M&A

Supermarket sweep

Jardine Matheson goes shopping in China via Yonghui investment

Jardine-House-w

Jardine’s head office in Hong Kong

In 1842 the Scottish trading firm Jardine Matheson adopted the Chinese name Ewo. It means ‘happy harmony’ and Jardines would later use the name to make a pilsner called Ewo Beer until it was forced out of China in 1954.

Today Jardine Matheson’s Singapore-listed offshoot Dairy Farm International is re-establishing a presence in the mainland’s food and beverage sector, helped by a 19.98% stake in Yonghui Superstores, a chain headquartered in Fujian.

Shanghai-listed Yonghui is a core part of a multi-year strategy to bring China back to the forefront of the Hong Kong conglomerate’s business operations. The M&A effort picked up momentum in 2014 when the family-controlled firm invested over $500 million in the car dealership Zhongsheng, marking a return to “home turf” after many years of geographical diversification prompted by Hong Kong’s return to Chinese rule in 1997. Famously, the company had transferred its domicile away from Hong Kong in 1984.

The merchants William Jardine and James Matheson founded the firm in Canton (now Guangzhou) back in 1832 and the company is still run by their descendants – the fifth generation of Keswicks whose patriarch, William Keswick, was the grandson of William Jardine’s sister.

Memories of how Jardines were forced to leave China in the 1950s lingered for some time, colouring the views of its later taipans (or bosses) ­­– in 1982 Sir Henry Keswick described China to Margaret Thatcher as a “subsistence agricultural economy, which can most unlikely ever make any real economic progress per capita”.

Sir Henry’s nephew Ben Keswick was made taipan in 2011 and during his tenure the firm has been more upbeat about China’s commercial prospects. The younger Keswick is also chairman of Yonghui, where he joins fellow Jardine board member and cousin Adam Keswick, as well as Dairy Farm boss Ian McLeod (formerly chief executive at Australian supermarket giant Coles).

One of the priorities for Yonghui is expansion in Guangdong, the province where Jardine’s founders made their original fortune. Last year it was home to 21 of Yonghui’s 950 supermarkets but this seems set to change following the establishment of a joint venture with CK Hutchison’s ParknShop and Tencent.

The new group – called ParknShop Yonghui – is merging ParknShop’s supermarket operations with Yonghui’s portfolio, creating a network of over 70 stores and 2.2 million loyalty members. Tencent has been brought in for its digital and Big Data expertise in an attempt to profit from the early stages of the ‘smart retail’ revolution.

Financial analysts generally have a favourable view of Yonghui’s prospects because of its potential to spearhead consolidation in the still- fragmented supermarket sector. The top five players have less than a 10% market share between them compared to about 50% in the US and 60% in the UK, for example. As HSBC wrote in a recent research report, supermarkets are an industry where scale really counts. Yonghui is trying to bulk up faster than its competitors, targeting 100 to 150 new supermarkets per year. Currently it derives 70% of its gross profits from stores in Beijing and provinces on the eastern seaboard. It wants a wider footprint: it invested in Wanda Commercial Properties last year, with a view to getting first dibs on sites for new supermarkets, and it is also expanding into central China.

As part of that plan it is in the process of raising its shareholding in Shenzhen-listed Zhongbai Holdings to 40% after agreeing to pay Rmb559 million for a 10% stake owned by a local unit of the State-owned Assets Supervision and Administration Commission (Sasac).

Wuhan-based Zhongbai has 1,255 stores in central China, with operating income last year of Rmb15.2 billion ($2.25 billion).

Jardines has been bolstering its own expertise in the region in other ways, including the appointment of former HSBC chief executive Stuart Gulliver to its board last December. During his time running HSBC Gulliver initiated a strategy to dramatically grow the bank’s business in the Pearl River Delta area of Guangdong.


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