Miniso bets 6.3 billion on a bold move, how did Ye Guofu help Yonghui create "Pang Donglai"

On July 30th, the boss of Miniso, Ye Guofu, went to a Yonghui Superstore in Zhengzhou for research and sat outside overnight.

This Yonghui Superstore had been "assisted" and adjusted by Pang Donglai, attracting Ye Guofu's attention due to the large crowd that day.

"I'm thinking how great it would be if this store were mine," Ye Guofu reflected afterwards.

The wish from two months ago is now becoming a reality.

On the evening of September 23rd, Miniso announced that its main entity would acquire 29.4% of Yonghui Supermarket's equity from Milk Limited Company, JD Group (9618.HK), and the concerted action party Suqian Hanbang Investment Management Co., Ltd. for 6.27 billion yuan, becoming the largest shareholder.

In the public statement, their union was described as potentially creating a "Chinese version of Sam's Club".

From 2021 to 2023, Yonghui Supermarket has been losing money for three consecutive years, with a total loss of 9 billion yuan. This led to Pang Donglai's assistance and adjustment of the Yonghui Supermarket Zhengzhou store this year.

After Pang Donglai's adjustment, Yonghui's store performance improved significantly, which became the main basis for Ye Guofu's decision to make a move.

The first-day performance of Yonghui's Zhengzhou store was 14 times that before the adjustment, and the daily customer flow was 5.3 times that before the adjustment. Self-adjusted stores in Fuzhou and Xi'an also saw significant increases in customer flow and revenue.

Ye Guofu firmly believes that "the successful adjustment of the three stores fully demonstrates that this model can be replicated nationwide".

However, compared to the nearly one thousand Yonghui Supermarket stores nationwide, whether the sample of the three adjusted stores is representative still remains questionable.

The key to replicating Pang Donglai's success lies not in learning from the service of "Haidilao in the retail industry", but in whether the backend supply chain can support the development of self-owned brands.

Different regions of Yonghui Supermarket stores may mean the non-reuse of experience, as well as completely different procurement, operation, and management challenges.

Currently, Pang Donglai has only more than 10 stores, all located in Xuchang and Xinxiang in Henan Province.

The secondary market is clearly not as optimistic as Ye Guofu.

On September 24th, Miniso's Hong Kong stock opened nearly 40% lower, closing down 23.86% at HKD 25.05 per share, hitting a new 52-week low, with a year-to-date decline of 35.96%.

In contrast, Yonghui Supermarket hit the daily limit up.

"Snake Swallowing Elephant" Transaction

For Yonghui's old shareholders, this transaction is considered a decent outcome for exiting.

Firstly, the original largest shareholder, Milk Limited, achieved an exit after investing in Yonghui for ten years. Milk Limited is a subsidiary of Hong Kong's Yihai Group, with business operations spanning real estate, shipping, retail, etc.

In 2014, Milk Limited spent 5.7 billion yuan to acquire 813 million shares of Yonghui. Although the transaction price of 2.75 yuan per share was significantly discounted from the cost price of 7 yuan per share when entering, considering the dividends over the past decade, Milk Limited ultimately achieved a break-even exit.

This transaction also allowed JD, which reduced its stake in Yonghui for the first time this year, to partially exit. After the transaction, JD still holds 2.94% of Yonghui Supermarket's shares.

As of the first half of this year, Yonghui Supermarket's total assets reached 47.525 billion yuan, while Miniso's assets were 15.713 billion yuan, only about one-third of the former This still represents a transaction full of "big fish swallowing small fish".

Miniso showed a sense of "urgency".

First of all, this transaction involves a premium. Miniso's acquisition prices for Milk Limited and JD.com's subsidiaries are both 2.35 yuan per share, which are higher than Yonghui Superstores' average prices for the 10 trading days and 20 trading days before the announcement, with premiums of 3.1% and 3.5% respectively.

The total price of 6.27 billion yuan is not a small amount for Miniso. As of the first half of this year, Miniso's cash and cash equivalents balance was 6.489 billion yuan.

Miniso's CFO stated in a conference call that the company's cash balance is close to 7 billion yuan, the interest-bearing debt ratio is 0.04%, and the balance sheet has sufficient space. It is expected to obtain 4 billion yuan in financing from external sources such as commercial banks.

After the transaction, Miniso does not control the majority of the board seats and did not acquire a controlling stake in Yonghui. Therefore, this acquisition will not be consolidated but will be accounted for using the equity method.

TradeWind01 learned from sources close to Miniso that the conditions for this transaction were based on the presence of a "strong competitor" bidding against Miniso for Yonghui, which is ten times the size of Yonghui, hence the need to quickly complete the transaction.

The source expects Miniso to appoint around 4 out of Yonghui Superstores' 9 board seats.

TradeWind01 also inquired with Miniso's relevant personnel about the consideration of not consolidating Miniso and the subsequent plans for consolidating Yonghui, but the other party did not respond.

"Copying" Pandadoc?

Regarding the reasons for choosing to acquire Yonghui Superstores, Ye Guofu stated: "We do not see a better opportunity than Yonghui."

Ye Guofu believes that the Pandadoc model is more in line with the format of the Chinese retail industry compared to Sam's Club and Costco.

"When we visit Sam's Club, we are troubled by the fact that Sam's Club's quantities are too large. The Pandadoc model is very suitable for Chinese family consumption, with some stores able to sell 400,000 in baked goods in a day."

The transformation effect of Pandadoc on Yonghui was immediate. The daily average sales in the first month after the opening of the Zhengzhou store were 14 times higher than before the transformation.

Yonghui may be a "disciple" of Pandadoc. Recently, Pandadoc announced that it will stop assisting friendly competitors by the end of October.

However, for Yonghui with nearly a thousand stores, objectively, it is also difficult for Pandadoc's assistance to expand beyond Henan.

Because the transformation is based on grafting the Pandadoc supply chain, even products that can attract traffic, such as "internet-famous" mooncakes and Jiangmi strips, have been placed on Yonghui's shelves.

An analyst from the East China region analyzed to TradeWind01 that the transformation of Yonghui's Zhengzhou store and Bubugao Changsha store mostly relies on the IP endorsement of "Pandadoc", with the support of the supply chain behind it.

"In the early stages of the transformation store opening, Pandadoc even supplied products that were not enough to sell in their own stores to Yonghui. However, Yonghui's nationwide store network supply chain is not something that Pandadoc can solve on its own, and Yonghui needs to find a solution themselves," the analyst said.

The key here may lie in whether they can create their own brand to attract traffic, thereby driving the sales of standard products In 2023, Yonghui Superstores' own brand achieved sales of 3.54 billion yuan, accounting for only 5% of revenue.

Miniso still has a say in turning "white labels" into brands. Relying on high-frequency and IP cooperation, it has sold brand premiums and become a hot target for current emotional consumption.

Relevant personnel from Miniso told TradeWind01 that snacks and daily necessities, the categories Miniso excels in, need to be further discussed and coordinated with the Yonghui team, including toys (building blocks, etc.), which are categories where Miniso has strong design and development capabilities and supply chain capabilities.

The above-mentioned company personnel stated, "Yonghui's current product gross margin is low, while Miniso excels in increasing gross margin by developing its own brands. For Yonghui, increasing gross margin by 2 percentage points will significantly boost profits."

TradeWind01 also learned from analysts that Miniso hopes to assist Yonghui in creating high-quality home brands, gradually increasing the proportion of its own brands to 20%-30% to significantly improve gross margin.

Miniso's plan bears similarities to the "replication" strategy of Pinduoduo.

However, while it may be relatively easy to boost individual store traffic and sales, replicating this success across thousands of stores is another matter.

Yonghui's revenue scale is four times that of Miniso, and the management difficulty of the supply chain is not on the same level, especially considering the large number of perishable fresh SKUs, which is not Miniso's expertise.

Nevertheless, the idealist Ye Guofu remains optimistic. Faced with the market's voting with their feet, after the conference call, Ye Guofu only posted on his social circle: "As long as the retail industry continues to innovate, there will always be great opportunities."