Bottom line: Declining Wal-Mart China sales and Suntory’s decision to dissolve a China joint venture reflect difficulties foreign consumer names face in the fast changing market, and also challenges posed by local rivals like Bright Food.
Sales fall 6 pct at Walmart China JV stores
Two new consumer stories are shining a spotlight on the difficulties many big foreign brands are facing in China’s tough retailing market, where they compete with both homegrown giants and also smaller names that can quickly gain scale over the Internet. One story reports on falling sales at US retailing giant Wal-Mart’s (NYSE: WMT) China stores, based on rarely seen data from a local joint venture. The other reports that Japanese brewing giant Suntory (Tokyo: 2587) is putting a lid on its 3-year-old Chinese beer-making joint venture.
Meantime, a third outbound M&A story involving Shanghai-based Bright Food shines a spotlight on one of the rising local giants that is posing a growing challenge to the big western consumer names. That deal has the acquisitive Bright, which has made billion-dollar purchases in Britain and Israel, signing another smaller deal to buy half of a major New Zealand meat processor for $200 million. Bright’s agreement to buy the stake in Silver Fern Farms looks similar to WH Group’s (HKEx: 288) blockbuster deal 2 years ago that saw it purchase leading US pork producer Smithfield for nearly $5 billion. Read Full Post…
Bottom line: Wal-Mart’s loss of China Resources as one of its major Chinese partners reflects rapid changes in the traditional retailing market, and could prompt Wal-Mart to accelerate an overhaul of its broader China strategy to focus more on e-commerce.
China Resources dumps Wal-Mart JV stake
Just 3 months after sacking the founders of its China e-commerce site, US retailing giant Wal-Mart (NYSE: WMT) has suffered yet another blow in the huge but difficult market with the loss of a major local partner for its traditional brick-and-mortar stores. That move is seeing China Resources, one of the country’s biggest and oldest consumer names, dump shares worth $515 million in a number of Wal-Mart stores that it jointly owns with the US retailing giant.
The move isn’t all that surprising for a number of reasons, but still doesn’t look too good for Wal-Mart in the fast-changing Chinese retailing market. For starters, China Resources is already a major owner of smaller supermarket chain called Vanguard. It also moved into the hypermarket business 2 years ago when it effectively took over the China-based operations of British giant Tesco (London: TSCO) through a joint venture. (previous post) Read Full Post…
Bottom line: China should expand its plans for a new enterprise board in Shanghai to include a place for the Chinese units of big multinationals like Yum and Uber, allowing domestic investors to buy into these big foreign names.
Calls grow for KFC parent to spin off China unit
Global fast food giant Yum Brands (NYSE: YUM) became the latest major multinational to contemplate a spin-off for its China business last week, following in the tracks of Uber and IMAX (NYSE: IMAX), two leaders in their respective areas of hired car services and big-screen theater technology. The trend acknowledges that China will soon become the world’s largest consumer market, and its unique qualities and complexities often justify creation of separate companies for these big global names to effectively develop the market.
China should seize on this trend and modify its current plans for a new Nasdaq-style enterprise board based in Shanghai to also include a place for these larger, newly created companies with foreign roots. Reports earlier this year indicated the regulator was aiming to roll out the new strategic industries board as soon as next year, though its plans could be delayed due to the recent turmoil on China’s stock markets. Read Full Post…
Update: An official at an investment firm involved in the deal confirmed to YCBB that the merger talks are happening.
Bottom line: The merger of Dinaping an Meituan will make uneasy in-laws of Tencent and Alibaba, and will likely be followed within a year by a buyout by one of the partners or IPO for the new company.
Meituan, Dianping in uneasy union
The headlines are buzzing today with word of an imminent merger between leading group buying sites Dianping and Meituan on this first day back to work after the week-long National Day holiday. The deal is certainly a landmark one, as it will create a clear leader in the emerging category of online-to-offline (O2O) companies that bring together the convenience of Internet buying with offline products and services like restaurant dining, going to the movies and hailing a taxi.
Some media are pointing out the merger will pose a major new challenge to the aggressive O2O aspirations of Baidu (Nasdaq: BIDU), which is pouring hundreds of millions of dollars into building out its own rival services. But for me, this particular marriage represents the latest chapter of an increasingly close but also uncomfortable alliance between the country’s other 2 Internet giants, Tencent (HKEx: 700) and Alibaba (NYSE: BABA), which are major stakeholders in Dianping and Meituan, respectively. Read Full Post…
Bottom line: Apple’s new drive to sell legal music, books and video in China stands a reasonably good chance of success, banking on consumers’ growing willingness to pay for such products if they are convenient and affordably priced.
iTunes comes to China
Following the record-breaking debut for its iPhone 6s models, tech giant Apple (Nasdaq: AAPL) is taking a big new risk by attempting something no one has done yet successfully: making profits from selling legal music and movies in China. The move was part of a newly announced major expansion of Apple’s online store in its second largest global market. But while Chinese consumers have shown a big willingness to pay huge premiums for iPhones, it’s far from clear they’ll do the same for movies and music that they can usually download for free.
Apple sold a record 13 million iPhone 6s models worldwide in their first weekend on sale, easily beating the previous record of 10 million for the iPhone 6 models. China was an important factor in achieving the new record, since the iPhone 6 wasn’t available here during the first weekend of its global launch due to technical reasons. Apple hasn’t given any individual country figures yet, but it’s probably safe to assume it sold at least 3 million of the new iPhones in China during their opening weekend. Read Full Post…
Bottom line: Carrefour’s new foray into upscale, lifestyle-oriented convenience stores could stand a reasonable chance of success and breathe some new life into its struggling China business.
Carrefour expands Easy convenience store concept
After tinkering with a new convenience store concept for the last year, global retailing giant Carrefour (Paris: CA) has finally come up with a smaller-store model it likes and is planning a big expansion for its new chain of Carrefour Easy convenience shops. The move is part of Carrefour’s broader overhaul of its poorly performing China operations, which the company even considered selling at one point.
I do find this particular move somewhat contrary to industry trends, since Chinese are clearly buying more and more of their products online over popular services like Alibaba’s (Nasdaq: BABA) Tmall and JD.com (Nasdaq: JD). But that said, there will always be a place for traditional shops in the bigger retailing landscape, especially convenience stores whose main audience is usually impulse buyers looking for a quick drink, a bite to eat or just a place to quickly surf the web. Read Full Post…
Bottom line: Contention around Meituan’s new mega-funding and Ele.me’s urgent desire to sell itself reflect overheated competition in the O2O restaurant services market, which could result in a major shake-up over the next 12 months.
Meituan denies rumors of funding collapse
Just a couple of days after reports emerged about the latest fund-raising by leading group buying site Meituan, the newest reports are painting a more chaotic scene in the sector for online-to-offline (O2O) services involving collaboration between web sites and restaurants. Meituan is once again in the news, though this time it’s denying rumors that its latest fund-raising has collapsed. Meantime, take-out dining delivery specialist Ele.me is also reportedly in frantic need of cash due to stiff competition gobbling up the industry.
This pair of stories reflects a cycle that’s all too common for emerging industries in China. That cycle typically sees one or two companies find success in a new business area, sparking a gold-rush that sees many others rush into the space. The result is always a surge in overcapacity, which is almost always followed by a shake-out that sees most companies close or withdraw from the business. Read Full Post…
Bottom line: Intensifying competition in dining-related O2O services is pressuring Meituan to raise more funds, and the company should seriously consider a strategic alliance with Alibaba.
O2O dining wars dog Meituan
Online-to-offline (O2O) services have become the flavor of the day on China’s Internet, and take-out dining has emerged at the epicenter of a stampede by all 3 of China’s leading Internet companies to develop the market. Over the last 2 years, leading search company Baidu (Nasdaq: BIDU), e-commerce leader Alibaba (NYSE: BABA) and social networking giant Tencent (HKEx: 700) have all launched major initiatives in the space, collectively pouring hundreds of millions of dollars into the area.
Against that backdrop, the independent Meituan is emerging as an orphan in the space, since it’s the only player without a major backer despite its status as China’s top group buying site. That could explain the latest reports that say Meituan has returned to financial markets and is in the process of raising up to $2 billion in new funds, less than a year after it raised $700 million in another massive cash-raising exercise. Read Full Post…
Bottom line: Major new funding raising by Uber, its Chinese equivalent, and Alibaba’s logistics arm reflect continued interest in such leading Internet firms by major global Investors, though funding will slow sharply for smaller, less known players.
Three new Internet deals raise $5 bln
It seems my earlier forecast was incorrect that major fund-raising for Chinese Internet companies could be cooling due to waning investor sentiment during the recent market volatility. The latest headlines include 3 major new deal close to completion, worth a collective $5 billion. The largest has Didi Kuaidi, the homegrown Chinese equivalent of private car services giant Uber, on the cusp of new a funding deal worth $3 billion. The second has the actual Uber also near a deal to raise $1.2 billion for its Chinese business, as it prepares to spin off the unit into a separate company.
Meantime, the smallest of the deals has e-commerce leader Alibaba ‘s(NYSE: BABA) Cainiao logistics unit also on the verge of a deal to provide hundreds of millions of yuan for a small logistics company. In this case the move appears aimed at helping Cainiao to build up its stable of partners providing logistics service. The addition of such outsiders would also help to validate Alibaba’s 2-year-old program to plow 100 billion yuan into its logistics capabilities.
Bottom line: The securities regulator should start signaling it will end its latest IPO freeze as soon as current market volatility subsides to demonstrate China’s commitment to capital market liberalization.
CSRC should signal IPO ban to end soon
Reports of 2 new listing plans by Chinese companies were in the headlines last week, showing executives hope to resume their fund-raising using capital markets once the current market volatility ends. One headline saw outdoor advertising specialist Focus Media disclose a new plan to list via a backdoor offering in Shenzhen, while the other saw media report that snack giant Liwayway Holdings was taking initial steps for a $200 million IPO in Hong Kong.
Stock market fund-raising by Chinese companies has come to a standstill over the last 2 months, after a rout that began in June frightened off investors and prompted the China Securities Regulatory Commission (CSRC) to suspend all new offerings in a bid to stabilize the situation. This resumption of offering activity is still in the very early stages, and reflects the important role that financial markets play for companies in need of capital to fund their operations. Read Full Post…
Bottom line: New O2O take-out dining investments involving companies backed by Tencent and Alibaba reflects intensifying competition in the space, and is likely to result in a costly price war for market share.
Alibaba, Tencent in new take-out dining investments
The take-out dining space continues to heat up, with word of a major new funding for Ele.me, the service backed by social networking giant Tencent (HKEx: 700), and a big new investment for Koubei, the service owned by e-commerce leader Alibaba (NYSE: BABA). Both investments reflect a recent rush into online-to-offline (O2O) services by all 3 of China’s top Internet companies, as each tries to forge a hybridized mix of services that are likely to make up the retailing landscape of the future.
The larger of the 2 deals has Ele.me raising as much as $630 million in new funding, in a deal that brings in existing investors Tencent, along with its main e-commerce partner JD.com (Nasdaq: JD) and several other major private equity firms. The second has Koubei, Alibaba’s recently resurrected take-out dining site, investing a more modest 300 million yuan ($50 million) in a rival that operates the service called SHBJ.com. Read Full Post…
