Carrefour and Auchan about to withdraw from China?

In the grocery retail sector, recent partnerships signed between Chinese and European retailers increasingly look like business rescue operations rather than long-term strategic alliances.

Following Tesco’s strategy, which in 2013 ceased the control of its Chinese business to China Resources Enterprises via a joint-venture, keeping just 20% of the business, two other European grocers may follow the same destiny. As the sales of Carrefour-China fell again by 10% in the fourth quarter 2018, the French-based grocery retailer would be about to sell all the Chinese stores to local partners. These are Tencent (the reference shareholder of JD.com, owner of the social network WeChat and of the wallet payment system WeChatPay) and Yonghui Superstores. Three sources close to the business told Global Retail News: “Carrefour will pass the hand in China. It is not yet official, but they will close. There are strong indications that the deal is about to be done. Partners have come to an agreement and we expect an imminent announcement”. According to this scenario, Tencent and Yonghui would take over Carrefour’s stake and Yonghui Superstores would be in charge of the operations of the Carrefour stores. In the week of March 4th, Carrefour’s C.E.O. Alexandre Bompard travelled to China to make this agreement move forward, among others. “The rise of our partners – Tencent and Yonghui – within Carrefour’s capital is still discussion in progress, but it takes longer than expected, said a Carrefour’s spokesman interviewed by Global Retail News. To date, we continue our business in China with a program of cost reductions and closing of unprofitable stores”.

How times have changed in one-year time! In mid-January 2018, the Carrefour Group (which ran in late 2017 259 grocery stores in China including 220 hypermarkets and 39 convenient stores) signed an agreement with Tencent and Yonghui Superstores. Both made a capital investment as shareholders, but the split of participation has not been disclosed. Yonghui Superstores manages 830 supermarkets across 14 Chinese provinces and has Tencent as a 5% shareholder. During the fiscal year 2017, its total turnover reached US$8.79 billion. Like many Chinese retailers, Yonghui is very advanced in omnichannel retail, including using JD.com for delivery of online orders since late 2018.

This situation is also blurred at Auchan Retail, active in China via its subsidiary Sun Art (Auchan has a 36.8% stake in Sun Art, Alibaba has 36.16%, Ruentex has 4.86% the rest being floating capital at the Hong Kong Stock Exchange). In 2018, the revenue of Sun Art decreased by 1% to €13.4 billion via a total of 480 stores (including 80 under the Auchan banner and 400 under the RT Mart banner). Sun Art’s net margin decreased by 6.7% year-on-year.  As Auchan Retail is about to publish a loss exceeding €1 billion during the financial year 2018 (publication on March 8, 2019), the future of China seems uncertain for the teams. “Auchan’s Chinese partners are absorbing the Chinese business”, added an anonymous source. “I believe that Auchan sold part of its Chinese assets to recover “cash”, which is a way of bailing out the unprofitable parent company. In China, the teams of RT Mart will operate the Auchan stores whilst Alibaba will provide all the associated technology. All French staff are now leaving except for Vincent Mignot and Ludovic Holinier”. “Many French executives have returned to France”, confirmed another expert. Those hired under local contracts are not repatriated. The Group said that everything will be resolved before the summer 2019.”

During the General Assembly planned in May 2019, Ludovic Holinier, current Managing Director in charge of Sun Art, should be replaced by Huang Ming-Tuan, Founder of RT-Mart China, which comes from the Taiwan-based shareholder Ruentex. “It is true that a number of French expatriates have returned as our Chinese teams now have very good competencies, said a spokesman of Auchan Retail. But Auchan Retail has no intention to sell its participation in Sun Art. Today, we are Sun Art’s largest shareholder, we have full control of this subsidiary and we retain the decisional majority within the Board of Sun Art”. Meanwhile, the Auchan brand is expected to disappear to be replaced by RT Mart. “Auchan and RT Mart have started adopting the Alibaba IT and data-driven ecosystem (customer knowledge, catchment area, consumer targeting, etc.), added the spokesperson of Auchan Retail. In China, the convergence of RT Mart and Auchan brands is also work in progress via the creation of a common central purchasing office, convergence of IT systems and also the merger of both headquarters. But that does not change our Chinese strategy, as nothing can be done without our agreement within the Sun Art’s Board”.

In the past, China used to be a land of conquest for Western retailers, who came to plant their flags. That boom is over. Today, an array of Western companies organise retail expeditions to visit Chinese stores and study retail schemes and organisations at the forefront of global innovation.