About Sun Art Retail Group Limited
Sun Art Retail is a leading retail with hypermarket and fast-growing e-commerce businesses in China. Sun Art Retail operates its hypermarket business under two recognized banners – “Auchan” (歐尚) and “RT-Mart” (大潤發). As of 31 December 2019, Sun Art Retail had a total of 486 outlets in China with a total gross floor area (“GFA”) of approximately 13 million square meters, covering 232 cities across 29 provinces, autonomous regions and municipalities.
On 20 November 2017, Alibaba Group Holding Limited (“Alibaba Group”), Auchan Retail International S.A. (“Auchan Retail”), and Ruentex Group announced a strategic alliance that brings together online and offline expertise to explore new retail opportunities in China’s food retail sector. As part of this strategic alliance, Auchan Retail obtained an indirect stake of approximately 36.18%, and Alibaba Group invested a toal of approximately HK$22.4 billion to obtain an aggregate direct and indirect stake of approximately 36.17% in Sun Art Retail Group Limited.
The priorities of the Group are to restructure hypermarket complexes, to explore multi-formats and omni-channels, and to become a leader in digital transformation for physical stores and a benchmarking enterprise for New Retail.
Further Convergence between Two Banners under Sun Art
RT-Mart and Auchan, as brother companies under Sun Art, have already cooperated in many areas. In order to improve the effectiveness and efficiency of the operations, respond to the difficult competitive environment and better serve our customers, after a discussion by the board of directors of the Group, in December 2018, the Group has decided to converge the headquarters for both banners and establish a single joint operation headquarter. In addition, RT-Mart will assist Auchan in upgrading its IT system and the supply chain for the two banners will be integrated.
This convergence is focused on resource and business integration within the Group, the nature of the convergence is not the merger of corporate entities. Therefore, the brand and corporate identities under both the RT-Mart and Auchan banner remain unchanged.
The integration will improve the use of technology and management, together with a more efficient utilization of our overall resources, with the purpose of enhancing efficiency of the Group and ultimately benefiting its shareholders and employees.
Digitalization of Physical Stores
In March 2018, a fresh food service that offers an integrated online and offline solution to retailers to digitize their operations and raise efficiency, Tao Xian Da, the one-hour delivery project cooperated with Taobao, was rolled out in two pilot stores. Tao Xian Da is the priority initiative in the cooperation with Alibaba.
After the success of the two pilot stores of Tao Xian Da project, Tao Xian Da was rolled out apace to all stores under the RT-Mart banner and Auchan banner in the following nine months. Currently, each store offers 13,000 to 15,000 SKUs respectively through Tao Xian Da platform. Product offering mainly covers fresh products and FMCG. By the end of December 2018, daily order per store of the B2C business was 500 orders.
While accelerating the expansion of Tao Xian Da, the Group still pays great attention to the quality of service to our customers. The three key indicators related to customers' shopping experience and satisfaction was as follows: the ratio of on-time delivery within one hour remains over 99%, the ratio of mobile application ("APP") out-of-stock ("OOS") remains less than 3%, and the ratio of delivery OOS remains less than 0.1%.
Through the digitalization of physical stores, the Tao Xian Da initiative powers the physical stores by integrating membership system, payment, inventory, marketing, logistic and supply chain. Driven by technology and data, the group is able to enhance the efficiency of physical stores while acquiring a clearer customer portrait, and build a solid foundation for personalized and accurate marketing in the future.
Restructure the Hypermarket
From now on, physical stores no longer satisfy offline customers only, but will meet the requirement of online customers and B2B clients. In addition, hypermarkets can be recognized as hubs. As a result, this can improve the productivity per square meter by fully leveraging the sales space, in order to enhance the efficiency of hypermarket.
Our target is to become an expert in each category. Specialized categories are supposed to be managed by professionals, such as the collaboration with Suning. Regarding apparel and daily necessities, the offering we provide is going to possess high value for money. As a result, we have introduced white labels such as Taobao Xinxuan ("淘寶心選") and LÄTT LIV ("生活無憂"). We are going to spend more time on fresh products and FMCG, and expect to become a specialist in food retailing.
The new positioning of hypermarkets features professionalism, quality, value for money and the New Retail concept.
Three pilot stores have accomplished the initiative, of which two existing stores named Yangpu store ("楊浦店") under the RT-Mart banner and Jiaxing store ("嘉興店") under the Auchan banner and one new store named Lucheng store ("鹿城店") under the RT-Mart banner.
Development of Multi-formats and Omni-channels
Shanghai He Xiao Ma Technology Co., Ltd. ("He Xiao Ma") is a joint venture invested by the Concord Investment (China) Co., Ltd ("CIC") and Alibaba Group, to open stores mainly in lower tier markets. He Xiao Ma will deploy franchising arrangements to expand its coverage and offers fresh and FMCG products leveraging the extensive online and offline expertise of Alibaba Group and CIC. The first He Xiao Ma store was opened in early June 2018. By the end of 2018, the Group has rolled out nine He Xiao Ma stores, of which three are operated by Sun Art and six are cooperative stores. Geographically speaking, seven were located in Eastern China, one in Northeastern China and one in Southern China.
He Xiao Ma combines and leverages Alibaba's technology and traffic and the Group's supply chain and store operation expertise. Furthermore, by integrating the online and offline platform, this new prototype is also capable of acquiring online orders and providing home-delivery locating within three-kilometer radius to customers. This enhances their operational efficiency and competitiveness with local competitors.
The first Frehippo store operated by the Group was opened in Haikou, Hainan Province on 28 September 2018 with a sales area of approximately 4,000 square meters. As of 31 December 2018, online orders were approaching to 50%.
Reform of Home Appliances
On 30 June 2018, CIC and Suning.com Co., Ltd. ("Suning") reached a strategic agreement where the parties will carry out a deep ongoing cooperation in the electronic appliance section of RT-Mart stores. The collaboration with Suning includes the integration of supply chain, system and data services. With electronic appliances being a fast moving and highly competitive category, the Group can leverage Suning's expertise in the section, to rejuvenate electronic appliance business.
In August 2018, Suning commenced trading the appliance section of the RT-Mart stores, and approximately 400 RT-Mart stores were transformed within two months. Prior to the "Double 11" event, more than 70 Auchan stores have deployed the Suning model. This covers all home appliances such as black appliances, white appliances, small appliances, 3C products and kitchen and bathroom appliances. By the end of 2018, the stores have been showing a positive growth in home appliances sales after the renovation.
Relying on Suning's expertise and scale in home appliances, both parties are going to deepen this collaboration. They will further enhance the supply chain, providing diversified and precise product offering and services to different customers. This will improve productivity and sales growth are expected.
About the B2B Business
In 2017, a standalone B2B APP named "RT-Mart e Lu Fa"(大潤發e路發) was launched in March 2017. "RT-Mart e Lu Fa" (大潤發e路發) currently has about 400,000 registered users with more than 18,000 stock keeping units ("SKUs"). The B2B clients involve companies, retail, mother and baby, wholesale, entertainment, and catering. The B2B business is relying on all the mortar stores, within the compass of more than 200 cities nationwide.
At the end of August 2018, all stores under the Auchan banner have launched the B2B business. As of 31 December 2018, the revenue generated from B2B has achieved a growth of 200% compared to that of last year. Using the stores as B2B warehouses and by leveraging supply chain and procurement scale, the Group is able to deliver the products with high quality and low price to tier three cities and tier four cities, to carry a full product range and provide efficient delivery to the small mom-and-pop grocery stores and help those stores to transform and upgrade. The B2B business earned a profit while protecting its price advantage.
Since day one Sun Art Retail has been pursuing an important mission: to enable people to eat well and live better.
In front of fierce competition in China's retail market, Sun Art will focus on integration of two headquarters. Leveraging technology and data-driven, we will make efforts to develop online business and renovate and upgrade the existing stores.
Sun Art Retail has a strong and profitable business, with unique strengths and assets. Our people, stores and supply chain, combined with customer relationships and willingness to change, provide opportunities for us to win with customers continuously. As a leading New Retail company, Sun Art Retail is investing in innovation and technology to connect customers with convenience and efficiency, and offer seamless and digital experience. We have been preparing ourselves to take advantage of the opportunities presented. Sun Art Retail is creating the Retail of Tomorrow.
