In the book "101 New Retail Details of Miniso", a detail was recorded: In 2013, Ye Guofu introduced the Miniso project that was being prepared to the private board, saying that it would use the Xiaomi model to make a lifestyle department store. However, the five or six big bosses present were not optimistic about it.
Ten years later, Ye Guofu proved his forward thinking judgment - Miniso is now a retail giant with a revenue scale of over 10 billion yuan, with over 7000 global stores and footprints in 111 countries and regions around the world.
Now, Ye Guofu is once again standing at a crossroads of controversy.
On the evening of September 23rd, Miniso announced on the Hong Kong Stock Exchange that it would acquire 29.4% of Yonghui Supermarket's shares for 6.3 billion RMB, including 21.1% held by Milk Company and 8.3% held by JD.com; After the completion of the transaction, Miniso is expected to become the largest shareholder of Yonghui Supermarket.
On the evening of the announcement, Miniso held a conference call where Ye Guofu explained his decision. He said that Yonghui Supermarket, as a leading offline fresh food retail supermarket, has added Miniso to the puzzle of essential goods, making Miniso Group's offline retail layout more complete.
Must choose consumption to cross the cycle
This is not an impulsive decision, and this retail veteran who has been struggling in the Chinese and overseas retail markets for many years has been thinking about it for a long time.
At the Mingchuang Youpin Investor Exchange Day held in January this year, Ye Guofu expressed that there will only be two types of retail in the future: low-priced retail and specialty retail. Miniso, which has the attribute of interest consumption, points to specialty retail, but the huge success of Costco and Sam's Club globally also shows that specialty retail can also run well in the traditional supermarket field.
After announcing his acquisition of Yonghui Supermarket, Ye Guofu further elaborated on his judgment on his social media. He believes that the current consumer market has two dimensions: optional consumption and mandatory consumption. If Miniso represents optional consumption, then Yonghui represents mandatory consumption - whether consumption is sluggish or upgraded, essential items such as food and daily necessities are indispensable.
Yonghui Supermarket, with a focus on fresh food retail, is rooted in the domestic market and has created the Fat Donglai model of Chinese Sam's Club, providing essential products for the daily needs of the public and perfecting the offline layout of Miniso (Group), "wrote Ye Guofu.
That is to say, the value point that Ye Guofu values is that the two longitude and latitude lines of specialty retail and must-have consumption can intersect at Yonghui Supermarket.
However, an unavoidable challenge is that China's consumer market is falling into a slump, with weak growth in the national retail sales of consumer goods, especially after entering 2024.
However, Ye Guofu still firmly believes in the Chinese retail market. This Chinese entrepreneur had previously gained great attention from the capital market due to his strong overseas momentum, but on the evening of announcing the acquisition of Yonghui Supermarket shares, he said, "Continue to have confidence in China, invest in China, and as long as the retail industry continues to innovate, there will always be big opportunities
In an interview with Ye Guofu at the beginning of 2022, LaTePost commented, "Despite the ups and downs of the times, Ye Guofu is still in the retail industry. He is good at seeing big opportunities and mobilizing big resources. He knows his shortcomings and understands the limitations of the times. He has no inertia and can always leave the past behind to build a new version of himself
Ye Guofu has courage, but what supports courage is the return to business logic. The 'must-have consumption' has the ability to cross cycles, and American supermarket giants such as Costco, Sam's Club, Kroger, etc. are the best examples of this resilience.
Costco, the American supermarket giant, is a must-have consumer with resilience as its opening customers.
Costco was born in 1983, during an era of two oil crises and stagflation in the US economy. The purchasing power of mainstream consumers and the middle class is declining, while the cost of living is steadily rising. Costco has stepped onto the stage with the mission of meeting the high-quality living needs of the middle class with high cost-effectiveness.
Sam's parent company, Wal Mart Group, also demonstrated the vitality of mandatory consumption. In 2020, the first year of the outbreak of the COVID-19, the U.S. economy suffered a heavy blow, but Wal Mart's stock price rose sharply against the trend and broke the record of stock price performance in the face of several circuit breakers in the U.S. stock market.
By 2024, the US economy will enter a stage of recovery, with retail data continuously recovering and essential consumer spending also "rising". In the first quarter and the second quarter of this year, the sales of Wal Mart's major U.S. stores increased by 3.8% and 4.2% respectively, and Wal Mart raised its annual profit forecast. So far this year, the stock has risen by 30%, and the market has given high expectations.
The mandatory consumer goods sector usually exhibits strong defensive attributes. In the event of significant macroeconomic fluctuations, mandatory consumer goods enterprises are more favored due to their high operational stability, abundant cash flow, stable dividends, low valuation, and other characteristics. When the economy is in the recovery stage, the optional consumer sector has a relatively advantageous performance due to its greater performance growth elasticity and faster valuation repair speed.
Undervalued Yonghui Supermarket
But in the face of the mandatory consumption sector, Ye Guofu's business goals are equally clear.
He has publicly expressed his admiration for Costco and Sam more than once. In his 2019 tribute to Costco, he stated that the three high, three low principles of "high quality, high aesthetics, high efficiency, low cost, low gross profit, and low price" were the business philosophy I learned from Costco and incorporated into my past experience in physical retail to establish Miniso.
From a strategic perspective, the puzzle that Miniso wants to complete through the acquisition of Yonghui Supermarket is to achieve a favorable situation in both economic changes and future recovery stages by combining optional and mandatory consumption through IP retail and fresh food retail supermarkets.
As for this investment, Miniso values Yonghui Supermarket's backend supply chain capabilities and scale foundation.
Yonghui Supermarket, founded in 2001, was once a superstar in the industry. In 2010, it successfully went public on the A-share market with the halo of being the "first fresh food stock". In the era before community group buying, "Fresh+" was still a new concept, and Yonghui Supermarket was highly sought after by the capital market. After more than a decade of cultivation, Yonghui Supermarket's supply chain construction has covered the whole country and deeply penetrated to sixth tier cities.
Yonghui Supermarket has created an efficient supply chain system by connecting high-quality upstream procurement, cooperating with logistics systems for fast delivery, cold chain system for freshness preservation, store to home delivery, and intelligent middle platforms, continuously establishing and strengthening competitive advantages that are difficult to replicate among peers. Southwest Securities once pointed out in a research report that the loss rate of the fresh food industry is about 20% -30%, while the loss rate of fresh food in Yonghui Supermarket is only 3% -4%,
No enterprise can keep up with the flow, and in more than 20 years of operation, Yonghui Supermarket has also entered a period of volatility.
Although Yonghui Supermarket's performance has declined in the past three years, it still achieved a revenue of 78.642 billion yuan in 2023; In the first half of 2024, the company achieved a revenue of 37.779 billion yuan. In terms of sales scale, it still ranks second among the top 100 supermarkets in China.
The sales network accumulated by Yonghui Supermarket is an advantage that is difficult to surpass in a short period of time. According to official website data, as of September 23, Yonghui Supermarket has 838 stores nationwide, covering 29 provinces and entering 472 cities, firmly ranking among the top five in the industry.
Therefore, Miniso's acquisition of Yonghui Supermarket, which once had a market value of over 100 billion yuan and a revenue scale of over 90 billion yuan, for 6.3 billion yuan is an almost snake swallowing elephant deal.
Zhang Jingjing, Chief Financial Officer of Miniso, emphasized during the conference call that Yonghui Supermarket had a long history of growth before the pandemic. From 2007 to 2020 before the pandemic, Yonghui's revenue scale increased from 3.7 billion yuan to 93 billion yuan, with a compound annual growth rate of 28%. The net profit attributable to the parent company increased from 130 million yuan to 1.79 billion yuan, with a compound annual growth rate of 22%.
In the past three years, Miniso has suffered losses due to various factors such as the impact of the epidemic, weak consumption, low-priced expansion of community group buying, and changes in accounting standards. Zhang Jingjing stated that in the past three years, Yonghui Supermarket has taken various measures to reduce losses and achieved certain results. With measures such as store restructuring and closure of underperforming stores, they have great confidence in Yonghui's future profit prospects.
In fact, before accepting the assistance and adjustment from Fat East, Yonghui Supermarket had tried various business models that could bring fresh blood, such as small store models, warehouse store models, discount store models, etc. Ye Guofu believes that with the assistance and adjustment from Fat East, Yonghui Supermarket has reached a turning point.
In June and July of this year, Yonghui Supermarket began a fat Donglai style adjustment and reform of two stores in Zhengzhou. Afterwards, Yonghui Supermarket announced at the end of August that it would launch store self adjustment and renovation work in 10 cities including Hefei, Hangzhou, and Fuzhou.
On July 30th not long ago, Ye Guofu went to Henan and saw the renovated Yonghui Supermarket for the first time. During his few days of exploring the store, even during the unpopular time slot of 2pm on Thursday, the two Yonghui Supermarkets were still crowded with people. In August, he went to Henan for inspection again.
Despite external doubts, Yonghui Supermarket has only accepted six stores from Fat East for adjustment, which is too small in number and insufficient in sample size. But the successful renovation of Yonghui Supermarket's stores outside of Henan, such as the Gongyuan Road store in Fuzhou, Fujian, also made Ye Guofu believe that the "Fat East version of Yonghui" has the possibility of nationwide replication.
The Futurity of the 'Fat East Coming Model'
The reason why Ye Guofu is optimistic about the "Fat Donglai version of Yonghui" also comes from his recognition of the "Fat Donglai model".
In the past decade, I have traveled around the world and seen various retail formats and models. After that, I found that a better retail model than Costco, Sam's Club, and Trader Joes is actually in China, and that is the Fat Donglai model, "Ye Guofu said in a conference call." In fact, I believe that the Fat Donglai model is the only way out for Chinese supermarkets
Ye Guofu believes that compared to Sam's and Costco, the similarity of the Fat Donglai model is the high emphasis on product strength. The difference lies in the greater emphasis on customer experience, greater respect for employees, and the absence of a membership system. This is a supermarket model that is more suitable for Chinese household consumption.
With the help of Pangdong for adjustment and reform, Yonghui Supermarket may promote the vertical integration of the supply chain and develop differentiated product capabilities represented by its own brands if it can break through the many restrictions of the traditional KA procurement system on supermarket product operations and leverage its scale advantage.
However, Pang Donglai is not a shareholder of Yonghui Supermarket after all, and the market is also concerned about how long the assistance can last. Recently, there have been reports that Pangdonglai will no longer adjust to a new enterprise. In this regard, on September 26, Yu Donglai, founder of Pangdonglai, responded on his Tiktok account, and the activities to help Lianshang student enterprises, Yonghui and Bubugao will continue for about two years.
But according to Interface News, Yonghui Supermarket has started some self-service adjustments, emphasizing the return of retail to its essence and focusing on consumers rather than suppliers. And 'leading consumption and creating customers' is precisely the viewpoint emphasized by Ye Guofu at the investor exchange day in January this year. Therefore, the alignment between Miniso and Yonghui Supermarket still exists beyond the adjustments made by Fat Donglai.
On a business level, Miniso also sees the possibility of collaboration.
On the one hand, with the help of Yonghui Supermarket's brand influence and national commercial resources, we can further assist Miniso in upgrading its channels and obtaining better location and rental conditions; In addition, Miniso can assist Yonghui in developing its own brand to benchmark against Sam's Club.
Ye Guofu clearly stated that he will not turn Yonghui Supermarket into a sales channel for the Miniso brand, but hopes to take advantage of Miniso's supply chain advantages to leverage Yonghui's channel scale and price based on quantity.
This will be a huge incremental market, "Ye Guofu said." Yonghui Supermarket's revenue in the past two years has been in the range of 80-90 billion yuan, of which about 1/4 of its sales come from daily necessities, most of which are third-party brands, and the proportion of its own brands is only in the single digits of its total sales
The capital market has also responded to the potential of Yonghui Supermarket.
After the announcement of the acquisition of shares, Yonghui Supermarket closed its bid on September 24th at a limit up of 2.48 yuan per share. As of press time, the stock price of Yonghui Supermarket has risen to 3 yuan per share.
This is also the confidence of capital in the huge domestic demand market with a population of 1.4 billion. Ye Guofu and Miniso's long position in Chinese assets also relies on this confidence.
From a historical perspective, the retail industry has been vulnerable to external shocks and has therefore undergone continuous changes and developments in response to crises. The Great Depression of the 1930s gave birth to chain supermarkets; In the 1990s, after Japan's economic foam burst, the economy was depressed, and Uniqlo and convenience stores began to flourish; During the SARS outbreak in 2003, a group of online retailers began to accumulate strength. During the prevention and control of the COVID-19, the retail industry accelerated its transformation and transformation.
Chinese offline supermarkets are facing a once-in-20-year structural opportunity, "Ye Guofu once again expressed his judgment, just like when he decided to make Miniso in 2013.
Looking back at this transaction, its most tempting imagination is whether a completely new retail species will emerge in China. Whether it is lvmh group or Wal Mart group, they either only meet the optional consumption demand or only meet the mandatory consumption demand, and there has never been a retail group that can cover different age groups.
At present, Ye Guofu is standing at a crossroads full of ups and downs and imagination, urgently needing to create the next era of Chinese retail.