Yonghui’s Subsidiary Contributes to Shareholder Loss
COVID-19 and China
YH Super Species Chongqing Caixin Plaza Store. PHOTO: Credit to Yonghui Supermarket

According to iYiou, Chinese supermarket, Yonghui (永辉超市) released its 2018 annual report where its yearly revenue reached CNY 70.51 billion, a 20.35% YOY increase. Consolidated net income attributable to shareholders of listed companies was CNY 1.48 billion, an 18.52% YOY decrease.

iYiou attributed the loss to the influence of employee equity incentive fee at CNY 664 million and failures of its subsidiary, Yonghui Yunchuang (永辉云创), a supply and logistics service of Yonghui Superstore. However, Yunchuang reported a CNY 2.146 billion in revenue, a 283% YOY increase. According to iYiou, Yonghui announced to transfer a 20% stake (CNY 394 million) in Yunchuang to ZHANG Xuanning (张轩宁), Yonghui Supermarket’s vice chairman. In 2016, Yunchuang had nearly a loss of CNY 270 million.

According to Yonghui’s Investor Exchange Conference reported by 36Kr, ZHANG Xuansong (张轩松) believed the losses are due to three factors: high initial input cost, bearing large scale back-end construction and labour costs, and low gross profit margins. Yonghui’s innovative projects use an O2O business model and cover all of its businesses except the supermarket segment.

Yonghui Superstore was founded in 2001 and has become China’s fifth largest hypermarket chain operator, according to China Chain Store and Franchise Association. In 2010, the company listed on the Shanghai Stock Exchange. As of June 2017, Yonghui operates 549 stores across China, covering 20 provinces including Beijing, Shanghai, Sichuan, Jiangsu, Tianjin, and more.  

Yonghui is considered a traditional superstore retailer, ranking behind Walmart (China) in pre-tax sales. To compete with new retail formats such as Fresh Hema, Yonghui adopted an O2O business model and worked with third-party delivery services such as JD Daojia. Fresh Hema is Yonghui’s biggest competitor “as they both focus on catering service and fresh food in community areas,” according to Fung Business Intelligence.

While Fresh Hema and Yonghui, specifically YH Super Species (the company’s innovative business offering fresh produce), both deliver in 30 minutes within a 3km radius, the latter relies on its parent company’s logistics team which is seeing conflict.

Fresh Hema appears to have a more stable logistics system despite its forecasted economic slowdown as it implements technology to track its inventory in real time. According to iYiou, the Yonghui Yunchang’s business stores are in 10 main cities, most of which are tier one. The upstream supply chain organization may be flawed which may hint to invest more in R&D to minimize output costs.

Fresh Hema focuses on delivery efficiency and leverages RT-Mart’s robust supply chain capability and Alibaba’s data technology platform, according to Alibaba’s financial report. RT-Mart is a business unit under Sun Art Retail Group that operates “nearly 400 hypermarkets.” In late 2017, Alibaba acquired 36% stake of the company.

In 2019, Yonghui plans to open 150 new stores and explore new mini business. However, regional expansion is one of the main reasons why Yunchuang’s single store revenue is not enough. Fresh Hema's upward supply chain problems coupled with its rapid expansion is leading to problems. Yonghui may be following in its steps if it doesn't identify and address its logistics issues in the future.

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