有 and self-raised funds of Juncai International and its shareholders.

In addition, the announcement shows that in the "Share Purchase Agreement" signed between Juncai International and Dairy Farm, the consideration for the target shares should be approximately 4.496 billion yuan, corresponding to a price of 2.35 yuan per share. In the "Share Purchase Agreement" signed between Juncai International and JD Trading and Suqian Hanbang, the consideration for the target shares should be approximately 1.774 billion yuan, corresponding to a price of 2.35 yuan per share.

Based on this calculation, MINISO's total acquisition price is 6.27 billion yuan.

The Long Road of the "Ten-Yuan Store"

MINISO has a somewhat legendary color. As early as 1998, its founder Ye Guofu went south to Guangdong to work and accumulated his first pot of gold, but opening a ceramic store made him lose a lot of money in a year. In 2002, he started a second business with his wife Yang Yunyun, opening the first cosmetics store in Foshan. In 2005, Ye Guofu formally established a company named "Aiyaya" and transformed all cosmetics stores into "ten-yuan stores" selling small accessories. With extremely high marketing talent, the number of "Aiyaya" stores rapidly increased to more than 3,000 within 5 years, with annual retail sales exceeding 500 million yuan, which was a miracle in an era when capital had not yet intervened. In 2009, affected by e-commerce, Aiyaya was greatly impacted, and Ye Guofu began to think about new ways out. During a trip to Japan, he saw lifestyle specialty stores on the street and was inspired. Thus, in 2013, MINISO was born. Ye Guofu found Japanese young designer Miyake Jun to cooperate, leaving a Japanese-style user perception in consumers' minds, and was hailed by the industry as "China's MUJI" and "the best ten-yuan store". In 5 years, MINISO expanded from the initial 27 stores to 3,500, opening an average of 700 stores per year, a growth rate that cannot be underestimated. In October 2020, MINISO was listed on the New York Stock Exchange. At that time, the epidemic broke out, but MINISO expanded against the trend and successfully entered overseas markets such as Canada, the United States, Nigeria, India, Colombia, France, Cambodia, and Saudi Arabia. Subsequently, MINISO successfully landed on the NYSE on October 15 of the same year. According to the author, on that night, MINISO opened at $24.4 per share, up 22% from the issue price of $20, and its total market value once reached $7.529 billion, equivalent to 50.631 billion yuan. MINISO thus ushered in its most glorious moment since its founding in 2013. However, since its successful listing on the NYSE, MINISO's stock price has been in a state of decline. On July 13, 2022, MINISO was listed on the main board of the Hong Kong Stock Exchange. However, on July 26, MINISO was attacked by short-seller Blue Orca Capital, which claimed that Ye Guofu misappropriated public funds and that MINISO was gradually weakening with declining revenue... Subsequently, MINISO responded quickly, but it was still difficult to reverse the market decline. In fact, under the performance pressure in recent years, MINISO has been exploring new growth curves. As early as February 18, 2021, Ye Guofu announced MINISO's "X-Strategy" and actively transformed the brand into a new retail platform, trying to create more competitive vertical brands in segmented fields. For example, it launched TOP TOY in the trendy toy track to compete with Pop Mart; in the beauty field, it established a beauty collection store WOW COLOUR, and also invested in ACC Super Accessories, opened mask specialty stores, etc. At the same time, MINISO is also one of the earlier brands to go overseas, and this market has become a major growth engine. Ye Guofu said: "In the first half of 2024, overseas markets added 266 net new stores, which is also the fastest first half year for store openings since MINISO went overseas nine years ago. In the future, we will pay more attention to store operation management and achieve sustainable same-store sales growth through product localization, operation localization, and customer group localization." However, he also admitted that MINISO is still in the early stage of localized operations in overseas markets, and there is still much work to improve in terms of brand awareness, product and operation localization. It can be seen that today's MINISO is no longer the "ten-yuan store" of the past, but has transformed into a new retail consumer enterprise "driven by design and R&D, with both online and offline development". Currently, MINISO has entered more than 107 countries and regions, with more than 5,500 stores worldwide. According to financial report data, in the first half of this year, MINISO's revenue increased by 25% year-on-year to 7.76 billion yuan; adjusted net profit was 1.24 billion yuan, an increase of 17.8% year-on-year. Among them, overseas business revenue exceeded 2.7 billion yuan, an increase of 43% year-on-year. In terms of the number of stores, as of June 30, 2024, MINISO had 6,868 stores, and MINISO overseas and TOP TOY both welcomed the fastest first half year for store openings in history, with net increases of 266 and 47 stores respectively. So, why did MINISO target Yonghui Superstores this time? It can be seen that in the current downward trend of traditional supermarkets, Yonghui is really unable to resist the decline. According to its disclosed 2024 semi-annual report, in the first half of the year, Yonghui achieved revenue of 37.779 billion yuan, a year-on-year decrease of 10.11%; net profit attributable to shareholders of the listed company was 275 million yuan, a year-on-year decrease of 26.34%. Under the background of continuous business contraction, Yonghui has actually begun significant adjustments, such as greatly changing management, carrying out adjustments under the guidance of Pangdonglai, optimizing its own supply chain, etc. However, even so, Yonghui Superstores is difficult to reverse the downward trend, which may be an important reason why Zhang Xuansong sold Yonghui Superstores. Compared with Yonghui, as mentioned above, MINISO, as a rising star, has performed very well, not only with a significant increase in the number of stores, but also with continuous revenue growth, and the overseas market development is quite smooth. Although MINISO is quite different from Yonghui in size, in the rapidly changing retail market, the only constant is "change". Today's MINISO has enough strength to "swallow" Yonghui, in order to further expand its offline retail territory. And from the perspective of timing and actual cost, the present is undoubtedly the best time for MINISO to acquire. As one of China's leading supermarket chain groups, although Yonghui is no longer as glorious as before, as MINISO's announcement said, it still has a high-quality store network, complete logistics infrastructure, loyal customer base, and strong digital system capabilities. In the future, MINISO will also join hands with Yonghui Superstores, and the two sides may jointly create a "Chinese version of Sam's Club".

JD & Yonghui: A Nine-Year Dream

So, why does JD want to sell Yonghui? The author has written before that the relationship between JD and Yonghui Superstores can be traced back to 9 years ago. In August 2015, JD invested 4.3 billion yuan in Yonghui Superstores, holding 10% of Yonghui Superstores' shares, hoping to strengthen cooperation in supply chain management and O2O through this method.

In 2016, JD invested 4.31 billion yuan, holding a total of 10% through two subsidiaries. In May 2018, it increased its stake by 1.43%, holding a total of 11.43%; in 2020, it increased its stake four times, holding a total of 12.77%.

As of the first quarter of this year, JD had invested a total of 5.43 billion yuan, holding a total of 13.38% of the shares. According to Yonghui's Q1 2023 financial report, JD and its subsidiary Suqian Hanbang Investment Company held more shares than founders Zhang Xuansong (8.72%) and Zhang Xuanning (8.2%), making it the second largest shareholder of Yonghui, with the largest shareholder being Dairy Farm Company. In addition, JD's new CEO Xu Ran served as a non-independent director of Yonghui.

After receiving continuous investment from JD, Yonghui expanded rapidly, with the number of stores increasing from 394 in 2015 to over 1,000 by the end of 2020, officially entering the "thousand-store era". In 2022, Yonghui opened 36 new stores.

In the same year, on June 18, JD announced a deep cooperation with Yonghui Superstores, based on JD's advantageous channels such as self-operated hourly delivery, to jointly develop same-city retail business in terms of retail digital upgrade and refined user operation.

However, due to the epidemic, high costs of online business expansion, and the impact of e-commerce platforms, Yonghui Superstores' net profits in 2021 and 2022 were -3.94 billion yuan and -2.76 billion yuan respectively.

Although affected by economic recovery and improving external environment, Yonghui achieved profitability at the beginning of 2023. But it did not last long. Although there was a slight recovery under the adjustment of Pangdonglai, according to the latest financial report data, Yonghui's revenue and net profit both declined in the first half of the year, and it is in a state of adjusting while closing stores.

And JD's sale has long been traceable. On March 20 this year, Suqian Hanbang, which acts in concert with JD Trading, announced that it planned to reduce its holdings of Yonghui Superstores shares by no more than 90.75 million shares, accounting for no more than 1% of the company's total share capital, through centralized bidding transactions within 3 months. On June 14, Beijing JD Century Trading Co., Ltd. planned to reduce its holdings of the company's shares by no more than 182 million shares, accounting for no more than 2% of the company's total share capital, through block trades within 3 months.

It can be seen that JD's intention to withdraw is very clear. And at present, the layout of various internet giants in offline retail business is constantly wavering.

In the author's view, this is inevitable. On the one hand, competition in e-commerce business is becoming increasingly fierce, and the fight for traffic is too "cruel", so all giants must focus their main forces on their own strong businesses. On the other hand, except for the booming warehouse membership stores and discount stores, offline retail formats including hypermarkets and traditional supermarkets are difficult to resist the decline.

Under such a background, reducing holdings or fully selling the continuously loss-making Yonghui Superstores and returning the focus to itself is undoubtedly the most efficient and reasonable move for JD at present.

As for the cooperation between MINISO and Yonghui Superstores, although it is impossible to predict the future trend now, Ye Guofu himself has been cultivating offline retail for many years and has strong marketing capabilities. Perhaps the two can spark different sparks. Let us wait and see.