The company’s offerings in China include instant messenger Tencent QQ, web portal QQ.com and the widely-used mobile chat service WeChat — which has 902 million daily active users.
The deal — which will see Tencent join forces with local retailer Yonghui Superstores for a stake in Carrefour China — follows similar moves into food retail by fellow Chinese digital behemoths Alibaba and JD.Com.
But what is driving these online operations to invest in the highly-competitive bricks-and-mortar retail sector, where competition is rife and margins can be small?
Much of the answer can be found in this latest deal, where both sides have highlighted the ability to combine offline and online consumer data, reach and expertise.
Carrefour hopes the deal will improve its online visibility, increase the traffic of its offline and online retail activities, and create gains from Tencent’s capabilities and know-how to develop new smart retail initiatives.
In turn, Tencent can further develop the retail services offered on its social platforms and promote the use of WeChat as well as WeChat Pay, cloud computing and other services within the Carrefour “ecosystem”.
This scope of cooperation between the companies will encompass data, smart retail, mobile payment, in-store experience and data analysis.
The future of food retail
In fact, today’s buzzwords such as “smart data”, “integrated ecosystem” and “retail synergy” are the very reasons why the other Asian online retail giants have led the way into the offline retail world.
In Asia, Alibaba first took the leap — and the lead — to enter into investments in offline store chains, purchasing shopping mall group Intime, a stake in Lianhua Supermarkets, and a more than one-third stake in Sun Art Retail, which has over 446 hypermarkets.
Furthermore, Alibaba’s Hema digital-enabled supermarkets in China not only feature lots of fresh food and live cooking experiences to make it sensory and beneficial to customers, but also connect shoppers with smart data and technology to combine online and offline shopping.
Customers can, for example, use a mobile app to purchase fresh produce, have it cooked by chefs and delivered to their doorstep within 30 minutes.
And just at the start of the year, JD.com followed Alibaba’s lead, launching its 7Fresh grocery store — a bricks-and-mortar premium food shopping experience connected with smart technology. It offers similar flexibility and connectivity as Hema does, as well as other smart features such as ‘magic mirrors’ that sense a piece of produce being picked by a customer and automatically display product information.
As more of these innovations are launched, combining online and offline technology and data, it is easy to see why retailers such as Carrefour, with flagging store sales in China, would drool at the thought of technology boosting footfall and revenue.
In fact, while Carrefour CEO Alexandre Bompard announced a voluntary redundancy plan for 2,400 employees at its French head office as well as plans to sell or close to 273 under-performing stores to achieve cost savings of €2b by 2020, he had also announced plans to invest €2.8b in digital e-commerce by 2022 — six times the current investment.
Joanne Denney-Finch, chief executive of grocery research group IGD, recently commented on food retail and its future: “It’s a revolution in what products are sold, how they are sold and how they are made. It’s driven by technology, social and culture change and the economy, all marching together.”
Investing to acquire data
Key to success in this regard is high-quality data. In December, Tencent and JD.com invested about US$604m and US$259m respectively in flash sales website Vipshop Holdings.
Vipshop has more than 60 million active customers, and is the largest online discount retailer in China in terms of transaction value.
Apart from expanding consumer reach and product portfolio, the deal also added a large number of female shoppers to JD.com’s consumer base. This is a great boon to JD.com, whose users tended to be predominantly-male all along, from its early days as an electronics products site.
IGD believes that Asia will dominate the growth of the global grocery retail sector in the next five years, enjoying a CAGR of 6.6%. It also predicts that Asia’s largest online grocery retailers will grow 34.6% in a year-on-year average, driven by several reasons including demographic shifts, increasing Internet and smartphone penetration, and improved logistics.
On Jan 23, after the announcement, Carrefour’s shares rose about 6% — its biggest one-day gain since 2015.