On June 23, news came out that Suning.com is acquiring 80% controlling a stake of Carrefour’s business in China, with an option to pick up the remaining 20% in two years’ time.
Two details of this deal are extraordinary:
- The buyer, Suning.com, is 20% owned by Alibaba. Carrefour China previously had a long partnership with Yonghui Superstores, which was invested in Tencent
- The buying price, valuing the company at CNY 6 billion (US$873 million), or 20% of its operating revenue in 2018
Both are strong indications of the urgent desire of Carrefour to rid its business in China, which has been running since 1995.
End of the age of megastores
What exactly happened? Well, simple – Carrefour operates megastores, which are more suitable for cities with low density and suburban areas. The problem in China is – after years of rapid urbanization, cities, even smaller ones, are actually quite dense.
Any resident in China would tell you that stepping into a megastore is not a really pleasant experience – big, crowded, messy. And if you do not drive, good luck finding a taxi with all the goods you have purchased, even with Didi. The only two things nice about mega stores are choice and price.
Lost to the era
Over the last few years, both have been eroded. E-commerce and other forms of retail have encroached in every possible channel that consumer might consider making a purchase. And repeated efforts by Carrefour to enter the convenience store (closer to the community) space all failed.
Carrefour is not alone. Taiwanese businessman Huang Ming-Tuan founded Sun Art Retail and grew it to become the biggest mega-retailer in China. In its 20 years of history, it did not shut a single store.
However, in 2017 Huang had to sell his stake to Alibaba, faced with multiple pressures. What did he say?
“We beat all the competitors, but we lost to the era we are in.”
Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].