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In 2018, Zhang Wenzhong was released from financial misconduct charges by the Chinese Supreme Court after having previously spent more than half a century in prison. Three years later, the Chinese tycoon revived the supermarket business he founded and is set to conduct two IPOs, one in Hong Kong and the other in the United States.
For Zhang, 59, who watched the grocery chain Wumart he founded in 1994 change dramatically, his fate changed dramatically after he was convicted of fraudulent government fundraising, business-related bribery. which he tried to acquire, and the use of funds from the state. an insurance firm trading for personal gain.
Although the verdict was overturned by China’s highest court in 2018, Zhang returned from prison to a company that had been abandoned by her employees, suppliers and investors.
“This experience allowed me to really understand that life is short,” Zhang said in an interview with Bloomberg Television. “Anything can suddenly happen to you. Until then, everything will just pass. “
In the years since his release – in 2013, after serving a reduced sentence – Zhang once again made Wumart a player in China’s hyper-competitive supermarket sector.
He did this by directing Wumart stores, known as Wumei in Mandarin, towards innovation that technology giants such as Alibaba Group Holding Ltd. and JD.com Inc., pioneers in the $ 1.3 trillion grocery market in China. These include ensuring that fresh produce is delivered quickly and that shoppers can bypass the checkout counter and pay for purchases using their mobile phones.
Wumart has taken advantage of its offline supply chain to launch sub-brands selling fish and vegetables that are only sold during the day, while now it delivers 94% of Beijing’s complexes within the 5th ring road in just 30 minutes, and hypermarkets serve as execution centers.
Zhang also struggled to scale, borrowing to buy controlling interests in Chinese businesses in British home improvement chain B&Q Ltd. and the German wholesaler Metro AG.
He now wants to raise up to $ 1 billion in an IPO in Hong Kong for WM Tech Corp., a division that includes the company’s two flagship chains, Wumart with 426 stores and Metro China with 97.
WM Tech’s prospectus shows that its revenue jumped to 39.1 billion yuan ($ 6.1 billion) in 2020, up from 21.4 billion yuan in 2018, mainly thanks to the Metro acquisition. According to the documents, the Wumart network itself grew by 6.4% and 8.1% in 2019 and 2020, respectively.
In addition, Zhang also founded an e-commerce platform called Dmall Inc., which provides online retail solutions to help traditional mainstream businesses deliver their services online through the cloud and operating systems.
Dmall, backed by investors such as Tencent Holdings Ltd., IDG Capital and technology industry fund Lenovo Group Ltd., is planning a U.S. listing in the second half of this year, Bloomberg previously reported.
However, Zhang faces a tough battle to keep his business growing in China’s fragmented and competitive food industry.
According to Euromonitor International, Wumart had a 3.4% share of China’s hypermarket industry in 2020, making it the sixth largest chain. While this is an improvement from 2% in 2015, it is still well behind the 9.3% share held by Walmart Inc. in China, Yonghui Superstores Co. with 11.9% and the Alibaba-backed Sun Art Retail Group, which leads with 13.7%. Share.
And while Wumart has managed to catch up in some areas, the supermarket situation in China continues to change rapidly thanks to efforts to provide shoppers with a seamless online shopping experience based on mobile apps, especially as more consumers move away from physical retail after pandemic.
Tech giants have an edge here with their existing digital infrastructure and control over customer data. Alibaba’s Hema supermarket chain was only launched in 2015 and is already generating more revenue than Wumart, according to 2019 China Chain Store & Franchise Association data. Alibaba also controls market leader Sun Art and owns 20% of Suning.com.
Competition is also fierce because there are no clear leaders in the market: the combined market share of the top five food retailers in China is only 27%, compared with 66% in the US, 76% in the UK and 77% in France, according to Lingyi. Zhao, chief retail and e-commerce analyst at SWS Research in Beijing, quoted data from consumer research firm Kantar.
“Supermarkets have long been a low-margin business that is said to be like picking up coins from the ground,” Zhao said. “Now that tech giants are entering the battlefield, it adds a new source of pressure.”
WM Tech is heavily indebted after receiving a loan to fund its operations, which makes the timing of the IPO crucial. The liability-to-asset ratio in 2020 was 97%, compared with just over 60% for larger industry competitors such as Sun Art and Yonghui.
Liabilities rose to 40.8 billion yuan ($ 6.4 billion) due to acquisitions, while finance costs increased 33% to 760 million yuan in 2020 year-over-year, higher than WM’s net profit Tech over the same period.
Zhang says the company is keeping pace with trends in the Chinese industry and investing in new growth drivers such as “public shopping” services, in which social media groups are formed to bulk order groceries for neighbors and friends. In March, the company agreed to invest in the procurement service of public groups of Chinese car-calling giant Didi Chuxing Inc., entering an industry funded by tech companies such as Meituan and Pinduoduo Inc.
Wumart also launched live streaming of sales events last year and now usually hosts them twice a week, in conjunction with different brands.
“Today’s Wumart stores are very different from those six years ago,” Zhang said. “The world has changed. If you want to survive, you as retailers need to adapt. ”
Originally sentenced to 18 years in prison on charges of fraud, bribery and embezzlement, Zhang was released in 2013 after his sentence was reduced. He then spent years battling China’s legal system before the Supreme People’s Court overturned his conviction in 2018.
In its ruling, the court stated that private companies were eligible for public funds at the time Wumart’s application was filed, that Zhang’s company did not have an undue advantage in the acquisition, and that there was no evidence that Zhang embezzled the funds in his favor.
It remains to be seen if this story will affect his fundraising capabilities. Dmall’s U.S. listing is planned at a time when the Biden administration is increasingly focusing on Chinese business.
Building on his prison time, Zhang left an optimistic note about the challenges ahead.
“If you have a really strong heart, if you really survive such adversity, you will become stronger,” he said. “You can survive at different times of the year.”
– With the help of Dong Cao, Daniela Wei, Coco Liu and Venus Feng.
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated channel.)
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