RETAIL: Bun Seller Gubuli Tries Coffee, Carrefour Weighs Sale

By newsdoug on January 22, 2015

Bottom line: Gubuli’s foray into the coffee business is doomed to failure, while Carrefour is likely to sell part of its China business to a local partner later this year.

You know the China coffee market is overheated when one of the nation’s most famous names in a traditional food like steamed buns enters the market. That’s what’s happening now, with word that Gobuli Group, a restaurant chain whose name is synonymous with a popular kind of meat-filled steamed buns, is launching a coffee chain joint venture in partnership with Australia’s Retail Food Group.

While the coffee business is quickly overheating, the opposite is true for the traditional supermarket business, which has seen several major western retailers leave the market or scale back operations as they face a growing challenge from e-commerce. Now it looks like French giant Carrefour (Paris: CA) could become the next in that trend, with word that it might consider selling some or all of its China business to a local partner.

These 2 stories nicely summarize the broader picture for China’s fast-evolving retail scene. On the one hand, restaurants are booming as increasingly wealthy Chinese have more discretionary money to spend on eating out. But on the other, consumers are still quite price sensitive when it comes to buying goods, which has pushed them towards e-commerce services that are both cheaper and more convenient than traditional brick-and-mortar stores.

Let’s start our retailing round-up with Goubuli, which was first rumored to be interested in the coffee business when reports emerged a year ago saying it was close to a deal to buy a major US coffee chain. (previous post) The news sparked a brief period of heated speculation over who that chain might be, and then all the buzz disappeared as the deal apparently fell apart.

But Gubuli was determined to get into the business, and now this new deal has seen it form a joint venture to open Retail Food Group’s Gloria Jean’s signature coffee houses in China. (English article) The deal is being called a joint venture, but it looks more like a licensing agreement since all funding is coming from Goubuli, which has also paid an initial licensing fee of nearly $5 million.

The venture is aiming to open 200 shops in the next 5 years, though Gubuli has yet to decide if it will offer its trademark steamed buns at the shops. I’ll be quite direct here and say this venture looks almost certain to fail. Gubuli’s existing current shops are quite basic, and the company has no experience with foreign food or operating this kind of restaurant that’s as much about lifestyle as it is about eating out. What’s more, the coffee chain market is already extremely competitive and overheated.

Next let’s look at the Carrefour news, which also follows earlier reports that the company was looking to sell some or all of its struggling China operations. (previous post) The latest reports cite the company’s chief executive Georges Plassat saying Carrefour’s China unit could follow a similar path as Brazil, where it recently sold 10 percent of its operations to a local partner in advance of a possible future listing. (English article)

I’m not familiar with the Brazilian market, but it’s no secret that the China supermarket business has become increasingly competitive and unattractive for foreign operators, prompting British giant Tesco (London: TSCO) to leave in 2013. The picture looks equally bleak in other areas, with US consumer electronics chain Best Buy (NYSE: BBY) and British home improvements giant Kingfisher (London: KGF) also recently leaving the market.

The previous reports made it clear that Carrefour is also seriously considering a pullback in the market, most likely involving a gradual sell-down of its China unit. It couldn’t find a buyer during its last attempt back in 2013, but that doesn’t mean it completely abandoned its longer-term goal. These latest reports show a China sell-down is still on the company’s agenda, and I would expect to see it sell a stake in that part of the business to a local partner sometime later this year.