20 July 2019
Dominic Lai of AS Watson Group, Zhang Xuanning of Yonghui Superstores and Tian Jiangxue of Tencent Smart Retail pose for a picture following the launch of a new China retail joint venture. Photo: AS Watson Group
Dominic Lai of AS Watson Group, Zhang Xuanning of Yonghui Superstores and Tian Jiangxue of Tencent Smart Retail pose for a picture following the launch of a new China retail joint venture. Photo: AS Watson Group

What Tencent aims to gain from ParknShop-Yonghui tie-up

Tencent has been boosting investments in Internet and mobile-related ventures in recent years in a bid to expand usage of the firm’s applications such as WeChat. But the Chinese firm has been lagging behind in retail sector-linked initiatives when compared with domestic tech rival Alibaba Group. Realizing that it needs to step up its game, an effort is underway now to close that gap. 

Underscoring its ambitions in smart retail, Tencent announced last week a deal with Shanghai-listed Yonghui Superstores and Hong Kong-based supermarket operator ParknShop for a joint venture that aims to redefine grocery retail in China’s southern Guangdong province. 

According to a statement dated Oct. 24, Tencent is taking 10 percent stake in a new entity that will hold the China supermarket assets of Yonghui and ParknShop.

Yonghui will own 50 percent of the joint venture while ParknShop’s parent AS Watson Group — which is a unit of Hong Kong’s CK Hutchison group — will hold 40 percent in the 1.2 billion yuan (US$170 million) retail firm.

The joint venture will merge ParknShop’s China supermarket operations with Yonghui’s portfolio in Guangdong to give a store network of over 70 stores and 2.2 million loyalty member base. 

Adding to the retail heft of Yonghui and ParknShop, Tencent will bring in its technology and big data analytical capabilities to help bring about a digital transformation for the supermarket assets.

The venture, operating under the brand ParknShop Yonghui, aims to be the biggest supermarket chain in Guangdong province for starters, leveraging on the individual strengths of the partners. 

As ParknShop merges its Guangdong business with Yonghui Superstores, it will be in an indirect alliance with rival Hong Kong supermarket operator Dairy Farm International. That is because Yonghui is 20-percent owned by Dairy Farm, which runs the Wellcome supermarket chain in Hong Kong.

Given this, it is fair to say that Tencent has helped a linkage between Dairy Farm and ParknShop.

Tencent aims to enhance the retail business by contributing technology and big data analytics, as well as drive sales with the help of its social media and mobile payment solutions.

For the Internet giant, the joint venture represents a follow-up deal, given that it had earlier invested nearly US$750 million for a 5 percent stake in Yonghui. The investment, last December, was seen as an effort to take on Alibaba in “new retail” through use of advanced technologies.

Alibaba has been aggressively expanding its footprint in the offline retail market after investing in a a number of retailers such as Suning, RT-Mart, Lianhua Supermarket and Intime Retail. Tencent’s retail footprint, meanwhile, includes Yonghui, Carrefour, Better Life Commerce as well as online shopping malls and

Alibaba is taking control of the retailers it had acquired in a bid to transform their business and support the e-commerce giant’s online-to-offline model. Consumers will be able to enjoy seamless shopping experience in the shop and on the web, under the plan.

But in the case of Tencent, the company has not taken full control of the companies it had invested. The Internet titan, instead, sought to play a role as an intermediary to link up the retailers and Tencent users, to encourage shoppers to use WeChat Pay and other related services in the stores.

The key aim of Tencent is to monetize the huge traffic it has across different platforms and reap more revenue, as well as expand the market share of the WeChat Pay mobile wallet.

The new joint venture is expected to implement Tencent’s smart retail business model in Guangdong in a bid narrow Tencent’s gap with Alibaba Group.

Following Tencent’s stake acquisition late last year, the tech giant and Yonghui have already begun jointly developing a smart retail model. That involves, among other things, providing customized home delivery service for customers, after connecting Tencent users and retailers in the first stage.

Yonghui has been operating such home delivery model in Fuzhou with the setting up of several satellite warehouses across the city. Orders placed by Yonghui customers via a smartphone app are sent to a warehouse located within 3-kilometer distance from the customer location. That will ensure that Yonghui can provide high-quality and fresh produce to people’s doorstep very quickly.

Alibaba is using Eleme as its delivery service arm to help fulfill local orders in short period of time. Youghui satellite warehouses are playing a similar role, and it will be interesting to see if such model would be implemented into the new joint venture in Guangdong.

The core of smart retail is to gather consumer information on every aspect, from their browsing history to shopping preferences. The big data can be harnessed by retail executives to help them in decision-making and marketing the right products to people based on their needs and interests.

In the Tencent and Yonghui tie-up, the WeChat app plays a core part in recording consumer behavior. For example, customers need to use Yonghui Life WeChat program to scan a QR Code for shopping and completion of the order and payment. Since most Chinese people use WeChat app, there is no entry barrier for Yonghui to roll out its program in WeChat. 

For Tencent, the latest joint venture should help the firm boost WeChat usage in Guangdong and make the app an entry tool for smart retail in the future.

In the battle with Alibaba, it’s game on! 

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EJ Insight writer

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