Retail giant swallows rival
By Liu Baijia (China Daily)
Updated: 2006-02-03 08:47

The Chinese retail giant, Wumart Stores Inc, announced yesterday it is to take over its minor competitor, the Beijing MerryMart Chainstore Development Co Ltd, in a 373.5 million yuan (US$46 million) move, amid fierce competition in the Chinese retailing market.

Wumart, the 10th largest chain store operator in China and the largest retailing chain operator in Beijing, signed the acquisition deal with MerryMart's stakeholders on Wednesday, giving it 75 per cent of its Beijing rival.

The top Beijing retail chain operator will pay 253.5 million yuan (US$31 million) to acquire MerryMart's 68 per cent of MerryMart and contribute another 120 million yuan (US$15 million) to increase the capital scale of MerryMart, which will allow Wumart to control 75 per cent, when the deal is completed.

Wumart's stock on the Growth Enterprise Market in Hong Kong rose by almost 18 per cent yesterday to HK$20.05 (US$2.64), as news of the deal spread.

MerryMart is the fourth largest retailing chain in Beijing and operates 23 stores in the Chinese capital. Its un-audited revenues for 2005 were 1.65 billion yuan (US$205 million) with profits of 33.46 million yuan (US$4 million), compared with the figures of 1 billion yuan (US$124 million) and 13.73 million yuan (US$1.7 million) in 2004.

Zhu Younong, president of MerryMart, said that a shortage of capital for fast expansion is the main reason why he and his partners decided to sell the firm to Wumart.

Wumart was more upbeat on its website yesterday, saying that: "The combination of Wumart and MerryMart will further change the landscape of the retail market in Beijing and set an example for the domestic retail industry to increase its competitiveness through expansion and consolidation."

The company added that foreign retailing giants account for 70 per cent of the total sales of all the largest supermarkets in Shanghai, and are gaining pace in Beijing.

However, there are more than 40 domestic chain stores in the Chinese capital and most of them are very weak, so domestic players will need to unite to compete.

According to a report by the China Chain Store and Franchise Association on the first three quarters of the retail chain, foreign operators started looking to change their joint ventures to wholly-owned businesses to increase control.

The French giant Carrefour, the biggest foreign player in China, plans to open 20 stores in the country this year, after establishing 14 in 2005.

One major benefit for Wumart from the acquisition is an increase in economies of scale. With the 23 stores from MerryMart, Wumart will have almost 100 stores in Beijing and its coverage in the Xuanwu and Fangshan districts, where it was weak, will be greatly enhanced.

Wumart will also have bigger bargaining power in procurement after the acquisition. The combined purchasing power of the two companies is more than 10 billion yuan (US$1.24 billion), and Wumart claims it will become the biggest fast-consumption goods and wholesales channel in Beijing.