Tencent to buy stake in Chinese supermarket chain

Tencent Holdings will buy a stake in Chinese supermarket chain Yonghui Superstores for about 4.22 billion yuan ($638 million), setting up a clash with arch-rival Alibaba Group Holding in physical retail.

China’s largest internet corporation is acquiring about 5 per cent of Yonghui from existing shareholders at 8.81 yuan apiece, Yonghui said in an exchange filing Friday, a 9.9 per cent discount to its price before trading was halted on December 8. The investment  — a rare foray into traditional retail for a company known for games and messaging service WeChat — may be looking to drive adoption of its digital payments service in stores.

The deal follows Alibaba’s $2.9-billion November purchase of a stake in grocery retailer Sun Art Retail Group, which operates about 400 hypermarkets under the Auchan and RT-Mart banners. The e-commerce giant is betting it can use technology to overhaul a $4-trillion domestic brick-and-mortar retail industry and drive its next phase of growth. Jack Ma’s company has already spent billions buying into grocers, shopping malls and even department stores across the country.

“The proposed Tencent-Yonghui deal suggests more tie-ups between Chinese grocery retailers and leading internet platforms are likely,” Shen Li and Vey-Sern Ling, Hong Kong-based Bloomberg Intelligence analysts, wrote in a note Wednesday. “Investment in groceries, a high-frequency purchase category for consumers, will expand the reach of Tencent’s mobile payment system WeChat Pay, which has been gaining market share from Alibaba’s Alipay over the past few years.”

Yonghui, which operates supermarket franchises and has more than 580 stores in China, plans to resume trading on December 18, according to the filing. China’s fourth-biggest hypermarket operator by market share already has a tech-industry investor in e-commerce player JD.com, according to Bloomberg Intelligence. Sun Art is the market leader, followed by China Resources and Walmart Stores. Online commerce companies are expanding in physical retail in their bid to prop up sales and transform old-school shopping. Alibaba is deploying technology to better manage inventory and customer data to gain market share and win more rural consumers.

Walmart, meanwhile, has been focusing on turning around a sluggish Chinese operation through a partnership with JD, and by expanding its network of Sam’s Club stores targeted at consumers looking for premium and imported goods. 

For Tencent, the investment in Yonghui may help propagate the use of its WeChat Pay service, which has steadily gained market share from Alipay, a rival offering from Alibaba-affiliate Ant Financial.

Wider adoption of payments is key to building data on users and helps Tencent and Alibaba better target advertising. The rapid growth of Tencent’s digital wallet -- along with hit games such as Honor of Kings and advertising across its platforms -- helped fuel a 61 percent rise in third-quarter sales.