(Bloomberg) -- Tencent Holdings Ltd. plans to invest in Carrefour SA’s China unit, following Alibaba Group Holding Ltd.’s footsteps to uproot traditional grocery and department stores with technology.
The social media giant, along with local retailer Yonghui Superstores Co., agreed to take a stake in Carrefour China, the companies said Tuesday. They plan to work together on data, smart retail, mobile payments and data analysis.
Tencent’s investment could help revive the struggling French retailer’s business in China, while expanding WeChat mobile payments across the country. The deal is part of a wider push to connect conventional retail to internet-enabled services, as web companies seek to attract more customers and users. Last year, Alibaba struck a similar alliance with Sun Art Retail Group Ltd. and Auchan Retail SA.
“The e-commerce penetration ratio in China is quite high, but the offline retail market is much larger and they want to capture that,” said Naoshi Nema, an analyst at Cantor Fitzgerald LP in Hong Kong, referring to the Tencent deal. “They also want to connect traditional commerce with technology.”
Tencent rose 3.2 percent to close at a record after Tuesday’s announcement.
Tencent and Alibaba are betting that combining retail stores and e-commerce will help boost orders, amass purchasing data and also let storefronts double as last-mile delivery centers. Alibaba has already pumped millions into the $4 trillion sector by taking stakes in Intime Retail Group Co., Lianhua and Sanjiang. It’s also built its own chain of fresh food grocery stores called HeMa, the first of an envisioned nationwide chain that’s a grocery, restaurant and fulfillment center rolled into one.
As mobile-based wallets and payments become more ubiquitous in China, such services have become a key battleground for China’s two internet juggernauts. Both are scouring prized assets across China to forge partnerships to promote their services and drum up growth now that their core businesses have matured.
Tencent and Yonghui have signed a term sheet for a potential stake in Carrefour’s China business, the French company said Tuesday. While the size of any planned investment wasn’t disclosed, a deal would mark the social media and gaming giant’s latest investment in physical retail following its decision to take a slice of Yonghui for about 4.22 billion yuan ($638 million).
Still, Tencent has some catching up to do. Carrefour operates more than 200 hypermarkets in China but its business is shrinking as consumers gravitate online. Alibaba-backed SunArt’s Auchan and RT-Mart outlets now control the biggest slice of China’s hypermarket business with about a 15 percent share, followed by Wal-Mart Stores Inc. with 10 percent, according to Euromonitor.
But Yonghui and Carrefour together would have about 800-plus stores, ranking behind just SunArt.
“On the Carrefour front, the company has been struggling in recent years to compete with strong players in the market and has been exploring options to improve its business,” said Jack Chuang, a Shanghai-based partner with OC&C Strategy Consultants. “Yonghui’s fresh category strength and Carrefour’s import and packaged food offering mean their businesses are complementary.”
Tencent benefits in the longer term by entrenching its mobile payments system even deeper into Chinese retail. Its WeChat Pay is now used in 93 different industries, with the top three being retail, restaurants and transportation, WeChat Pay General Manager Geng Zhijun said in a Bloomberg TV interview in January. “Of those, retail is the most important,” Geng said.
“We have the most mature technology to facilitate smart retail,” Geng said. “Timing is also very important. We see 2018 as the starting year for Tencent to push into this sector.”
©2018 Bloomberg L.P.